Financial Management and Budgeting
What the exam tests
Financial Management and Budgeting tests fund accounting, budget preparation and adoption, reserves, capital planning, internal controls, debt, and financial reporting. Expect questions on balanced budgets, fund balance classifications, one-time versus recurring revenues, and long-term liabilities.
Core rules and concepts
- Governmental accounting uses funds as fiscal entities; the general fund is the primary operating fund.
- Under GASB 54, fund balance is classified as nonspendable, restricted, committed, assigned, or unassigned; only unassigned balance is truly flexible.
- A structurally balanced budget matches recurring revenues to recurring expenditures.
- Reserve policies typically target two months of operating expenditures; higher for enterprise or disaster exposure.
- The capital improvement plan is multiyear and linked to the operating budget for maintenance and staffing.
- Internal controls separate authorization, custody, recording, and reconciliation.
Worked example
A city faces a $4 million general fund gap. Staff propose closing it with $4 million from one-time land sale proceeds. Reasoning: that creates a recurring gap next year and consumes a nonrecurring asset. A better package: $2 million ongoing reductions, $1 million fee adjustments phased in, and $1 million one-time bridge with an explicit expiry. The budget is balanced, but the structural gap is reduced, not hidden.
Traps that cost marks
- Using one-time revenues for recurring payroll.
- Treating fund transfers as new money; they are internal.
- Ignoring pension and OPEB obligations in long-range forecasts.
- Calling a budget balanced when it relies on reserves without a replenishment plan.
- Overlooking restricted revenue conditions.