AGA Certified Government Financial Manager CGFM Exam Practice Test

Answer : C

Compliance Reporting Under Government Auditing Standards (GAS):

GAS requires auditors to assess compliance with applicable laws, regulations, contracts, and grant agreements during audits.

Compliance reporting typically includes:

Identifying areas of noncompliance.

Describing the auditor's responsibility for compliance testing.

Outlining the scope of compliance testing.

Explanation of Answer Choices:

A . Areas of noncompliance: Included in compliance reporting to highlight where the entity failed to meet requirements.

B . The auditor's responsibility for tests of compliance: GAS requires auditors to clarify their role in compliance testing.

C . Review of major internal control cycles: Correct. While internal controls may be assessed, reviewing 'major internal control cycles' is not a direct component of compliance reporting.

D . The scope of the compliance testing: GAS mandates that the scope of testing be disclosed in the compliance report.

GAO, Government Auditing Standards (Yellow Book).

AICPA, Compliance Reporting Guidance for Government Audits.

Answer : B

Single Audit Report Requirements:

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

The financial statement opinion must state whether the financial statements are fairly 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.

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

GAO, Government Auditing Standards (Yellow Book).

Answer : B

Risk Assessment Under COSO Framework:

The first step in a COSO-based risk assessment is defining internal control objectives. This establishes what the organization aims to achieve, providing a framework for identifying risks and ensuring controls align with objectives.

Risk assessment focuses on evaluating the likelihood and impact of risks that could hinder these objectives.

Explanation of Answer Choices:

A . Identification of risks: Identifying risks follows the definition of internal control objectives.

B . Defining internal control objectives: Correct. Objectives must be defined first to provide a basis for identifying and assessing risks.

C . Review of prior audit findings: Important, but it's not the starting point for a risk assessment under COSO.

D . Setting risk tolerance levels: This occurs later, after risks have been identified and evaluated.

COSO, Internal Control - Integrated Framework.

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

Answer : D

* 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.

* Reference 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.

Answer : C

* 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).

* Reference 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.

Answer : B

* What Are Material Weaknesses?

A material weakness in internal control is a deficiency or combination of deficiencies that creates a reasonable possibility of a material misstatement in the financial statements that would not be prevented or detected in a timely manner.

In the context of state and local financial audits, material weaknesses must be reported to those charged with governance, as they are responsible for oversight and corrective actions.

* Why Is the Governing Body the Correct Answer?

The governing body (e.g., city council, county board, or state commission) is directly responsible for overseeing the entity's financial operations and ensuring accountability. Reporting material weaknesses to them ensures that corrective actions can be implemented to strengthen internal controls.

Auditors communicate such findings through an audit report or a management letter addressed to the governing body.

* Why Other Options Are Incorrect:

A . Legislature: The legislature may have oversight of state budgets and appropriations but is not the direct governing body for financial audits.

C . Taxpayers: While transparency is important, material weaknesses are not directly reported to taxpayers. They may be disclosed in public audit reports, but taxpayers are not the primary audience.

D . Local media: Material weaknesses are not formally reported to the media; their disclosure depends on the entity's public reporting processes.

* Reference and Documents:

GAO Yellow Book (GAGAS): Requires auditors to report material weaknesses to those charged with governance.

GASB (Governmental Accounting Standards Board): Emphasizes the importance of communicating significant audit findings to governing bodies.

AICPA Audit Standards (AU-C 265): Requires auditors to communicate material weaknesses to management and those charged with governance.

Answer : A

* What Is Inventory Control?

Inventory control refers to the processes and systems used to manage stock levels, including determining how much inventory to keep on hand, reordering stock, and maintaining optimal levels to meet operational needs while minimizing costs.

Determining stock levels is a central function of inventory control, ensuring the organization has the right amount of inventory to meet demand without overstocking or understocking.

* Why Other Options Are Incorrect:

B . Safeguard control: This refers to protecting inventory from theft, damage, or loss, not determining stock levels.

C . Management control: This is a broader term encompassing oversight and governance, not specific to inventory.

D . Supply control: This typically refers to managing supply chains and suppliers, not the internal control of inventory levels.

* Reference and Documents:

GAO Inventory Management Guide: Defines inventory control as the process of determining and maintaining appropriate stock levels.

Best Practices in Government Inventory Management (AGA): Emphasizes the role of inventory control in balancing supply and demand.