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Free PDF Quiz 2025 Marvelous AGA GFMC: Study Examination 3: Governmental Financial Management and Control (GFMC) Center

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AGA Examination 3: Governmental Financial Management and Control (GFMC) Sample Questions (Q65-Q70):

NEW QUESTION # 65
Federal entities primarily assess internal controls to

A. identify program areas where efficiencies may be gained.
B. determine what legislation is not applicable to the entity.
C. ensure there is no fraud, waste or abuse within the entity.
D. confirm that all management objectives will be met.

Answer: A

Explanation:
* Federal Entities and Internal Controls:
* Federal entities assess internal controls to ensure efficient, effective, and economical use of resources while achieving program objectives.
* Internal control assessments often identify areas for improvement, such as reducing waste or increasing operational efficiency.
* Explanation of Answer Choices:
* A. Confirm that all management objectives will be met: Internal controls reduce risk but do not guarantee all objectives will be achieved.
* B. Identify program areas where efficiencies may be gained: Correct. Internal controls are assessed to optimize operations and identify improvements.
* C. Ensure there is no fraud, waste, or abuse within the entity: While controls mitigate risks of fraud, waste, or abuse, assessments aim to identify opportunities for efficiency.
* D. Determine what legislation is not applicable to the entity: This is unrelated to internal control assessments.
:
GAO,Standards for Internal Control in the Federal Government (Green Book).
Office of Management and Budget (OMB),Circular A-123, Internal Control Systems.

NEW QUESTION # 66
A state transfers cagh to a broker and the broker transfers securities to the state, promising to repay the cash plus interest in exchange for the return of the same securities. This transaction is an example of

A. an arbitrage agreement.
B. a mutual buy-sell agreement.
C. a repurchase agreement.
D. a reverse repurchase agreement.

Answer: C

Explanation:
* Definition of a Repurchase Agreement (Repo):A repurchase agreement is a short-term financial transaction where one party sells securities to another with an agreement to repurchase them at a later date for a specified price, which includes interest. It functions as a secured loan.
* Transaction Description:
* The state transfers cash to a broker.
* The broker provides securities as collateral and agrees to repay the cash plus interest in exchange for the return of the same securities.This arrangement matches the definition of arepurchase agreement.
* Explanation of Answer Choices:
* A. Arbitrage agreement: Arbitrage involves exploiting price differences in markets, unrelated to this transaction.
* B. Repurchase agreement: Correct, as it fits the definition.
* C. Mutual buy-sell agreement: This involves agreements to buy and sell assets, unrelated to this financial transaction.
* D. Reverse repurchase agreement: Incorrect, as the state would be the borrower, not the lender, in a reverse repo.
:
U).S. Department of the Treasury,Guide to Federal Investments.
Financial Accounting Standards Board (FASB),Accounting for Repurchase Agreements.

NEW QUESTION # 67
A purchasing officer is asked to select a vendor to provide office supplies. Which of the following vendors should be selected?

A. the mayor's high school classmate's company with the lowest qualified bid
B. the highest priced qualified bidder with the highest quality products
C. the second lowest priced qualified bidder
D. the third lowest priced qualified bidder who is pending state disbarment

Answer: A

Explanation:
Why Select the Lowest Qualified Bidder?
* Procurement rules in government require selecting thelowest qualified bidderto ensure fairness, cost- efficiency, and compliance with procurement regulations.
* If the mayor's high school classmate's company meets the qualification criteria and provides the lowest bid, there is no conflict of interest unless favoritism or improper influence is proven.
Why Other Options Are Incorrect:
* B. Second lowest priced qualified bidder:Selecting the second lowest bidder without justification violates the principle of fairness and cost-efficiency.
* C. Third lowest bidder pending state disbarment:This vendor is not a qualified bidder due to pending disbarment.
* D. Highest priced qualified bidder with the highest quality products:If quality specifications are already met by lower bidders, selecting the highest-priced bidder is unjustifiable.
References and Documents:
* Federal Acquisition Regulation (FAR):Requires selecting the lowest qualified bidder.
* GAO Guide on Procurement Standards:Emphasizes fairness and cost-effectiveness in vendor selection.

NEW QUESTION # 68
The first step in the internal control evaluation process is

A. identifying potential risks.
B. documenting how transactions of events are processed.
C. assessing the adequacy of controls.
D. identifying the effectiveness of management activities.

Answer: A

Explanation:
What Is Internal Control Evaluation?
Internal control evaluation is the process of assessing an organization's internal controls to ensure they are adequate and effective in mitigating risks, ensuring compliance, and achieving objectives.
Why Is Identifying Potential Risks the First Step?
* The entire purpose of internal controls is to mitigate risks. Therefore, before evaluating the controls, you need to identify the risks they are meant to address.
* Once risks are identified, the organization can evaluate whether the existing controls are adequate and effective in mitigating those risks.
* This approach aligns with risk-based frameworks like theCOSO Internal Control Framework, which emphasizes risk identification as the foundation for effective controls.
Why Other Options Are Incorrect:
* A. Identifying the effectiveness of management activities:This is part of control evaluation but occurs after risks and controls are identified.
* B. Assessing the adequacy of controls:Controls cannot be assessed until the risks they address are identified.
* C. Documenting how transactions or events are processed:While this step is important, it comes later in the process, after risks and controls are identified.
References and Documents:
* COSO Internal Control Framework:Identifies risk assessment as the foundation for designing and evaluating controls.
* GAO Standards for Internal Control (Green Book):Highlights risk identification as the first step in the control process.

NEW QUESTION # 69
The ratios used to determine an organization's ability to meet its creditor's demands are

A. budgetary cushion ratios.
B. liquidity ratios.
C. turnover ratios.
D. debt burden ratios.

Answer: B

Explanation:
What Are Liquidity Ratios?
Liquidity ratios are financial metrics used to measure an organization's ability to meet its short-term financial obligations as they come due. These ratios assess whether the organization has sufficient liquid assets (like cash, receivables, or short-term investments) to cover its current liabilities (debts or obligations due within a year).
Why Are They Relevant to Creditors?
Creditors care deeply about an entity's ability to repay its debts in a timely manner. Liquidity ratios provide a snapshot of the organization's financial health and give insight into its capacity to meet short-term demands.
They are essential tools in evaluating whether a government entity (federal, state, or local) or any other organization can pay its creditors without needing to secure additional financing or liquidate long-term assets.
Common Liquidity Ratios:
The most commonly used liquidity ratios are:
* Current Ratio:This measures the organization's ability to pay off its current liabilities with current assets.Formula:Current Assets ÷ Current Liabilities
* Quick Ratio (Acid-Test Ratio):A stricter version of the current ratio, it excludes less liquid assets (like inventory) to assess the organization's immediate ability to pay short-term debts.Formula:(Current Assets - Inventory) ÷ Current Liabilities
* Cash Ratio:Focuses only on the most liquid assets, such as cash and cash equivalents.Formula:Cash + Cash Equivalents ÷ Current Liabilities How Do Liquidity Ratios Apply to Governmental Accounting?
In governmental accounting, liquidity ratios are crucial for determining whether a governmental entity has the financial flexibility to manage short-term obligations like accounts payable, payroll, and other operating costs.
For example:
* State and local governments use liquidity ratios to show stakeholders their ability to sustain operations without financial strain.
* Government-wide financial statements (under GASB standards) often emphasize liquidity to demonstrate fiscal health to bondholders and credit rating agencies.
Why Not Other Ratios?
* A. Budgetary Cushion Ratios:These focus on the organization's ability to withstand revenue shortfalls and maintain budgetary reserves, not specifically on meeting creditor demands.
* C. Debt Burden Ratios:These measure the overall burden of debt on the organization but don't directly address short-term liquidity or solvency.
* D. Turnover Ratios:These evaluate operational efficiency (e.g., how quickly assets like inventory are converted into revenue), which doesn't directly relate to creditor demands.
References and Documents:
* Government Financial Manager (GFM) Competency Framework by the Association of Government Accountants (AGA):Section on "Financial Analysis" emphasizes the importance of liquidity ratios in assessing short-term solvency for government entities.
* GASB Concepts Statement No. 1:Discusses the need for governmental financial reporting to provide information on financial condition, including short-term liquidity.
* AGA Performance Management Framework Guide (2023):Highlights liquidity ratios as critical tools for demonstrating fiscal responsibility and transparency in public sector financial management.

NEW QUESTION # 70
......

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Ray Ford Ray Ford

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