• What Is an Internal Control Deficiency?

An internal control deficiency occurs when an organization fails to implement controls to prevent or

detect risks effectively.

In this case, responding only to maintenance needs when complaints are received demonstrates a

lack of proactive controls, increasing the risk of issues going unnoticed or escalating over time.

• Why Is Option C Correct?

Proactive maintenance schedules and inspections are essential for ensuring the safety and

functionality of critical infrastructure like dams. Relying solely on complaints or employee reports is a

reactive approach and represents a deficiency in internal controls.

• Why Other Options Are Incorrect:

A . Inspecting completed work: This is a proper control to ensure compliance with contract

specifications.

B . Releasing the bond after work completion: This ensures contractual obligations are met and is a

good control practice.

D . Checking bidder

This is part of the procurement process and a valid internal control.

• Reference and Documents:

GAO Standards for Internal Control (Green Book): Emphasizes proactive controls and monitoring for

critical operations.

Federal Infrastructure Maintenance Best Practices: Highlights proactive inspections and maintenance

as essential controls.

• Why Should Management Consider the Cost of Internal Controls in Relation to Benefits?

The cost-benefit principle states that the cost of implementing and maintaining internal controls

should not exceed the benefits derived from those controls. Effective internal controls help mitigate

risks, improve efficiency, and ensure compliance, but their implementation comes with costs (e.g.,

time, resources, systems).

Management must evaluate whether the benefits of preventing or detecting potential issues (e.g.,

fraud, errors) justify the associated costs.

• Why Other Options Are Incorrect:

A . The available budget: While the budget is important, internal controls are not solely dictated by

budget constraints; their effectiveness and benefit-to-cost ratio are key considerations.

B . Inherent risks: While inherent risks are a factor in determining control needs, the relationship

between cost and benefit remains the primary consideration.

D . Risk of collusion: Controls address collusion risks, but management does not prioritize collusion

specifically when assessing cost versus benefit.

• Reference and Documents:

COSO Internal Control Framework: Highlights the cost-benefit principle when implementing controls.

GAO Standards for Internal Control (Green Book): Emphasizes balancing costs with benefits when

designing internal control systems.

Overview of the Prompt Payment Act (PPA):

The Prompt Payment Act (31 U.S.C. Chapter 39) requires federal agencies to pay vendors for goods

and services in a timely manner.

If payment is not made within the required time frame (usually 30 days after receiving a proper

invoice), the agency must pay interest penalties to the vendor for the late payment.

Explanation of Answer Choices:

A . Invoices immediately when received: Incorrect. Federal agencies are not required to pay invoices

immediately; they must process payments within the specified timeframe.

B . Interest when an invoice is paid late: Correct. Agencies must pay interest penalties for late

payments.

C . Invoices no later than 60 days after receipt of the invoice: Incorrect. The standard timeframe is 30

days unless otherwise specified in the contract.

D . Interest on intragovernmental invoices: Incorrect. The PPA does not apply to intragovernmental

transactions.

Reference:

Prompt Payment Act, 31 U.S.C. Chapter 39.

U.S. Department of the Treasury, Prompt Payment Act Guidelines.

Regression Analysis:

Regression analysis is a statistical method used to examine relationships between variables and

make predictions.

To estimate sales tax revenue, a CGFM can use regression to analyze how population growth,

housing, and employment trends correlate with tax revenue over time.

Explanation of Answer Choices:

A . Regression analysis: Correct. This method uses historical and predictive data to model the

relationship between variables (e.g., population growth and sales tax revenue).

B . Cash flow analysis: Focuses on analyzing cash inflows and outflows, not predicting revenue based

on external factors.

C . Payback analysis: Used to calculate the time needed to recover an investment, unrelated to tax

revenue estimation.

D . Flow charting: Used to visualize processes, not for predictive analytics.

Reference:

Association of Government Accountants (AGA), Predictive Analytics in Public Sector Finance.

U.S. Census Bureau, Data Analytics for Revenue Forecasting.

• Why Measure Performance Based on Cost per Ton of Trash Collected?

Cost per ton of trash collected is a direct, objective, and quantifiable measure of the contractor’s

performance. It reflects how efficiently the contractor is operating relative to the amount of trash

being managed.

This measure aligns with the principle of output-based performance evaluation, which focuses on

results (e.g., tons of trash collected) rather than inputs or unrelated factors.

• Why Other Options Are Incorrect:

A . Per mile traveled: Mileage is not directly tied to performance; it depends on the route structure

and geography, not the quantity of trash collected.

C . Comparison with closest comparable jurisdiction: While this may provide context, it is not a

specific performance measure.

D . Per employee: Employee count does not directly measure performance or efficiency in trash

collection operations.

• Reference and Documents:

GAO Guide on Contract Performance Evaluation: Recommends using measurable and outcome-

based metrics like cost per ton collected for performance reviews.

Best Practices in Local Government Contracting (AGA): Highlights output-based measures for

evaluating contractor performance.

• 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:

The Federal Credit Reform Act requires 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.

• Reference 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.

• What Does the Cash Management Improvement Act (CMIA) Do?

CMIA governs the transfer of federal funds to state governments and ensures timely and efficient use

of these funds.

If federal agencies fail to provide funds for entitlements (e.g., Medicaid) in a timely manner, CMIA

requires them to pay interest to state governments for the delays.

This ensures states are compensated for any financial burden caused by delayed federal transfers.

• Why Other Options Are Incorrect:

A . Debt Collection Improvement Act: Focuses on improving debt collection practices for the federal

government, not entitlements or interest payments to states.

B . CFO Act: Improves federal financial management but does not address payment timeliness or

interest.

C . Accountability for Tax Dollars Act: Expands audit requirements but does not involve compensation

for delays.

• Reference and Documents:

CMIA (1990): Requires federal agencies to pay interest on late entitlement payments to states.

Treasury Financial Manual: Details CMIA interest payment provisions.

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.

Reference:

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

Government.

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

Understanding the Scenario:

The table compares the costs of four printing jobs performed by an "Internal Print Shop" versus three

external vendors (Ace Printing, ABC Printing, and Printing, Inc.). Each vendor's pricing varies by print

job type. The task is to evaluate whether outsourcing (hiring external vendors) is a reasonable

alternative to keeping the work in-house.

Key Considerations in Outsourcing:

According to governmental accounting principles and budgeting practices outlined by the

Association of Government Accountants (AGA), the decision to outsource should consider:

Cost-effectiveness: Does outsourcing reduce costs without compromising quality or service delivery?

Operational efficiency: Can outsourcing free up internal resources for other priorities?

Comparative pricing: How do external vendor rates compare to internal costs for identical services?

Analysis of the Print Jobs:

Let’s break down the cost comparison for each print job:

Zone Map:

Internal cost = $4.23.

Cheapest vendor = Printing, Inc., at $4.00.

Outsourcing is cheaper for this job.

Agenda Packet:

Internal cost = $23.18.

Cheapest vendor = Printing, Inc., at $22.00.

Outsourcing is cheaper for this job.

Budget Cover:

Internal cost = $840.00.

Cheapest vendor = ABC Printing, at $624.30.

Outsourcing is significantly cheaper for this job.

Employee Benefit Brochure:

Internal cost = $6.14.

Cheapest vendor = ABC Printing, at $4.90.

Outsourcing is cheaper for this job.

Conclusion Based on Analysis:

Across all four print jobs, the lowest-cost external vendor always beats the Internal Print Shop's

costs.

From a budgetary perspective, outsourcing is feasible as it offers cost savings across all jobs.

Why Not A, C, or D?:

Option A (Keep printing in-house): Incorrect, as in-house costs are consistently higher than the

cheapest external vendor.

Option C (Outsourcing is necessary): Incorrect, as feasibility doesn’t mean necessity; internal printing

is still an option if other factors (like quality or control) outweigh costs.

Option D (Award contract to ABC Printing): Incorrect, since the best vendor depends on the job (e.g.,

Printing, Inc. is cheaper for Zone Map and Agenda Packet).

Reference:

Association of Government Accountants (AGA), Government Financial Manager Certification Study

Guide: Budgeting, Cost Accounting, and Auditing Principles.

Government Finance Officers Association (GFOA), Best Practices in Outsourcing and Procurement.

Federal Accounting Standards Advisory Board (FASAB), Cost Accounting Standards for Governmental

Operations.

Definition of Output Measures:

Output measures track the results of providing goods or services, such as the number of items

produced or services delivered.

These measures focus on quantity rather than quality or outcomes.

Explanation of Answer Choices:

A . Activity measures: Incorrect. Activity measures refer to inputs or processes, not results.

B . Outcome measures: Incorrect. Outcome measures assess the impact or effectiveness of a

program, not the quantity of goods/services provided.

C . Output measures: Correct. Output measures focus on results (e.g., number of services delivered).

D . Workload measures: Incorrect. Workload measures assess the volume of work performed but do

not necessarily report on the results.

Reference:

GASB, Performance Measurement Concepts.

GAO, Performance Auditing Standards and Guidance.