Which of the following is a common red flag of fraud in accounting?

• A. Shell vendors, round-dollar transactions, related-party transactions, missing supporting documents, and frequent period-end adjustments
• B. Regular, timely reporting
• C. High-quality external audits
• D. No unusual activity

Answer: (A)

Red flags of fraud in accounting are indicators that controls may be weak or that someone is manipulating records. Shell vendors signal fake or hollow suppliers used to divert funds; round-dollar transactions stand out because they often result from manual adjustments rather than genuine business activity. Related-party transactions can conceal self‑dealing or conflicts of interest, missing supporting documents show a lack of verifiable evidence, and frequent period-end adjustments suggest attempts to mask errors or distort results to meet targets.

By contrast, regular, timely reporting, high-quality external audits, and no unusual activity point to proper governance and strong controls, not to fraud cues.