FLARE-AI: Flaw Reporting for AI

Practitioners have reported a directional pattern in AI-assisted code generation: AI-generated code tends to fail quietly, preserving the appearance of functionality while degrading or concealing guarantees. This paper introduces the Reward-Shaped Failure Hypothesis - the proposal that this pattern may reflect an artifact of optimization through human feedback rather than a random distribution of bugs. We define failure truthfulness as the property that a system's observable outputs accurately represent its internal success or failure state. We then present AIRA (AI-Induced Risk Audit), a deterministic 15-check inspection framework designed to detect failure-untruthful patterns in code. We report results from three studies: (1) an anonymized enterprise environment audit, (2) a balanced 600-file public corpus pilot, and (3) a strict matched-control replication comparing 955 AI-attributed files against 955 human-control files. In the final replication, AI-attributed files show 0.435 high-severity findings per file versus 0.242 in human controls (1.80x). The effect is consistent across JavaScript, Python, and TypeScript, with strongest concentration in exception-handling-related patterns. These findings are consistent with a directional skew toward fail-soft behavior in AI-assisted code. AIRA is designed for governance, compliance, and safety-critical systems where fail-closed behavior is required.

AI systems can fail silently. The failure propagates through training loops, evaluation pipelines, and production monitoring stacks until downstream harm makes it visible. This paper introduces evaluation blindness: a measurement function M exhibits evaluation blindness with respect to failure class F when it produces readings indistinguishable from a healthy state while the system is actually failing, with no auxiliary signal flagging the gap. The problem surfaces at two lifecycle stages the literature has treated separately. At training time, reward models are gamed, importance-sampling corrections are silently miscalculated, and benchmark contamination inflates fine-tuning evaluations, all while loss curves look healthy and gradient updates proceed normally. At deployment time, monitoring fails to catch six classes of production failure, including an Operational category that is 100% silent by structural definition. We provide a formal detectability predicate unifying both stages. Four training-time case studies trace concrete breakdowns, including a real implementation bug in TRL PR #6594 where gradients are corrupted as loss decreases normally. A six-class taxonomy validated against 50 real-world incidents from court documents and regulatory filings finds that 53% of verifiable public failures were silent. A failure budget framework ties acceptable failure rates to use-case risk class. The implication is direct: measurement infrastructure is a correctness concern across the full AI lifecycle, not just at evaluation time. Data, code, and taxonomy schema are at https://github.com/priyanka25aug/llm-failure-taxonomy.

Frontier AI companies first deploy their most advanced models internally, for weeks or months of safety testing, evaluation, and iteration, before a possible public release. For example, Anthropic recently developed a new class of model with advanced cyberoffense-relevant capabilities, Mythos Preview, which was available internally for at least six weeks before it was publicly announced. This internal use creates risks that external deployment frameworks may fail to address. Legal frameworks, notably California's Transparency in Frontier Artificial Intelligence Act (SB 53), New York's Responsible AI Safety And Education (RAISE) Act, and the EU's General-Purpose AI Code of Practice, all discuss risks from internal AI use. They require frontier developers to make and implement plans for how to manage risks from internal use, and to produce internal use risk reports describing their safeguards and any residual risks. This guide provides a harmonized standard for companies to produce internal use risk reports suitable for all three regulatory frameworks. It is addressed primarily to evaluation and safety teams at frontier AI developers, and secondarily to regulators and auditors seeking to understand what good reporting looks like. Given the pace of AI R&D automation and the limited external visibility into how companies use their most capable models internally, regular and detailed risk reporting may be one of the few mechanisms available to ensure that the risks from internal AI use are identified and managed before they materialize. Whenever a substantially more capable or riskier model is deployed internally, the developer should create a risk report and argue why the model is safe to deploy. We structure the reporting framework around two threat vectors -- autonomous AI misbehavior and insider threats -- and three risk factors for each: means, motive, and opportunity.