CGFO Risk Management 5 — Questions and Answers
Question 1: A risk manager performs a 'business continuity plan' (BCP) review following a cyberattack on the city's financial systems. What is the PRIMARY goal of the BCP in this context?
- Identifying who is criminally responsible for the attack
- Ensuring critical government operations can continue or resume quickly after a disruption (Correct answer)
- Filing a claim with the cyber liability insurer as fast as possible
- Documenting all losses for future budget appropriation requests
Correct answer: Ensuring critical government operations can continue or resume quickly after a disruption
A BCP focuses on maintaining or rapidly restoring essential operations during and after a disruptive event, minimizing the impact on public services.
Question 2: In the context of government fleet management risk, 'frequency' of losses refers to:
- The dollar severity of the worst single accident in a period
- How often losses occur within a given time period (Correct answer)
- The percentage of vehicles involved in accidents each year
- The total premiums paid per vehicle in the fleet
Correct answer: How often losses occur within a given time period
Frequency measures how often losses occur and is used alongside severity (the cost per loss) to characterize an entity's overall loss profile.
Question 3: Which risk financing mechanism allows a government to fund losses below the deductible internally while purchasing insurance only for large, infrequent catastrophic losses?
- First-dollar commercial coverage
- Large-deductible insurance program (Correct answer)
- Retrospective rating plan
- Finite risk insurance
Correct answer: Large-deductible insurance program
A large-deductible program shifts the cost of routine, predictable losses back to the insured entity while the commercial policy responds only to losses exceeding the deductible.
Question 4: Under the Americans with Disabilities Act (ADA), a government's failure to provide accessible facilities creates which type of risk?
- Speculative risk only
- Pure liability risk (Correct answer)
- Financial hazard risk
- Strategic business risk
Correct answer: Pure liability risk
ADA non-compliance exposes governments to pure liability risk — potential legal judgments, settlements, and mandated remediation costs with no upside possibility.
Question 5: A risk manager is evaluating whether to retain or transfer a low-frequency, high-severity risk. Which factor most strongly supports transferring this risk?
- The entity has large cash reserves that could absorb the loss
- The potential loss could be financially catastrophic and destabilize the budget (Correct answer)
- The risk occurs frequently enough to be statistically predictable
- The commercial insurance premium exceeds the expected annual loss cost
Correct answer: The potential loss could be financially catastrophic and destabilize the budget
When a single loss event could cause catastrophic financial harm — even if rare — transfer via insurance is typically warranted to protect the entity's fiscal stability.
Question 6: Which of the following best describes 'enterprise risk management' (ERM) as applied in the governmental sector?
- A method exclusively for managing financial investment risk in pension funds
- A comprehensive, organization-wide framework to identify, assess, and manage all categories of risk (Correct answer)
- An IRS-mandated reporting requirement for government self-insurance programs
- A system for ranking government vendors by their liability exposure
Correct answer: A comprehensive, organization-wide framework to identify, assess, and manage all categories of risk
ERM integrates risk management across all departments and risk categories — operational, financial, strategic, and compliance — into a single cohesive framework.
Question 7: A government's risk manager discovers that a contractor working on a public works project does not carry the required insurance certificates. The most appropriate immediate action is to:
- Continue the project and add the cost to the contract price
- Issue a stop-work order until the contractor provides proof of required coverage (Correct answer)
- Purchase coverage on behalf of the contractor and bill them later
- Document the deficiency but allow work to continue pending renewal
Correct answer: Issue a stop-work order until the contractor provides proof of required coverage
Allowing uninsured contractors to continue work exposes the government to unprotected liability; a stop-work order protects the entity until proper coverage is confirmed.
CGFO Risk Management 5
A risk manager performs a 'business continuity plan' (BCP) review following a cyberattack on the city's financial systems.
What is the PRIMARY goal of the BCP in this context?