CGFM CGFM Certified Government Financial Manager Questions and Answers

Understanding Resource Allocation in Street Maintenance:When additional resources are provided for street maintenance, their allocation should address the most pressing infrastructure needs to maximize impact and public benefit.

Key Indicator (Pavement Rating Scores):Pavement rating scores are used to evaluate the condition of roads. Areas with the lowest scores (representing unmet needs) require prioritized funding to bring the infrastructure to acceptable levels.

Explanation of Answer Choices:

A. Number of intersections: The number of intersections is not directly related to road conditions or pavement scores.

B. Historical budgeted amounts: Allocating based on past budgets does not address current infrastructure conditions or unmet needs.

C. Lane miles rated as acceptable by citizens: Roads already rated as "acceptable" do not require immediate attention.

D. Lane miles with unmet needs: Correct, as this aligns with addressing the most critical deficiencies based on the pavement scores.

References:

Government Finance Officers Association (GFOA),Best Practices in Capital Asset Management.

Federal Highway Administration (FHWA),Performance-Based Planning and Programming Guidebook.

Definition of Internal Control Weakness:Internal control weaknesses occur when controls fail to prevent or detect errors, fraud, or conflicts of interest. Allowing project managers to oversee companies in which they have a material interest introduces aconflict of interest, undermining internal controls.

Explanation of Answer Choices:

A. The contract department staff awards contracts and maintains a database for vendor information: While not ideal, this does not automatically signal a critical control weakness.

B. Management policy allows project managers to oversee controls of companies in which they have a material interest: Correct. This represents a serious conflict of interest and lack of independence.

C. The budget department staff is responsible for preparing the budget and for reporting on budget cost variances: This may indicate concentration of duties but is less severe than a direct conflict of interest.

D. The accounting department has one clerk prepare vendor payments and another clerk reconcile bank accounts: This demonstrates good segregation of duties, not a weakness.

References:

COSO,Internal Control - Integrated Framework.

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

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.

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.

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.

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.

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.

Why Hire Contractors for Management Control Evaluations?Management may decide to bring in external contractors when there are gaps in the organization’s capacity to perform evaluations internally. One key factor is thelack of management expertise—if management lacks the necessary knowledge or experience to evaluate controls effectively, it may outsource this task to qualified contractors.

Why Other Options Are Incorrect:

B. Availability of Qualified Contractors:While availability is a factor, it’s not a variable that influences the decision to outsource. Instead, it’s a logistical consideration once the decision has been made.

C. Suspicion of Internal Fraud:Suspicion of fraud may lead to investigations, but hiring contractors to evaluate controls is driven by expertise gaps rather than fraud concerns.

D. Knowledge of Systemic Deficiencies:If management already has knowledge of systemic deficiencies, they may focus on remediation rather than outsourcing evaluations.

References and Documents:

GAO Standards for Internal Control in the Federal Government (Green Book):Emphasizes the need for knowledgeable personnel to evaluate controls.

GAGAS (Yellow Book):Highlights the role of external expertise in cases where internal expertise is insufficient.

What Is Internal Control Over Financial Reporting?Internal control over financial reporting (ICFR) ensures the reliability of an entity’s financial statements. It focuses on maintaining accurate, complete, and properly valued financial information that complies with accounting standards and meets the needs of users.

Why Is Option C Correct?

Proper valuation of assets and liabilities is a critical component of ICFR. It ensures that financial statements fairly represent the entity's financial position.

Cost allocation is also essential where applicable, such as assigning costs to programs or projects.

Why Other Options Are Incorrect:

A. Sufficient spending authority and financial resources exist:This relates to budgetary control, not financial reporting.

B. Physical inventory of capitalized assets:Conducting a physical inventory is part of asset management, not financial reporting assertions.

D. Legislatively directed program goals:Meeting program goals is related to performance reporting, not ICFR.

References and Documents:

GAO Standards for Internal Control (Green Book):Stresses the importance of proper valuation and cost allocation for accurate financial reporting.

COSO Framework:Emphasizes ICFR’s role in ensuring reliable and accurate financial statements.

Why Select the Lowest Qualified Bidder?

Procurement rules in government require selecting thelowest qualified bidderto ensure fairness, cost-efficiency, and compliance with procurement regulations.

If the mayor’s high school classmate’s company meets the qualification criteria and provides the lowest bid, there is no conflict of interest unless favoritism or improper influence is proven.

Why Other Options Are Incorrect:

B. Second lowest priced qualified bidder:Selecting the second lowest bidder without justification violates the principle of fairness and cost-efficiency.

C. Third lowest bidder pending state disbarment:This vendor is not a qualified bidder due to pending disbarment.

D. Highest priced qualified bidder with the highest quality products:If quality specifications are already met by lower bidders, selecting the highest-priced bidder is unjustifiable.

References and Documents:

Federal Acquisition Regulation (FAR):Requires selecting the lowest qualified bidder.

GAO Guide on Procurement Standards:Emphasizes fairness and cost-effectiveness in vendor selection.

What Is Pay.gov?

Pay.govis anelectronic lockbox systemmanaged by the U.S. Department of the Treasury. It allows federal agencies to collect payments electronically, improving efficiency and reducing the time and cost associated with manual payment processing.

It supports online payments for taxes, fees, and other government-related obligations.

Why Is It an Electronic Lockbox?

Pay.gov consolidates and processes payments on behalf of federal agencies, similar to how a lockbox service processes payments for private businesses.

Why Other Options Are Incorrect:

A. Zero-balance account:This refers to a type of bank account that maintains a balance of zero by automatically transferring funds as needed, unrelated to Pay.gov’s purpose.

B. Concentration system:Refers to pooling funds from multiple accounts into one central account, not payment processing.

D. Data warehouse system:A data warehouse stores and organizes large amounts of data for analysis, unrelated to payment collection.

References and Documents:

U.S. Treasury Pay.gov Website:Describes Pay.gov as an electronic lockbox for federal payment processing.

GAO Financial Management Systems Guide:Highlights the role of electronic lockboxes like Pay.gov in improving efficiency.

What Is a Risk Profile?Arisk profileis the formal listing and assessment of an agency's top risks. It identifies the risks that could significantly impact an organization’s ability to achieve its objectives and prioritizes them based on factors like likelihood and impact.

Why Is the Risk Profile Important?

The risk profile helps management focus on the most critical risks and allocate resources to address them effectively. It is a core element of enterprise risk management frameworks (e.g., COSO ERM).

In the federal government,OMB Circular A-123requires agencies to maintain a risk profile as part of their internal control and risk management processes.

Why Other Options Are Incorrect:

B. Risk Management Plan:This is broader and includes strategies for mitigating and monitoring risks, not just listing and assessing them.

C. Risk Assessment:This is a process used to identify and evaluate risks but does not specifically refer to the formal listing of risks.

D. Risk Register:While similar to a risk profile, a risk register typically includes more granular details, such as specific control measures, responsibilities, and timelines.

References and Documents:

OMB Circular A-123:Requires federal agencies to develop a risk profile as part of their risk management framework.

COSO ERM Framework (2017):Describes the risk profile as a tool for managing enterprise-wide risks.

Response to Weaknesses in Shared Service Providers:

Shared service providers often issue reports on internal controls (e.g., SOC 1 or SOC 2 reports).

When a weakness is identified, the recipient agency must evaluate whether compensating or mitigating controls exist to address the risk, ensuring continued reliability.

Explanation of Answer Choices:

A. Consider the existence of compensating or mitigating controls: Correct. This is a standard response to internal control weaknesses, as outlined in auditing and risk management best practices.

B. Ask the service provider to correct the weakness: Incorrect. While this may be appropriate, the recipient agency is ultimately responsible for evaluating and addressing the risk.

C. Dismiss the weakness: Incorrect. Ignoring a weakness can expose the agency to risk.

D. Refer the weakness to the Contracting Officer: Incorrect. This may be part of the process, but the agency must first assess the impact and controls.

References:

American Institute of Certified Public Accountants (AICPA),SOC Reports Guidance.

Government Accountability Office (GAO),Internal Control Standards for Federal Agencies.

Annual Comprehensive Financial Report (ACFR):

TheACFR(formerly CAFR) is the primary source for a state’s annual financial information, including liability and cash flow data.

It provides comprehensive financial statements, including the balance sheet, statement of activities, and cash flow statements.

Explanation of Answer Choices:

A. PAR: ThePerformance and Accountability Report (PAR)focuses on federal agencies and includes performance goals and achievements but lacks detailed liability and cash flow data for states.

B. ACFR: Correct. The ACFR is the best source for detailed liability and cash flow data at the state level.

C. Appropriations bill: Provides legislative authority for spending but does not include detailed financial data.

D. Statement of activities: This is part of the ACFR but does not include all necessary cash flow or liability data.

References:

Government Finance Officers Association (GFOA),Best Practices for ACFR Reporting.

GASB,Annual Comprehensive Financial Report Guidance.

What Is Net Present Value (NPV)?

NPV analysisevaluates the profitability of long-term investments by calculating the present value of expected cash inflows and outflows over time, discounted at a specified rate (e.g., the opportunity cost of capital).

It helps decision-makers compare investment options by quantifying their value in today’s dollars.

Why NPV Is Appropriate for Long-Term Investments:

It considers thetime value of money(a dollar today is worth more than a dollar in the future).

NPV helps the treasurer evaluate and prioritize investments based on their overall profitability and financial impact over the long term.

Why Other Options Are Incorrect:

B. Regression Analysis:This statistical method analyzes relationships between variables but is not commonly used for evaluating long-term investments.

C. Horizontal Analysis:Focuses on financial data changes over time (e.g., year-to-year comparisons), not investment decisions.

D. Ratio Analysis:Measures financial performance but does not evaluate the profitability of long-term investment alternatives.

References and Documents:

GAO Guide on Investment Decision-Making:Recommends using NPV for evaluating long-term projects and investments.

OMB Circular A-94:Provides guidelines for using NPV in benefit-cost analysis of federal investments.

Control Environment Component:

The control environment is the foundation of an internal control system, setting the tone at the top.

Demonstrating integrity and ethical values is the first principle of the control environment, as outlined in theCOSO Internal Control Framework.

Explanation of Answer Choices:

A. Demonstrate a commitment to integrity and ethical values: Correct. This is a foundational principle of the control environment.

B. Implement control activities through policies: This relates to the "Control Activities" component, not the control environment.

C. Communicate quality information to achieve the entity's objectives: This relates to the "Information and Communication" component.

D. Establish and operate activities to monitor the internal control system: This relates to the "Monitoring Activities" component.

References:

COSO,Internal Control - Integrated Framework.

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

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.

Type of Engagement for Reviewing Pilot Programs:

A performance audit evaluates theeffectiveness, efficiency, and economyof programs or operations.

In this case, the review of the pilot program assessed the number of families served and the efficiencies achieved through community involvement, which aligns with performance auditing objectives.

Explanation of Answer Choices:

A. Financial audit: Focuses on the accuracy of financial statements, not program effectiveness or efficiency.

B. Single audit: Focuses on compliance with federal grant requirements, not program evaluation.

C. Performance audit: Correct. This type of audit reviews program outcomes and operational efficiencies.

D. Attestation: Provides assurance on specific subject matter but does not evaluate program performance.

References:

GAO,Government Auditing Standards (Yellow Book).

Association of Government Accountants (AGA),Performance Auditing Best Practices.

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.

Responsibility for Internal Controls:

Managementholds the primary responsibility for establishing, implementing, and maintaining an organization’s internal control system.

This responsibility is outlined in frameworks such as COSO’sInternal Control - Integrated Frameworkand the GAO’sGreen Book.

Roles of Other Parties:

A. Accountants: While accountants may assist in designing or assessing controls, they are not primarily responsible.

B. Internal auditors: Their role is to evaluate the effectiveness of controls, not establish them.

D. Audit committee: Provides oversight but does not implement or design controls.

References:

COSO,Internal Control - Integrated Framework.

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

What Are Liquidity Ratios?Liquidity ratios are financial metrics used to measure an organization’s ability to meet its short-term financial obligations as they come due. These ratios assess whether the organization has sufficient liquid assets (like cash, receivables, or short-term investments) to cover its current liabilities (debts or obligations due within a year).

Why Are They Relevant to Creditors?Creditors care deeply about an entity's ability to repay its debts in a timely manner. Liquidity ratios provide a snapshot of the organization's financial health and give insight into its capacity to meet short-term demands. They are essential tools in evaluating whether a government entity (federal, state, or local) or any other organization can pay its creditors without needing to secure additional financing or liquidate long-term assets.

Common Liquidity Ratios:The most commonly used liquidity ratios are:

Current Ratio:This measures the organization’s ability to pay off its current liabilities with current assets.Formula:Current Assets ÷ Current Liabilities

Quick Ratio (Acid-Test Ratio):A stricter version of the current ratio, it excludes less liquid assets (like inventory) to assess the organization’s immediate ability to pay short-term debts.Formula:(Current Assets - Inventory) ÷ Current Liabilities

Cash Ratio:Focuses only on the most liquid assets, such as cash and cash equivalents.Formula:Cash + Cash Equivalents ÷ Current Liabilities

How Do Liquidity Ratios Apply to Governmental Accounting?In governmental accounting, liquidity ratios are crucial for determining whether a governmental entity has the financial flexibility to manage short-term obligations like accounts payable, payroll, and other operating costs. For example:

State and local governments use liquidity ratios to show stakeholders their ability to sustain operations without financial strain.

Government-wide financial statements (under GASB standards) often emphasize liquidity to demonstrate fiscal health to bondholders and credit rating agencies.

Why Not Other Ratios?

A. Budgetary Cushion Ratios:These focus on the organization’s ability to withstand revenue shortfalls and maintain budgetary reserves, not specifically on meeting creditor demands.

C. Debt Burden Ratios:These measure the overall burden of debt on the organization but don’t directly address short-term liquidity or solvency.

D. Turnover Ratios:These evaluate operational efficiency (e.g., how quickly assets like inventory are converted into revenue), which doesn’t directly relate to creditor demands.

References and Documents:

Government Financial Manager (GFM) Competency Framework by the Association of Government Accountants (AGA):Section on “Financial Analysis” emphasizes the importance of liquidity ratios in assessing short-term solvency for government entities.

GASB Concepts Statement No. 1:Discusses the need for governmental financial reporting to provide information on financial condition, including short-term liquidity.

AGA Performance Management Framework Guide (2023):Highlights liquidity ratios as critical tools for demonstrating fiscal responsibility and transparency in public sector financial management.

What Is Strategic Sourcing?Strategic sourcing is a systematic process aimed at optimizing an organization’s purchasing activities to maximize value and minimize costs. It involves analyzing spending, selecting suppliers, and negotiating contracts strategically rather than reactively.

Why Start with Spend Data?

Analyzing Spend Data:The first step is to understand the organization’s current spending patterns by analyzing spend data by category and by business unit. This helps identify high-cost areas, redundancies, and opportunities for cost savings.

Importance of Data-Driven Decisions:Without knowing where and how money is being spent, it’s impossible to make informed strategic sourcing decisions.

Why Other Options Are Incorrect:

A. Contacting Vendors:Vendors are contacted later in the process after the spend analysis is complete and sourcing strategies are determined.

C. Contacting Business Units:While checking for existing contracts is part of the process, it happens after analyzing spend data.

D. Developing Supplier Performance Measures:This step occurs much later, typically after supplier selection and contract execution.

References and Documents:

GAO Guide to Strategic Sourcing (2013):Recommends starting with a detailed spend analysis as the foundation for effective sourcing decisions.

Why Include Permissible and Non-Permissible Investment Securities?

Aninvestment policyoutlines the guidelines and restrictions for managing an entity’s investments, ensuring compliance with laws and protecting public funds.

Listingpermissible(e.g., government bonds, treasury securities) andnon-permissibleinvestments ensures clarity about what the entity can and cannot invest in, helping to mitigate risk and maintain fiduciary responsibility.

Why Other Options Are Incorrect:

A. Prices and performance of investment securities:This information is important for monitoring investments but does not belong in the policy itself.

C. Historical allocations of investment securities:Historical data informs decision-making but is not relevant to the rules governing investments.

D. Key and non-key investment security controls:While controls are critical, they are part of the implementation process, not the investment policy.

References and Documents:

GAO Investment Policy Guidelines:Recommends specifying permissible investments to ensure fiduciary responsibility.

GFOA Best Practices in Investment Management:Emphasizes clear investment guidelines in the policy.

Governmental Attestation Engagements:

These engagements involve providing assurance on specific elements of financial or non-financial information, such as compliance with laws, contracts, or bond covenants.

Reviewing revenue coverage requirements for outstanding bonds fits the scope of attestation engagements, which focus on confirming adherence to specific requirements.

Explanation of Answer Choices:

A. Monitor a subgrantee for compliance to the grant restrictions: Monitoring is a management responsibility, not typically part of an attestation engagement.

B. Establish a policy concerning fraud prevention: Establishing policies is a management duty, not a task for auditors.

C. Monitor purchasing card charges for compliance with travel policies: Monitoring is operational, not attestation-related.

D. Review the revenue coverage requirements on outstanding bonds: Correct. This falls within the scope of attestation engagements.

References:

GAO,Government Auditing Standards (Yellow Book).

AICPA,Attestation Standards for Government Engagements.

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.

Definition of Output Measures:

Output measures trackthe results of providing goods or services, such as the number of items produced or services delivered.

These measures focus onquantityrather than quality or outcomes.

Explanation of Answer Choices:

A. Activity measures: Incorrect. Activity measures refer to inputs or processes, not results.

B. Outcome measures: Incorrect. Outcome measures assess the impact or effectiveness of a program, not the quantity of goods/services provided.

C. Output measures: Correct. Output measures focus on results (e.g., number of services delivered).

D. Workload measures: Incorrect. Workload measures assess the volume of work performed but do not necessarily report on the results.

References:

GASB,Performance Measurement Concepts.

GAO,Performance Auditing Standards and Guidance.

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.

Understanding the Scenario:The table compares the costs of four printing jobs performed by an "Internal Print Shop" versus three external vendors (Ace Printing, ABC Printing, and Printing, Inc.). Eachvendor's pricing varies by print job type. The task is to evaluate whether outsourcing (hiring external vendors) is a reasonable alternative to keeping the work in-house.

Key Considerations in Outsourcing:According to governmental accounting principles and budgeting practices outlined by theAssociation of Government Accountants (AGA), the decision to outsource should consider:

Cost-effectiveness: Does outsourcing reduce costs without compromising quality or service delivery?

Operational efficiency: Can outsourcing free up internal resources for other priorities?

Comparative pricing: How do external vendor rates compare to internal costs for identical services?

Analysis of the Print Jobs:Let’s break down the cost comparison for each print job:

Zone Map:Internal cost = $4.23.Cheapest vendor = Printing, Inc., at $4.00.Outsourcing is cheaper for this job.

Agenda Packet:Internal cost = $23.18.Cheapest vendor = Printing, Inc., at $22.00.Outsourcing is cheaper for this job.

Budget Cover:Internal cost = $840.00.Cheapest vendor = ABC Printing, at $624.30.Outsourcing is significantly cheaper for this job.

Employee Benefit Brochure:Internal cost = $6.14.Cheapest vendor = ABC Printing, at $4.90.Outsourcing is cheaper for this job.

Conclusion Based on Analysis:

Across all four print jobs, the lowest-cost external vendor always beats the Internal Print Shop's costs.

From abudgetary perspective, outsourcing is feasible as it offers cost savings across all jobs.

Why Not A, C, or D?:

Option A(Keep printing in-house): Incorrect, as in-house costs are consistently higher than the cheapest external vendor.

Option C(Outsourcing is necessary): Incorrect, as feasibility doesn’t mean necessity; internal printing is still an option if other factors (like quality or control) outweigh costs.

Option D(Award contract to ABC Printing): Incorrect, since the best vendor depends on the job (e.g., Printing, Inc. is cheaper for Zone Map and Agenda Packet).

References:

Association of Government Accountants (AGA),Government Financial Manager Certification Study Guide: Budgeting, Cost Accounting, and Auditing Principles.

Government Finance Officers Association (GFOA),Best Practices in Outsourcing and Procurement.

Federal Accounting Standards Advisory Board (FASAB),Cost Accounting Standards for Governmental Operations.

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).

Creditworthiness and Loan Approval:

When creditworthiness is a criterion for government loans, the applicant must demonstrate asatisfactory history of repaying debt, as this reflects their ability to fulfill repayment obligations in the future.

Why a Satisfactory History Is Required:

Past repayment behavior is considered the best indicator of future performance. Government agencies prioritize reducing the risk of defaults by ensuring applicants have a proven history of managing debt responsibly.

Why Other Options Are Incorrect:

A. A credit rating from a major bank:While a credit rating is helpful, it is not typically required for government loans. Instead, creditworthiness is evaluated based on repayment history and other financial factors.

C. Sufficient capitalization:This is important for business loans, but it does not address creditworthiness.

D. A promise to pay interest at the government borrowing rate:A promise is not sufficient to establish creditworthiness.

References and Documents:

OMB Circular A-129:Requires agencies to assess creditworthiness before granting loans.

GAO Loan Management Guide:Highlights repayment history as a key criterion for loan approval.