AGA CGFM CGFM Certified Government Financial Manager Exam Practice Test

Investment Management Basics:The first step in investment management is establishing theobjectivesof the investment program. This requires consensus among key stakeholders, such as managers, on what the investment goals are (e.g., risk tolerance, return expectations, liquidity needs).

Without clear objectives, subsequent steps like developing policies or selecting investments cannot be effectively carried out.

Why Consensus Is Important:

Investment objectives must align with the organization’s mission, risk tolerance, and financial goals.

Consensus ensures that all managers are on the same page before developing specific strategies or policies.

Why Other Options Are Incorrect:

A. Ensure employees understand their investment options:Employee understanding is not the first step; it comes later when the investment strategy is implemented.

C. Develop an investment policy manual:This happens after the objectives have been established.

D. Establish criteria for divesting:Divestment criteria are part of the investment policy and are determined later.

References and Documents:

GAO Financial Management Guide:Highlights setting objectives as the first step in investment management.

COSO Framework for Investment Risk Management:Stresses the importance of aligning objectives before policy development.

Service Efforts and Accomplishments (SEA) Reporting:

SEA reporting is designed to providenon-financial performance informationabout the efficiency and effectiveness of government programs.

It evaluates how well resources are being used to achieve desired outcomes, helping stakeholders assess program performance and accountability.

Explanation of Answer Choices:

A. Evaluation of the effects of changes in public policy: Incorrect. SEA reporting does not focus on policy changes but on program performance.

B. Assessment of financial condition and results of operations: Incorrect. This is the role of financial statements, not SEA reports.

C. Assessment of the accountability of the public administrators: Incorrect. While SEA reports indirectly support accountability, their main purpose is to assess program efficiency and effectiveness.

D. Evaluation of the efficiency and effectiveness of governmental programs: Correct. This is the primary focus of SEA reporting.

References:

GASB,Concepts Statement No. 2: Service Efforts and Accomplishments Reporting.

GFOA,Performance Reporting in Government.

Importance of Prior Audit Findings:

When planning a local government financial statement audit, auditors should first reviewprevious audit findingsto identify recurring issues, control weaknesses, or non-compliance areas. This helps auditors focus on areas of higher risk and guides the development of an effective audit strategy.

Explanation of Answer Choices:

A. Government-wide financial statements: Important, but these are reviewed after identifying risk areas from prior findings.

B. Fund financial statements: These are part of the audit process but not the starting point for planning.

C. Reconciliations between fund financial statements: These are analyzed during the audit but come later in the process.

D. Previous audit findings: Correct. Reviewing past findings ensures the auditor addresses previously identified risks and compliance issues.

References:

GAO,Government Auditing Standards (Yellow Book).

AICPA,Audit Planning and Risk Assessment Best Practices.

Fraud Audit Objective:Fraud audits aim to detect and investigate fraudulent activities, strengthen internal controls, and report findings to stakeholders.

Basic Steps in Fraud Audits:

Consulting Legal Counsel: Ensures compliance with legal requirements and protects the organization.

Reporting the Results: Essential to inform stakeholders of findings and corrective actions.

Follow-up on Control Weaknesses: Addresses identified vulnerabilities to prevent future fraud.

Explanation of Incorrect Answer:

D. Considering political ramifications: Irrelevant to fraud audits, as these audits focus on financial and legal matters rather than political considerations.

References:

Association of Certified Fraud Examiners (ACFE),Fraud Examination Manual.

Government Accountability Office (GAO),Fraud Risk Management Framework.

What Are the Four General Government Auditing Standards?

These standards, as defined in theGAO Yellow Book (Government Auditing Standards):

Qualifications:Auditors must have the necessary professional skills and competence to perform their work.

Independence:Auditors must remain free from personal, external, and organizational impairments to maintain objectivity.

Due Professional Care:Auditors must exercise care and diligence, adhering to professional standards and ethical requirements.

Quality Control:Auditors must establish and maintain a system of quality control to ensure audit work meets professional standards.

Why Is Option D Correct?

These four elements are explicitly outlined in the GAO Yellow Book as the core principles of government auditing standards.

Why Other Options Are Incorrect:

A. Compliance, timeliness, qualifications, and due professional care:Timeliness and compliance are not part of the four general standards; they are components of audit objectives.

B. Supervision, planning, management controls, and evidence:These are aspects of audit performance, not general standards.

C. Planning, internal controls, independence, and irregularities:Planning and internal controls are part of the audit process, not general standards.

References and Documents:

GAO Yellow Book (Generally Accepted Government Auditing Standards - GAGAS):Lists qualifications, independence, due professional care, and quality control as the four general standards.

AICPA Audit Standards:Aligns with GAGAS in emphasizing these four principles.

First Step in Assessing Compliance:

The first step in evaluating compliance is to develop acomprehensive inventoryof all applicable laws and regulations that the agency must follow.

This ensures the assessment process is thorough and based on a clear understanding of the regulatory environment.

Explanation of Answer Choices:

A. Review legal actions against the agency for noncompliance with laws and regulations: Important, but this comes later as part of identifying past compliance issues.

B. Contact the legislature to secure its views on any areas of regulatory noncompliance: Unnecessary for the initial step of compliance assessment.

C. Develop an inventory of the applicable laws and regulations: Correct. This is the foundational step to ensure all relevant requirements are included in the assessment.

D. Request a compliance review from the agency's chief legal officer: Incorrect. While legal advice may be helpful, it is not the starting point for compliance assessment.

References:

GAO,Standards for Internal Control in the Federal Government (Green Book).

OMB Circular A-123,Management’s Responsibility for Internal Control.

What Did the Accountability for Tax Dollars Act Do?

This act expanded the audit requirements tovirtually all federal agencies, not just those covered under the CFO Act of 1990.

It mandated that agencies prepare audited financial statements to improve transparency, accountability, and the management of federal funds.

Why Other Options Are Incorrect:

A. CFO Act of 1990:This act required audited financial statements but only applied to the 24 largest federal agencies (those covered under the Chief Financial Officers Act).

C. Federal Financial Management Improvement Act of 1996:Focused on financial system compliance with federal accounting standards, not expanding audit requirements.

D. Government Management Reform Act of 1994:Extended the CFO Act requirements to consolidated government-wide financial statements, not all federal agencies.

References and Documents:

Accountability for Tax Dollars Act of 2002:Specifies the expanded audit requirements for federal agencies.

GAO Guide on Federal Financial Management Laws:Provides a comprehensive overview of key legislation.

What Is GPRA?TheGovernment Performance and Results Act (GPRA)of 1993 was designed to improve the performance of federal programs by requiring federal agencies to establish goals, measure performance, and report on their progress.

Stated Purposes of GPRA:

Improve Service Delivery (Option A):GPRA helps agencies align performance goals with customer needs, improving service delivery.

Improve Internal Management Practices (Option B):By requiring performance metrics and evaluations, GPRA enhances internal management and decision-making processes.

Improve Program Effectiveness (Option D):GPRA aims to make federal programs more effective by fostering accountability and linking resources to results.

Why Option C Is Incorrect:

GPRA does not provide detailedinstructions on program reporting.While it requires agencies to report on their performance, it does not dictate the specific steps or instructions for reporting. Instead, agencies design their own reporting processes within the GPRA framework.

References and Documents:

Government Performance and Results Act of 1993:Stipulates the law’s objectives but does not mention program reporting instructions.

GAO Report on GPRA Implementation:Highlights GPRA’s purpose to improve performance management and accountability without prescribing reporting instructions.

Why Verify Transit Use Before Taxi Use?

The program is intended for employees who commute by public transit. Verifying transit use on the day the taxi service was used ensures employees are adhering to program rules.

Random sampling is cost-effective and practical for identifying abuse without needing to review all records.

Why Other Options Are Incorrect:

A. Looking for individuals using the service more than 10 times:This only identifies overuse but does not confirm whether program rules were followed.

B. Checking destination addresses for hospitals/clinics:This assumes all emergencies involve medical visits, which is not always the case.

C. Matching destination addresses to home addresses:This does not confirm transit use and may not identify abuse of the program.

References and Documents:

GAO Fraud Prevention Guide:Recommends using random sampling to check compliance with program rules.

Best Practices for Internal Controls in Benefit Programs:Emphasizes verifying eligibility and usage to detect potential abuse.

Performance Audit Objectives:

Performance audits evaluate whether government entities are operating efficiently, effectively, and in compliance with applicable laws.

A critical aspect is assessing whether the entity has implementedcorrective actionsin response to prior audit findings and recommendations, as this demonstrates accountability and progress.

Explanation of Answer Choices:

A. Updated its vision and strategic mission statements: Incorrect. While strategic planning is important, it is not the primary focus of performance audit objectives.

B. Corrective actions to address prior findings and recommendations: Correct. Addressing prior findings is a key objective to ensure identified issues have been resolved.

C. Updated its financial reports’ MD&A: Incorrect. MD&A (Management’s Discussion and Analysis) is related to financial reporting, not performance audits.

D. Internal controls in place: Incorrect. While internal controls are reviewed, the focus here is on corrective actions to past findings.

References:

GAO,Government Auditing Standards (Yellow Book).

GAO,Performance Auditing Guidance.

Why Shared Services Agreements Are Cost-Effective:

A shared services agreement allows multiple school districts to pool resources and share the costs of special education services, such as specialized staff, transportation, or facilities.

This reduces duplication of services, increases efficiency, and helps lower costs without reducing the quality of education provided.

Why Federal Maintenance of Effort (MOE) Requirements Matter:

Under federal law, schools must maintain a certain level of funding for special education services to receive federal grants. Cutting budgets or shifting costs directly to parents would likely violate MOE requirements.

Why Other Options Are Incorrect:

A. Shift a portion of the costs in the form of a fee to parents:This violates federal regulations, as public schools cannot charge parents for special education services.

B. Decrease budget allocation for special education services:This would also violate MOE requirements and reduce services for students with special needs.

D. Outsource special needs services to a private contractor:While outsourcing can be an option, it may not always reduce costs and could introduce additional risks (e.g., quality concerns or compliance issues).

References and Documents:

Individuals with Disabilities Education Act (IDEA):Mandates federal MOE requirements for special education funding.

GAO Report on Shared Services in Education:Highlights cost-saving benefits of shared services agreements.

Role of Management in Internal Control Evaluation:

Responsibility for Risk Identification:Management has the primary responsibility for designing, implementing, and maintaining an effective system of internal controls. As part of this process, management identifies the risks related to fraud, waste, and abuse that could impact financial reporting or operational efficiency.

Mitigating Risks:Once risks are identified, management is responsible for mitigating them by developing appropriate policies, procedures, and controls.

Role of the Auditor in Internal Control Evaluation:

Assessing Control Effectiveness:Auditors are not responsible for designing or implementing controls; rather, their role is to evaluate whether the controls put in place by management are effective. They do this through testing, observation, and other audit procedures.

Fraud Risk Assessment:As part of their duties under Generally Accepted Government Auditing Standards (GAGAS), auditors must assess the risk of material misstatement due to fraud and evaluate how management’s controls address those risks.

Why Other Options Are Incorrect:

B.Auditors do not identify risks—this is management's job. Auditors evaluate and assess the controls already in place.

C.Determining risk tolerance is a governance and management responsibility, not the joint responsibility of auditors and management.

D.Management mitigates risks, but auditors don’t monitor compliance with controls—they test and evaluate the controls as part of their audit procedures.

References and Documents:

GAGAS (Yellow Book) by GAO:Emphasizes management’s responsibility for risk identification and the auditor’s responsibility for assessing control effectiveness.

COSO Internal Control Framework (2013):Highlights management’s responsibility for risk assessment and control design, while auditors provide independent assurance.

What Is Forensic Accounting?

Forensic accountinginvolves investigating financial records to detect fraud, gather evidence, and support legal proceedings. It focuses on identifying and responding to fraud rather than proactively preventing it.

Tasks Performed in Forensic Accounting:

Auditing accounting records (Option A):Forensic accountants review records to uncover irregularities or fraud.

Interviewing related parties (Option C):They conduct interviews to gather information and evidence.

Serving as an expert witness (Option D):Forensic accountants often testify in court to explain their findings.

Why Prevention Is Not Part of Forensic Accounting:

Preventing fraud is typically the responsibility ofinternal controls, management, and auditors, not forensic accountants. Forensic accounting is reactive, addressing fraud that has already occurred.

References and Documents:

GAO Forensic Auditing Standards:Highlights the role of forensic accounting in investigating, not preventing, fraud.

AICPA Forensic and Valuation Services Practice Aid:Focuses on investigative and litigation support tasks performed by forensic accountants.

What Is Control Risk?

Control riskrefers to the risk that an organization’s internal controls will fail to prevent or detect material misstatements in a timely manner.

The effectiveness of internal controls directly influences control risk. If controls are weak or poorly designed, the risk increases.

Why Is Option B Correct?

The primary focus of control risk is the adequacy and effectiveness of an entity’s internal controls. Effective controls reduce the likelihood of material misstatements, while deficiencies increase control risk.

Why Other Options Are Incorrect:

A. Inherent Risk:This is the risk of material misstatements due to the nature of the business or transactions, independent of controls.

C. Detection Risk:This refers to the risk that auditors will fail to detect material misstatements. It is influenced by the nature and extent of audit procedures, not internal controls.

D. Audit Risk:This is the overall risk that an auditor will issue an incorrect opinion. It combines inherent, control, and detection risks.

References and Documents:

AICPA Standards on Audit Risk (AU-C 315):Explains control risk and its relationship to the effectiveness of internal controls.

GAO Yellow Book:Emphasizes assessing control risk when evaluating internal controls in audits.

Single Audit Report Requirements:

A single audit evaluates the financial statements and compliance with federal award requirements.

Thefinancial statement opinionmust state whether the financial statements arefairly presented in accordance with Generally Accepted Accounting Principles (GAAP).

Explanation of Answer Choices:

A. Free from fraud: Incorrect. Auditors do not provide an opinion on fraud; they assess for material misstatements.

B. Fairly presented in accordance with GAAP: Correct. The financial statement opinion is issued based on compliance with GAAP.

C. Fairly presented in accordance with GASB: Incorrect. GASB (Governmental Accounting Standards Board) provides guidance for state and local governments, but financial statements must comply with GAAP as the overarching standard.

D. Fairly presented in accordance with GAO: Incorrect. The GAO (Government Accountability Office) issues auditing standards, not financial reporting standards.

References:

OMB Uniform Guidance (2 CFR Part 200),Subpart F - Audit Requirements.

GAO,Government Auditing Standards (Yellow Book).

What Is an Internal Control Deficiency?

Aninternal control deficiencyoccurs when an organization fails to implement controls to prevent or detect risks effectively.

In this case, responding only to maintenance needs when complaints are received demonstrates a lack of proactive controls, increasing the risk of issues going unnoticed or escalating over time.

Why Is Option C Correct?

Proactive maintenance schedules and inspections are essential for ensuring the safety and functionality of critical infrastructure like dams. Relying solely on complaints or employee reports is a reactive approach and represents a deficiency in internal controls.

Why Other Options Are Incorrect:

A. Inspecting completed work:This is a proper control to ensure compliance with contract specifications.

B. Releasing the bond after work completion:This ensures contractual obligations are met and is a good control practice.

D. Checking bidder references:This is part of the procurement process and a valid internal control.

References and Documents:

GAO Standards for Internal Control (Green Book):Emphasizes proactive controls and monitoring for critical operations.

Federal Infrastructure Maintenance Best Practices:Highlights proactive inspections and maintenance as essential controls.

Understanding the Procurement Process for Contractors:

When selecting contractors for government projects, the goal is to ensure the selection of aresponsible and responsive bidderwho meets all requirements outlined in the Request for Proposal (RFP) or bidding documents.

Key considerations include the contractor’s ability to meet deadlines, quality of work, and compliance with laws and regulations.

Analyzing the Answer Options:

A. The contractor with the lowest bid who has a history of delayed projects:While cost savings are important, a contractor with a history of delays poses a significant risk to project timelines and community satisfaction. This bidder is not considered "responsible" based on their track record.

B. The contractor with the second-lowest bid, who has no prior violations and meets all bid specifications:Although this is not the lowest bid, it is the best choice because the contractor meets allrequirements and has a clean history. Selecting a reliable bidder ensures the project is completed on time and within acceptable quality standards. This is the most responsible and justified decision.

C. The contractor with the highest bid, who includes luxury, non-requested upgrades to the design:Selecting a contractor who proposes unnecessary and expensive upgrades is not cost-effective. Government procurement prioritizes fulfilling project specifications within the approved budget, making this choice impractical.

D. The contractor whose bid was submitted past the deadline but offers a discount for early payment:Late bids violate procurement rules, which emphasize fairness and transparency. Accepting this bid could lead to legal challenges or allegations of favoritism. Discounts do not justify breaching procurement guidelines.

Why Option B is Correct:

The second-lowest bid is the most responsible choice because the contractor:

Meets all bid requirements.

Has a strong history of compliance with regulations.

Avoids risks associated with unreliable or excessively expensive options.

This selection aligns with government procurement standards that prioritize balancing cost, quality, and reliability.

References and Documentation from the Government Financial Manager (GFM) by AGA:

Procurement Best Practices: The AGA emphasizes the importance of selecting bidders who demonstrate responsibility, reliability, and compliance with the bidding process.

Ethical Procurement Standards: TheYellow Book (Government Auditing Standards)highlights the importance of fairness, transparency, and accountability in contractor selection.

Source: AGA Certified Government Financial Manager (CGFM) study guides, Section IV: Internal Controls, Procurement, and Ethics.

GAO and External Audit Standards:The Government Accountability Office (GAO) uses the Yellow Book as its primary standard. However, it may also reference external standards from recognized international and professional auditing organizations. INTOSAI is specifically mentioned in the Yellow Book as a source of additional standards for governmental audits.

Explanation of Answer Choices:

A. Public Company Accounting Oversight Board (PCAOB): This regulates audits of publicly traded companies, not government entities.

B. International Auditing and Assurance Standards Board (IAASB): This focuses on global private-sector audits, not specifically government-related.

C. International Organization of Supreme Audit Institutions (INTOSAI): Correct. INTOSAI sets audit standards for public-sector auditors worldwide and is relevant for the GAO.

D. AICPA: While the AICPA sets standards for U.S. auditors, INTOSAI is more relevant for international public-sector audits.

References:

GAO,Government Auditing Standards (Yellow Book).

INTOSAI,Framework of Professional Standards for Supreme Audit Institutions.

Definition of the Condition in an Audit Finding:

The "condition" describes the actual state observed during the audit. It highlights what occurred in practice, serving as the factual basis for the finding.

In this case, the condition is theabsence of receiptsfor multiple credit card purchases.

Explanation of Answer Choices:

A. We identified multiple credit card purchases without receipts to support them: Correct. This is the observed issue (condition).

B. Government policy requires a cardholder to submit receipts for all purchases: This is the "criteria," which defines the standard or rule being audited against.

C. Finance Department personnel did not regularly review purchases to ensure compliance: This is the "cause," explaining why the condition occurred.

D. We recommend that the government implements a timely review of all credit card purchases: This is the "recommendation," not the condition.

References:

GAO,Government Auditing Standards (Yellow Book).

AICPA,Elements of an Audit Finding Guidance.

Why Does Management Need Real-Time Data Access?

Real-time access to data enables managers to make timely and informed decisions.

Complex data setspresented clearly and concisely (with minimal distractions) allow decision-makers to focus on the critical insights necessary for strategic and operational planning.

Why Is Option D Correct?

On-demand access ensures managers can retrieve updated data whenever needed. Presenting the data in a focused and distraction-free format facilitates quick comprehension and decision-making.

Why Other Options Are Incorrect:

A. Visual representation with indirect information:Including unrelated data can overwhelm users and detract from effective decision-making.

B. Dashboards updated quarterly:Quarterly updates do not meet the need for real-time access.

C. Prior year’s financial data:Decisions based solely on historical data are not responsive to real-time needs.

References and Documents:

GAO Data Analytics and Visualization Framework:Stresses the importance of real-time, actionable, and distraction-free data for decision-making.

AICPA Dashboard Guidelines:Recommends presenting complex data sets in a clear and accessible format for management use.

Responsibilities in Resolving Single Audit Findings:

Single audits assess compliance with federal program requirements.

Findings often highlight deficiencies or noncompliance issues that must be resolved by the entity receiving the federal funds.

Explanation of Answer Choices:

A. Awarding agency: The agency provides oversight and guidance but does not directly resolve findings.

B. Recipient agency: Correct. The entity receiving the funds is responsible for addressing and resolving findings to comply with federal regulations.

C. Audit committee: May oversee the process but doesn’t take direct responsibility for resolving findings.

D. External auditors: Identify the findings but do not resolve them.

References:

Uniform Guidance (2 CFR Part 200),Single Audit Requirements.

Association of Government Accountants (AGA),Government Auditing Standards.

Business Process Re-Engineering (BPR):

BPR focuses onredesigning key processesto achieve dramatic improvements in efficiency, effectiveness, and performance.

It typically involves addressing technical systems, human factors, and process workflows, but it does not involve redefining the organization’s mission, which is a strategic activity outside the scope of BPR.

Explanation of Answer Choices:

A. Key processes: Incorrect. Key processes are the primary focus of BPR.

B. Human environment: Incorrect. BPR often addresses human factors, such as roles and responsibilities.

C. Organizational mission: Correct. The mission is a strategic element and not typically redefined as part of process re-engineering.

D. Technical environment: Incorrect. BPR often involves rethinking technical systems and workflows.

References:

Hammer & Champy,Reengineering the Corporation: A Manifesto for Business Revolution.

GAO,Business Process Re-Engineering for Government Efficiency.

Definition of Computer-Assisted Audit Techniques (CAATs):

CAATs use software tools to perform audit tasks such as data analysis, testing transactions, and evaluating internal controls.

Obtaining accurate and relevant data is a key first step, as it forms the basis of any analysis performed using CAATs.

Explanation of Answer Choices:

A. Writing the system audit program: This is part of audit planning but not a specific feature of CAATs.

B. Verifying internal controls: While CAATs can be used to test controls, obtaining data is fundamental to this process.

C. Obtaining appropriate data: Correct. CAATs rely on accurate, relevant, and complete data for meaningful analysis.

D. Purchasing data mining software: While software is a tool for CAATs, the focus is on using data, not on acquiring the software itself.

References:

Information Systems Audit and Control Association (ISACA),Guide to Computer-Assisted Audit Techniques.

Association of Government Accountants (AGA),Data Analytics and Auditing Best Practices.

What Are Open-Ended Mutual Funds?

Open-ended mutual funds are investment vehicles that allow investors to buy and sell shares at the current net asset value (NAV), which is determined daily.

These funds are highly liquid and can be easily valued, making them a sound investment option for pension funds.

Why Are They Suitable for Pension Funds?

Pension funds require investments that are easily valued, transparent, and provide liquidity to meet benefit obligations. Open-ended mutual funds meet all these criteria.

Why Other Options Are Incorrect:

B. Reverse repurchase agreements:While they can be part of investment strategies, they are not easily valued compared to open-ended mutual funds.

C. Derivative instruments:Derivatives can be complex and difficult to value, making them less suitable for pension funds that prioritize transparency and simplicity.

D. Internal investment pools:These are investment vehicles used by governments, but their valuation may not be as straightforward or frequent as mutual funds.

References and Documents:

GAO Guide to Investment Management for Pension Funds:Recommends transparent, easily valued investments like mutual funds.

AICPA Pension Plan Audit Guidelines:Emphasizes liquidity and valuation in pension fund investments.

Capital Asset Transfers Within the Same Government:

When a capital asset is transferred between departments within the same government, the asset’sbook value(its original cost minus accumulated depreciation) should remain in the fixed asset tracking system.

The transfer does not change the overall value of the asset for the government as a whole, but it should reflect that the asset is now under the responsibility of the receiving department.

Why This Is Important:

Accurate tracking ensures the fixed asset system reflects the current custodian of the asset and allows for proper asset management and accountability.

Why Other Options Are Incorrect:

A. Recorded with the original department to maximize receipts:This is incorrect because it ignores the asset's transfer and would misrepresent which department is responsible for it.

B. Recorded with the second department to minimize costs:Cost minimization is irrelevant here; the transfer should reflect the book value.

C. Retained with no change in book value to either department:While the book value doesn’t change overall, the system must reflect the transfer to the receiving department.

References and Documents:

GAAP (Governmental Accounting Standards Board - GASB):Requires accurate fixed asset tracking to reflect departmental transfers.

GASB Statement No. 34:Discusses fixed asset tracking and reporting requirements.

Definition of a Repurchase Agreement (Repo):A repurchase agreement is a short-term financial transaction where one party sells securities to another with an agreement to repurchase them at a later date for a specified price, which includes interest. It functions as a secured loan.

Transaction Description:

The state transfers cash to a broker.

The broker provides securities as collateral and agrees to repay the cash plus interest in exchange for the return of the same securities.This arrangement matches the definition of arepurchase agreement.

Explanation of Answer Choices:

A. Arbitrage agreement: Arbitrage involves exploiting price differences in markets, unrelated to this transaction.

B. Repurchase agreement: Correct, as it fits the definition.

C. Mutual buy-sell agreement: This involves agreements to buy and sell assets, unrelated to this financial transaction.

D. Reverse repurchase agreement: Incorrect, as the state would be the borrower, not the lender, in a reverse repo.

References:

U.S. Department of the Treasury,Guide to Federal Investments.

Financial Accounting Standards Board (FASB),Accounting for Repurchase Agreements.

Audit Opinions:

Auditors issue opinions onfinancial statement auditsto provide assurance about whether the financial statements are presented fairly in accordance with applicable accounting standards (e.g., GAAP).

Other types of audits, such as performance or forensic audits, do not typically result in opinions but may provide findings or recommendations.

Explanation of Answer Choices:

A. Performance audits: These assess efficiency, effectiveness, or economy but do not include an opinion.

B. Compliance audits: These assess adherence to laws or regulations and may include findings but not an opinion.

C. Financial statement audits: Correct. These audits include an auditor’s opinion on the fairness of the financial statements.

D. Forensic audits: These focus on fraud investigation and result in findings, not an opinion.

References:

AICPA,Audit Opinions on Financial Statements.

GAO,Government Auditing Standards (Yellow Book).

What Are We Solving For?

We are calculating thepresent value (PV)of $20,550 to be received at theend of year 2using a discount rate of10%.

The formula for present value is: PV=FV(1+r)nPV = \frac{FV}{(1 + r)^n}PV=(1+r)nFV​ Where:

FVFVFV = Future Value = $20,550

rrr = Discount Rate = 10% or 0.10

nnn = Time Period = 2 years

Calculation:

PV=20,550(1+0.10)2PV = \frac{20,550}{(1 + 0.10)^2}PV=(1+0.10)220,550​ PV=20,550(1.10)2PV = \frac{20,550}{(1.10)^2}PV=(1.10)220,550​ PV=20,5501.21PV = \frac{20,550}{1.21}PV=1.2120,550​ PV≈16,983PV ≈ 16,983PV≈16,983

Why Other Options Are Incorrect:

A. $16,440:Results from incorrect discounting for one year instead of two.

C. $18,495:Results from applying a lower discount rate or an incorrect formula.

D. $20,550:This is the future value, not the present value.

References and Documents:

GAO Financial Analysis Guide:Explains present value calculations for investment decision-making.

AICPA Present Value Guidelines:Provides step-by-step guidance on time value of money calculations.

Antideficiency Act Overview:

TheAntideficiency Act (31 U.S.C. §§ 1341, 1342, 1517)prohibits federal agencies from:

Obligating or expending funds in excess of their appropriations.

Entering into contracts without sufficient appropriated funds.

Violating the Act is a serious matter, and agencies are required to report such violations to Congress and the President.

Explanation of Answer Choices:

A. Federal Managers’ Financial Integrity Act: Incorrect. This Act requires agencies to assess internal controls, not monitor appropriations.

B. Federal Financial Management Improvement Act: Incorrect. This Act focuses on improving financial systems, not budgetary compliance.

C. Antideficiency Act: Correct. This Act directly prohibits expenditures beyond appropriations.

D. Sarbanes-Oxley Act: Incorrect. This Act applies to corporate financial reporting, not federal appropriations.

References:

Antideficiency Act (31 U.S.C. §§ 1341, 1342, 1517).

GAO,Principles of Federal Appropriations Law.

Assumptions in Disaster Planning:

Financial continuity planning for natural disasters must account for scenarios where the event occurs suddenly and without warning.

This assumption ensures that governments are prepared to quickly resume critical financial operations even under challenging and unpredictable circumstances.

Explanation of Answer Choices:

A. Leadership and staff will reconvene at an alternate location: While this is part of disaster planning, it is not the primary assumption.

B. A fully redundant infrastructure will be available to staff at an alternate location: This may not always be realistic or feasible.

C. There may be no warning of the potential emergency: Correct. Disaster planning assumes that emergencies can occur without prior notice.

D. Government agencies will need to operate as standalone organizations: This is not a standard assumption in disaster planning.

References:

FEMA,Continuity Guidance Circular.

GAO,Disaster Resilience and Continuity Planning.

What Does the Cash Management Improvement Act (CMIA) Do?

CMIA governs the transfer of federal funds to state governments and ensures timely and efficient use of these funds.

If federal agencies fail to provide funds for entitlements (e.g., Medicaid) in a timely manner, CMIA requires them to payinterestto state governments for the delays.

This ensures states are compensated for any financial burden caused by delayed federal transfers.

Why Other Options Are Incorrect:

A. Debt Collection Improvement Act:Focuses on improving debt collection practices for the federal government, not entitlements or interest payments to states.

B. CFO Act:Improves federal financial management but does not address payment timeliness or interest.

C. Accountability for Tax Dollars Act:Expands audit requirements but does not involve compensation for delays.

References and Documents:

CMIA (1990):Requires federal agencies to pay interest on late entitlement payments to states.

Treasury Financial Manual:Details CMIA interest payment provisions.

What Does OMB Circular A-50 Require?

OMB Circular A-50establishes policies for resolving and following up on audit findings and recommendations. It assignspersonal responsibilityto anaudit follow-up officialwithin the agency for ensuring that disagreements with audit findings are resolved and that corrective actions are implemented.

Why Is the Audit Follow-Up Official Responsible?

The follow-up official ensures the agency responds appropriately to audit findings, tracks corrective actions, and resolves disagreements in a timely manner. This ensures accountability and compliance with audit recommendations.

Why Other Options Are Incorrect:

A. Comptroller General:The Comptroller General leads the GAO and oversees audits but is not responsible for resolving disagreements within agencies.

B. OMB Deputy Director for Management:Provides guidance on audit policies but does not hold personal responsibility for resolving disagreements.

C. Inspector General:Performs audits and investigations but does not resolve disagreements over audit findings.

References and Documents:

OMB Circular A-50:Specifies that the audit follow-up official holds responsibility for resolving disagreements.

GAO Yellow Book:Discusses the roles and responsibilities of various officials in audit processes.

What Does the Single Audit Act Require?

TheSingle Audit Actrequires non-federal entities (e.g., state and local governments, nonprofit organizations) that receive significant federal funds to undergo a single, organization-wide audit.

The audit focuses on both the entity’s financial statements and its compliance with federal program requirements.

Why Is Option A Correct?

The Single Audit Act ensures accountability and transparency in the use of federal funds by requiring financial statement audits and compliance testing for grant recipients.

Why Other Options Are Incorrect:

B. Using audits to manage acquisition risks:This relates to procurement and contract management, not the Single Audit Act.

C. Single audits of federal financial management systems:The act applies to non-federal entities, not federal agencies.

D. Establishing internal controls related to audits:While internal controls are assessed during a single audit, the act does not mandate their establishment.

References and Documents:

Single Audit Act of 1984 (Amended 1996):Specifies the requirements for audits of non-federal entities receiving federal funds.

OMB Circular A-133 (Superseded by Uniform Guidance, 2 CFR Part 200):Provides detailed guidance on single audit requirements.