What is a common sign of a fictitious revenue scheme?

What is a common sign of a fictitious revenue scheme?

• A. High levels of account receivables
• B. Consistent inventory levels
• C. Excessive account payables
• D. Frequent reconciliations

Answer: (A)

A common sign of a fictitious revenue scheme is high levels of account receivables. In such schemes, fraudsters often create fake sales to inflate the company’s revenues, which results in accounts receivable that do not correspond to actual cash that the company can expect to collect. This manipulation typically shows up as unexplained growth in account receivables, indicating that sales may exist only on paper and not in actual transaction activity or payments received from customers. The presence of high receivables suggests that the business is recognizing revenue without the corresponding cash inflow, which raises concerns about the legitimacy of those transactions and can signal potential fraudulent activities.

A common sign of a fictitious revenue scheme is high levels of account receivables. In such schemes, fraudsters often create fake sales to inflate the company’s revenues, which results in accounts receivable that do not correspond to actual cash that the company can expect to collect. This manipulation typically shows up as unexplained growth in account receivables, indicating that sales may exist only on paper and not in actual transaction activity or payments received from customers.

The presence of high receivables suggests that the business is recognizing revenue without the corresponding cash inflow, which raises concerns about the legitimacy of those transactions and can signal potential fraudulent activities.