AGA CGFM Certified Government Financial Manager Exam Practice Test

Answer : C

First Step in Assessing Compliance:

The first step in evaluating compliance is to develop a comprehensive inventory of 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.

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

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

Answer : B

What Is Control Risk?

Control risk refers 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.

Reference 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.

Answer : B

Answer : B

Performance Audit Objectives:

Performance audits evaluate the effectiveness, efficiency, and economy of government programs, operations, or activities.

These audits focus on improving operations, achieving program goals, and ensuring responsible use of public resources.

Explanation of Answer Choices:

A . Providing an opinion on the entity's financial statement: This is the objective of a financial statement audit, not a performance audit.

B . Assessing program effectiveness, economy, and efficiency: Correct. This is the primary objective of performance audits.

C . Providing an opinion on a subject matter that is the responsibility of another party: This aligns with attestation engagements, not performance audits.

D . Issuing a report of findings based upon an agreed-upon procedure: This describes agreed-upon procedures engagements, not performance audits.

GAO, Government Auditing Standards (Yellow Book).

Association of Government Accountants (AGA), Performance Auditing Guidance.

Answer : A

Benford's Law and Fraud Detection:

Benford's Law is a statistical principle that predicts the frequency of leading digits in naturally occurring datasets.

Deviations from the expected distribution (e.g., a higher-than-expected frequency of a specific leading digit) can indicate manipulation or fraud.

For example, if too many payments start with the number '3,' it suggests potential tampering.

Explanation of Answer Choices:

A . A higher-than-expected number of payment amounts to one vendor start with the number three: Correct. This aligns with how Benford's Law is used to detect anomalies in numerical data.

B . A large number of contracts are awarded to one vendor: While concerning, this is not related to Benford's Law.

C . A large contract is awarded to the director's close relative: This indicates a conflict of interest but is unrelated to Benford's Law.

D . An employee receives kickbacks from real estate developers: This is fraud but cannot be identified using Benford's Law.

Association of Certified Fraud Examiners (ACFE), Fraud Detection Using Benford's Law.

GAO, Fraud Risk Management Framework.

Answer : C

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.

FEMA, Continuity Guidance Circular.

GAO, Disaster Resilience and Continuity Planning.

Answer : D

What Is Consistency in Performance Measurement?

A consistent performance measure is one that is calculated and reported in the same way over several periods. Consistency allows for meaningful comparisons and trend analysis, making it easier to evaluate performance over time.

Why Consistency Is the Correct Answer:

Performance metrics must remain consistent in methodology, definitions, and scope to ensure the results are comparable across time periods. Without consistency, the reliability and usefulness of the data are diminished.

Why Other Options Are Incorrect:

A . Timely: Timeliness refers to how quickly the information is reported, not whether it is measured consistently.

B . Relevant: Relevance ensures the measure is meaningful to the decision-making process, but it does not address consistency.

C . Reliable: Reliability refers to the accuracy and trustworthiness of the data, not its consistency over time.

Reference and Documents:

GAO Performance Measurement Guide: Stresses the importance of consistency in tracking and reporting metrics over time.