Simple step to compliance | How Dodd-Frank Impacts Internal Controls

How Dodd-Frank Impacts Internal Controls
Simple Step to Compliance
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As of January 2014, companies with more than $10 million in annual receipts from
consumer debt collection activities will be subject to oversight and examination from
the Consumer Financial Protection Bureau (CFPB), a new agency established by the
Dodd Frank Wall Street Reform and Consumer Protection Act. Examiners from the
CFPB will evaluate the internal controls and policies of these companies to ensure
compliance with applicable federal laws designed to protect consumers and ensure
they are treated fairly.
The added oversight by this new agency will undoubtedly create a more burdensome
regulatory environment for consumer debt collection institutions. A readiness
assessment of internal controls that addresses compliance policies and
procedures and overall governance and is conducted
by an independent auditor prior to supervisory
action from the CFPB provides assurance of
compliance with applicable laws and
regulations. This white paper will
explore the advantages of using
an independent audit firm
as a trusted advisor to
conduct a risk
assessment and report
on the internal controls
that the CFPB requires being
in place and operating
consistently and effectively.
Questions?
Visit our website at auditwerx.com for more information,
or call us at 866-292-7951to speak with one of our specialists.
REGULATION UPDATE | CREDIT AND COLLECTIONS INDUSTRY

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Market Drivers
The consumer debt collection industry has always been heavily scrutinized and
regulated to protect consumers. However, the changes resulting from Dodd
Frank are mission-critical for companies with collection activities of more than
$10 million and important for all consumer debt collectors, as they give federal
regulators a tool to more closely monitor the oversight of a company’s internal
control environment.
Questions?
Dodd-Frank Financial Reform
The CFPB has supervisory authority over many different types of institutions—
including banks and non-banks that buy defaulted debt or collect proceeds for
themselves, companies that collect defaulted debt owned by other companies for a
fee, and debt collection attorneys who collect proceeds through litigation.
Other Financial Regulations
Consumer debt collection companies must comply with many laws including the Fair
Debt Collection Practices Act, the Fair Credit Reporting Act, the Graham-Leach-Bliley
Act, the Electronic Fund Transfer Act, and the Equal Credit Opportunity Act. These laws
are designed to safeguard sensitive financial information and protect consumers from
unfair and discriminatory actions and adherence to each requires a well-designed and
effective internal control environment.

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Questions?
Other Financial Regulations (continued)
An examination by the CFPB will require time and resources and likely disrupt
business activities. To prepare for these impending examinations, management
and boards of directors now face the challenge of ensuring that the company’s
internal controls, policies, and procedures address the most up-to-date rules and
regulations, that those controls are designed properly, and that they are operating
effectively.
During the examination process, examiners will assess potential risks to consumers
and debt collectors’ compliance with federal consumer financial
laws, concentrating on evaluating if debt collectors:
• provide required disclosures to the consumer by identifying
themselves as a collection agency and properly disclosing the
amount of debt owed.
• provide accurate information in pursuit of consumer debt
collection, ensuring they are attempting to collect debt that
consumers owe and have not already paid.
• provide a consumer complaint and dispute resolution process
focusing on whether complaints highlight violations of federal
consumer financial law.
• communicate civilly and honestly with consumers, not harassing or
deceiving consumers in pursuit of debt collection.
At the end of the process, compliance concerns could result in civil penalties
and/or an enforcement action against the collection company to comply with
federal consumer financial law. These actions could be avoided by assessing the
company’s compliance programs and readiness.

The Challenges of Insufficient Internal Controls
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Because consumer debt collection companies handle sensitive consumer financial
information, it is critical to maintain sufficient internal controls and policies, including
those regarding oversight, compliance programs, information sharing, and privacy
procedures.
Questions?
Oversight
Effective oversight by the board of directors and
management is the key to creating a successful control
environment. These teams set the tone at the top—that
the company is ethical, committed to abiding by the law,
and eager to address any compliance issues or
complaints that arise. Institutions without
proper oversight risk creating unclear
expectations in employees and customers,
incomplete or ineffective polices and
procedures, and exposure to corrective
action or litigation.
Compliance Programs
Management and boards of directors must ensure there
is a well-designed and well-communicated compliance
program in place. They must also ensure there is a chief
compliance officer who owns the compliance process, creates policies
and procedures, and verifies that employees meet compliance obligations.
These actions will clearly demonstrate a commitment to addressing rules
and regulations. Companies that do not have policies and procedures in
place for a robust compliance program risk corrective action and fines from
the CFPB.

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Respect for the privacy of consumer
financial information is of paramount
importance for companies involved in
consumer debt collection activities. It
is an underlying principle in many of
the internal controls necessary for
compliance with CFPB and other
federal regulations. Companies that
do not have effective controls
addressing protection of consumer
financial data risk improper
disclosure of information that can
result in lack of consumer
trust, damage to the company
brand, litigation, and corrective
action or fines.
Questions?
Privacy and Security
Additional regulated internal controls
also include those pertaining to
training employees in compliance
issues, ongoing monitoring and
reporting of internal control
activities, and responses to and
resolution of consumer complaints.
Each of these represents areas of
additional risk and exposure for
companies that do not maintain
effective compliance
policies, procedures, and controls.
Fortunately, there is a way to ensure
companies have the proper controls
in place and reduce exposure
to risk.
“To identify acts or practices that
materially increase the risk of
violations of Federal
consumer financial laws in
connection with debt collection.”
- CFPB examination objective

The Solution: An Independent Compliance Audit
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A compliance analysis by an independent auditor enables companies to get a review of
their policies and procedures from an objective standpoint. This includes identifying
gaps in existing policies and procedures and potentially exposing risks the company
may not even know about. Independent, third-party auditors become trusted advisors
because they have experience, the tools to conduct the examination, and in-depth
knowledge of internal controls and best practices.
When this assessment is conducted in advance of an examination by the CFPB, it
demonstrates investigative readiness and a proactive compliance mindset in the event
examiners uncover a compliance related issue.
Questions?
Important Benefits
There are significant benefits when consumer debt collection
companies use an independent auditor to conduct a review of
internal controls, including:
• Assuring management and board of directors of
compliance with CFPB and other financial regulations
by identifying effective and efficient internal controls
and procedures.
• Improving the ability of the board of
directors and management to meet CFPB
supervisory requirements by identifying
gaps in policies and internal controls
in time to take corrective action.

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Finding the right independent audit firm to conduct an examination of internal controls
relevant to CFPB and to become a trusted advisor is not an easy task. Here are a few
things to look for:
Questions?
What to Look for in a Solution Provider
Process and approach
Seek an audit firm that specializes in examining internal
controls, understands best practices, and has a trusted
and proven process for conducting readiness
assessments.
Experience
The right audit firm to conduct this examination
employs auditors with years of auditing experience, as
well as hands-on experience in the consumer debt
collection industry.
Independence
Look for an audit firm that is independent and
shares best practices, but does not create the
controls that are analyzed and reviewed.
Reporting Capability
The ideal audit firm creates a written assessment
report that identifies areas of compliance with
regulations, identifies risks, and offers
recommendations for corrective action.

Auditwerx Advantage
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Auditwerx is a leading Certified Public Accountant and Chartered Accountant firm
specializing in compliance analysis and assessment reporting. Since 2005, our
experienced professionals have been trusted business advisors to consumer debt
collection companies, as well as a broad array of private service organizations. We are
dedicated to ensuring that our clients’ systems and internal controls are in compliance
and aligned with the appropriate standards.
Questions?
Proven process and approach.
Our 5-step audit process is designed to deliver
personalized results.
1. Scope out the project and determine areas of risk.
2. Gather and analyze documentation and artifacts.
3. Perform on-site inspection and review of controls.
4. Conduct risk assessment and recommend mitigation
strategy.
5. Provide readiness assessment report.
Auditwerx’s financial, operational, IT, and compliance
experts have been delivering service organization controls
examinations to consumer debt collection companies and
other service organizations exclusively since 2005.
Experience

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Questions?
We begin the engagement with a consultation to
understand your auditing needs, work closely with you
through the process, and are committed to minimizing
disruption to your business.
Our compliance analysis reviews the exact controls and
attributes CFPB examiners will review during their
assessment to fully prepare you for the examination.
Our history of serving consumer debt collection clients means
we have a deep understanding of market, business, and
operational risks in the industry, which enables our teams to
better assess risk exposure and advise a mitigation strategy.
Be prepared before you receive notice of a pending examination from the Consumer
Financial Protection Bureau. To begin the first step toward ensuring your internal
controls meet regulatory requirements, please call 866-576-7454 or email
smartin@auditwerx.com.
Analysis and Reporting
Results
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Simple step to compliance | How Dodd-Frank Impacts Internal Controls

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Simple step to compliance | How Dodd-Frank Impacts Internal Controls