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AGA Examination 3: Governmental Financial Management and Control (GFMC) Sample Questions (Q41-Q46):
NEW QUESTION # 41
All of the following ae among the stated purposes of GPRA EXCEPT to
Answer: B
Explanation:
What Is GPRA?
TheGovernment Performance and Results Act (GPRA)of 1993 was designed to improve the performance of federal programs by requiring federal agencies to establish goals, measure performance, and report on their progress.
Stated Purposes of GPRA:
* Improve Service Delivery (Option A):GPRA helps agencies align performance goals with customer needs, improving service delivery.
* Improve Internal Management Practices (Option B):By requiring performance metrics and evaluations, GPRA enhances internal management and decision-making processes.
* Improve Program Effectiveness (Option D):GPRA aims to make federal programs more effective by fostering accountability and linking resources to results.
Why Option C Is Incorrect:
* GPRA does not provide detailedinstructions on program reporting.While it requires agencies to report on their performance, it does not dictate the specific steps or instructions for reporting. Instead, agencies design their own reporting processes within the GPRA framework.
References and Documents:
* Government Performance and Results Act of 1993:Stipulates the law's objectives but does not mention program reporting instructions.
* GAO Report on GPRA Implementation:Highlights GPRA's purpose to improve performance management and accountability without prescribing reporting instructions.
NEW QUESTION # 42
The Federal Credit Reform Act requires complex calculations, which are likely to include errors. This is an example of
Answer: D
Explanation:
Definition of Inherent Risk:
Inherent risk refers to the risk of material misstatement in financial statements or other reports due to the nature of the subject matter, without considering any controls in place. It arises from the complexity, judgment, or uncertainty involved in the underlying transactions or calculations.
Why This Is Inherent Risk:
* TheFederal Credit Reform Actrequires complex calculations to estimate loan subsidies, interest rates, and cash flows. These calculations inherently involve significant judgment and estimation, making them prone to errors. This is a classic example of inherent risk because the complexity exists regardless of controls.
Why Other Options Are Incorrect:
* A. Audit Risk:This refers to the overall risk that the auditor may issue an incorrect opinion. In this case, the issue is about the inherent complexity of the calculations, not the auditor's procedures.
* B. Control Risk:This is the risk that errors will not be prevented or detected due to weak internal controls. While control risk could contribute to misstatements, it is not the primary issue in this example.
* C. Detection Risk:This is the risk that auditors will not detect a misstatement. This risk relates to audit procedures, not the inherent complexity of the calculations.
References and Documents:
* GAO Yellow Book on Risk Assessment:Explains inherent risk in the context of government financial reporting.
* AICPA Standards on Audit Risk (AU-C 315):Highlights inherent risk as arising from the nature of transactions or subject matter.
NEW QUESTION # 43
Which element of an inventory management system includes determining how much stock to have on hand?
Answer: B
Explanation:
What Is Inventory Control?
* Inventory controlrefers to the processes and systems used to manage stock levels, including determining how much inventory to keep on hand, reordering stock, and maintaining optimal levels to meet operational needs while minimizing costs.
* Determining stock levels is a central function of inventory control, ensuring the organization has the right amount of inventory to meet demand without overstocking or understocking.
Why Other Options Are Incorrect:
* B. Safeguard control:This refers to protecting inventory from theft, damage, or loss, not determining stock levels.
* C. Management control:This is a broader term encompassing oversight and governance, not specific to inventory.
* D. Supply control:This typically refers to managing supply chains and suppliers, not the internal control of inventory levels.
References and Documents:
* GAO Inventory Management Guide:Defines inventory control as the process of determining and maintaining appropriate stock levels.
* Best Practices in Government Inventory Management (AGA):Emphasizes the role of inventory control in balancing supply and demand.
NEW QUESTION # 44
Using Benford Digital Analysis, an auditor can identify potential fraud when
Answer: B
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 # 45
Management's ability to monitor for financial control weakness is most compromised if
Answer: B
Explanation:
* Collusion as a Threat to Monitoring:
* Collusion occurs when two or more individuals work together to circumvent internal controls.
* Even with strong controls in place, collusion can undermine monitoring because it allows individuals to bypass controls without detection.
* Explanation of Answer Choices:
* A. Theft has occurred: Incorrect. While theft is a problem, it is often detected if controls and monitoring are functioning properly.
* B. Financial data is inaccurate: Incorrect. Inaccurate financial data can compromise decision- making, but strong monitoring can help detect and correct errors.
* C. Performance data is inaccurate: Incorrect. While inaccurate performance data is problematic, it does not directly compromise the monitoring of financial control weaknesses.
* D. Collusion is present: Correct. Collusion is the most significant threat because it undermines the effectiveness of internal controls and makes monitoring ineffective.
:
GAO,Standards for Internal Control in the Federal Government (Green Book).
Association of Certified Fraud Examiners (ACFE),Fraud Risk Management Framework.
NEW QUESTION # 46
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