Page 11 - CIMA SCS Workbook November 2018 - Day 2 Suggested Solutions

CIMA NOVEMBER 2018 – STRATEGIC CASE STUDY

CHAPTER NINE

EXERCISE 1

Briefing paper

To: Randal Edwards
From: Senior manager
Subject: Fraud

Why fraud happens

There are three pre-requisites for fraud to take place, dishonesty, opportunity and motive. I will
review each of these in turn.

Dishonesty is a simple one - do we think that people that work for Novak are likely to behave in a
way that is not truthful or fair to others? Given that our mission at Novak is very much focussed
on helping society and we have some very clear values you would hope that we have a fairly
honest workforce who are passionate about Novak achieving our mission. Despite the strong
culture that appears to be in Novak some of our employees may be able to justify fraudulent
actions as necessary because they believe they are helping society through encouraging people to
use our medication.

Opportunity really refers to how robust Novak’s internal controls and procedures are. Do we
believe that there is a high likelihood that someone could breach our controls or do we believe
that our controls are insufficient to deal with the risks we face? Given the lack of mention of fraud
in our recent annual report, there may be some concern that we are complacent about the
potential for fraud to occur.

Motive refers to whether the staff at Novak will feel it is worth taking a risk to commit fraud to
enhance their personal goals at the expense of Novak’s. The compensation Novak employees
receive and their commitment to the Novak cause will have an impact on the likelihood for motive
to exist within Novak. Compensating our employees appropriately for the work they do and
making sure Novak is considered a good place to work will reduce the likelihood of fraud.

How to spot fraud

Internal controls

The risk of fraud can be reduced by internal controls, but also any fraud that takes place may well
be identified by reviewing the various monitoring activities of an organisation. For example at
Novak, and with regard the activities that took place at PosterRend it would be important to
review expense claims and activities by our sales representatives. Any unusually large expense
items would be reviewed as part of a regular check and then if anything was out of the ordinary
further investigation could be carried out.

72 KAPLAN PUBLISHING