MMC Budget Administration & Financial Oversight 2 — Questions and Answers
Question 1: Under GASB Statement No. 54, which fund type must a municipality use to account for resources legally restricted to expenditure for specific purposes other than debt service or capital projects?
- General Fund
- Special Revenue Fund (Correct answer)
- Permanent Fund
- Enterprise Fund
Correct answer: Special Revenue Fund
GASB 54 requires Special Revenue Funds for resources that are restricted or committed to specific purposes other than debt service or capital projects.
Question 2: A municipality receives a federal grant with a performance period ending September 30 but its fiscal year ends December 31. How should the clerk ensure proper budget accountability?
- Roll unspent grant funds into the general fund at year-end
- Track expenditures against the grant performance period separately from the fiscal year (Correct answer)
- Request a fiscal year change to match the federal performance period
- Combine grant funds with capital project funds for reporting
Correct answer: Track expenditures against the grant performance period separately from the fiscal year
Grant funds must be tracked against the grantor's performance period to ensure compliance, separate from the municipality's own fiscal year-end accounting.
Question 3: Which budgetary control technique limits spending to a fixed percentage of appropriations per quarter, preventing agencies from front-loading expenditures?
- Line-item control
- Allotment system (Correct answer)
- Encumbrance accounting
- Zero-based budgeting
Correct answer: Allotment system
An allotment system divides annual appropriations into periodic spending limits, controlling the rate at which funds are spent throughout the year.
Question 4: When a department head requests a budget amendment to transfer $50,000 from personnel services to equipment, who typically has final authority to approve this transfer under most municipal charters?
- Department head
- City manager or mayor
- City clerk
- Governing body (Correct answer)
Correct answer: Governing body
Most municipal charters reserve authority for budget amendments and inter-line transfers to the governing body, the legislative branch of local government.
Question 5: A municipality's budget shows estimated revenues of $5 million and appropriations of $4.8 million. The $200,000 difference is best described as:
- A surplus carryforward
- A contingency reserve
- A budgetary cushion or slack
- An unappropriated fund balance (Correct answer)
Correct answer: An unappropriated fund balance
When appropriations are less than estimated revenues, the difference is an unappropriated fund balance, which provides a buffer against revenue shortfalls.
Question 6: Which audit type focuses specifically on whether a program achieved its intended outcomes and used resources efficiently, rather than just verifying financial accuracy?
- Financial audit
- Compliance audit
- Performance audit (Correct answer)
- Attestation engagement
Correct answer: Performance audit
A performance audit evaluates program effectiveness, efficiency, and economy—whether goals were met and resources were used wisely.
Question 7: Under the modified accrual basis of accounting, when should a property tax levy be recognized as revenue?
- When the tax bill is mailed to property owners
- When cash is received from taxpayers
- When the levy is legally authorized by the governing body
- When it is available and measurable within 60 days of year-end (Correct answer)
Correct answer: When it is available and measurable within 60 days of year-end
Modified accrual requires revenues to be both measurable and available—for property taxes, 'available' typically means collectible within 60 days after fiscal year-end.
MMC Budget Administration & Financial Oversight 2
Under GASB Statement No. 54, which fund type must a municipality use to account for resources legally restricted to expenditure for specific purposes other than debt service or capital projects?