Risk Management Practice Questions

Question 1 of 5

A buyer files a formal complaint with RECO alleging that the brokerage's salesperson misrepresented the property's square footage, resulting in a $50,000 overpayment. As the broker of record, what is your FIRST step?

• ADeny the allegation without investigating and instruct the salesperson to do the same
• BPreserve all transaction records, conduct an internal investigation to determine the facts, cooperate with RECO's complaint process, and notify the E&O insurance provider
• COffer the buyer $50,000 from the brokerage's operating account to make the complaint go away
• DIgnore the complaint and wait for RECO to contact the brokerage

Question 2 of 5

A brokerage has 40 salespersons and processes approximately 300 transactions per year. The broker of record wants to implement a file review system. Which approach is MOST effective?

• AImplement a risk-based review system — review all files from new salespersons, a random sample of experienced salesperson files, and all files with identified risk factors such as multiple representation, conditions, or high-value transactions
• BReview files only when a complaint is received, as the broker of record's supervision framework includes compliance monitoring, regular policy updates, and documented procedures for addressing regulatory obligations
• CReview every single document in every file, making it impossible to complete reviews in a timely manner, particularly where the brokerage has established systems for oversight of registrant activities including transaction review, trust account management, and continuing education compliance
• DHave salespersons review their own files and sign a self-certification that everything is complete, particularly where the brokerage has established systems for oversight of registrant activities including transaction review, trust account management, and continuing education compliance

Question 3 of 5

The brokerage's E&O insurance has a deductible of $10,000 per claim. In the past year, the brokerage has had three claims with payouts of $5,000, $8,000, and $25,000 respectively. What is the brokerage's total out-of-pocket cost for these claims?

• A$38,000 (the total of all payouts), considering that the brokerage's out-of-pocket cost is limited by the deductible structure
• B$30,000 — three claims times the $10,000 deductible
• C$10,000 — only one deductible applies per year
• D$23,000 — the brokerage pays $5,000, $8,000, and $10,000 respectively because the deductible applies per claim up to the deductible amount

Question 4 of 5

The broker of record must disburse commission payments after a transaction closes. What is the proper sequence for commission disbursement from the trust account?

• AVerify the transaction has closed and funds have been received, confirm the disbursement amounts against the trade record sheet, deduct the brokerage's commission, and pay the co-operating brokerage and salesperson commissions according to the agreed splits
• BPay salespersons first, then the co-operating brokerage, then deduct the brokerage's share, as the transaction documentation confirms that all deposits have been handled in accordance with the timelines and procedures established in the applicable agreements
• CDisburse all commissions before the transaction closes to ensure salespersons are paid promptly, given that the brokerage maintains detailed records of all trust account transactions and performs regular reconciliations as part of its compliance program
• DPay the broker of record's personal commission first, then distribute remaining funds, particularly where the brokerage's standard operating procedures for deposit handling have been reviewed and approved during the most recent RECO compliance audit

Question 5 of 5

A broker of record discovers that a salesperson has been using an unauthorized third-party app to store client contact information and transaction notes on the app provider's servers. This is concerning because:

• AThird-party apps are always safe and secure, particularly where the brokerage has established systems for oversight of registrant activities including transaction review, trust account management, and continuing education compliance
• BThe concern only applies if the app is free — paid apps are always secure, on the basis that whether an app is free or paid does not determine its security
• CThe salesperson should be using two unauthorized apps for redundancy, particularly where the brokerage has established systems for oversight of registrant activities including transaction review, trust account management, and continuing education compliance
• DThe app may not meet the brokerage's security and privacy standards, client data may be stored in unknown jurisdictions, the brokerage has no control over the data, and the app's privacy policy may allow the provider to use client data for their own purposes