Advanced-CAMS-Audit Sample Questions Answers

Impairment of Independence and Objectivity:

Auditors must remain independent and objective. Direct involvement in designing and implementing controls creates a conflict of interest.

Guidelines from CAMS-Audit:

CAMS-Audit emphasizes that auditors should limit their role to evaluating controls and avoid involvement in operational tasks​​.

Standards of Professional Conduct:

Independence is a cornerstone of effective auditing, ensuring unbiased findings and recommendations.

Definition of Residual Risk:

Residual risk is the risk that remains after controls are implemented to mitigate inherent risks.

It reflects the effectiveness of controls and highlights areas requiring further attention.

Relevance in Risk Management:

Evaluating residual risk helps determine whether existing controls adequately address the identified risks.

CAMS-Audit Best Practices:

Auditors must assess residual risk as part of the broader risk management framework to ensure regulatory compliance and operational resilience​​.

Severity Justification:

Infrequent updates of sanction lists create significant risks of missing sanctioned entities, increasing legal, financial, and reputational risks for the institution.

FATF Recommendations emphasize the need for timely and accurate sanctions screening to prevent facilitation of sanctioned transactions​​.

Critical Evidence:

A delayed update to sanction lists is cited as a key failure point in regulatory penalties and compliance audits​​.

Product Risk: Certain products (e.g., high-value transfers, anonymous payment systems) inherently carry higher AML risks and require tailored risk mitigation measures.

Customer Risk: Understanding the risk profile of customers, including PEPs and high-net-worth individuals, is critical to assessing exposure and implementing risk-based approaches.

Both factors are core components in AML risk assessments, as highlighted in CAMS-Audit materials and FATF standards​​​.

A. Ongoing Due Diligence: FATF Recommendations emphasize the need for ongoing monitoring and due diligence of NPOs to detect and prevent misuse for terrorist financing​​.

C. Diversion of Funds: Identifying and mitigating risks of fund diversion to terrorist organizations is a critical component in evaluating NPO vulnerabilities​​.

Understanding Client Risk Scoring Methodology:

Reviewing the AML risk assessment offers a comprehensive view of the institution’s client base, risk appetite, and segmentation strategies.

Preparation Steps:

Assessing the AML risk assessment ensures that auditors understand the institution’s framework for categorizing and managing client risks.

Importance in CAMS-Audit Framework:

CAMS-Audit highlights the necessity of linking client risk scoring to the broader institutional AML risk assessment​​.

Response to Deficiencies:

Engaging a third party ensures an independent, expert evaluation of deficiencies and the creation of a robust remediation plan​​.

This aligns with regulatory expectations for addressing material AML program weaknesses effectively​​.

Enhanced due diligence is necessary to identify potential risks associated with high-value transactions such as art sales, a known method for money laundering.

CAMS-Audit guidelines recommend updating client records with findings to maintain transparency and prepare for regulatory scrutiny​​.

This approach ensures compliance with due diligence requirements and mitigates reputational and financial crime risks.

Recommended Action:

Re-screening ensures compliance with sanctions and identifies potential violations retrospectively. This is a critical regulatory requirement for addressing gaps in screening coverage​​.

FATF and Basel Guidelines:

Emphasize retrospective reviews in cases of system lapses to maintain the integrity of the sanctions compliance program​​.

Nature of Discussion:

Root cause analysis is required to identify underlying reasons for the failure to perform the control, particularly resource constraints​.

Key Compliance Justification:

Addressing the root cause aligns with Basel Committee guidelines on improving control environments and addressing systemic issues in AML compliance​​.

Filing an SAR based on reasonable grounds for suspicion ensures compliance with AML obligations and demonstrates the effectiveness of the investigative process.

Payable through accounts allow foreign banks' customers direct access to the correspondent account, which can increase the risk of money laundering due to less direct oversight.

Executive Summary Requirements:

The statement focuses on clear, evidence-based findings, critical for reflecting material deficiencies in enhanced due diligence (EDD) for high-risk clients​​.

Guidelines for Reporting:

FATF emphasizes the consistent application of risk rating systems to ensure ML/TF risks are adequately mitigated​​.

Factors for External Audit:

C. Purpose of the Review: Determines the scope and focus of the audit to align with regulatory or organizational objectives​​.

D. Type of Risk Assessment Needed: Tailors the audit methodology to the identified risks​​.

E. Users of the External Report: Ensures the audit addresses the needs of regulators, stakeholders, or management​​.

Testing Operating Effectiveness:

Operating effectiveness testing evaluates whether controls and systems are functioning as intended on a daily basis, including the accuracy and reliability of automated validation processes.

Relevance to Data Validation:

The auditor’s role in this scenario ensures that the data flowing into the monitoring software is accurate and aligned with operational requirements, reflecting day-to-day effectiveness.

CAMS-Audit Emphasis:

The emphasis on ongoing operational validation is consistent with Advanced CAMS-Audit practices, which stress continuous monitoring of AML system effectiveness​​.

Understanding the Vertical Approach:

A vertical audit focuses on reviewing the entire process or function within a single area or department, such as testing KYC files for compliance and effectiveness in a specific customer group or business line.

Application in AML Examinations:

Vertical audits are particularly useful for examining KYC processes as they allow auditors to trace the end-to-end workflow, from customer onboarding to risk assessment and ongoing monitoring​​.

Alignment with Advanced CAMS-Audit Guidelines:

The vertical approach provides detailed insights into compliance gaps within the KYC function, helping auditors identify root causes and systemic issues, which is emphasized in CAMS-Audit training​​.

Adverse news provides context on potential risks associated with the customer, while historical transaction data is critical for understanding patterns that may indicate suspicious activity.

B. Periodic Checks: Regular monitoring ensures that implemented rules align with updated specifications and are functioning as intended, reducing the risk of deviation from compliance standardsints Before Release**: Establishing validation checkpoints ensures that all releases comply with documented specifications, mitigating risks of errors in the risk rating model

Answer:B. Improper identification and assessment of risk creates deficiencies resulting in an overall weakened AML compliance program.

Rationale for Documenting Conclusions:

Documenting findings ensures transparency and provides an audit trail. This is critical when the incident is consistent with provided evidence and no further investigation is warranted.

Audit Work Paper Standards:

CAMS-Audit recommends that all conclusions be adequately documented, especially when deviations from normal patterns are justified with valid explanations​​.

C:Designating the account as a PEP-account triggers additional monitoring and controls as PEPs inherently pose higher risks​​.

D:Enhanced due diligence (EDD) and ongoing monitoring are essential for PEPs to track their financial activities closely and address any anomalies​​.

E:Documenting the details of the asset-holding arrangement provides clarity on the customer's profile and any associated risks​​.

Key Roles and Responsibilities:

Identifying compliance coordinators helps auditors understand the operational framework and ensure clear accountability in managing day-to-day AML compliance activities.

Initial Review Focus:

This step provides a foundational understanding of the institution's compliance structure, enabling targeted assessments of other program components.

Advanced CAMS-Audit Reference:

CAMS-Audit emphasizes that the effectiveness of an AML program hinges on having designated individuals who oversee compliance processes​​.

Adverse Media Screening Requirements:

Negative media screening is a critical part of customer due diligence (CDD) as highlighted in FATF Recommendation 10. Proper training ensures staff apply consistent procedures​​.

Regular screening of all clients ensures ongoing monitoring of risks, aligning with the risk-based approach mandated by AML standards​​.

Key Compliance Justification:

Staff training and procedural updates mitigate the risk of inconsistent adverse media identification, a key finding in compliance audits​​.

Recent Audit Findings:

Reviewing past findings ensures the institution has addressed previous deficiencies and allows the auditor to assess the effectiveness of implemented corrective actions.

AML Corporate Governance:

Corporate governance is a critical component of AML compliance, involving oversight structures, policies, and accountability mechanisms to prevent money laundering risks.

Alignment with CAMS-Audit Principles:

Advanced CAMS-Audit emphasizes evaluating governance structures and learning from recent audits to maintain robust AML controls​​.