GAFRB Exam Dumps - Examination 2: Governmental Accounting, Financial Reporting and Budgeting (GAFRB)

First, we calculate total eligible project costs:

Eligible categories (architectural, construction, project management):

Architectural (actual): $90,000

Construction (actual): $10,000,000

Project management (city employee at 50% time for 6 months):

 $10,000/month × 6 months × 50% = $30,000

Total eligible cost = $90,000 + $10,000,000 + $30,000 = $10,120,000

State reimburses 40% of eligible cost:

0.40 × $10,120,000 = $4,048,000

Relevant References:

OMB Uniform Guidance (2 CFR § 200) – Cost Principles

GFOA Best Practices – Grant Compliance

State grant agreements outlining cost-sharing requirements

Answer: A. $4,048,000

State and local government budgets primarily serve to:

Set public policy priorities

Provide legislative control over taxing and spending

Serve as a financial planning tool

Debt policy is typically established outside the annual budget process and guided by a separate debt management policy that sets borrowing limits, credit rating objectives, and debt service goals.

Relevant References:

GFOA Best Practices – Role of the Budget

NASBO Budgeting Handbook

GASB Concept Statements – Financial Reporting Objectives

Answer: C. determine debt policy

Comprehensive Detailed Explanation:

The Performance and Accountability Report (PAR) is a consolidated report that federal agencies are required to submit. It typically includes:

Agency Head’s Message

Performance Section (performance goals/results)

Financial Section (financial statements, audit report, notes)

Other Accompanying Information (e.g., improper payments, internal control reports)

There is no “demographic section” required or defined in the structure of a PAR.

Relevant References:

OMB Circular A-136 – Financial Reporting Requirements

GPRA Modernization Act of 2010

CFO Act of 1990

Answer: D. demographic section

When a federal agency participates in a pension plan administered by another government entity (such as the Office of Personnel Management, OPM), and OPM bills the agency for a portion of the cost while covering the remainder itself, the portion not billed is considered an "imputed cost" to the agency. This imputed cost represents the agency's share of employee pension benefits that are financed on its behalf by another entity.

Accounting guidance requires that the employing agency recognize both the amount billed and the amount covered by OPM as a pension expense, recordingthe imputed cost as an expense and as an imputed financing source in its own financial statements.This treatment ensures full recognition of the economic cost of employing personnel, even if part of that cost is not directly paid by the agency.

Key references and standards:

Federal Accounting Standards Advisory Board (FASAB) SFFAS No. 5, “Accounting for Liabilities of the Federal Government”:

“Employing entities should recognize the cost of pensions and other postemployment benefits during their employees' active years of service. The cost recognized includes the amount contributed by the employing entity and the portion contributed by other entities on the entity’s behalf, which is called an imputed cost.”

FASAB SFFAS No. 4, “Managerial Cost Accounting Standards and Concepts”:

“Costs that are incurred by one entity but paid by another entity, and that benefit the reporting entity, should be recognized by the reporting entity as imputed costs and imputed financing.”

OMB Circular A-136, Section II.2.7.3:

“Imputed costs are to be recognized for the costs of goods and services received from other federal entities at no or reduced cost, such as pension and postretirement health benefits...”

Therefore, answer choice C is correct: the agency recognizes the imputed cost.

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Comprehensive Detailed Explanation:

In governmental funds (using the modified accrual basis), expenditures are recorded when financial resources are used — typically when cash is disbursed. However, in government-wide statements (accrual basis), only the portion of the asset’s cost consumed in the period is recorded as an expense (i.e., depreciation).

Paying for capital assets such as vehicles is an expenditure in the governmental funds, but not an expense in the accrual-based government-wide financials. Instead, the cost is capitalized and depreciated over time.

Relevant References:

GASB Statement No. 34 – Government-wide vs. Fund Financial Reporting

GASB Codification Section 1300 – Modified Accrual Accounting

GFOA Best Practices – Capital Asset Reporting

Answer: C. At the end of the fiscal year, the government pays for ten vehicles which will be depreciated over five years.

The Statement of Net Cost is the principal financial statement used by federal agencies to report the total cost of their programs and activities. It aligns the agency's programs, outputs, and strategic objectives with the cost incurred to produce those outputs.

The Department of Health and Human Services, like all federal agencies, uses this statement to display costs by major program or responsibility segment.

Relevant References:

FASAB SFFAS No. 4 – Managerial Cost Accounting Standards

FASAB SFFAS No. 55 – Amending the Statement of Net Cost

OMB Circular A-136 – Section on Federal Financial Statements

Answer: A. Statement of Net Cost

In the reconciliation from the governmental fund financial statements to the government-wide Statement of Activities, capital outlays that were treated as expenditures in the governmental funds are added back. This is because the government-wide financial statements use full accrual accounting, where capital outlays are capitalized as assets and not expensed.

Thus, the $2 million in capital outlays would be added back to adjust net change in fund balances to arrive at the change in net position for governmental activities.

Relevant References:

GASB Statement No. 34 – Reporting Capital Assets and Reconciliation

GASB Codification Section 2200 – Government-wide Financial Reporting

GFOA Annual Comprehensive Financial Report Guidance

Answer: C. $2 million in capital outlays is added

OMB Circular A-136 specifies the required components of the Agency Financial Report (AFR), which include:

A Message from the Head of the Agency

Management’s Discussion and Analysis (MD&A)

Financial Section (including statements and notes)

Other Information (e.g., improper payments, internal controls)

The Performance Section is not included in the AFR but is instead part of the alternative Performance and Accountability Report (PAR) or included separately in an Annual Performance Report (APR).

Relevant References:

OMB Circular A-136 – Financial Reporting Requirements (Section II)

GPRA Modernization Act of 2010

CFO Act of 1990

Answer: D. the performance section