GFMC Exam Dumps - AGA Government Financial Manager Questions and Answers

Management's Role in Resolving Audit Recommendations:

By appointing a senior official to oversee the resolution of audit recommendations, management demonstrates itscommitment and supportfor the audit process.

This action indicates a proactive approach to addressing findings and improving operations.

Explanation of Answer Choices:

A. Agreement with the audit findings: While this may indicate agreement, appointing a senior official is more about ensuring action is taken rather than expressing agreement.

B. Disagreement with the audit findings: Incorrect. Appointing a senior official is a constructive step, not an indication of disagreement.

C. Delegation of authority: Incorrect. Delegation is involved, but the key point is the demonstration of management’s support for addressing audit findings.

D. Support for the audit process: Correct. This action underscores management's commitment to resolving audit findings and improving accountability.

Deterrence of Fraud:

A primary deterrent to fraud is thefear of being caught. When individuals believe there is a high likelihood of detection, they are less likely to commit fraudulent acts.

Strong internal controls, monitoring, and audits increase this fear and serve as effective deterrents.

Explanation of Answer Choices:

A. Delegation of responsibility without oversight: Incorrect. Lack of oversight increases the risk of fraud rather than deterring it.

B. The fear of detection: Correct. The fear of being caught is one of the most effective fraud deterrents.

C. Job satisfaction and sense of "team": While these contribute to a positive work environment, they do not directly deter fraud.

D. Performance of employee background checks: Background checks are a preventive measure but are less effective as a fraud deterrent compared to detection risk.

 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 Cost-Effectiveness Measures:

Cost-effectiveness measures assess therelationship between inputs (resources used)andoutcomes (results achieved)to determine whether a program delivers value for the resources invested.

Explanation of Answer Choices:

A. Efficiency measures: Incorrect. These relate inputs to outputs, focusing on how efficiently resources are used to produce services, but not directly tied to outcomes.

B. Process measures: Incorrect. These measure activities or steps within a program but do not assess outcomes.

C. Cost-effectiveness measures: Correct. These directly link inputs to outcomes, measuring the program’s effectiveness in achieving its objectives relative to costs.

D. Activity measures: Incorrect. These track the level of activity or effort but not outcomes or effectiveness.

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.

Federal Credit Reform Act of 1990:This Act established a new accounting framework for federal credit programs, such as direct loans and loan guarantees. It requires using thenet present value (NPV)method to measure the costs of loans and guarantees by discounting future cash flows (e.g., loan repayments, defaults) to their present value.

Explanation of Financial Analytical Technique:

Net Present Value (NPV): Accounts for the time value of money by discounting future cash flows to the present. It provides an accurate measure of the economic cost to the government.

Other options:

A. Future value: Focuses on future cash flows, not their present cost.

C. Current value: Not a recognized technique for analyzing long-term cash flows.

D. Regression analysis: A statistical method, unrelated to calculating loan program costs.

 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.

 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.

 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.