Red Flag & Anomaly Detection Flashcards
7 cards from real CFA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Red Flag & Anomaly Detection flashcards as text
Which ratio anomaly most directly signals potential revenue fraud when revenue is increasing but cash flow from operations is declining?
Answer: Earnings quality ratio divergence
A divergence between reported earnings and operating cash flow (earnings quality ratio) is a key indicator of potential revenue manipulation.
During a procurement review, an auditor finds multiple vendors with sequential invoice numbers and similar amounts. This pattern suggests:
Answer: Shell company or fictitious vendor scheme
Sequential invoice numbers and similar amounts from multiple vendors indicate a shell company scheme where invoices are fabricated.
An employee's lifestyle appears significantly beyond their known salary, including expensive cars and vacations. Under the fraud triangle, this relates to which element?
Answer: Pressure or incentive
Living beyond one's means is a behavioral red flag associated with financial pressure or incentive, one of the three fraud triangle elements.
A whistleblower hotline report alleges that a manager approves her own expense reports. Which control weakness does this highlight?
Answer: Absence of segregation of duties
Allowing a manager to approve her own expense reports violates segregation of duties, a fundamental internal control.
In a payroll fraud investigation, ghost employees are most likely to be identified by comparing:
Answer: HR records to payroll records for matching employees
Ghost employees appear on payroll but not in HR records; comparing the two lists reveals names that exist only in payroll.
Which of the following is the strongest red flag of a Ponzi scheme during due diligence?
Answer: Consistent above-market returns with no losing periods
Consistently above-market returns with no losing periods are a hallmark red flag of Ponzi schemes, as legitimate investments experience volatility.
An auditor reviews credit card statements and finds numerous charges at the same restaurant, each just under $25, submitted by the same employee on different days. This pattern suggests:
Answer: Expense report fraud through splitting charges
Repeatedly splitting charges to stay below a reimbursement threshold is a red flag for expense reimbursement fraud.