A revolving fund is a fund established to finance a continuing cycle of operations where the receipts (e.g., fees or reimbursements) are used to finance future operations. These funds are usually self-sustaining and are designed to recover full costs of providing goods or services.

The described situation — an agency providing procurement services to other agencies and using collected fees to continue operations — is a classic example of an intragovernmental revolving fund (also called a working capital fund).

Relevant References:

OMB Circular A-11, Section 20 – Fund Classifications

GAO Glossary of Terms – Revolving Fund

FASAB SFFAS No. 7 – Revenue and Other Financing Sources

Answer: A. revolving fund

The formal financial statements of a state or local government include:

Basic Financial Statements (government-wide and fund statements)

Notes to the Financial Statements

Required Supplementary Information (RSI), including MD & A and pension data

The auditor’s letter (i.e., Independent Auditor’s Report) is included in the financial section of the ACFR but is not technically part of the financial statements themselves. It is a separate document providing the auditor's opinion.

Relevant References:

GASB Statement No. 34

GFOA ACFR Reporting Guide

AICPA Governmental Audit Guide

Answer: D. auditor’s letter

Footnotes (Notes to the Financial Statements) serve to clarify and provide additional detail about the financial statements. Key components include:

Summary of significant accounting policies (e.g., measurement focus, basis of accounting)

Details on capital assets, long-term liabilities, commitments, contingencies

Pension/OPEB disclosures

Not performance metrics or audit opinions (those are in MD & A and audit reports)

Relevant References:

GASB Codification Section 2300 – Notes to Financial Statements

GFOA Best Practices – Financial Reporting and Disclosure

Answer: C. a summary of significant accounting policies.

Unemployment programs, such as those established by federal law (e.g., Unemployment Insurance), are typically funded through employment taxes and administered through federal trust funds. These funds are earmarked for specific purposes and are deposited into trust fund accounts, which are fiduciary in nature and maintained to provide benefits under the terms of a law or trust agreement.

The Unemployment Trust Fund is a specific example maintained by the U.S. Department of the Treasury.

Relevant References:

FASAB SFFAS No. 27 – Identifying and Reporting Earmarked Funds

Treasury Financial Manual – Trust Fund Accounts

GAO Glossary – Trust Fund Definition

Answer: C. trust funds

The Prompt Payment Act (31 U.S.C. Chapter 39) mandates that federal agencies pay vendors on time. Specifically, if a contract specifies a due date for payment, agencies are required to pay by that date. If no specific due date is mentioned, payment must be made within 30 days after the later of either:

Receipt of a proper invoice, or

Acceptance of goods/services.

If agencies fail to pay by the due date, they must automatically calculate and pay interest penalties to the vendor.

Relevant Standards and References:

31 U.S.C. § 3903 (Prompt Payment Act): “A payment is timely if it is made by the due date prescribed by the contract or within 30 days after receipt of a proper invoice or acceptance of goods or services.”

OMB Circular A-125, “Prompt Payment,” Section 7(a)

Treasury Financial Manual (TFM), Volume I, Part 6, Chapter 8040

Therefore, Option D is correct.

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 city has a June 30 fiscal year-end and applies the 60-day availability rule, which is standard under modified accrual accounting for governmental funds like the general fund.

Total collections within:

Fiscal year: $12 million

60-day window (July + August): $1 million + $500,000 = $1.5 million

Revenue recognized = $12 million + $1.5 million = $13.5 million

However, under GASB Interpretation No. 5 and GASB Statement No. 33, only amounts expected to be collected within 60 days after year-end should be recognized as revenue in the general fund. The city uses the 60-day rule.

Thus, the correct amount to recognize is:

$12 million (collected during fiscal year)

$1 million (July)

$500,000 (August) = $13.5 million

Answer: C. $13.5 million

Relevant References:

GASB Statement No. 33 – Accounting and Financial Reporting for Nonexchange Transactions

GASB Interpretation No. 5 – Property Tax Revenue Recognition

GASB Codification Section 1600.115 (Modified Accrual Basis)

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The OMB assists the President in preparing the President’s Budget, which is submitted annually to Congress. OMB coordinates budget instructions, evaluates agency requests, and ensures alignment with presidential policies.

Other roles:

GAO: Supports Congress and performs audits

CBO: Provides nonpartisan budget analysis to Congress

U.S. Treasury: Manages federal finances but does not oversee budget preparation

Relevant References:

OMB Circular A-11 – Role in Budget Formulation

U.S. Code Title 31 – Role of OMB

GAO Budget Glossary

Answer: C. OMB

A committed fund balance is established when the highest level of decision-making authority (e.g., county board or city council) formally sets aside resources for a specific purpose through resolution or ordinance before the end of the fiscal year.

Since the county board — the highest authority — has set aside $7 million specifically to address a projected budget deficit, the classification should be committed fund balance.

Assigned fund balance (Option B) is typically used when intent is expressed by a lower level of authority (e.g., finance director).

Relevant References:

GASB Statement No. 54 – Fund Balance Reporting

GASB Codification Section 1800.176 – Fund Balance Classifications

GFOA Guidance on Fund Balance Policies

Answer: D. Committed Fund Balance

Comprehensive Detailed Explanation:

According to FASAB Statement of Federal Financial Accounting Standards (SFFAS) No. 1, an accounts receivable should be recognized when a legal claim to cash exists — that is, when the federal agency has provided goods or services or an enforceable claim to payment has arisen.

This typically occurs after performance has occurred, not merely when an agreement or order is received.

Relevant References:

FASAB SFFAS No. 1 – Accounting for Selected Assets and Liabilities

Treasury Financial Manual (TFM) – Receivables Accounting

OMB Circular A-136 – Financial Reporting Requirements

Answer: A. claims to cash against other entities are established