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ACCA Strategic Professional · Strategic Business Leader · Management and internal control systems

Dalmore Retail's board is reviewing its approach to controls. Management proposes a compliance-based approach to preventing fraud, with detailed rules and strict monitoring. A non-executive argues that this alone will fail, as staff will look for loopholes and compliance may crowd out judgement. Which proposal best addresses the non-executive's concern?

Complementing the rules with an integrity-based approach best addresses the concern. Shared values, ethical tone from the top and training encourage staff to act properly even where no rule applies. More rules would simply invite further loophole hunting, and external auditors do not own the control environment.

  1. AComplement rules with an integrity-based approach built on shared values, ethical leadership and trainingCorrect
  2. BAdd further detailed rules for each identified loophole
  3. CMove all monitoring to the external auditors
  4. DRemove the whistleblowing policy to reduce reporting noise

Explanation

Compliance approaches rely on rules and enforcement, and can encourage minimal compliance. An integrity-based approach embeds values and judgement, so it addresses the concern. More rules repeats the weakness, and removing whistleblowing weakens control.

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