Series 99 Operational Risk & Controls — Questions and Answers

Question 1: What is operational risk?

Stock loss
Failure in operations (Correct answer)
Customer loss
Product reviews

Correct answer: Failure in operations

Operational risk refers to the risk of loss resulting from inadequate or failed internal processes, people, and systems, or from external events. This can include errors in transaction processing, system failures, human mistakes, fraud, or disruptions from natural disasters. Managing operational risk is crucial for a firm's stability and ability to deliver services effectively.

Question 2: What is a common internal control?

One-person approval
Separation of duties (Correct answer)
Verbal approvals
Outsourcing

Correct answer: Separation of duties

Separation of duties is a fundamental internal control designed to prevent fraud and errors by distributing critical functions among different individuals. This means that no single person has complete control over a transaction from start to finish. For example, the person who authorizes a payment should not be the same person who records it or reconciles the bank statement, reducing the opportunity for misconduct.

Question 3: Why perform audits?

Train staff
Detect and verify (Correct answer)
Avoid taxes
Simplify forms

Correct answer: Detect and verify

Audits are systematic examinations of an organization's financial records, operations, and compliance with regulations. Their primary purpose is to detect errors, fraud, or non-compliance, and to verify the accuracy and reliability of information. Audits provide an independent assessment, offering assurance to stakeholders that processes are functioning correctly and financial statements are fairly presented.

Question 4: What reduces system risk?

Emails
Backups (Correct answer)
Password resets
Marketing

Correct answer: Backups

Backups are critical for reducing system risk by creating copies of data and system configurations. In the event of a system failure, data corruption, cyberattack, or disaster, backups allow an organization to restore its information and operations, minimizing downtime and data loss. Regular and secure backups are a cornerstone of any robust disaster recovery and business continuity plan.

Question 5: What is risk mitigation?

Increase budget
Reduce impact (Correct answer)
Write memos
Hire interns

Correct answer: Reduce impact

Risk mitigation refers to the strategies and actions taken to reduce the likelihood or impact of a potential risk event. It involves identifying risks, assessing their potential consequences, and implementing controls or plans to lessen their severity or probability. The goal is to minimize the negative effects that risks could have on an organization's operations, finances, or reputation.

Question 6: Why document procedures?

Save paper
Consistency (Correct answer)
Add color
Create roles

Correct answer: Consistency

Documenting procedures is essential for ensuring consistency in how tasks are performed across an organization. Clear, written procedures provide a standardized guide for employees, reducing variations in execution and minimizing errors. This consistency is vital for maintaining quality, efficiency, compliance, and for training new staff effectively.

Question 7: Who monitors control effectiveness?

HR team
Audit or risk team (Correct answer)
Sales team
Legal advisors

Correct answer: Audit or risk team

The audit or risk team within an organization is specifically tasked with monitoring the effectiveness of internal controls. They conduct independent assessments, reviews, and tests to ensure that controls are operating as intended and are adequately mitigating identified risks. This oversight helps maintain the integrity of operations and compliance with regulatory requirements.

Question 8: What is escalation protocol?

Bonus plan
Report process (Correct answer)
Training test
Service hours

Correct answer: Report process

Escalation protocol refers to a predefined process for reporting and addressing issues or incidents that cannot be resolved at a lower level. It outlines who should be informed, when, and how, ensuring that critical problems are brought to the attention of appropriate management or specialized teams in a timely manner. This structured reporting helps ensure efficient problem resolution and prevents issues from escalating into larger crises.

Question 9: Why use access controls?

Improve sales
Limit access (Correct answer)
Track ads
Print labels

Correct answer: Limit access

Access controls are security mechanisms designed to regulate who can view, use, or enter specific resources or areas. Their primary function is to restrict unauthorized individuals from accessing sensitive information, systems, or physical locations. This helps protect data integrity, maintain confidentiality, and prevent misuse within an organization.

Series 99 Operational Risk & Controls

What is operational risk?