Multiple Choice
Which one of the following actions by a financial manager is most likely to create an agency problem?
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6. Internal Controls and Reporting Cash
Fraud and the Fraud Triangle
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Which of the following is an example of fraud?
A
An employee intentionally falsifies expense reports to receive reimbursement for personal expenses.
B
A cashier gives incorrect change to a customer by accident.
C
A manager forgets to approve a purchase order due to oversight.
D
A company makes an honest mistake in recording inventory quantities.
Verified step by step guidance1
Understand the definition of fraud: Fraud involves intentional deception or misrepresentation made by an individual or entity for personal or financial gain.
Analyze each option provided in the problem to determine whether the action described involves intentional deception or misrepresentation.
Option 1: 'An employee intentionally falsifies expense reports to receive reimbursement for personal expenses.' This involves intentional deception, as the employee knowingly falsifies information for personal gain. This is an example of fraud.
Option 2: 'A cashier gives incorrect change to a customer by accident.' This is an unintentional error and does not involve deliberate deception, so it is not fraud.
Option 3: 'A manager forgets to approve a purchase order due to oversight.' This is a mistake due to negligence or oversight, not intentional deception, so it is not fraud. Option 4: 'A company makes an honest mistake in recording inventory quantities.' This is an error without intent to deceive, so it is not fraud.
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