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AGA Examination 3: Governmental Financial Management and Control (GFMC) Sample Questions (Q113-Q118):
NEW QUESTION # 113
Using Benford Digital Analysis, an auditor can identify potential fraud when
Answer: D
Explanation:
* Benford's Law and Fraud Detection:
* Benford's Lawis 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.
NEW QUESTION # 114
The Parking Fund for a government entity has the following information in its Statement of Net Position.
Calculate the current ratio.
Total current assets$1,320
Total non-current assets$8,100
Total assets$9,420
Total current liabilities$ 810
Total non-current liabilities$ 360
Total liabilities$1,170
Total net position$8,250
Answer: C
Explanation:
What Is the Current Ratio?
* Thecurrent ratiomeasures an entity's ability to cover its short-term liabilities with its short-term assets.
The formula is: Current Ratio=Total Current AssetsTotal Current Liabilities ext{Current Ratio} = rac
{ ext{Total Current Assets}}{ ext{Total Current Liabilities}}
Current Ratio=Total Current LiabilitiesTotal Current Assets
Calculation:
* Total Current Assets = $1,320
* Total Current Liabilities = $810
Current Ratio=1,320810 ext{Current Ratio} = rac{1,320}{810}Current Ratio=8101,320 Current Ratio#1.
63 ext{Current Ratio} # 1.63Current Ratio#1.63
Why the Current Ratio Matters:
* A current ratio above 1 indicates that the entity has more current assets than current liabilities, suggesting good short-term liquidity.
Why Other Options Are Incorrect:
* A. 0.61, B. 0.98, C. 1.14:These values result from incorrect calculations or misinterpretations of the formula.
References and Documents:
* GAO Financial Analysis Guide:Provides guidance on using the current ratio to assess liquidity.
* GASB Financial Reporting Requirements:Highlights the importance of liquidity measures in government financial statements.
NEW QUESTION # 115
GPRA requires agencies to prepare and submit a strategic plan, an annual performance plan and
Answer: C
Explanation:
What Does GPRA Require?
TheGovernment Performance and Results Act (GPRA)mandates that federal agencies prepare:
* Astrategic planoutlining long-term goals.
* Anannual performance plandetailing the objectives and performance measures for the upcoming year.
* Anannual performance reportevaluating the agency's success in meeting the goals outlined in the annual performance plan.
Why Is the Annual Performance Report Important?
* The annual performance report provides accountability and transparency by comparing actual results to planned goals. It allows Congress and the public to assess how effectively the agency is achieving its mission.
Why Other Options Are Incorrect:
* A. A five-year performance plan:GPRA requires a strategic plan (updated every four years), not a separate five-year performance plan.
* C. SEA Report:This refers to Service Efforts and Accomplishments reporting, which is not mandated by GPRA.
* D. The prior year's audited financial report:While financial reports are important, they are separate from the performance reporting requirements of GPRA.
References and Documents:
* Government Performance and Results Act (1993):Requires agencies to submit strategic plans, annual performance plans, and annual performance reports.
* GAO Reports on GPRA Compliance:Emphasizes the role of annual performance reports in promoting accountability.
NEW QUESTION # 116
Which of the following acts requires federal agencies to pay interest to state government funds for entitlements that are not provided in a timely manner?
Answer: A
Explanation:
What Does the Cash Management Improvement Act (CMIA) Do?
* CMIA governs the transfer of federal funds to state governments and ensures timely and efficient use of these funds.
* If federal agencies fail to provide funds for entitlements (e.g., Medicaid) in a timely manner, CMIA requires them to payinterestto state governments for the delays.
* This ensures states are compensated for any financial burden caused by delayed federal transfers.
Why Other Options Are Incorrect:
* A. Debt Collection Improvement Act:Focuses on improving debt collection practices for the federal government, not entitlements or interest payments to states.
* B. CFO Act:Improves federal financial management but does not address payment timeliness or interest.
* C. Accountability for Tax Dollars Act:Expands audit requirements but does not involve compensation for delays.
References and Documents:
* CMIA (1990):Requires federal agencies to pay interest on late entitlement payments to states.
* Treasury Financial Manual:Details CMIA interest payment provisions.
NEW QUESTION # 117
What type of analygis should a finance director use to determine if there will be enough funds available to cover bills due within the next 30 days?
Answer: D
Explanation:
* Purpose of the Analysis:A finance director needs to assess whether the organization has enough funds available to cover short-term obligations (bills due within 30 days). This requires evaluating liquidity.
* Explanation of Key Ratios:
* Quick/Current Ratio: Measures an entity's ability to pay its short-term liabilities using liquid assets.
* Current Ratio= Current Assets ÷ Current Liabilities.
* Quick Ratioexcludes less liquid assets (e.g., inventory), focusing on assets that can quickly convert to cash.This is the appropriate measure for assessing immediate liquidity.
* Receivables Turnover Ratio: Measures how efficiently receivables are collected but doesn't directly evaluate liquidity for bills due within 30 days.
* Budgetary Cushion Ratio: Refers to financial reserves relative to annual spending, not short- term liquidity.
* Debt Burden Ratio: Evaluates debt relative to revenues but does not address immediate cash flow needs.
:
Government Finance Officers Association (GFOA),Liquidity Management Best Practices.
Association of Government Accountants (AGA),Financial Statement Analysis for Government Finance Officers.
NEW QUESTION # 118
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