CBA Internal Controls & Compliance 3 — Questions and Answers
Question 1: Under Regulation E, a bank must investigate a consumer's claim of an unauthorized electronic fund transfer within how many business days of receiving notice?
- 5 business days
- 10 business days (Correct answer)
- 20 business days
- 45 business days
Correct answer: 10 business days
Regulation E requires banks to complete error resolution investigations within 10 business days, though a provisional credit can extend this period to 45 days.
Question 2: An internal auditor identifies that the same employee is responsible for approving vendor invoices, authorizing payments, and reconciling the accounts payable ledger. This situation BEST illustrates:
- An effective compensating control
- An incompatible duties concentration (Correct answer)
- An appropriate span of control
- A low-risk control environment
Correct answer: An incompatible duties concentration
Having one person control authorization, custody, and record-keeping functions creates an incompatible duties concentration that increases the risk of undetected fraud.
Question 3: Which of the following BEST describes a 'key risk indicator' (KRI) in the context of bank compliance?
- A metric used to measure past compliance failures
- A forward-looking metric that signals increasing risk exposure before a breach occurs (Correct answer)
- A regulatory penalty imposed after a compliance failure
- A checklist used during annual compliance audits
Correct answer: A forward-looking metric that signals increasing risk exposure before a breach occurs
KRIs are prospective metrics that alert management when risk levels are rising, enabling proactive intervention before a compliance breach materializes.
Question 4: The Community Reinvestment Act (CRA) requires banks to:
- Maintain a minimum loan-to-deposit ratio of 75%
- Meet the credit needs of all communities they serve, including low- and moderate-income areas (Correct answer)
- Restrict lending to geographic areas where deposits are held
- File quarterly reports on loan concentrations with the OCC
Correct answer: Meet the credit needs of all communities they serve, including low- and moderate-income areas
CRA requires banks to affirmatively help meet the credit needs of their entire communities, with particular attention to low- and moderate-income neighborhoods.
Question 5: When auditing a bank's loan review function, an auditor should PRIMARILY assess:
- Whether loan officers have met their production targets
- The accuracy of credit risk ratings and adequacy of the allowance for loan losses (Correct answer)
- The bank's marketing strategy for new loan products
- Compliance with the bank's dress code policy
Correct answer: The accuracy of credit risk ratings and adequacy of the allowance for loan losses
A loan review audit focuses on evaluating the integrity of the risk rating system and whether the allowance for loan losses (ALLL/ACL) is adequate and properly calculated.
Question 6: Which federal regulation governs the disclosure of terms and conditions for consumer deposit accounts, including fees and interest rates?
- Regulation B
- Regulation DD (Correct answer)
- Regulation Z
- Regulation CC
Correct answer: Regulation DD
Regulation DD implements the Truth in Savings Act and requires clear disclosure of deposit account terms, including interest rates, fees, and conditions.
Question 7: A bank's compliance management system (CMS) is MOST effective when it includes:
- Only reactive measures that address violations after they are discovered
- Board and management oversight, compliance program, response to consumer complaints, and compliance audit (Correct answer)
- Annual self-assessments conducted solely by branch managers
- Outsourcing all compliance functions to a third-party provider
Correct answer: Board and management oversight, compliance program, response to consumer complaints, and compliance audit
An effective CMS per regulatory guidance includes board/management oversight, a robust compliance program, a complaint management process, and independent compliance audits.
CBA Internal Controls & Compliance 3
Under Regulation E, a bank must investigate a consumer's claim of an unauthorized electronic fund transfer within how many business days of receiving notice?