CGFO Internal Controls 2

Question 1

Which internal control principle requires that no single employee can both authorize a transaction and record it in the accounting system?

Accepted Answer

Segregation of duties

Answer

Segregation of duties prevents any one employee from controlling all phases of a transaction, reducing fraud and error risk.

Question 2

In a government entity, a 'compensating control' is best described as:

Accepted Answer

A control that mitigates risk when a primary control cannot be implemented

Answer

Compensating controls offset the risk when an ideal primary control (such as segregation of duties) is not feasible.

Question 3

The Government Finance Officers Association (GFOA) recommends that internal auditors report functionally to the:

Accepted Answer

Governing board or audit committee

Answer

Reporting to the governing board or audit committee preserves auditor independence from management.

Question 4

Which COSO component addresses an organization's values, ethical standards, and commitment to competence?

Accepted Answer

Control Environment

Answer

The Control Environment sets the tone at the top and encompasses integrity, ethical values, and management's philosophy.

Question 5

A government's accounts payable clerk creates a vendor, then approves invoices from that vendor. This situation illustrates a failure in:

Accepted Answer

Segregation of duties

Answer

The same employee performing vendor setup and invoice approval violates segregation of duties and creates fraud risk.

(CGFO) Certified Government Finance Officer Practice Test