FRM Part II · FRM Exam Part II · Case Study: Financial Crime and Fraud
A bank's internal audit reviews a fraud in which a long-serving payments officer, under no financial strain and with no weak control to exploit beyond normal access, nonetheless defrauded the bank after being passed over for promotion. He had unique technical knowledge of the payment system and the confidence to manipulate staff. Which framework extension best explains why the three-element fraud triangle is incomplete here?
The fraud diamond best explains it, because it adds capability, meaning the knowledge, position and confidence to carry out and conceal fraud. The officer's unique system expertise is exactly that element. Event taxonomies and the three lines model classify or allocate, not explain, fraud drivers.
- AThe fraud diamond, which adds the perpetrator's capability to the triangleCorrect
- BThe fraud pentagon's element of competition only, replacing pressure
- CThe Basel event-type taxonomy, which classifies internal fraud
- DThe three lines model, which assigns control ownership
Explanation
The fraud diamond adds capability: the personal traits, position, knowledge and confidence needed to commit and conceal fraud. The case stresses his unique technical knowledge and confidence, which the triangle does not capture. The Basel taxonomy and three lines model classify events and responsibilities rather than explain drivers. A competition-only replacement of pressure ignores the capability emphasis.
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