AGA GFMC Examination 3: Governmental Financial Management and Control (GFMC) Exam Practice Test

Answer : B

What Are Simplified Acquisition Processes? Simplified acquisition processes are procurement methods designed to streamline purchasing for government agencies. These processes reduce the administrative burden for smaller purchases, typically below a certain dollar threshold (as defined in the Federal Acquisition Regulation (FAR)).

How Do These Processes Assist Agencies?

Bulk Purchase Discounts: Simplified acquisition allows agencies to leverage economies of scale and negotiate bulk purchase discounts for commonly used goods and services.

Reduced Administrative Costs: By simplifying documentation, reducing oversight requirements, and accelerating the approval process, these methods lower administrative costs and increase efficiency.

Why Other Options Are Incorrect:

A . Maintaining the competitive bid requirement and allowing credit card purchases: While simplified acquisitions may allow credit card purchases, the focus is not maintaining competitive bids but reducing costs and streamlining the process.

C . Increasing the number of requisitions processed: The goal is efficiency, not increasing the volume of requisitions.

D . Reducing acquisition staff and managerial oversight: These processes may simplify oversight but do not aim to reduce staff; instead, they help existing staff work more efficiently.

Reference and Documents:

Federal Acquisition Regulation (FAR) Part 13: Covers simplified acquisition processes and their intended benefits.

GAO Reports on Federal Procurement (2020): Highlights the cost savings and efficiencies gained through simplified acquisition methods.

Answer : B

Annual Comprehensive Financial Report (ACFR):

The ACFR (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: The Performance 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.

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

GASB, Annual Comprehensive Financial Report Guidance.

Answer : B

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 a repurchase 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.

Answer : B

Segregation of Duties and the Fraud Triangle:

The Fraud Triangle identifies three conditions that contribute to fraud: pressure, opportunity, and rationalization.

Segregating duties (e.g., separating authorization, recordkeeping, and asset custody) is specifically designed to reduce opportunity, which is the chance for an employee to commit fraud without detection.

Why Opportunity Is Key:

If one person has too much control over a process, they may exploit it for personal gain. Segregating duties creates checks and balances, making it harder for fraudulent activities to go unnoticed.

Why Other Options Are Incorrect:

A . Pressure: Pressure refers to personal or financial stresses that drive someone to commit fraud, but segregation of duties does not address this directly.

C . Rationalization: Rationalization involves justifying fraudulent behavior, which segregation does not prevent.

D . Detection: While segregation can aid in fraud detection, its primary role is to reduce opportunities for fraud.

Reference and Documents:

GAO Standards for Internal Control (Green Book): Emphasizes segregation of duties as a control to mitigate opportunities for fraud.

COSO Internal Control Framework: Identifies segregation of duties as a key tool to reduce fraud risk.

Answer : D

What Does OMB Circular A-50 Require?

OMB Circular A-50 establishes policies for resolving and following up on audit findings and recommendations. It assigns personal responsibility to an audit follow-up official within 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.

Reference 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.

Answer : A

Performance Audit Overview:

A performance audit focuses on evaluating the economy, efficiency, and effectiveness of government programs or activities.

Due professional care is a requirement in Government Auditing Standards (Yellow Book), ensuring auditors perform their duties responsibly and with professional judgment.

Key Requirement: Sufficient and Competent Evidence:

Auditors must collect sufficient and reliable evidence to support their findings, conclusions, and recommendations. This is the cornerstone of 'due professional care.'

Explanation of Answer Choices:

A . Obtain sufficient and competent evidence: Correct. This ensures audit findings are supported by reliable, documented evidence.

B . Determine scope: While part of audit planning, it is not directly related to due professional care.

C . Set materiality of financial statements: This applies to financial audits, not performance audits.

D . Present the findings in accordance with GAAP: GAAP is not a requirement for performance audits.

GAO, Government Auditing Standards (Yellow Book).

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

Answer : A

What Does the Single Audit Act Require?

The Single Audit Act requires 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.

Reference 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.