You are Nur Diana, an ICAEW Chartered Accountant employed by Cekal Bank Bhd. (CBB) in its lending department. CBB is a commercial and retail bank based in Kuala Lumpur. It is October 2020. The internal audit of the lending department has uncovered the non-compliance to the CBB's policies of some of the credit decisions made by Chris Bao. Chris Bao who has recently retired from CBB was one of the most senior loan officers. A summary of the internal audit findings is in theExhibit 4.1.

Exhibit 4.1: Summary of internal audit findings

Chris Bao, a senior loans officer, frequently approved loan applications without performing appropriate rigorous analysis. In many cases this involved approving loans not meeting the criteria in CBB's credit approval guidelines and on occasions involved decisions contrary to recommendations of credit analysts within the lending department.

We have identified that these events mainly occurred in relation to clients with whom Chris had very long-standing relationships developed during his 30-year career at the bank. Many of these relationships had also become personal as well as professional.

In addition, we have determined that this situation persisted for some time despite the concerns of many colleagues. These concerns were not raised by Chris's colleagues due to fear of reprisal and negative career impact given his role as the second most senior individual in the lending department. This issue was somewhat exacerbated by Chris's rather robust management style whereby he made it clear to those who worked for him that he did not expect to have his decisions questioned and was on occasion abusive to those he perceived as challenging his authority.

REQUIREMENT

Identify the ethical weaknesses that could contribute to inappropriate lending decisions being made. Suggest and explain control procedures and ethical safeguards that could be implemented to prevent the recurrence of this situation.

(Total: 10 marks)