Free AGA CGFM Practice Exam with Questions & Answers | Set: 2

What Are Simplified Acquisition Processes?Simplified acquisition processes are procurement methods designed to streamline purchasing for government agencies. These processes reduce the administrative burden for smaller purchases, typically below a certain dollar threshold (as defined in theFederal Acquisition Regulation (FAR)).

How Do These Processes Assist Agencies?

Bulk Purchase Discounts:Simplified acquisition allows agencies to leverage economies of scale and negotiate bulk purchase discounts for commonly used goods and services.

Reduced Administrative Costs:By simplifying documentation, reducing oversight requirements, and accelerating the approval process, these methods lower administrative costs and increase efficiency.

Why Other Options Are Incorrect:

A. Maintaining the competitive bid requirement and allowing credit card purchases:While simplified acquisitions may allow credit card purchases, the focus is not maintaining competitive bids but reducing costs and streamlining the process.

C. Increasing the number of requisitions processed:The goal is efficiency, not increasing the volume of requisitions.

D. Reducing acquisition staff and managerial oversight:These processes may simplify oversight but do not aim to reduce staff; instead, they help existing staff work more efficiently.

References and Documents:

Federal Acquisition Regulation (FAR) Part 13:Covers simplified acquisition processes and their intended benefits.

GAO Reports on Federal Procurement (2020):Highlights the cost savings and efficiencies gained through simplified acquisition methods.

Definition of Materiality:

In financial audits, materiality is the threshold above which a misstatement or omission could influence the economic decisions of users of financial statements.

Auditors consider theneeds of reasonable userswhen determining materiality, focusing on what would influence their decision-making.

Explanation of Answer Choices:

A. The auditee determines what is material: Incorrect. The auditor, not the auditee, is responsible for determining materiality.

B. The auditor establishes materiality based on whether a misstatement would influence the judgment made by a reasonable user of the financial statements: Correct. This aligns with auditing standards, such as those in the Yellow Book and AICPA guidance.

C. The entity's main provider of resources typically sets materiality levels: Incorrect. Materiality is not determined by resource providers but by the auditor based on the needs of users.

D. The auditor sets a standard percentage for all entities by transaction class: Incorrect. Materiality varies depending on the entity and its financial circumstances.

References:

GAO,Government Auditing Standards (Yellow Book).

AICPA,Auditing Standards – Materiality in Planning and Performing an Audit.

What Are We Solving For?

We are calculating thepresent value (PV)of $20,550 to be received at theend of year 2using a discount rate of10%.

The formula for present value is: PV=FV(1+r)nPV = \frac{FV}{(1 + r)^n}PV=(1+r)nFV​ Where:

FVFVFV = Future Value = $20,550

rrr = Discount Rate = 10% or 0.10

nnn = Time Period = 2 years

Calculation:

PV=20,550(1+0.10)2PV = \frac{20,550}{(1 + 0.10)^2}PV=(1+0.10)220,550​ PV=20,550(1.10)2PV = \frac{20,550}{(1.10)^2}PV=(1.10)220,550​ PV=20,5501.21PV = \frac{20,550}{1.21}PV=1.2120,550​ PV≈16,983PV ≈ 16,983PV≈16,983

Why Other Options Are Incorrect:

A. $16,440:Results from incorrect discounting for one year instead of two.

C. $18,495:Results from applying a lower discount rate or an incorrect formula.

D. $20,550:This is the future value, not the present value.

References and Documents:

GAO Financial Analysis Guide:Explains present value calculations for investment decision-making.

AICPA Present Value Guidelines:Provides step-by-step guidance on time value of money calculations.

Risk Assessment Under COSO Framework:

The first step in a COSO-based risk assessment is defining internal control objectives. This establishes what the organization aims to achieve, providing a framework for identifying risks and ensuring controls align with objectives.

Risk assessment focuses on evaluating the likelihood and impact of risks that could hinder these objectives.

Explanation of Answer Choices:

A. Identification of risks: Identifying risks follows the definition of internal control objectives.

B. Defining internal control objectives: Correct. Objectives must be defined first to provide a basis for identifying and assessing risks.

C. Review of prior audit findings: Important, but it’s not the starting point for a risk assessment under COSO.

D. Setting risk tolerance levels: This occurs later, after risks have been identified and evaluated.

References:

COSO,Internal Control - Integrated Framework.

GAO,Standards for Internal Control in the Federal Government (Green Book).

Why Pay on the Discount Date?

Discount termsare offered by vendors to encourage early payment, such as "2/10, net 30" (2% discount if paid within 10 days). Paying on the discount date ensures the organization takes advantage of cost savings while still making timely payments.

This approach optimizes cash management by reducing payment obligations while maintaining good vendor relationships.

Why Other Options Are Incorrect:

A. After the due date:Late payments can damage vendor relationships and incur penalties.

B. Prior to the due date:Paying too early does not provide additional benefits and can unnecessarily deplete cash reserves.

C. On the due date:If a discount is offered, waiting until the due date means missing the opportunity to save money.

References and Documents:

GAO Financial Management Guide:Recommends paying invoices with discounts on the discount date to maximize cost savings.

Best Practices in Governmental Cash Management (AGA):Highlights the importance of managing vendor payments to take advantage of discounts.

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.

Regression Analysis:

Regression analysis is a statistical technique used to examine the relationships between a dependent variable (e.g., lottery ticket sales) and one or more independent variables (e.g., advertising, potential payouts, size of lottery cards).

This method helps quantify the extent to which each variable impacts sales.

Explanation of Answer Choices:

A. Content analysis: Incorrect. This method is used to analyze qualitative data (e.g., text or media) rather than numerical relationships.

B. Cost-benefit analysis: Incorrect. This technique evaluates the costs and benefits of a decision but does not identify the relationships between variables.

C. Regression analysis: Correct. This technique determines the impact of multiple variables on a single outcome.

D. Narrative analysis: Incorrect. This is used to analyze stories or qualitative information, not numerical data.

References:

Association of Government Accountants (AGA),Data Analytics and Predictive Techniques in Government.

U.S. Census Bureau,Statistical Techniques for Economic Analysis.

Fraud Audit Objective:Fraud audits aim to detect and investigate fraudulent activities, strengthen internal controls, and report findings to stakeholders.

Basic Steps in Fraud Audits:

Consulting Legal Counsel: Ensures compliance with legal requirements and protects the organization.

Reporting the Results: Essential to inform stakeholders of findings and corrective actions.

Follow-up on Control Weaknesses: Addresses identified vulnerabilities to prevent future fraud.

Explanation of Incorrect Answer:

D. Considering political ramifications: Irrelevant to fraud audits, as these audits focus on financial and legal matters rather than political considerations.

References:

Association of Certified Fraud Examiners (ACFE),Fraud Examination Manual.

Government Accountability Office (GAO),Fraud Risk Management Framework.

What Is a Risk Profile?Arisk profileis the formal listing and assessment of an agency's top risks. It identifies the risks that could significantly impact an organization’s ability to achieve its objectives and prioritizes them based on factors like likelihood and impact.

Why Is the Risk Profile Important?

The risk profile helps management focus on the most critical risks and allocate resources to address them effectively. It is a core element of enterprise risk management frameworks (e.g., COSO ERM).

In the federal government,OMB Circular A-123requires agencies to maintain a risk profile as part of their internal control and risk management processes.

Why Other Options Are Incorrect:

B. Risk Management Plan:This is broader and includes strategies for mitigating and monitoring risks, not just listing and assessing them.

C. Risk Assessment:This is a process used to identify and evaluate risks but does not specifically refer to the formal listing of risks.

D. Risk Register:While similar to a risk profile, a risk register typically includes more granular details, such as specific control measures, responsibilities, and timelines.

References and Documents:

OMB Circular A-123:Requires federal agencies to develop a risk profile as part of their risk management framework.

COSO ERM Framework (2017):Describes the risk profile as a tool for managing enterprise-wide risks.

OMB Circular A-11 and Capital Asset Acquisition:

OMB Circular A-11 mandates the use ofearned value management (EVM)for measuring cost, schedule, and performance goals in capital asset acquisition projects.

EVM integrates project scope, schedule, and cost data to assess project performance and forecast outcomes.

Explanation of Answer Choices:

A. Earned value management: Correct. EVM is the prescribed method for tracking progress on capital projects under OMB Circular A-11.

B. Net present value: Used for financial analysis, such as determining the economic value of future cash flows, but not for tracking project progress.

C. Future value: Measures the value of an investment at a future point, not applicable to project tracking.

D. Regression analysis: A statistical method for identifying relationships between variables, not for measuring project performance.

References:

OMB Circular A-11,Capital Programming Guide.

U.S. General Services Administration (GSA),Earned Value Management Implementation.