Governmental Financial Management CGFM Study Guide 3
Questions With Complete Solutions
A city decides to assess the cleanliness of its streets by training
college students to make observations. What is your assessment
of this approach to performance measurement? a. It can never be
a valid approach. b. It can be a valid approach, provided it is
done during the summer months, when the students will not be
distracted by examinations.
c. It can be a valid outcome indicator, provided the survey
covers a representative set of streets, the training is quality
training, and the reported results are spot-checked to ensure
reliability.
d. It can be a valid indicator, but only if the students are
accompanied by members of the street-cleaning agency.
Answer: Correct Answers (c). Using trained observers to make
surveys is an acceptable means of ascertaining governmental
performance. The survey, however, needs to be sufficiently
broad and unbiased to enable valid conclusions to be reached.
Making the survey under the conditions suggested in answers
(b) and (d) is likely to bias the results.
A copy of the purchase order should go to the receiving
department to alert it to incoming supplies. Regarding that copy,
which of the following procedures is most likely to ensure
accurate counts on inspection?
a. show the quantities ordered on that copy
b. do not show the quantities ordered on that cop
c. show the unit cost of the quantities ordered on that copy
d. do not show the unit cost of the quantities ordered on that
copy
,Answer: Correct Answers (b). Not showing quantities ordered
on the receiving department's copy of the purchase order
requires the inspector to physically count the items received.
Showing the quantities (a) could result in the failure of the
inspector to actually count the deliveries. Showing or not
showing unit costs (c and d) are not likely to affect the
inspection one way or the other.
A county government collects funds from property taxes in late
December each year. The county releases property taxes
collected on behalf of school districts on the following July 1.
Which of the following investments would be the most prudent
investment of this money for six months?
a. bond funds
b. commercial paper
c. equities
d. real estate
e. checking account interest Correct Answers (b). Commercial
paper is a short-term investment instrument, which would be the
most appropriate and prudent given the limited time period.
Bond funds are long-term investments, while equities and real
estate have a greater degree of risk. The interest from a checking
account would be much less than the interest from commercial
paper.
A county government is able to issue debt securities at an
interest rate of 4 percent and can invest that money in a U.S.
government Treasury bill earning 5 percent. Which of the
following could prevent this combined transaction from being
profitable?
a. total return
,b. benchmarking
c. prudent expert rule
d. arbitrage Correct Answers (d). The federal government has
arbitrage restrictions on the amount that can be earned from
investments.
A county government is able to issue debt securities at an
interest rate of 4 percent and can invest that money in a U.S.
government Treasury bill earning 5 percent. Which of the
following could prevent this combined transaction from being
profitable?
a. total return b. benchmarking
c. prudent expert rule
d. arbitrage Correct Answers (d). The federal government has
arbitrage restrictions on the amount that can be earned from
investments.
A government has a collateral agreement with its depository
bank. The collateral is held in the bank's trust department. The
government is subject to:
a. interest rate risk.
b. liquidity risk.
c. custodial credit risk.
d. systematic risk. Correct Answers (c). Securities that are not
held by the government or its agent, and particularly if they are
not held in the owner's name, have the greatest custodial credit
risk.
A government should establish a different bank account for each
of its funds. True or false? Correct Answers False. A
government should concentrate its accounts for increased
, investment potential. The accounting system should be used to
track the cash balances for each fund.
A large school district advertises for bids to supply the district
with its paper requirements for the year. It receives bids from six
commercial vendors. What type of contract is most appropriate
for this procurement?
a. fixed price
b. cost, plus a fixed fee
c. time and materials
d. cost sharing Correct Answers (a). A fixed price contract is
generally the most desirable type of contract and should be used
when appropriate specifications can be prepared, leading to
advertising for bids and effective price competition.
A pass-through entity is one that: a. receives federal funds
through a state agency. b. receives state funds directly from the
state. c. receives federal funds and subgrants them to other
entities. d. receives federal funds directly and provides services
to eligible recipients.
Answer: Correct Answers (c). A pass-through entity is one that
receives federal funds and subgrants them to other entities,
usually local government agencies or nonprofit corporations
A poor control environment can be overcome by a strong risk
assessment. True or false?
Answer: Correct Answers False. A poor control environment
undermines the entire internal control structure. If you cannot
trust management to act ethically or to take internal controls
seriously, you cannot rely on the system. A strong risk
Questions With Complete Solutions
A city decides to assess the cleanliness of its streets by training
college students to make observations. What is your assessment
of this approach to performance measurement? a. It can never be
a valid approach. b. It can be a valid approach, provided it is
done during the summer months, when the students will not be
distracted by examinations.
c. It can be a valid outcome indicator, provided the survey
covers a representative set of streets, the training is quality
training, and the reported results are spot-checked to ensure
reliability.
d. It can be a valid indicator, but only if the students are
accompanied by members of the street-cleaning agency.
Answer: Correct Answers (c). Using trained observers to make
surveys is an acceptable means of ascertaining governmental
performance. The survey, however, needs to be sufficiently
broad and unbiased to enable valid conclusions to be reached.
Making the survey under the conditions suggested in answers
(b) and (d) is likely to bias the results.
A copy of the purchase order should go to the receiving
department to alert it to incoming supplies. Regarding that copy,
which of the following procedures is most likely to ensure
accurate counts on inspection?
a. show the quantities ordered on that copy
b. do not show the quantities ordered on that cop
c. show the unit cost of the quantities ordered on that copy
d. do not show the unit cost of the quantities ordered on that
copy
,Answer: Correct Answers (b). Not showing quantities ordered
on the receiving department's copy of the purchase order
requires the inspector to physically count the items received.
Showing the quantities (a) could result in the failure of the
inspector to actually count the deliveries. Showing or not
showing unit costs (c and d) are not likely to affect the
inspection one way or the other.
A county government collects funds from property taxes in late
December each year. The county releases property taxes
collected on behalf of school districts on the following July 1.
Which of the following investments would be the most prudent
investment of this money for six months?
a. bond funds
b. commercial paper
c. equities
d. real estate
e. checking account interest Correct Answers (b). Commercial
paper is a short-term investment instrument, which would be the
most appropriate and prudent given the limited time period.
Bond funds are long-term investments, while equities and real
estate have a greater degree of risk. The interest from a checking
account would be much less than the interest from commercial
paper.
A county government is able to issue debt securities at an
interest rate of 4 percent and can invest that money in a U.S.
government Treasury bill earning 5 percent. Which of the
following could prevent this combined transaction from being
profitable?
a. total return
,b. benchmarking
c. prudent expert rule
d. arbitrage Correct Answers (d). The federal government has
arbitrage restrictions on the amount that can be earned from
investments.
A county government is able to issue debt securities at an
interest rate of 4 percent and can invest that money in a U.S.
government Treasury bill earning 5 percent. Which of the
following could prevent this combined transaction from being
profitable?
a. total return b. benchmarking
c. prudent expert rule
d. arbitrage Correct Answers (d). The federal government has
arbitrage restrictions on the amount that can be earned from
investments.
A government has a collateral agreement with its depository
bank. The collateral is held in the bank's trust department. The
government is subject to:
a. interest rate risk.
b. liquidity risk.
c. custodial credit risk.
d. systematic risk. Correct Answers (c). Securities that are not
held by the government or its agent, and particularly if they are
not held in the owner's name, have the greatest custodial credit
risk.
A government should establish a different bank account for each
of its funds. True or false? Correct Answers False. A
government should concentrate its accounts for increased
, investment potential. The accounting system should be used to
track the cash balances for each fund.
A large school district advertises for bids to supply the district
with its paper requirements for the year. It receives bids from six
commercial vendors. What type of contract is most appropriate
for this procurement?
a. fixed price
b. cost, plus a fixed fee
c. time and materials
d. cost sharing Correct Answers (a). A fixed price contract is
generally the most desirable type of contract and should be used
when appropriate specifications can be prepared, leading to
advertising for bids and effective price competition.
A pass-through entity is one that: a. receives federal funds
through a state agency. b. receives state funds directly from the
state. c. receives federal funds and subgrants them to other
entities. d. receives federal funds directly and provides services
to eligible recipients.
Answer: Correct Answers (c). A pass-through entity is one that
receives federal funds and subgrants them to other entities,
usually local government agencies or nonprofit corporations
A poor control environment can be overcome by a strong risk
assessment. True or false?
Answer: Correct Answers False. A poor control environment
undermines the entire internal control structure. If you cannot
trust management to act ethically or to take internal controls
seriously, you cannot rely on the system. A strong risk
