AGA Updated GFMC Exam Questions and Answers by justin

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.

Type of Engagement for Reviewing Pilot Programs:

A performance audit evaluates theeffectiveness, efficiency, and economyof programs or operations.

In this case, the review of the pilot program assessed the number of families served and the efficiencies achieved through community involvement, which aligns with performance auditing objectives.

Explanation of Answer Choices:

A. Financial audit: Focuses on the accuracy of financial statements, not program effectiveness or efficiency.

B. Single audit: Focuses on compliance with federal grant requirements, not program evaluation.

C. Performance audit: Correct. This type of audit reviews program outcomes and operational efficiencies.

D. Attestation: Provides assurance on specific subject matter but does not evaluate program performance.

Understanding the Scenario:The table compares the costs of four printing jobs performed by an "Internal Print Shop" versus three external vendors (Ace Printing, ABC Printing, and Printing, Inc.). Each vendor's pricing varies by print job type. The task is to evaluate whether outsourcing (hiring external vendors) is a reasonable alternative to keeping the work in-house.

Key Considerations in Outsourcing:According to governmental accounting principles and budgeting practices outlined by theAssociation of Government Accountants (AGA), the decision to outsource should consider:

Cost-effectiveness: Does outsourcing reduce costs without compromising quality or service delivery?

Operational efficiency: Can outsourcing free up internal resources for other priorities?

Comparative pricing: How do external vendor rates compare to internal costs for identical services?

Analysis of the Print Jobs:Let’s break down the cost comparison for each print job:

Zone Map:Internal cost = $4.23.Cheapest vendor = Printing, Inc., at $4.00.Outsourcing is cheaper for this job.

Agenda Packet:Internal cost = $23.18.Cheapest vendor = Printing, Inc., at $22.00.Outsourcing is cheaper for this job.

Budget Cover:Internal cost = $840.00.Cheapest vendor = ABC Printing, at $624.30.Outsourcing is significantly cheaper for this job.

Employee Benefit Brochure:Internal cost = $6.14.Cheapest vendor = ABC Printing, at $4.90.Outsourcing is cheaper for this job.

Conclusion Based on Analysis:

Across all four print jobs, the lowest-cost external vendor always beats the Internal Print Shop's costs.

From abudgetary perspective, outsourcing is feasible as it offers cost savings across all jobs.

Why Not A, C, or D?:

Option A(Keep printing in-house): Incorrect, as in-house costs are consistently higher than the cheapest external vendor.

Option C(Outsourcing is necessary): Incorrect, as feasibility doesn’t mean necessity; internal printing is still an option if other factors (like quality or control) outweigh costs.

Option D(Award contract to ABC Printing): Incorrect, since the best vendor depends on the job (e.g., Printing, Inc. is cheaper for Zone Map and Agenda Packet).

 What Are the Four General Government Auditing Standards?

These standards, as defined in theGAO Yellow Book (Government Auditing Standards):

Qualifications:Auditors must have the necessary professional skills and competence to perform their work.

Independence:Auditors must remain free from personal, external, and organizational impairments to maintain objectivity.

Due Professional Care:Auditors must exercise care and diligence, adhering to professional standards and ethical requirements.

Quality Control:Auditors must establish and maintain a system of quality control to ensure audit work meets professional standards.

 Why Is Option D Correct?

These four elements are explicitly outlined in the GAO Yellow Book as the core principles of government auditing standards.

 Why Other Options Are Incorrect:

A. Compliance, timeliness, qualifications, and due professional care:Timeliness and compliance are not part of the four general standards; they are components of audit objectives.

B. Supervision, planning, management controls, and evidence:These are aspects of audit performance, not general standards.

C. Planning, internal controls, independence, and irregularities:Planning and internal controls are part of the audit process, not general standards.

 References and Documents:

GAO Yellow Book (Generally Accepted Government Auditing Standards - GAGAS):Lists qualifications, independence, due professional care, and quality control as the four general standards.

AICPA Audit Standards:Aligns with GAGAS in emphasizing these four principles.