Question Details

 PART 2 Research has shown that the relationship between eye contact and deception 

21. In computing income under the net worth method, the following facts are found:

	Total assets					$1,600,000
	Total liabilities					     825,000
	Nondeductible expenses			     120,000
	Net worth at beginning of year			     560,000


	Adjusted gross income is:
a.	$170,000
b.	  215,000
c.	 290,000
d.	 335,000
e.	None of the above.

22. Which of the following is a step in locating offshore assets?
	a. determine if a subject traveled overseas
	b. locate the subject- travel agency
	c. identify the means employed to move cash offshore
	d. all of the above
	e. none of the above

23. Which of the following are specialized bank accounts, in connection with wire transfer services, 	that invite misuse by sophisticated and professional money launderers?
	a. basic checking accounts
	b. threshold accounts
	c. cupo accounts
	d. b and c
	e. none of the above

24. The government can seize property under the following methods except?
	a. initiating a forfeiture procedure under the Federal Rules of Criminal Procedure
	b. beginning a summary or administrative procedure under federal customs law
	c. seizing the property if it is in the possession of a known felon
	d. none of the above

25. The most difficult aspect in the pursuit of hidden assets is
	a. asset recovery
	b. tracing
	c. securing cooperation of foreign governments
	d. b and c
	e. none of the above

26. One important initial goal in asset tracing for the professional is
	a. to establish a cooperative relationship with the foreign government involved
	b. to attach any assets hidden offshore
	c. to establish some paper trail that evidences communication, either initially or ongoing, with the 	holder of the assets
	d. a and b
	e. none of the above

27. One method of identifying the foreign holder of assets is
	a. by checking a person- Rolodex and/or calendar
	b. by checking with U.S. Customs
	c. by checking passport stamps
	d. by examining travel documents and not necessarily just the passport
	e. none of the above

28. The proceeding in criminal forfeiture is
	a. against a person being charged with a crime (in personam)
	b. against an item of property being charged with a crime (in rem)
	c. neither in personam nor in rem
	d. such that no property is forfeited unless it is proved by a preponderance of the evidence that the property was involved in the crime

29. In civil forfeiture, once probable cause is established, the burden of proof
	a. shifts to the property owner to show beyond a reasonable doubt that the property is not related 	to the crime
	b. shifts to the property owner to show by a preponderance of the evidence that the property is not 	related to the crime
	c. belongs to the government to show beyond a reasonable doubt that the property is implicated in 	the crime
	d. belongs to the government by a preponderance of the evidence that the property is implicated 	in the crime
	e. none of the above

30. Which of the following statements is true?
	a. it matters whether the owner of property was involved in the crime for purposes of civil forfeiture
	b. the owner does not even have to be accused or even suspected of involvement in the criminal 	activity for his property to be forfeited
	c. it matters whether the owner of property was even aware that criminal activity was taking place
	d. even if the owner can prove the object- innocence, the government still has a right to the 	property that relates back to the time of its illegal use
	e. none of the above

31. Fraudsters and other criminals place as much importance and invest as much time, money, and effort into the manner in which their property is laundered and then used as they do in the crimes that generate the property because:
	a. they must achieve a disconnect between themselves and the proceeds of their crime
	b. they must achieve a disconnect between the proceeds of the crime and the form in which they derive their benefits
	c. a and b
	d. none of the above

32. A critical element in the formation of a shell company to be used for illicit purposes is
	a. the use of an LLC so bearer shares may be employed for ownership purposes
	b. the use of a nominee to hide the identity of the true beneficial owner(s) 
	c. the lack of transparency regarding ownership
	d. none of the above

33. Which of the following is not a method used to move funds offshore?
	a. wire transfers
	b. professional intermediaries
	c. personal checks
	d. all of the above
	e. none of the above

34. The difference between an offshore bank and a shell bank is that:
a.  the shell bank has a physical presence in the country in which it is licensed whereas the offshore bank does not
b.  the offshore bank specifically cannot carry on business in the jurisdiction in which it is licensed whereas such restrictions do not specifically affect shell banks
c.  only shell banks use correspondent services
d.  U.S. banks have more access to client account information in a shell bank than in an offshore bank
e.  none of the above 

35.  Various ways to obscure ownership and activity of an LLC are
	a.  ownership by one or more other business entities (e.g., a trust)
	b.  creation of layers of ownership
	c.  formation of an LLC serving as a member or manager of another LLC in a jurisdiction offering little transparency
	d.  a and b
     e.  a, b, and c

36.  Creditors are not limited to asking questions or requesting documents from the debtor.  Thgey can also subpoena records and there is little the debtor can do to stop these attempts.  Many times the most valuable source of information for a creditor is
	a.  bank account statements
	b.  telephone records unless a prepaid calling card has been used
	c.  depositions of the debtor and his/her accountant
	d.  written interrogatories sent to the debtor
	e.  none of the above

37.  The purpose of money laundering is to:
a.  take illegitimate funds and make them look like they were earned from legitimate business activities
	b.  purposefully transfer restricted grant monies into discretionary accounts through confutation
	c.  secretly take suitcases full of money from one country to another
	d.  only a and b

all are correct only 

Questions 38 through 42 are based on the following information:

Stanley Moose
Computation of Unreported Taxable income

Assets	12-31-02	12-31-03	12-31-04	12-31-05
Cash on hand	 1,000.00	 1,000.00	 1,000.00	 1,000.00
Cash in banks	15,000.00	15,000.00	15,000.00	15,000.00
Checking accts	 2,556.79	         167.56	        356.06	     264.57
Bonds	91,897.58	  122,770.04	 123,001.00	132,601.17
Stocks & Notes receivable	 2,983.72	      1,983.72	        983.72	  13,487.50
Real Estate	10,386.92	    10,386.92	  10,386.92	  61,886.92
Business Equip.	       5,700.00	      5,700.00	    5,700.00	    5,700.00
Autos	10,428.49	      5,950.00	    7,854.70	    9,554.70
Total Assets	   139,953.50	  162,958.24	 164,282.40	239,494.86
				
Liabilities				
Mortgages & Loans Payable	  402.88	     49.93	-0-	22,260.00
Taxes Payable	7,059.11	   5,105.90	     4,089.00	 6,040.85
Total Liabilities	7,461.99	   5,155.83	     4,089.00	28,300.85
Net Worth	  132,491.51	157,802.41	 160,193.40	211,194.01

							
										    03                      04                  05
Beginning Net Worth					        132,491.51	 157,802.41	 160,193.40

Stanley Moose’ living expenses were 12,646.61, 22,303.34, and 16,283.63 in 2003, 2004, and 2005, respectively.  His tax deductions were 2,394.66, 2,461.99, and 3,738.75 for 2003, 2004, and 2005, respectively.  His income tax exemptions were 2400, 2400, and 2400 for 2003, 2004, and 2005, respectively.  Mr. Moose’ reported taxable incomes were 7,527.33, 18,765.49, and 9,610.33 for 2003, 2004, and 2005, respectively.

38. Stanley Moose’ corrected taxable income for 2003 per the net worth method is
	a. $33,162.85
	b. $ 7,851.95
	c.  $ 7,527.33
	d. none of the above

39. Stanley Moose’ unreported taxable income for 2003 is
	a. $ -0-
	b. $324.62
	c. $25,635.52
	D. It cannot be determined

40. Stanley Moose’ unreported taxable income for 2005 is
	a. $61,145.49
	b. $51,000.61
	c. It cannot be determined
	d. $51,535.16
41. Stanley Moose’ unreported taxable income for 2004 is
	a. $2,390.99
	b. $18,765.49
	c. -0-
	d. It cannot be determined
	e. None of the above

42. Stanley Moose’ change in net worth for 2005 is
	a. $2,390.00
	b. $51,000.61
	c. $75,212.46
	d. None of the above

	


Part II.  Please analyze the fact pattern below and complete the required work.  


1.  Bardwell is a privately owned incorporated business that operates a garage which repairs and services motor vehicles.  Most customers are required to pay cash or check on collecting their vehicle.  Credit accounts are available to business customers.  These customers sign the invoice on collection of the vehicle and their business is billed monthly.  Separate series of prenumbered invoices are drawn up by the foreman for cash sales and for credit sales.  All customer accounts are maintained by the receptionist.  His duties include the following:

Cash Sales

--Collect cash or checks from customers on collecting their vehicle
--At the end of the day, check the numerical sequence of cash sale invoices, add the sales total and agree the total to the amount of cash and checks received
--Record the total cash sales in the cash receipts book

Credit Sales

--Obtain the customer- signature on the invoice copy of business account customers
--Enter the invoices in numerical sequence in the sales journal and post the customer- account in the A/R ledger
--Send monthly statements to credit account customers and follow up overdue accounts
--List the balances on the A/R ledger at the end of the month and reconcile the total with the control account in the G/L

Cash Receipts

--Open the mail, extract checks from credit account customers, record them in the case receipts book, and post the A/R ledger
--Make up the day- banking cash and checks from both cash and credit sales, prepare the deposit slip and bank the cash and checks

All other accounting duties are the responsibility of two further accounts clerks and all are subject to supervision by the garage manager.  

Required:

As a member of the audit staff of the company- external auditors, you visit the garage and make a count of cash on hand.  You subsequently compare details of unbanked cash receipts that you counted with the entry in the cash receipts book for that date.  Although the total in the cash receipts book is the same, the amount of banknotes and coins is less and there is a check from a business customer that you did not record.

(1)	Explain the procedures to be followed in making a cash count for audit purposes.


(2)	Explain the irregularity that the discrepancy between cash count and cash receipts book might lead you to suspect, and describe how you would investigate the discrepancy.