Which factor can lead to an environment that allows fraud to thrive?

The option referring to reactive management decisions highlights a significant factor that can create an environment conducive to fraud. When management is primarily reactive rather than proactive, they often respond to issues only after they occur rather than establishing preventative measures to deter fraudulent activities from happening in the first place. This can create a culture of complacency, where employees may feel emboldened to engage in unethical behavior because they believe there are no effective controls in place or that their actions will go unnoticed until it is too late.

In contrast, strong internal controls, clear communication of policies, and regular audits are all strategies designed to minimize the risk of fraud. Strong internal controls provide a systematic framework for checks and balances, while clear communication of policies ensures that employees understand the rules and ethical expectations of the organization, and regular audits serve as critical oversight mechanisms to detect and deter fraud before it escalates. Therefore, the absence of such proactive measures, particularly in management decision-making, can significantly increase vulnerability to fraudulent activities.