FRM Part II · FRM Exam Part II · Risk Mitigation
During control testing, a bank finds that a key reconciliation control is well designed but was skipped on 6 of the 20 days sampled because of staff shortages. How should the control be rated?
The control has effective design but deficient operating effectiveness. It is well designed, yet it was skipped on 6 of 20 sampled days, so it does not work consistently in practice and needs remediation such as better resourcing or backup performers.
- ADesign effective but operating effectiveness deficient, so the control needs remediationCorrect
- BFully effective because its design is sound
- CIneffective in design because staff shortages occurred
- DNot testable until the next annual audit
Explanation
Design effectiveness asks whether the control would work if performed; operating effectiveness asks whether it actually ran as intended. Skipping it 30% of sampled days is an operating failure despite sound design, requiring remediation such as resourcing or backup performers.
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