FRM Part II · FRM Exam Part II · Case Study: Financial Crime and Fraud
Following a major fraud, investigators found that staff who noticed irregularities did not report them because earlier whistleblowers had been sidelined and the board received only summarized, favorable control reports. Which lesson about risk culture does this best illustrate?
The case shows that effective governance needs protected escalation channels and unfiltered information reaching the board. When whistleblowers are sidelined and reports are sanitized, warning signs are suppressed and fraud persists, so culture and reporting lines must support challenge.
- AEffective governance requires protected escalation channels and unfiltered information reaching the boardCorrect
- BFraud risk is best managed by raising insurance coverage
- CWhistleblowing programs should be limited to external auditors
- DRisk reporting should be consolidated into a single annual summary
Explanation
The facts show suppressed speaking-up and filtered board information, both cultural and governance failings. The remedy is protected escalation and direct, unfiltered reporting lines. Insurance transfers loss but does not fix culture; limiting whistleblowing or reporting frequency would worsen the problem.
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