Corporate Scandals and Lessons: Governance Failures, Ethical Lapses and Preventive Measures (Case Overview) Questions

Question 1

Define corporate scandal.

Accepted Answer

A **corporate scandal** is a serious event where unethical/illegal conduct by a company or its leaders causes major stakeholder harm and loss of trust (concept).

Question 2

Weak internal controls can contribute to corporate scandals. (True/False)

Accepted Answer

True. Weak **internal controls** create opportunity for fraud and cover-ups, leading to scandals (concept).

Question 3

Write one red flag of possible financial fraud.

Accepted Answer

Unusually consistent profits despite industry decline can be a **red flag** of earnings manipulation (any one) (overview).

Question 4

Fraud triangle includes pressure, opportunity and rationalization. (True/False)

Accepted Answer

True. The **fraud triangle** explains why fraud occurs: pressure, opportunity and rationalization (overview).

Question 5

State one lesson learnt from corporate scandals.

Accepted Answer

A key lesson is that strong **governance**, **controls**, and ethical culture protect stakeholder trust and reduce risk (any one) (concept).

Question 6

Whistleblowing can help detect misconduct early. (True/False)

Accepted Answer

True. **Whistleblowing** channels support early detection of misconduct if employees are protected from retaliation (concept).

Question 7

List any three common governance failures behind corporate scandals (exam points).

Accepted Answer

Any three governance failures (concept):

- weak board oversight and ineffective independent directors
- weak **internal controls** and poor segregation of duties
- poor disclosure quality / manipulation of reports
- unmanaged conflicts of interest and weak RPT controls
- ineffective audit committee and weak follow-up (overview)

Write any three points.

Question 8

Write any three red flags/early warning signals of a possible corporate scandal (use a table).

Accepted Answer

Any three red flags (overview):

| Red flag | Why it matters (concept) |
|---|---|
| unusually consistent profits | may indicate manipulation |
| complex RPTs/opaque structures | conflicts and concealment risk |
| frequent auditor changes | may signal reporting issues |
| control overrides/missing approvals | weak control environment |

Write any three.

Question 9

Explain the fraud triangle and relate it to corporate scandals (use a simple flowchart).

Accepted Answer

The **fraud triangle** states fraud occurs when there is **pressure**, **opportunity**, and **rationalization** (overview).

In scandals, pressure (targets), opportunity (weak controls), and rationalization ("everyone does it") combine to enable misconduct.

Flowchart:

```text
Pressure + Opportunity + Rationalization -> Misconduct -> Cover-up -> Discovery -> Scandal
```

Question 10

Role failures in scandals: board, management and auditors (any three points) using a table.

Accepted Answer

Role failures (concept):

| Actor | Expected role | Common failure |
|---|---|---|
| **Board** | oversight | rubber-stamping; weak challenge |
| **Management** | ethical leadership | manipulation and concealment |
| Auditors | independent assurance | weak skepticism; missed red flags |
| Internal audit | monitoring controls | lack of independence/resources |

Write any three.

Question 11

List any three preventive controls to reduce the risk of corporate scandals (use a table).

Accepted Answer

Any three preventive controls (concept):

| Control | How it prevents scandals (concept) |
|---|---|
| **Segregation of duties** | reduces opportunity for fraud |
| Approval & audit trails | prevents unauthorized transactions |
| **Internal audit** & periodic testing | detects control weaknesses early |
| RPT approval process | reduces conflict-of-interest risk |

Write any three controls.

Question 12

Explain preventive measures to avoid corporate scandals (controls + governance + culture) with a table.

Accepted Answer

### Preventive measures (concept)
Scandals can be prevented by combining **controls**, **governance**, and **ethical culture**.

| Area | Measures (concept) |
|---|---|
| **Controls** | segregation of duties, approvals, audits, monitoring |
| **Governance** | independent board, active audit committee, RPT oversight |
| Culture | tone at the top, ethics training, safe whistleblowing |

Conclusion: Strong systems + ethical leadership reduce opportunity and deter misconduct (concept).

Question 13

Write an exam-style case analysis template for a corporate scandal (5-mark format) and add a flowchart.

Accepted Answer

### Case analysis template (concept)
- **Issue/Problem**: what unethical/illegal act occurred?
- **Stakeholders affected**: customers, employees, shareholders, society
- **Governance failures**: board/audit oversight, controls, disclosures
- **Red flags**: early warning signals
- **Corrective actions**: investigation, discipline, control improvements
- **Lessons learned**: transparency, accountability, ethics

Flowchart:

```text
Issue -> Stakeholders -> Failures/Red flags -> Actions -> Lessons
```

Question 14

Discuss key lessons from corporate scandals and recommend governance reforms (exam-style) using a table.

Accepted Answer

### Lessons and reforms (concept)

| Lesson from scandals | Governance reform (concept) |
|---|---|
| weak oversight enables misconduct | strengthen board independence & audit committee |
| weak controls create opportunity | improve internal controls + segregation of duties |
| poor disclosure misleads investors | timely and transparent disclosures |
| retaliation silences reporting | safe whistleblowing + protection |

Conclusion: Reforms must address both systems and culture to prevent recurrence (concept).

Question 15

Explain how a strong audit committee can help prevent corporate scandals (exam-style) with a table.

Accepted Answer

### Audit committee contribution (concept)
A strong audit committee improves reporting quality and reduces fraud opportunity.

| Area | How it helps (concept) |
|---|---|
| Financial reporting | reviews statements and accounting judgments |
| Internal controls | identifies weaknesses and ensures fixes |
| Internal audit | reviews findings and corrective actions |
| External audit | ensures independence and quality audits |
| Whistleblowing | oversees reporting of financial misconduct |

Conclusion: Active oversight + follow-up reduces the chance of large-scale misstatements and cover-ups (concept).

Corporate Scandals and Lessons: Governance Failures, Ethical Lapses and Preventive Measures (Case Overview)

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