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 of the following transaction anomalies would most likely indicate a lapping scheme in accounts receivable?
Answer: Customer payments applied to different customer accounts than expected
In a lapping scheme, an employee steals a customer payment and covers it by applying a subsequent customer's payment to the first account, creating misapplied credits.
A manufacturing company's scrap and waste expenses have tripled while production volume remained constant. This is a red flag for:
Answer: Inventory theft or falsified scrap reports
Disproportionate increases in scrap expenses without a change in production volume may indicate inventory theft disguised as waste.
Which data analytics procedure would best detect duplicate vendor payments?
Answer: Matching invoice numbers, amounts, and vendor IDs across payment records
Matching invoice numbers, amounts, and vendor IDs across payment records directly identifies duplicate payments made to the same vendor.
A company's bad debt expense is unusually low compared to industry peers despite a deteriorating economy. This may indicate:
Answer: Understated receivables or concealed write-offs to inflate earnings
Abnormally low bad debt expense during economic downturns may signal that management is underreporting uncollectible accounts to inflate net income.
Which of the following is a red flag specific to healthcare fraud schemes?
Answer: Billing for services on dates when patients were deceased or out of the country
Billing for services to deceased patients or on dates they were out of the country is a classic red flag for healthcare billing fraud.
During an investigation, an auditor finds that a purchasing manager received several expensive gifts from a vendor who was awarded large contracts. This is a red flag for:
Answer: Bribery and corruption scheme
Gifts from vendors to procurement officials who award contracts are a classic red flag for bribery and corruption.
An accounts payable clerk creates new vendors in the system and then processes payments to those vendors. Which fraud scheme is most likely occurring?
Answer: Shell company vendor fraud
When one employee can both create vendors and process payments, the opportunity exists to create fictitious shell companies and divert company funds.