CVA Regulatory Compliance & Audit Standards 2 — Questions and Answers
Question 1: Under the Fair Housing Act, a verification agent discovers a landlord is requiring a higher security deposit from applicants of a specific national origin. This is an example of:
- Legitimate risk-based pricing
- Disparate treatment discrimination (Correct answer)
- Disparate impact discrimination
- Permissible occupancy screening
Correct answer: Disparate treatment discrimination
Disparate treatment occurs when individuals are treated differently based on a protected class, such as national origin, which violates the Fair Housing Act.
Question 2: Which regulation requires financial institutions to implement a Customer Identification Program (CIP) as part of anti-money laundering compliance?
- Gramm-Leach-Bliley Act
- Bank Secrecy Act / USA PATRIOT Act Section 326 (Correct answer)
- Dodd-Frank Act
- Sarbanes-Oxley Act Section 302
Correct answer: Bank Secrecy Act / USA PATRIOT Act Section 326
Section 326 of the USA PATRIOT Act amended the Bank Secrecy Act to require financial institutions to establish CIP procedures to verify customer identities.
Question 3: An auditor reviewing an employment verification process finds that the employer retains I-9 forms for 10 years after hire for all employees. What issue should the auditor flag?
- I-9 forms must never be retained longer than 3 years
- Retention should be 3 years from hire or 1 year after termination, whichever is later (Correct answer)
- I-9 forms must be retained permanently for all employees
- I-9 forms should only be kept for non-citizen employees
Correct answer: Retention should be 3 years from hire or 1 year after termination, whichever is later
USCIS regulations require I-9 forms to be retained for 3 years from the date of hire or 1 year after the date employment ends, whichever is later.
Question 4: During a compliance audit, a CVA finds that a background screening company sends adverse action notices simultaneously with the pre-adverse action notice. Which law does this violate?
- Fair Housing Act
- Fair Credit Reporting Act (FCRA) (Correct answer)
- Equal Credit Opportunity Act
- Gramm-Leach-Bliley Act
Correct answer: Fair Credit Reporting Act (FCRA)
The FCRA requires a waiting period between the pre-adverse action notice and the final adverse action notice to give the consumer time to dispute inaccuracies.
Question 5: Which of the following best describes the purpose of a 'compliance audit trail' in verification processes?
- A document listing all employees trained in compliance
- A chronological record of actions taken during verification for accountability and review (Correct answer)
- A checklist used by auditors to scope their engagement
- A summary of regulatory violations found during an audit
Correct answer: A chronological record of actions taken during verification for accountability and review
A compliance audit trail provides a chronological, documented record of verification steps taken, ensuring accountability and enabling post-audit review.
Question 6: A CVA is auditing a tenant screening process. The screening company uses an algorithm that results in Black applicants being denied at a statistically higher rate than white applicants with similar credit profiles. This may constitute:
- Disparate treatment under the FHA
- Disparate impact under the FHA (Correct answer)
- A permissible use of actuarial data
- A violation of the ECOA only, not the FHA
Correct answer: Disparate impact under the FHA
Disparate impact under the FHA occurs when a facially neutral policy or practice has a discriminatory effect on a protected class, even without discriminatory intent.
Question 7: Under SOX Section 404, who is responsible for assessing the effectiveness of internal controls over financial reporting?
- External auditors only
- The company's management and external auditors jointly (Correct answer)
- The audit committee chairperson alone
- The SEC Office of Compliance Inspections
Correct answer: The company's management and external auditors jointly
SOX Section 404 requires both management to assess and external auditors to attest to the effectiveness of internal controls over financial reporting.
CVA Regulatory Compliance & Audit Standards 2
Under the Fair Housing Act, a verification agent discovers a landlord is requiring a higher security deposit from applicants of a specific national origin.
This is an example of: