CGFO Ethics, Compliance & Financial Governance 5 — Questions and Answers
Question 1: Under the GFOA's best practices, which body is primarily responsible for establishing and maintaining a government's internal control framework?
- The external auditor
- The legislative body
- Management (Correct answer)
- The inspector general
Correct answer: Management
Management bears primary responsibility for designing, implementing, and maintaining an effective system of internal controls.
Question 2: The concept of 'materiality' in government auditing means that an error or omission is significant if it:
- Involves any amount over $10,000
- Could influence the decisions of financial statement users (Correct answer)
- Affects more than one fund or program
- Results from intentional misconduct
Correct answer: Could influence the decisions of financial statement users
Materiality is a judgment-based threshold focused on whether a misstatement or omission would alter the economic decisions of users relying on the financial statements.
Question 3: Which post-employment restriction is most commonly applied to government finance officers who leave public service for private sector positions?
- Lifetime ban on working for former vendors
- Cooling-off period before representing parties before their former agency (Correct answer)
- Prohibition on working in the same industry for five years
- Required disclosure of government salary for three years
Correct answer: Cooling-off period before representing parties before their former agency
Most revolving door restrictions impose a time-limited cooling-off period during which former officials may not represent private interests before their former agencies.
Question 4: A government finance officer identifying a 'significant deficiency' in internal controls during self-assessment must:
- Immediately suspend all related financial operations
- Report it to the audit committee or equivalent oversight body (Correct answer)
- Correct it within 30 days without formal documentation
- Keep it confidential until the annual audit
Correct answer: Report it to the audit committee or equivalent oversight body
Significant deficiencies are required to be communicated in writing to those charged with governance (audit committee or equivalent) so they can take appropriate oversight action.
Question 5: Which element distinguishes a 'material weakness' from a 'significant deficiency' in internal controls?
- Material weaknesses involve fraud; significant deficiencies involve errors
- A material weakness represents a reasonable possibility of material misstatement; a significant deficiency does not rise to that level (Correct answer)
- Material weaknesses must be reported externally; significant deficiencies are internal only
- Significant deficiencies always exceed $100,000 in exposure
Correct answer: A material weakness represents a reasonable possibility of material misstatement; a significant deficiency does not rise to that level
A material weakness is a deficiency where there is a reasonable possibility that a material misstatement will not be prevented or detected, while a significant deficiency is less severe.
Question 6: The Hatch Act restricts which activities of state and local government employees whose positions are funded by federal grants?
- Accepting promotions during election years
- Engaging in partisan political activity while on duty (Correct answer)
- Running for non-partisan local office
- Donating personal funds to political campaigns
Correct answer: Engaging in partisan political activity while on duty
The Hatch Act prohibits covered state and local employees from engaging in partisan political activity while on duty, in uniform, or using government resources.
Question 7: A government audit committee serves which primary governance function in relation to financial management?
- Approving the annual budget before submission to the legislative body
- Providing independent oversight of financial reporting and the audit process (Correct answer)
- Conducting day-to-day review of all financial transactions
- Setting compensation for the chief financial officer
Correct answer: Providing independent oversight of financial reporting and the audit process
Audit committees provide independent oversight of financial reporting integrity, internal controls, and the external audit process, serving as a check on management.
CGFO Ethics, Compliance & Financial Governance 5
Under the GFOA's best practices, which body is primarily responsible for establishing and maintaining a government's internal control framework?