FRM Part II · FRM Exam Part II · Case Study: Financial Crime and Fraud
A trading desk head has aggressive bonus targets, a history of closing out loss-making positions late in the quarter, and a middle office that relies on spreadsheets he controls to produce P&L. Staff say 'everyone shades marks a bit to protect the franchise.' Which mapping of these observations to the fraud triangle is correct?
Bonus targets are pressure, the desk head's control of unverified P&L spreadsheets is opportunity, and the belief that everyone shades marks is rationalization. Each observation matches one corner of the fraud triangle, and the other options misassign at least two elements.
- ABonus targets: opportunity; spreadsheet control: pressure; 'everyone shades marks': rationalization
- BBonus targets: pressure; spreadsheet control: opportunity; 'everyone shades marks': rationalizationCorrect
- CBonus targets: rationalization; spreadsheet control: pressure; 'everyone shades marks': opportunity
- DBonus targets: pressure; spreadsheet control: rationalization; 'everyone shades marks': opportunity
Explanation
Incentive targets create pressure to misreport. Control over the P&L spreadsheets with weak independent verification gives opportunity. The normalization of mark shading is a collective justification, so rationalization. The other mappings swap these roles.
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