AGA Updated CGFM Exam Questions and Answers by emrys

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.

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.

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.

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.

Role of the Independent Auditor in Financial Reporting:

Independent auditors evaluate internal controls as part of their audit procedures to support an opinion on the fair presentation of the financial statements. This includes assessing whether internal controls over financial reporting are designed and operating effectively.

This evaluation helps ensure that financial statements are free of material misstatements, whether due to error or fraud.

Why Management Does Not Do This:

Managementdesigns and implements internal controls but does not evaluate them to support the auditor’s opinion. Management’s responsibility is to certify the accuracy of the financial statements, while the auditor provides an independent opinion.

Why Other Options Are Incorrect:

C. The program office:This entity oversees operations but does not perform evaluations to support an audit opinion.

D. The audit committee:The committee provides oversight of the audit process but does not perform the evaluation itself.

References and Documents:

GAAS (Generally Accepted Auditing Standards):Outlines the responsibilities of independent auditors regarding internal control evaluation.

GAO Yellow Book:Specifies the role of external auditors in evaluating internal controls during financial audits.

Capital Asset Transfers Within the Same Government:

When a capital asset is transferred between departments within the same government, the asset’sbook value(its original cost minus accumulated depreciation) should remain in the fixed asset tracking system.

The transfer does not change the overall value of the asset for the government as a whole, but it should reflect that the asset is now under the responsibility of the receiving department.

Why This Is Important:

Accurate tracking ensures the fixed asset system reflects the current custodian of the asset and allows for proper asset management and accountability.

Why Other Options Are Incorrect:

A. Recorded with the original department to maximize receipts:This is incorrect because it ignores the asset's transfer and would misrepresent which department is responsible for it.

B. Recorded with the second department to minimize costs:Cost minimization is irrelevant here; the transfer should reflect the book value.

C. Retained with no change in book value to either department:While the book value doesn’t change overall, the system must reflect the transfer to the receiving department.

References and Documents:

GAAP (Governmental Accounting Standards Board - GASB):Requires accurate fixed asset tracking to reflect departmental transfers.

GASB Statement No. 34:Discusses fixed asset tracking and reporting requirements.

Definition of Output Measures:

Output measures trackthe results of providing goods or services, such as the number of items produced or services delivered.

These measures focus onquantityrather than quality or outcomes.

Explanation of Answer Choices:

A. Activity measures: Incorrect. Activity measures refer to inputs or processes, not results.

B. Outcome measures: Incorrect. Outcome measures assess the impact or effectiveness of a program, not the quantity of goods/services provided.

C. Output measures: Correct. Output measures focus on results (e.g., number of services delivered).

D. Workload measures: Incorrect. Workload measures assess the volume of work performed but do not necessarily report on the results.

References:

GASB,Performance Measurement Concepts.

GAO,Performance Auditing Standards and Guidance.