Certified Internal Auditor (CIA) Part 3: Business Knowledge for Internal Auditing — Question 156

Which of the following activities most significantly increases the risk that a bank will make poor-quality loans to its customers?

Answer options

• A. Borrowers may not sign all required mortgage loan documentation.
• B. Fees paid by the borrower at the time of the loan may not be deposited in a timely manner.
• C. The bank's loan documentation may not meet the government's disclosure requirements.
• D. Loan officers may override the lending criteria established by senior management.

Correct answer: D

Explanation

The correct answer, D, highlights how loan officers overriding established lending criteria can lead to poor-quality loans being issued, as it bypasses essential risk management practices. Options A, B, and C focus on procedural issues that, while important, do not directly affect the bank's decision-making process in granting loans as severely as option D does.