AGA CGFM - CGFM Certified Government Financial Manager

ï‚·What Is a Risk Profile?

Arisk profilerepresents the aggregate level and types of risks that an organization is willing to accept in pursuit of its strategic objectives. It aligns with the organization’s risk appetite and tolerance and helps prioritize and manage risks effectively.

This profile typically includes key risks, their likelihood, and potential impact, as well as how those risks align with the organization's mission and strategy.

ï‚·Why Is Risk Profile the Correct Answer?

The risk profile provides an enterprise-wide view of risks and their potential influence on achieving strategic goals. It aggregates risks across all levels of the organization and ensures that management considers them when making decisions.

ï‚·Why Other Options Are Incorrect:

A. Risk Register:While a risk register includes detailed descriptions of individual risks, it does not aggregate risk levels or types across the organization.

B. Risk and Control Evaluation Matrix:This tool evaluates specific risks and controls but does not capture the organization’s overall risk appetite or profile.

D. Risk and Control Assessment Tool:This is a generic tool for assessing risks and controls, not for aggregating the overall risk picture.

ï‚·References and Documents:

OMB Circular A-123:Specifies the need for agencies to maintain a risk profile as part of enterprise risk management.

COSO ERM Framework (2017):Defines a risk profile as central to managing risks in alignment with strategic objectives.

ï‚·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.

ï‚·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.

ï‚·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.

ï‚·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.

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 inGovernment 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.

References:

GAO,Government Auditing Standards (Yellow Book).

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

ï‚·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.

ï‚·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.

ï‚·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.

ï‚·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.

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).

ï‚·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 theFederal Acquisition Regulation (FAR)).

ï‚·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.

ï‚·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.

ï‚·References 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.

ï‚·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.

ï‚·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.

ï‚·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.

ï‚·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.

ï‚·What Are Disbursement Techniques?

Disbursement techniques refer to the methods used by organizations to pay vendors or settle financial obligations. The timeliness of payments depends on the technique used.

ï‚·Why Are Drafts the Best Option for Timely Payments?

Adraftis a payment instrument issued by an organization’s bank, drawn against its account, and typically includes specific payment timing instructions.

Drafts allow the payer to specify the timing of payments, ensuring they are made on time.

ï‚·Why Other Options Are Incorrect:

A. Warrants:Warrants authorize payments but do not ensure timeliness as they require additional processing before funds are disbursed.

B. Checks:Checks rely on postal delivery and clearing times, which may delay payments.

D. Bank cards:While convenient, bank cards are typically used for immediate payments, not for ensuring future timely disbursements.

ï‚·References and Documents:

Treasury Financial Manual:Highlights drafts as a disbursement tool for controlling the timing of payments.

GAO Cash Management Guide:Discusses the benefits of drafts in ensuring timely payments.

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.

ï‚·Segregation of Duties and the Fraud Triangle:

TheFraud Triangleidentifies three conditions that contribute to fraud:pressure,opportunity, andrationalization.

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

ï‚·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.

ï‚·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.

ï‚·References 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.