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What type of analygis should a finance director use to determine if there will be enough funds available to cover bills
due within the next 30 days?
Purpose of the Analysis: A finance director needs to assess whether the organization has enough funds available to cover short-term obligations (bills due within 30 days). This requires evaluating liquidity.
Explanation of Key Ratios:
Quick/Current Ratio: Measures an entity's ability to pay its short-term liabilities using liquid assets.
Current Ratio = Current Assets Current Liabilities.
Quick Ratio excludes less liquid assets (e.g., inventory), focusing on assets that can quickly convert to cash. This is the appropriate measure for assessing immediate liquidity.
Receivables Turnover Ratio: Measures how efficiently receivables are collected but doesn't directly evaluate liquidity for bills due within 30 days.
Budgetary Cushion Ratio: Refers to financial reserves relative to annual spending, not short-term liquidity.
Debt Burden Ratio: Evaluates debt relative to revenues but does not address immediate cash flow needs.
Government Finance Officers Association (GFOA), Liquidity Management Best Practices.
Association of Government Accountants (AGA), Financial Statement Analysis for Government Finance Officers.
One of the minimum components of a government financial system is
Minimum Components of a Government Financial System:
A general ledger is the foundation of any financial system, providing a complete record of all financial transactions.
The definition of general ledger accounts ensures proper classification, tracking, and reporting of financial activities.
Explanation of Answer Choices:
A . Automated transaction processing: Incorrect. While automation is beneficial, it is not a 'minimum' requirement. Manual systems can still exist.
B . Debt-reduction analysis: Incorrect. This is a financial management activity, not a core component of the financial system.
C . Performance management reporting: Incorrect. Performance reporting is separate from the foundational financial system.
D . General ledger account definition: Correct. This is a fundamental element of any government financial system.
GAO, Standards for Internal Control in the Federal Government (Green Book).
GASB, Codification of Governmental Accounting and Financial Reporting Standards.
In state and local financial audits, material weaknesses must be reported to the
What Are Material Weaknesses?
A material weakness in internal control is a deficiency or combination of deficiencies that creates a reasonable possibility of a material misstatement in the financial statements that would not be prevented or detected in a timely manner.
In the context of state and local financial audits, material weaknesses must be reported to those charged with governance, as they are responsible for oversight and corrective actions.
Why Is the Governing Body the Correct Answer?
The governing body (e.g., city council, county board, or state commission) is directly responsible for overseeing the entity's financial operations and ensuring accountability. Reporting material weaknesses to them ensures that corrective actions can be implemented to strengthen internal controls.
Auditors communicate such findings through an audit report or a management letter addressed to the governing body.
Why Other Options Are Incorrect:
A . Legislature: The legislature may have oversight of state budgets and appropriations but is not the direct governing body for financial audits.
C . Taxpayers: While transparency is important, material weaknesses are not directly reported to taxpayers. They may be disclosed in public audit reports, but taxpayers are not the primary audience.
D . Local media: Material weaknesses are not formally reported to the media; their disclosure depends on the entity's public reporting processes.
Reference and Documents:
GAO Yellow Book (GAGAS): Requires auditors to report material weaknesses to those charged with governance.
GASB (Governmental Accounting Standards Board): Emphasizes the importance of communicating significant audit findings to governing bodies.
AICPA Audit Standards (AU-C 265): Requires auditors to communicate material weaknesses to management and those charged with governance.
A program manager at a local agency needs to understand if program participation varies significantly from enrollment. The information changes daily. The best way to quickly analyze this would be to use
Analyzing Participation and Enrollment Trends:
Dashboards are tools that provide real-time visualizations of data, making them ideal for quickly analyzing trends such as program participation versus enrollment.
They allow program managers to view up-to-date metrics and identify variances without manual data processing.
Explanation of Answer Choices:
A . Crosstab: While useful for comparing categorical data, crosstabs are static and less effective for real-time analysis.
B . Portable document format (PDF): A PDF is a static file format, unsuitable for dynamic data analysis.
C . Text file: Text files provide raw data but require additional processing, making them inefficient for quick analysis.
D . Dashboard: Correct. Dashboards provide dynamic, real-time analytics, perfect for monitoring daily changes in participation and enrollment.
Association of Government Accountants (AGA), Data Visualization in Public Sector Management.
Government Performance Lab, Using Dashboards for Real-Time Program Management.
A variable that would influence management's decision to hire contractors to perform management control
evaluations is
Why Hire Contractors for Management Control Evaluations? Management may decide to bring in external contractors when there are gaps in the organization's capacity to perform evaluations internally. One key factor is the lack of management expertise---if management lacks the necessary knowledge or experience to evaluate controls effectively, it may outsource this task to qualified contractors.
Why Other Options Are Incorrect:
B . Availability of Qualified Contractors: While availability is a factor, it's not a variable that influences the decision to outsource. Instead, it's a logistical consideration once the decision has been made.
C . Suspicion of Internal Fraud: Suspicion of fraud may lead to investigations, but hiring contractors to evaluate controls is driven by expertise gaps rather than fraud concerns.
D . Knowledge of Systemic Deficiencies: If management already has knowledge of systemic deficiencies, they may focus on remediation rather than outsourcing evaluations.
Reference and Documents:
GAO Standards for Internal Control in the Federal Government (Green Book): Emphasizes the need for knowledgeable personnel to evaluate controls.
GAGAS (Yellow Book): Highlights the role of external expertise in cases where internal expertise is insufficient.
