Internal Control Deficiency or Regulatory Failure? A Triangulated Case Study of Zixin Pharmaceutical Applying the Fraud Triangle Framework

In recent years, financial fraud has become a significant issue in the corporate world, posing a serious threat to investors and market integrity. This paper applies the Fraud Triangle Theory to analyze the case of financial fraud at Zixin Pharmaceutical and briefly compares it to Kangmei Pharmaceutical to highlight common weaknesses in regulatory mechanisms. The research focuses on identifying the motivations behind Zixin Pharmaceutical’s fraudulent behavior by in-depth analyzing its internal controls, regulatory oversight, and enforcement mechanisms. The results indicate that Zixin Pharmaceutical’s management, under pressure from performance expectations and financing demands, exploited internal control weaknesses and regulatory loopholes to engage in fraudulent practices, including fictitious transactions and revenue inflation. The comparison with Kangmei Pharmaceutical further emphasizes the need to strengthen internal controls, enhance external audit quality, and strengthen regulatory enforcement to curb financial fraud effectively. This study contributes to the existing literature by providing a detailed analysis of industry-specific causes of financial fraud in the ginseng trading sector and specific recommendations for improving corporate fraud detection and regulatory prevention mechanisms. The insights gained from this research can help strengthen regulatory frameworks and corporate governance practices, ultimately fostering a more transparent and trustworthy financial market environment.