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FRM Part II · FRM Exam Part II · Case Study: Financial Crime and Fraud

A risk team reviews three fraud cases at a bank. In each, a senior manager with long tenure overrode controls, and investigators noted that the control framework looked sound on paper but junior staff felt unable to challenge the manager. A risk officer proposes concluding that the fraud triangle's opportunity element was absent because controls were well designed. Which critique is most valid?

The officer's conclusion is flawed because opportunity reflects whether controls actually work, not merely how they are designed. Management override and a culture where staff cannot challenge senior people leave ample opportunity for fraud, even when the written control framework appears sound.

  1. AOpportunity includes management override and weak culture, so well-designed controls that are not effectively operated still leave opportunity presentCorrect
  2. BOpportunity requires the absence of any written controls, so the officer is correct
  3. COpportunity is determined solely by external audit findings, which were clean
  4. DOpportunity is irrelevant for senior staff because only pressure drives their behavior

Explanation

Opportunity depends on controls operating effectively in practice. Management override and a culture that discourages challenge create opportunity despite sound design. The other options misdefine opportunity.

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