CGAP Finance 5 — Questions and Answers
Question 1: A government receives a $500,000 federal grant that requires matching funds of 20% from local resources. How much must the government contribute from its own funds?
- $100,000 (Correct answer)
- $400,000
- $125,000
- $500,000
Correct answer: $100,000
A 20% local match on a $500,000 grant means the government must contribute $500,000 × 20% = $100,000 from non-federal sources.
Question 2: Under the Uniform Guidance (2 CFR Part 200), what is the threshold above which a single audit is required for a non-federal entity?
- $500,000 in federal expenditures in a fiscal year
- $750,000 in federal expenditures in a fiscal year (Correct answer)
- $1,000,000 in federal awards received
- $250,000 in federal expenditures in a fiscal year
Correct answer: $750,000 in federal expenditures in a fiscal year
The single audit threshold is $750,000 in federal expenditures during the entity's fiscal year, as established by the 2 CFR Part 200 Uniform Guidance.
Question 3: A government's pension plan has a plan net position of $80 million and a total pension liability of $120 million. What is the net pension liability?
- $80 million
- $120 million
- $40 million (Correct answer)
- $200 million
Correct answer: $40 million
The net pension liability equals total pension liability minus plan net position: $120M − $80M = $40 million, representing the government's unfunded pension obligation.
Question 4: Which of the following transactions would be reported as an 'other financing use' in a governmental fund?
- Payment of principal on long-term debt at maturity
- Transfer of resources to another fund (Correct answer)
- Refund of a prior-year revenue overpayment
- Recording of depreciation on capital assets
Correct answer: Transfer of resources to another fund
Interfund transfers out are classified as other financing uses in governmental funds, separate from expenditures, to distinguish routine transfers from operating activities.
Question 5: A government auditor is assessing the reasonableness of a government's property tax levy. Which factor is least relevant to this assessment?
- The assessed value of taxable property in the jurisdiction
- The expected collection rate based on historical data
- The credit ratings of the government's outstanding bonds (Correct answer)
- The budgeted expenditures that the levy is intended to fund
Correct answer: The credit ratings of the government's outstanding bonds
Bond credit ratings reflect investor perception of creditworthiness but do not directly determine the reasonableness of the property tax levy amount, which depends on assessed values, collection rates, and budgeted needs.
Question 6: What is the primary purpose of a government's risk management fund (often structured as an internal service fund)?
- To invest government surplus cash to maximize returns
- To accumulate resources to pay claims and fund self-insurance activities (Correct answer)
- To account for federal risk-sharing grant revenues
- To record contingent liabilities excluded from the general fund
Correct answer: To accumulate resources to pay claims and fund self-insurance activities
A risk management internal service fund pools resources from participating departments to self-insure against losses and pay claims, spreading risk across the organization.
Question 7: When auditing governmental financial statements, which analytical procedure is most useful for evaluating the reasonableness of property tax revenues?
- Comparing current-year salaries to the prior year for unusual increases
- Multiplying the tax rate by assessed values and applying the expected collection rate (Correct answer)
- Recalculating depreciation on infrastructure assets using the modified approach
- Reviewing the debt service coverage ratio for outstanding revenue bonds
Correct answer: Multiplying the tax rate by assessed values and applying the expected collection rate
Multiplying the millage rate by the assessed tax base and applying the historical collection rate provides an independent estimate of expected property tax revenue to compare against the recorded amount.
CGAP Finance 5
A government receives a $500,000 federal grant that requires matching funds of 20% from local resources.
How much must the government contribute from its own funds?