MMC Budget Administration & Financial Oversight 3 — Questions and Answers
Question 1: A city council adopts a budget with a $300,000 contingency appropriation. Mid-year, the city manager recommends using $150,000 for emergency road repairs. What is the proper procedure?
- The city manager may authorize the expenditure from contingency without council action
- Council must adopt a formal resolution transferring funds from contingency to the appropriate account (Correct answer)
- The finance director may approve the transfer administratively
- The city clerk issues a budget amendment unilaterally
Correct answer: Council must adopt a formal resolution transferring funds from contingency to the appropriate account
Expenditures from contingency funds require governing body approval through a formal resolution to maintain legislative control over appropriations.
Question 2: What is the primary purpose of a Single Audit under the Uniform Guidance (2 CFR Part 200)?
- To audit all financial statements of a local government
- To audit only federal grant funds received over $750,000 in a year
- To provide a comprehensive audit of federal awards expended to detect waste and non-compliance (Correct answer)
- To replace the annual financial audit for small municipalities
Correct answer: To provide a comprehensive audit of federal awards expended to detect waste and non-compliance
The Single Audit examines federal awards expended above the $750,000 threshold to ensure compliance with federal requirements and detect material weaknesses.
Question 3: In municipal finance, 'PAYGO' financing for capital projects refers to:
- Paying for capital projects from current revenues without borrowing (Correct answer)
- A federal program providing grants for infrastructure
- Automatic budget adjustments tied to revenue performance
- A pension obligation payment schedule
Correct answer: Paying for capital projects from current revenues without borrowing
PAYGO (pay-as-you-go) means financing capital expenditures from current-year revenues or fund balances rather than issuing debt.
Question 4: A clerk notices that the adopted budget document omits a legally required public hearing on the tax rate. What is the most serious risk of this omission?
- The budget must be re-published but remains legally valid
- Taxpayers may challenge the tax levy as procedurally invalid (Correct answer)
- The state auditor will require an amended budget
- The governing body must reduce the tax rate by 10%
Correct answer: Taxpayers may challenge the tax levy as procedurally invalid
Failure to hold a legally required public hearing on the tax rate can expose the levy to legal challenge and potential invalidation by courts.
Question 5: Which financial indicator is most useful for assessing whether a municipality is living within its means over a multi-year period?
- Current ratio
- Revenue per capita
- Operating surplus or deficit trend over 5+ years (Correct answer)
- Debt service coverage ratio
Correct answer: Operating surplus or deficit trend over 5+ years
A multi-year trend of operating surpluses or deficits reveals whether a municipality is structurally balancing its budget or relying on one-time resources.
Question 6: When a municipality issues a Request for Proposal (RFP) for audit services, what conflict of interest concern must the city clerk be vigilant about?
- Auditors who have previously performed consulting work for the city (Correct answer)
- Audit firms headquartered outside the state
- Auditors who specialize in governmental accounting
- Firms that have audited neighboring municipalities
Correct answer: Auditors who have previously performed consulting work for the city
Auditors who have provided management consulting or non-audit services may lack independence, which is a fundamental requirement for external audit engagements.
Question 7: Under GASB standards, infrastructure assets reported using the 'modified approach' do NOT require:
- Documentation of the asset condition assessment system
- Capitalization on the government-wide statement of net position
- Annual depreciation expense recognition (Correct answer)
- Maintenance expenditures to be expensed as incurred
Correct answer: Annual depreciation expense recognition
The GASB modified approach allows governments to expense infrastructure maintenance rather than depreciate the asset, provided condition is maintained at a documented level.
MMC Budget Administration & Financial Oversight 3
A city council adopts a budget with a $300,000 contingency appropriation.
Mid-year, the city manager recommends using $150,000 for emergency road repairs.
What is the proper procedure?