CPWM Financial Planning & Budgeting 5 — Questions and Answers
Question 1: Which term describes the practice of pooling multiple short-term investments to maximize yield while maintaining liquidity for a government's operating accounts?
- Arbitrage reinvestment
- Investment pooling (LGIP) (Correct answer)
- Interfund lending
- Reserve laddering
Correct answer: Investment pooling (LGIP)
Local Government Investment Pools (LGIPs) allow governments to combine idle funds for better yields and professional management while preserving daily liquidity.
Question 2: A public works department is asked to identify savings through a budget reduction scenario. The most strategic first step is to:
- Cut personnel by applying a uniform percentage across all positions
- Analyze programs by priority, cost-effectiveness, and statutory mandate (Correct answer)
- Eliminate all discretionary capital spending immediately
- Defer all vendor payments to the next fiscal year
Correct answer: Analyze programs by priority, cost-effectiveness, and statutory mandate
Priority-based budgeting analysis helps managers protect core mandated services and high-value programs while identifying low-priority or redundant activities for reduction.
Question 3: Under GASB Statement No. 34, infrastructure assets reported using the modified approach do NOT require periodic depreciation if the government:
- Has maintained the assets for more than 25 years
- Manages the assets to a documented condition level and discloses preservation costs (Correct answer)
- Has no outstanding debt related to those assets
- Obtains an independent engineering condition assessment annually
Correct answer: Manages the assets to a documented condition level and discloses preservation costs
GASB 34's modified approach allows governments to substitute condition-level maintenance reporting for depreciation when assets are maintained at or above an established and disclosed condition standard.
Question 4: Which type of financial forecast estimates revenues and expenditures for multiple future years to identify structural imbalances before they become crises?
- Cash-flow projection
- Multi-year financial forecast (Correct answer)
- Object-code estimate
- Actuarial valuation
Correct answer: Multi-year financial forecast
Multi-year financial forecasts extend budget projections three to five years, enabling early detection of structural gaps caused by growing costs outpacing revenues.
Question 5: A public works department enters into a cooperative purchasing agreement with neighboring jurisdictions for road materials. The primary financial benefit is:
- Eliminating the need for competitive procurement processes
- Achieving volume discounts and reduced administrative costs through pooled purchasing (Correct answer)
- Qualifying for federal cooperative grant funding
- Transferring liability for material defects to the lead agency
Correct answer: Achieving volume discounts and reduced administrative costs through pooled purchasing
Cooperative purchasing leverages combined buying power to negotiate better unit prices and reduces each jurisdiction's procurement overhead.
Question 6: Which financial statement presents a government's assets, liabilities, and net position as of a specific date?
- Statement of activities
- Statement of cash flows
- Statement of net position (balance sheet) (Correct answer)
- Statement of revenues, expenditures, and changes in fund balances
Correct answer: Statement of net position (balance sheet)
The statement of net position (or balance sheet) provides a snapshot of the government's financial position at fiscal year-end, showing what it owns and owes.
Question 7: When preparing a budget for a public works project funded by a federal Community Development Block Grant (CDBG), expenditures must be tracked separately primarily because:
- Federal grants always use a calendar year rather than a fiscal year
- Grant funds have specific eligible activities, time limits, and separate audit requirements (Correct answer)
- CDBG funds must be deposited in a federally insured account
- State law prohibits commingling grant revenue with general fund revenues
Correct answer: Grant funds have specific eligible activities, time limits, and separate audit requirements
Federal grants impose restrictions on allowable costs, performance timelines, and single audit reporting, requiring segregated accounting to demonstrate compliance.
CPWM Financial Planning & Budgeting 5
Which term describes the practice of pooling multiple short-term investments to maximize yield while maintaining liquidity for a government's operating accounts?