Fictitious revenue

Revenue is recorded for sales that did not occur or that are with related or sham customers, through manual journal entries, fictitious invoices, or round-trip transactions.

Partly covered. The remaining analysis needs receivables data, which is planned.

Starter pack: Journal entry testing

Red flags

In the data

• Manual entries to revenue, especially at period end
• Period-end revenue spikes followed by reversals or credits
• Receivables growing faster than revenue; DSO rising
• Beneish M-Score above the cutoff

Behavioral

• Management compensation tied heavily to revenue targets
• Pressure to meet analyst, lender, or grantor expectations

Internal controls

• Senior personnel can post entries without review
• No independent review of revenue cutoff