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CGFM practice questions

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Question 1Governmental Environment

Which law first required the President to submit an annual budget to Congress and created the General Accounting Office?

  1. Chief Financial Officers Act of 1990
  2. Congressional Budget and Impoundment Control Act of 1974
  3. Government Performance and Results Act of 1993
  4. Budget and Accounting Act of 1921 Correct answer.

Explanation

The Budget and Accounting Act of 1921 established the executive budget process by requiring the President to prepare and submit an annual budget, and it created the General Accounting Office to support congressional oversight. Later statutes revised budget and financial management practices but did not originate this requirement.

Question 2Governmental Environment

Which fund type accounts for a government's ordinary operations that are financed from general taxes and other unrestricted resources?

  1. Special revenue fund
  2. Debt service fund
  3. Enterprise fund
  4. General fund Correct answer.

Explanation

The general fund is the primary governmental fund used for ordinary operations supported by general revenues and not required to be accounted for in another fund. Special revenue funds are used when revenue sources are legally restricted for specific purposes.

Question 3Governmental Environment

Which organization establishes financial reporting standards for state and local governments in the United States?

  1. Financial Accounting Standards Board (FASB)
  2. Securities and Exchange Commission (SEC)
  3. Governmental Accounting Standards Board (GASB) Correct answer.
  4. Federal Accounting Standards Advisory Board (FASAB)

Explanation

GASB sets generally accepted accounting principles for state and local governments, including fund accounting and government-wide reporting. FASAB sets federal standards, while FASB sets standards primarily for private-sector entities.

Question 4Governmental Environment

In the federal budget process, an appropriation provides what to an agency?

  1. Legal authority to incur obligations and make payments Correct answer.
  2. Permission to borrow funds from the public
  3. A statutory charter creating the agency
  4. The President's formal approval of an agency budget request

Explanation

An appropriation is a statutory provision that grants budget authority allowing an agency to incur obligations and make payments out of the Treasury for specified purposes. It does not create the agency or authorize borrowing.

Question 5Governmental Environment

A local government operates a water utility that is financed mainly by user charges and is intended to recover its costs. Which fund type should be used?

  1. Special revenue fund
  2. Enterprise fund Correct answer.
  3. General fund
  4. Capital projects fund

Explanation

Enterprise funds are proprietary funds used for business-type activities financed through user charges, where cost recovery is intended. They use accrual accounting and report capital assets and long-term liabilities.

Question 6Governmental Environment

A federal grant that is restricted to a narrowly defined purpose, such as a specific education program, is called a:

  1. Formula grant
  2. General revenue sharing grant
  3. Categorical grant Correct answer.
  4. Block grant

Explanation

Categorical grants are restricted to a specific purpose or program and often come with detailed conditions. Block grants combine several purposes and give recipients broader discretion.

Question 7Governmental Environment

When Congress has not enacted regular appropriations by the beginning of a fiscal year, which measure typically provides temporary funding?

  1. Rescission bill
  2. Reconciliation bill
  3. Supplemental appropriation
  4. Continuing resolution Correct answer.

Explanation

A continuing resolution provides temporary budget authority, usually at a specified rate, when regular appropriations are not enacted by the start of the fiscal year. It prevents a funding gap and agency shutdown until final appropriations are passed.

Question 8Governmental Environment

An independent local government created to provide a specific service such as fire protection or water supply, and often governed by its own board, is a:

  1. Special district Correct answer.
  2. Township
  3. Municipality
  4. County

Explanation

Special districts are independent local governments created for a specific function, such as fire protection, water, or transit, and they often have their own governing board. Counties and municipalities are general-purpose governments.

Question 9Governmental Environment

Under modified accrual accounting, revenues are recognized when they are:

  1. Legally appropriated by the governing body
  2. Measurable and available Correct answer.
  3. Collected in cash
  4. Earned, regardless of when cash is received

Explanation

Modified accrual accounting recognizes revenues when they are both measurable and available to finance current-period expenditures. Expenditures are generally recognized when the related liability is incurred.

Question 10Governmental Environment

Which fund type accounts for resources restricted to acquiring or constructing major capital facilities, other than those financed by enterprise funds?

  1. Capital projects fund Correct answer.
  2. Internal service fund
  3. Debt service fund
  4. General fund

Explanation

Capital projects funds account for financial resources restricted for acquiring or constructing major capital facilities, except those financed by enterprise funds. Debt service funds account for principal and interest payments.

Question 11Governmental Environment

A central motor pool charges other government departments for vehicle use on a cost-reimbursement basis. Which fund type is most appropriate?

  1. Internal service fund Correct answer.
  2. Enterprise fund
  3. Special revenue fund
  4. General fund

Explanation

Internal service funds are proprietary funds used when one department provides goods or services to other departments on a cost-reimbursement basis. Enterprise funds provide services to the public for a fee.

Question 12Governmental Environment

A government receives a gift whose principal must remain invested permanently, with only the investment earnings available to maintain a public park. Which fund type should be used?

  1. Special revenue fund
  2. Permanent fund Correct answer.
  3. Private-purpose trust fund
  4. Capital projects fund

Explanation

Permanent funds are governmental funds that hold resources legally restricted so that only investment earnings, not principal, may be spent for public purposes. Private-purpose trust funds benefit individuals or other organizations rather than public programs.

Question 13Governmental Environment

Which fund category reports resources held in a trustee or agency capacity for parties outside the government and that cannot be used for the government's own programs?

  1. Fiduciary funds Correct answer.
  2. Governmental funds
  3. Special revenue funds
  4. Proprietary funds

Explanation

Fiduciary funds report assets held in a trustee or agency capacity for others and cannot be used to support the government's own programs. They include pension and investment trusts, private-purpose trusts, and custodial funds.

Question 14Governmental Environment

Under GASB standards, management's discussion and analysis (MD&A) is presented as:

  1. A note to the financial statements
  2. Part of the independent auditor's report
  3. Required supplementary information Correct answer.
  4. A statistical table in the annual comprehensive financial report

Explanation

GASB standards require MD&A as required supplementary information that precedes the basic financial statements. It provides an analytical overview of the government's financial activities and significant changes.

Question 15Governmental Environment

OMB apportions appropriated funds to executive agencies primarily to:

  1. Spread budget authority over the fiscal year Correct answer.
  2. Authorize new programs that Congress has not funded
  3. Reconcile agency outlays with federal receipts
  4. Establish user fees for agency services

Explanation

OMB apportions budget authority to agencies, often by quarter or other period, to control the rate of obligations and prevent agencies from spending too quickly or exhausting funds prematurely. Apportionment does not create new budget authority.

Question 16Governmental Environment

An agency incurs obligations in excess of the amount available in its appropriation. Under the Anti-Deficiency Act, this action is:

  1. Permissible if the agency reports the overage at year-end
  2. Not a violation when the program is authorized by Congress
  3. Allowed with retroactive OMB approval
  4. A violation subject to penalties Correct answer.

Explanation

The Anti-Deficiency Act prohibits obligating or spending funds in excess of an appropriation or apportionment, and violations can result in administrative discipline, suspension, and criminal penalties. Authorization alone does not provide spending authority.

Question 17Governmental Environment

The Government Performance and Results Act of 1993 requires federal agencies to prepare:

  1. Annual internal control assurance statements for each agency
  2. Audited financial statements for every federal program
  3. Quarterly apportionment requests submitted to OMB
  4. Strategic plans, performance plans, and reports Correct answer.

Explanation

GPRA of 1993 requires agencies to prepare strategic plans, annual performance plans, and annual performance reports linking resources to results. Audited financial statements and internal control assurances come from other statutes.

Question 18Governmental Environment

Under the Single Audit Act, a nonfederal entity that expends a threshold amount of federal awards in a fiscal year must obtain:

  1. An audit performed only by the federal awarding agency
  2. A review of internal controls without financial statement testing
  3. A separate audit of each federal award
  4. An organization-wide audit including compliance Correct answer.

Explanation

The Single Audit Act requires an organization-wide audit of an entity that expends a threshold amount of federal awards, covering financial statements and compliance with major federal program requirements. It avoids the burden of separate audits for each award.

Question 19Governmental Environment

A government financial manager is offered expensive tickets to a sporting event by a vendor seeking a contract. Under a typical government ethics code, the manager should generally:

  1. Ask the vendor to donate the tickets to a charity
  2. Accept it, because no contract has been awarded yet
  3. Accept it only if the vendor also invites coworkers
  4. Decline it or follow the gift rules Correct answer.

Explanation

Government ethics codes generally restrict gifts from vendors or persons seeking official action, and many require disclosure or prohibit acceptance entirely. Even the appearance of improper influence can undermine public trust.

Question 20Governmental Environment

A government procurement has clearly defined specifications and price will be the determining award factor. Which method is generally most appropriate?

  1. Sole-source negotiation
  2. Micro-purchase
  3. Sealed bidding Correct answer.
  4. Competitive proposals

Explanation

Sealed bidding is appropriate when specifications are clear and award will be based on price, because it provides a formal, competitive process with public opening of bids. Competitive proposals are used when factors other than price, such as technical approach, must be evaluated.

Question 21Governmental Environment

A governmental fund's assets, liabilities, revenues, and expenditures each equal 12% of the total for all governmental funds. Its revenues and expenditures equal 8% of the total for all governmental and enterprise funds combined. Under GASB standards, is the fund a major fund?

  1. Yes, but only if the government elects to report it as major
  2. No, because only revenues need to meet the second test
  3. No, because 8% is below the required 10% of the combined total
  4. Yes, because both thresholds are met Correct answer.

Explanation

A governmental fund is major if its assets, liabilities, revenues, or expenditures are at least 10% of the governmental funds total and at least 5% of the governmental and enterprise funds combined. This fund exceeds both thresholds, so it must be reported as major.

Question 22Governmental Environment

Under the Congressional Budget and Impoundment Control Act of 1974, a presidential proposal to rescind budget authority takes effect only if:

  1. OMB approves it within 30 days
  2. The agency requests the rescission
  3. The President issues a sequestration order
  4. Congress approves it within 45 days Correct answer.

Explanation

Under the Impoundment Control Act, a proposed rescission of budget authority must be approved by Congress within 45 days of continuous session to take effect. Deferrals are handled differently and are limited in duration.

Question 23Governmental Environment

The Federal Financial Management Improvement Act of 1996 requires agencies to:

  1. Eliminate the use of the U.S. Standard General Ledger
  2. Prepare the President's annual budget request
  3. Conduct performance audits of every federal program annually
  4. Maintain compliant financial systems Correct answer.

Explanation

FFMIA requires agencies to implement and maintain financial management systems that comply substantially with federal systems requirements, applicable accounting standards, and the U.S. Standard General Ledger at the transaction level. Auditors report on substantial compliance.

Question 24Governmental Environment

Under the Federal Credit Reform Act of 1990, the budget records the cost of a direct loan as:

  1. The full face amount of the loan when disbursed
  2. Cash outlays as they occur each year
  3. The total interest paid by the borrower over the loan term
  4. The present value of estimated subsidy costs Correct answer.

Explanation

The Federal Credit Reform Act of 1990 requires the budget to measure the cost of direct loans and loan guarantees as the present value of estimated subsidy costs, not as cash disbursed. This reflects expected defaults, interest differentials, and other cash flows.

Question 25Governmental Environment

A legally separate organization has a governing board appointed by a city, and the city can impose its will on the organization. For the city's financial reporting, the organization is most likely:

  1. A component unit of the city Correct answer.
  2. A joint venture excluded from reporting
  3. An unrelated private organization
  4. A fiduciary fund

Explanation

A legally separate organization is a component unit if the primary government appoints a voting majority of its board and can impose its will, or if it provides specific financial benefits or burdens. Component units are included in the primary government's financial reporting entity.

Question 26Governmental Environment

Which period constitutes the U.S. federal government's fiscal year?

  1. October 1 through September 30 Correct answer.
  2. September 1 through August 31
  3. January 1 through December 31
  4. July 1 through June 30

Explanation

The federal fiscal year runs from October 1 to September 30 and is designated by the calendar year in which it ends. Many state and local governments instead use a July 1 through June 30 year.

Question 27Governmental Environment

Which branch of the federal government has authority to determine whether a statute conforms to the Constitution?

  1. The administrative branch, acting through independent agencies
  2. The judicial branch, acting through the courts Correct answer.
  3. The executive branch, acting through the President
  4. The legislative branch, acting through the House and Senate

Explanation

Judicial review, asserted in Marbury v. Madison, allows courts to set aside laws that conflict with the Constitution. Congress enacts statutes and the President enforces them, but neither decides conclusively on their constitutionality.

Question 28Governmental Environment

Which organization issues generally accepted accounting principles for state and local governments?

  1. The Financial Accounting Standards Board
  2. The American Institute of Certified Public Accountants
  3. The Governmental Accounting Standards Board Correct answer.
  4. The Federal Accounting Standards Advisory Board

Explanation

The GASB establishes accounting and reporting standards for state and local governments. The FASAB sets standards for the federal government, while the FASB addresses private-sector entities.

Question 29Governmental Environment

Which tax produces the largest share of local government tax revenue in the United States?

  1. The property tax Correct answer.
  2. The general sales tax
  3. The corporate income tax
  4. The individual income tax

Explanation

Property taxes supply the large majority of local tax revenue and fund schools and general municipal services. Sales taxes and individual income taxes are the leading revenue sources for state governments.

Question 30Governmental Environment

Spending that is governed by permanent law rather than by annual appropriations acts is known as:

  1. Mandatory spending Correct answer.
  2. Discretionary spending
  3. Programmatic spending
  4. Supplemental spending

Explanation

Mandatory, or direct, spending flows from authorizing statutes such as those for Social Security and Medicare and continues without annual action by appropriators. Discretionary spending requires a new appropriation each year.

Question 31Governmental Environment

Which of the following is a general purpose local government?

  1. A school district
  2. A county Correct answer.
  3. A regional transit authority
  4. A port authority

Explanation

General purpose governments, such as counties, municipalities, and townships, provide a broad array of services. Transit authorities, school districts, and port authorities are special purpose governments created for a limited function.

Question 32Governmental Environment

By what date must the President transmit the annual federal budget to Congress?

  1. The first Monday in April
  2. The first Monday in February Correct answer.
  3. The first Monday in January
  4. The first Monday in October

Explanation

Federal law requires the President's budget to be submitted on or after the first Monday in January and no later than the first Monday in February. October 1 begins the fiscal year, and April 15 is the target date for adopting the budget resolution.

Question 33Governmental Environment

Which constitutional clause is the basis for Congress's 'power of the purse' over federal spending?

  1. The necessary and proper clause
  2. The appropriations clause Correct answer.
  3. The commerce clause
  4. The full faith and credit clause

Explanation

Article I, Section 9, Clause 7 bars drawing money from the Treasury except under appropriations made by law. The other clauses concern regulating interstate commerce, implied congressional powers, and recognition of other states' acts.

Question 34Governmental Environment

Which statement about a congressional budget resolution is correct?

  1. It is a bill that must be enacted before any appropriations may be made
  2. It is a presidential directive that legally binds agencies to spending limits
  3. It is a concurrent resolution that does not require the President's signature Correct answer.
  4. It is a joint resolution that becomes law when signed by the President

Explanation

A budget resolution is a concurrent resolution adopted by both chambers to set revenue and spending targets; because it never goes to the President, it is not law. It binds Congress procedurally through its committees rather than binding agencies directly.

Question 35Governmental Environment

Before a federal agency may obligate funds for a newly authorized program, Congress must:

  1. Enact an appropriation providing budget authority Correct answer.
  2. Receive a legal opinion from the Government Accountability Office
  3. Publish the program description in the Federal Register
  4. Complete a performance assessment of the program

Explanation

An authorization creates a program and recommends a funding ceiling, but obligations may be incurred only after an appropriations act provides budget authority. Regulatory publication, performance reviews, and GAO opinions are not sources of spending authority.

Question 36Governmental Environment

A state follows Dillon's rule. A city wishes to create a program the state has neither authorized nor prohibited. The city may:

  1. Not proceed, because the power has not been granted Correct answer.
  2. Proceed if the council finds the program serves a public purpose
  3. Proceed only after voter approval at a referendum
  4. Proceed under its inherent home rule authority

Explanation

Under Dillon's rule, a local government has only the powers expressly granted by the state, those necessarily implied, and those essential to its declared purposes. A power neither granted nor implied cannot be exercised, so the program is not permitted.

Question 37Governmental Environment

A city charter provides that the elected council appoints a professional administrator to manage daily operations and prepare the budget while the council sets policy. This structure is the:

  1. Town meeting form
  2. Strong-mayor form
  3. Commission form
  4. Council-manager form Correct answer.

Explanation

In the council-manager form, the council hires a professional manager who runs operations and prepares the budget. Under the strong-mayor form, the elected mayor holds the executive authority.

Question 38Governmental Environment

Which federal entity, headed by the Comptroller General, conducts audits and evaluations for Congress?

  1. The Department of the Treasury
  2. The Government Accountability Office Correct answer.
  3. The Office of Management and Budget
  4. The Congressional Budget Office

Explanation

The GAO is the legislative branch's audit and evaluation agency, led by the Comptroller General. OMB and Treasury are executive branch organizations, and CBO analyzes budget and economic effects of legislation rather than performing audits.

Question 39Governmental Environment

Which function is performed by the Congressional Budget Office?

  1. Issuing regulations that implement the budget process
  2. Managing the Treasury's daily cash balances
  3. Estimating the budgetary cost of proposed legislation Correct answer.
  4. Auditing agency financial statements

Explanation

CBO supplies Congress with baseline projections, cost estimates for bills, and economic analysis. GAO performs audits, OMB issues budget process guidance, and Treasury manages federal cash.

Question 40Governmental Environment

A federal agency is now required to appoint a chief financial officer and to produce audited financial statements for its accounts. These requirements originated with the:

  1. Inspector General Act of 1978
  2. Government Performance and Results Act of 1993
  3. Single Audit Act Amendments of 1996
  4. Chief Financial Officers Act of 1990 Correct answer.

Explanation

The CFO Act of 1990 created CFO positions in the largest agencies and required audited financial statements, laying the foundation for government-wide reporting. The IG Act created oversight offices, and GPRA established strategic and performance planning.

Question 41Governmental Environment

To whom does a federal inspector general report the results of audits and investigations?

  1. Both to the agency head and to Congress Correct answer.
  2. Only to the Office of Management and Budget
  3. Only to the agency head, who decides what is forwarded
  4. Only to the Department of Justice

Explanation

The Inspector General Act of 1978 requires semiannual reports to the agency head and to Congress, which helps preserve IG independence. Inspectors general conduct audits and investigations but do not prosecute cases or set agency policy.

Question 42Governmental Environment

A city sells bonds payable only from the fees charged to users of a new parking garage, with no pledge of its taxing power. These are:

  1. Revenue bonds Correct answer.
  2. General obligation bonds
  3. Grant anticipation notes
  4. Tax anticipation notes

Explanation

Revenue bonds are secured by the earnings of the specific project and carry no claim on the issuer's general taxing authority. General obligation bonds pledge full faith and credit, and anticipation notes bridge short-term timing gaps in receipts.

Question 43Governmental Environment

Under the federal Standards of Ethical Conduct for Employees of the Executive Branch, an employee is expected to:

  1. Use government property for authorized purposes only when the cost falls below a set threshold
  2. Accept travel expenses from a prohibited source when the trip serves an official purpose
  3. Act impartially toward private organizations and individuals Correct answer.
  4. Disclose confidential agency information when it benefits a former employer

Explanation

The basic obligations in 5 C.F.R. part 2635 require employees to act impartially and to avoid giving preferential treatment to any private organization or individual, among other duties. Public service is treated as a public trust, and office may not be used for private gain.

Question 44Governmental Environment

Which contract type places the greatest share of cost-overrun risk on the government?

  1. Firm-fixed-price contract
  2. Cost-reimbursement contract Correct answer.
  3. Fixed-price incentive contract
  4. Fixed-price contract with economic price adjustment

Explanation

Under a cost-reimbursement contract the government pays allowable incurred costs, so it absorbs overruns. Fixed-price arrangements shift that risk to the contractor, and incentive contracts share it between the parties.

Question 45Governmental Environment

The GAO's Standards for Internal Control in the Federal Government organize internal control into how many components?

  1. Three
  2. Four
  3. Six
  4. Five Correct answer.

Explanation

The Green Book identifies five components: control environment, risk assessment, control activities, information and communication, and monitoring, supported by 17 principles. The COSO framework used in the private sector applies the same five components.

Question 46Governmental Environment

Which law requires annual audited financial statements covering the federal government as a whole?

  1. The Government Management Reform Act of 1994 Correct answer.
  2. The Federal Financial Management Improvement Act of 1996
  3. The Government Performance and Results Act of 1993
  4. The Chief Financial Officers Act of 1990

Explanation

The Government Management Reform Act extended audit requirements to government-wide statements, which Treasury prepares and GAO audits. The CFO Act applied to individual agencies, and FFMIA addressed financial management systems compliance.

Question 47Governmental Environment

If legislation enacted during a session increases the deficit and is not offset, statutory PAYGO requires that:

  1. Congress repeal the legislation within 45 days
  2. Sequestration reduce nonexempt mandatory spending across the board Correct answer.
  3. The Treasury borrow the difference without further action
  4. The President impound the difference from agency budgets

Explanation

The Statutory Pay-As-You-Go Act of 2010 requires deficit-increasing legislation to be offset; if it is not, OMB orders a sequestration that cuts nonexempt mandatory programs. Programs such as Social Security are exempt, and Medicare reductions are capped.

Question 48Governmental Environment

Under the traditional governmental/proprietary distinction, a city-owned electric utility that negligently damages a customer's property is generally:

  1. Liable only if the legislature passes a special bill authorizing suit
  2. Immune from suit because municipalities are never liable in tort
  3. Immune because supplying electricity is a governmental function
  4. Liable because operating a utility is a proprietary function Correct answer.

Explanation

Courts historically extended immunity to governmental functions such as police, fire, and public health, but not to proprietary functions run like a business, including municipal utilities. Many states have since modified immunity by statute or abolished it for municipalities.

Question 49Governmental Environment

Under the Administrative Procedure Act, an agency issuing a substantive rule must ordinarily:

  1. Publish the rule in the Federal Register before it is adopted
  2. Give public notice and an opportunity to comment Correct answer.
  3. Obtain the President's written approval before publication
  4. Submit the draft to Congress for a 60-day approval vote

Explanation

Section 553 requires a general notice of proposed rulemaking in the Federal Register, a period for public comment, and publication of the final rule at least 30 days before its effective date, subject to limited exceptions. Congress reviews major rules after promulgation under the Congressional Review Act.

Question 50Governmental Environment

When the federal government expects substantial involvement in a project it is assisting, the appropriate funding instrument is generally a:

  1. Block grant
  2. Categorical grant
  3. Cooperative agreement Correct answer.
  4. Procurement contract

Explanation

Under the Federal Grant and Cooperative Agreement Act, assistance is provided through grants or cooperative agreements, and a cooperative agreement is used when substantial federal involvement is anticipated. Contracts are used when the government is buying goods or services for its own direct use.