Exam 1: Section 2: Legally Based Implications of the Government Financial Environment - Practice Questions

A state legislature establishes limits on the amount of money that can be spent on salaries, equipment, utilities, supplies and travel. The legislature is imposing what kind of accounting controls?

Answer: It is imposing object class controls. Other categories of control include programs and funds.

What is the primary financial control device used in government?

Answer: It is an appropriated budget with an accompanying system of budgetary accounting. The budget is a law.

What is the primary reason for establishing a special fund?

Answer: The purpose of establishing a special fund is to ensure that specially-identified (or dedicated) revenues are applied to specific programs. A well-known example is when receipts from gasoline taxes are deposited into a special fund for highway repairs.

Which purpose is not supported by the budget process?

a. establishing government priorities

b. communicating public values and policies

c. reporting results of government operations

d. planning future government expenditures

Answer: C

Options (a), (b) and (d) are all important purposes fulfilled by the budget process. The reporting function is a separate phase of the management cycle, which is not fulfilled by the budget process.

Describe the relationship among appropriations, apportionments and allotments at the national level.

Answer: Appropriations are budget laws passed by Congress. After appropriations are passed, the OMB apportions budgetary authority to major departments and components of government. The major department or component further distributes the budgetary authority within its own organization ("down the chain") by issuing allotments to its organizational units.

What is meant by reprogramming?

a. The executive branch asks the legislative branch for approval to move funds from one appropriation line item to another.

b. The executive branch asks the judicial branch for approval to move funds from one program to another.

c. The legislative branch directs the judicial branch to move funds from one program activity to another.

d. The judicial branch directs the legislative branch to move funds from one object class to another.

Answer: A

The legislative branch has "power of the purse." If the executive branch wants to reprogram funds, it submits a request to the legislative branch.

Which is not a phase in the government financial management cycle?

a. auditing

b. reprogramming

c. reporting

d. operations

Answer: B

Reprogramming is sometimes necessary, but it is not a specific phase of the management cycle as are auditing, reporting and operations.

What limits the practice of government borrowing at various levels of government?

At the national level, the debt limit can only be raised by an act of Congress, which occurs frequently. The national government borrows for both operational and capital expenses. Most state constitutions and local charters limit borrowing to capital improvement projects. Most state and local entities cannot borrow to cover operational expenses. (There are a few exceptions, such as revenue anticipation notes.) In many cases, a proposed government debt issue must be put before voters in a referendum; that is, it must be approved by voters before borrowing can take place. Also, many bond covenants limit future borrowing by the entity until the debt issue associated with the covenant is paid off.

Which objective is least likely to be achieved through the budget process?

a. prioritize government expenditures

b. allocate financial resources to various programs

c. guide operations of organizational units

d. raise ceiling on debt limits

Answer: D

Options (a), (b) and (c) are objectives fulfilled through the budget process. Raising the ceiling on government debt requires legislation action and is not an objective of the budget process. However, there is a relationship between the budget process and the national debt limit-the president's budget, submitted to Congress, includes an estimate on the increase in debt that is needed.

Which is most likely to provide preliminary budget targets to executive agencies?

a. Government Accountability Office

b. Legislative Services Agency

c. State Auditing Agency

d. Office of Management and Budget

Answer: D

It is part of the role of the OMB, as a central management office, to provide preliminary budget targets to federal agencies. At the state level, the state budget office or CFO performs a similar role. The Government Accountability Office is, like the OMB, a central management office, but it does not provide preliminary budget targets. Many states have a Legislative Services Agency; the LSA advises the legislature on fiscal matters, but does not directly provide budget targets to state agencies and departments. The State Auditing Agency assesses accountability.

Which of the following is least likely to be an outcome of the budget process?

a. ensure operating results are presented according to GAAP

b. establish broad goals to guide decision-making within agencies

c. develop approaches to achieve goals with available resources

d. make funding adjustments based on past performance

Answer: A

Options (b), (c) and (d) may all be accomplished during the budget process. During the reporting process, financial managers endeavor to present operating results according to GAAP. During the auditing process, external auditors evaluate whether operating results have been presented according to GAAP.

Explain why the use of earmarks can be controversial.

Answer: Some observers criticize the use of earmarks because they appear to bypass the normal budget process. As a result of earmarks, certain programs or objectives receive "set aside" funding without having to "compete" with other programs for scarce public funds.

Which of the following is not a technique used by the Federal Reserve System to achieve monetary policy?

a. buying and selling government bonds

b. establishing a new foreign currency exchange rate

c. altering the amount of reserves that other banks must keep on deposit with the Federal Reserve Bank

d. changing the interest rate at which it loans funds to other

institutions

Answer: B

The Federal Reserve System does not have the power to "establish" foreign currency exchange rates, which are market-based and which depend on changing global economic conditions. The other options represent techniques used by the Federal Reserve System.

At some level, all phases of the government financial management cycle are being addressed throughout the year, and the various phases should be integrated. But there is a recognizable sequence in the management cycle. Where does budgeting fall in the cycle?

Answer: It falls after programming and before operations.

What is the relationship between the strategic plan and the budget?

Answer: The strategic plan is a longer-term document (usually 3 to 6 years) while the budget is a shorter-term planning document (usually 1 to 2 years). The budget reflects the current plans for achieving long-term goals. The strategic plan should always be integrated with the budget.