CPFO RISK ASSESSMENT ACTUAL TEST
PAPER 2026 QUESTIONS WITH SOLUTIONS
GRADED A+
●● COSO.
Answer: Committee of Sponsoring Organizations of the Treadway
Commission.
●● Risk Identification.
Answer: An essential component in identifying risk is to understand the
sources, types, and likelihood of risk. Risk identification should identify
at a minimum the exposures in each of these areas.
- Physical environment (natural or man-made disasters and
infrastructure).
- Legal and ethical environment (laws and legal precedents).
- Operational environment (day-to-day activities and actions within the
local government, including services provided and workforce
demographics).
- Political environment (legislative activity, elections).
- Social environment (socio-economic composition of the community).
- Economic environment (market trends, interest rates).
- Emerging risks (cybersecurity).
,- Internal environment (the attitude of individuals towards risk).
●● Risk Transfer.
Answer: Two basic types of risk transfer involve financial or contractual
risk.
Financial risk transfer may involve the use of an insurance company or
risk managements pools. The criteria for procuring insurance should
involve quality and scope of service, breadth of coverage (level of
deductibles), financial stability, and cost.
●● Risk Avoidance.
Answer: Governments may avoid providing specific services if the risk
management costs are excessive.
●● Risk Retention.
Answer: When a government retains risk (i.e., self insures) it assumes
financial responsibility for some losses. Retaining some risk (e.g.,
paying a deductible) can lower the government's premiums. Some
governments use their own reserve policies to reduce risk. However, the
government needs to be aware of its exposures through self-insurance.
●● Risk Treatment.
Answer: After identifying and evaluating risk exposures, the next step is
to decide how best to treat the exposures. Management may select a
, variety of risk responses: avoiding, accepting, reducing, sharing, or
transferring risk. A risk management program should be a well-rounded
combination of preventative and control measures, risk transfer, and risk
retention. The latter two methods refer to a government either shifting
the financial burden of risk to another entity or performing the task of
risking financing in-house. In addition to these three methods,
governments may occasionally choose not to provide a service
altogether, a risk management technique known as risk avoidance.
●● Risk Management Implementation.
Answer: To implement a risk management program, consideration
should be given to the establishment of risk management policies and
procedures that includes a statement of the organization's goals,
identifies officials charged with carrying out risk-related functions (e.g.,
planning, organizing, coordinating, implementing, monitoring, and
controlling the government's risk management program), and contains
guidelines for making decisions about fundamental activities (e.g., risk
control and risk finance). It is essential that government officials are
aware of not only the policies and procedures, but that the risk responses
are implemented and effectively carried out.
●● Risk Evaluations.
Answer: Monitoring and frequency and severity of claims. Risk
evaluation reports often include such information as the number of open
claims, the amount paid out, and the amount reserved.
PAPER 2026 QUESTIONS WITH SOLUTIONS
GRADED A+
●● COSO.
Answer: Committee of Sponsoring Organizations of the Treadway
Commission.
●● Risk Identification.
Answer: An essential component in identifying risk is to understand the
sources, types, and likelihood of risk. Risk identification should identify
at a minimum the exposures in each of these areas.
- Physical environment (natural or man-made disasters and
infrastructure).
- Legal and ethical environment (laws and legal precedents).
- Operational environment (day-to-day activities and actions within the
local government, including services provided and workforce
demographics).
- Political environment (legislative activity, elections).
- Social environment (socio-economic composition of the community).
- Economic environment (market trends, interest rates).
- Emerging risks (cybersecurity).
,- Internal environment (the attitude of individuals towards risk).
●● Risk Transfer.
Answer: Two basic types of risk transfer involve financial or contractual
risk.
Financial risk transfer may involve the use of an insurance company or
risk managements pools. The criteria for procuring insurance should
involve quality and scope of service, breadth of coverage (level of
deductibles), financial stability, and cost.
●● Risk Avoidance.
Answer: Governments may avoid providing specific services if the risk
management costs are excessive.
●● Risk Retention.
Answer: When a government retains risk (i.e., self insures) it assumes
financial responsibility for some losses. Retaining some risk (e.g.,
paying a deductible) can lower the government's premiums. Some
governments use their own reserve policies to reduce risk. However, the
government needs to be aware of its exposures through self-insurance.
●● Risk Treatment.
Answer: After identifying and evaluating risk exposures, the next step is
to decide how best to treat the exposures. Management may select a
, variety of risk responses: avoiding, accepting, reducing, sharing, or
transferring risk. A risk management program should be a well-rounded
combination of preventative and control measures, risk transfer, and risk
retention. The latter two methods refer to a government either shifting
the financial burden of risk to another entity or performing the task of
risking financing in-house. In addition to these three methods,
governments may occasionally choose not to provide a service
altogether, a risk management technique known as risk avoidance.
●● Risk Management Implementation.
Answer: To implement a risk management program, consideration
should be given to the establishment of risk management policies and
procedures that includes a statement of the organization's goals,
identifies officials charged with carrying out risk-related functions (e.g.,
planning, organizing, coordinating, implementing, monitoring, and
controlling the government's risk management program), and contains
guidelines for making decisions about fundamental activities (e.g., risk
control and risk finance). It is essential that government officials are
aware of not only the policies and procedures, but that the risk responses
are implemented and effectively carried out.
●● Risk Evaluations.
Answer: Monitoring and frequency and severity of claims. Risk
evaluation reports often include such information as the number of open
claims, the amount paid out, and the amount reserved.
