Definition of Output Measures:

Output measures trackthe results of providing goods or services, such as the number of items produced or services delivered.

These measures focus onquantityrather than quality or outcomes.

Explanation of Answer Choices:

A. Activity measures: Incorrect. Activity measures refer to inputs or processes, not results.

B. Outcome measures: Incorrect. Outcome measures assess the impact or effectiveness of a program, not the quantity of goods/services provided.

C. Output measures: Correct. Output measures focus on results (e.g., number of services delivered).

D. Workload measures: Incorrect. Workload measures assess the volume of work performed but do not necessarily report on the results.

Risk Assessment Under COSO Framework:

The first step in a COSO-based risk assessment is defining internal control objectives. This establishes what the organization aims to achieve, providing a framework for identifying risks and ensuring controls align with objectives.

Risk assessment focuses on evaluating the likelihood and impact of risks that could hinder these objectives.

Explanation of Answer Choices:

A. Identification of risks: Identifying risks follows the definition of internal control objectives.

B. Defining internal control objectives: Correct. Objectives must be defined first to provide a basis for identifying and assessing risks.

C. Review of prior audit findings: Important, but it’s not the starting point for a risk assessment under COSO.

D. Setting risk tolerance levels: This occurs later, after risks have been identified and evaluated.

 What Is GPRA?

TheGovernment Performance and Results Act (GPRA)of 1993 was designed to improve the performance of federal programs by requiring federal agencies to establish goals, measure performance, and report on their progress.

 Stated Purposes of GPRA:

Improve Service Delivery (Option A):GPRA helps agencies align performance goals with customer needs, improving service delivery.

Improve Internal Management Practices (Option B):By requiring performance metrics and evaluations, GPRA enhances internal management and decision-making processes.

Improve Program Effectiveness (Option D):GPRA aims to make federal programs more effective by fostering accountability and linking resources to results.

 Why Option C Is Incorrect:

GPRA does not provide detailedinstructions on program reporting.While it requires agencies to report on their performance, it does not dictate the specific steps or instructions for reporting. Instead, agencies design their own reporting processes within the GPRA framework.

 References and Documents:

Government Performance and Results Act of 1993:Stipulates the law’s objectives but does not mention program reporting instructions.

GAO Report on GPRA Implementation:Highlights GPRA’s purpose to improve performance management and accountability without prescribing reporting instructions.

Regression Analysis:

Regression analysis is a statistical method used to examine relationships between variables and make predictions.

To estimatesales tax revenue, a CGFM can use regression to analyze how population growth, housing, and employment trends correlate with tax revenue over time.

Explanation of Answer Choices:

A. Regression analysis: Correct. This method uses historical and predictive data to model the relationship between variables (e.g., population growth and sales tax revenue).

B. Cash flow analysis: Focuses on analyzing cash inflows and outflows, not predicting revenue based on external factors.

C. Payback analysis: Used to calculate the time needed to recover an investment, unrelated to tax revenue estimation.

D. Flow charting: Used to visualize processes, not for predictive analytics.

 What Are Disbursement Techniques?

Disbursement techniques refer to the methods used by organizations to pay vendors or settle financial obligations. The timeliness of payments depends on the technique used.

 Why Are Drafts the Best Option for Timely Payments?

Adraftis a payment instrument issued by an organization’s bank, drawn against its account, and typically includes specific payment timing instructions.

Drafts allow the payer to specify the timing of payments, ensuring they are made on time.

 Why Other Options Are Incorrect:

A. Warrants:Warrants authorize payments but do not ensure timeliness as they require additional processing before funds are disbursed.

B. Checks:Checks rely on postal delivery and clearing times, which may delay payments.

D. Bank cards:While convenient, bank cards are typically used for immediate payments, not for ensuring future timely disbursements.

 References and Documents:

Treasury Financial Manual:Highlights drafts as a disbursement tool for controlling the timing of payments.

GAO Cash Management Guide:Discusses the benefits of drafts in ensuring timely payments.

Collusion as a Threat to Monitoring:

Collusion occurs when two or more individuals work together to circumvent internal controls.

Even with strong controls in place, collusion can undermine monitoring because it allows individuals to bypass controls without detection.

Explanation of Answer Choices:

A. Theft has occurred: Incorrect. While theft is a problem, it is often detected if controls and monitoring are functioning properly.

B. Financial data is inaccurate: Incorrect. Inaccurate financial data can compromise decision-making, but strong monitoring can help detect and correct errors.

C. Performance data is inaccurate: Incorrect. While inaccurate performance data is problematic, it does not directly compromise the monitoring of financial control weaknesses.

D. Collusion is present: Correct. Collusion is the most significant threat because it undermines the effectiveness of internal controls and makes monitoring ineffective.

GAO and External Audit Standards:The Government Accountability Office (GAO) uses the Yellow Book as its primary standard. However, it may also reference external standards from recognized international and professional auditing organizations. INTOSAI is specifically mentioned in the Yellow Book as a source of additional standards for governmental audits.

Explanation of Answer Choices:

A. Public Company Accounting Oversight Board (PCAOB): This regulates audits of publicly traded companies, not government entities.

B. International Auditing and Assurance Standards Board (IAASB): This focuses on global private-sector audits, not specifically government-related.

C. International Organization of Supreme Audit Institutions (INTOSAI): Correct. INTOSAI sets audit standards for public-sector auditors worldwide and is relevant for the GAO.

D. AICPA: While the AICPA sets standards for U.S. auditors, INTOSAI is more relevant for international public-sector audits.

 What Is Vertical Analysis?

Vertical Analysisevaluates a single year's financial statements by expressing each line item as a percentage of a base amount. For example, in an income statement, each expense may be presented as a percentage of total revenue.

This approach helps users understand the relative size of each financial statement item within the context of the total.

 Why Is Vertical Analysis Used for a Single Year?

Vertical analysis focuses solely on relationships within a single set of financial statements, making it the appropriate choice for single-year evaluations.

 Why Other Options Are Incorrect:

A. Comparative:Involves comparing financial data across entities or periods, not within a single year.

B. Horizontal:Focuses on changes in financial data over time (year-to-year comparisons).

C. Trend:Examines patterns over multiple periods to identify long-term trends, not a single year.

 References and Documents:

GAO Financial Audit Manual:Recommends vertical analysis for single-year financial statement evaluations.

AICPA Financial Statement Analysis Guide:Provides detailed examples of vertical analysis techniques.

 Role of the Independent Auditor in Financial Reporting:

Independent auditors evaluate internal controls as part of their audit procedures to support an opinion on the fair presentation of the financial statements. This includes assessing whether internal controls over financial reporting are designed and operating effectively.

This evaluation helps ensure that financial statements are free of material misstatements, whether due to error or fraud.

 Why Management Does Not Do This:

Managementdesigns and implements internal controls but does not evaluate them to support the auditor’s opinion. Management’s responsibility is to certify the accuracy of the financial statements, while the auditor provides an independent opinion.

 Why Other Options Are Incorrect:

C. The program office:This entity oversees operations but does not perform evaluations to support an audit opinion.

D. The audit committee:The committee provides oversight of the audit process but does not perform the evaluation itself.

 References and Documents:

GAAS (Generally Accepted Auditing Standards):Outlines the responsibilities of independent auditors regarding internal control evaluation.

GAO Yellow Book:Specifies the role of external auditors in evaluating internal controls during financial audits.

 What Are Liquidity Ratios?

Liquidity ratios are financial metrics used to measure an organization’s ability to meet its short-term financial obligations as they come due. These ratios assess whether the organization has sufficient liquid assets (like cash, receivables, or short-term investments) to cover its current liabilities (debts or obligations due within a year).

 Why Are They Relevant to Creditors?

Creditors care deeply about an entity's ability to repay its debts in a timely manner. Liquidity ratios provide a snapshot of the organization's financial health and give insight into its capacity to meet short-term demands. They are essential tools in evaluating whether a government entity (federal, state, or local) or any other organization can pay its creditors without needing to secure additional financing or liquidate long-term assets.

 Common Liquidity Ratios:

The most commonly used liquidity ratios are:

Current Ratio:This measures the organization’s ability to pay off its current liabilities with current assets.Formula:Current Assets ÷ Current Liabilities

Quick Ratio (Acid-Test Ratio):A stricter version of the current ratio, it excludes less liquid assets (like inventory) to assess the organization’s immediate ability to pay short-term debts.Formula:(Current Assets - Inventory) ÷ Current Liabilities

Cash Ratio:Focuses only on the most liquid assets, such as cash and cash equivalents.Formula:Cash + Cash Equivalents ÷ Current Liabilities

 How Do Liquidity Ratios Apply to Governmental Accounting?

In governmental accounting, liquidity ratios are crucial for determining whether a governmental entity has the financial flexibility to manage short-term obligations like accounts payable, payroll, and other operating costs. For example:

State and local governments use liquidity ratios to show stakeholders their ability to sustain operations without financial strain.

Government-wide financial statements (under GASB standards) often emphasize liquidity to demonstrate fiscal health to bondholders and credit rating agencies.

 Why Not Other Ratios?

A. Budgetary Cushion Ratios:These focus on the organization’s ability to withstand revenue shortfalls and maintain budgetary reserves, not specifically on meeting creditor demands.

C. Debt Burden Ratios:These measure the overall burden of debt on the organization but don’t directly address short-term liquidity or solvency.

D. Turnover Ratios:These evaluate operational efficiency (e.g., how quickly assets like inventory are converted into revenue), which doesn’t directly relate to creditor demands.

 References and Documents:

Government Financial Manager (GFM) Competency Framework by the Association of Government Accountants (AGA):Section on “Financial Analysis” emphasizes the importance of liquidity ratios in assessing short-term solvency for government entities.

GASB Concepts Statement No. 1:Discusses the need for governmental financial reporting to provide information on financial condition, including short-term liquidity.

AGA Performance Management Framework Guide (2023):Highlights liquidity ratios as critical tools for demonstrating fiscal responsibility and transparency in public sector financial management.

 What Is a Lockbox?

Alockboxis a service provided by banks to streamline the collection of payments. Customers send payments directly to a bank-managed P.O. box, where the bank processes and deposits them on behalf of the organization.

 Why Does a Lockbox Eliminate Internal Office Processing Delays?

Payments are sent directly to the bank, bypassing the organization’s internal mail and deposit processes. This eliminates delays caused by handling checks internally and ensures quicker access to funds.

 Why Other Options Are Incorrect:

B. Mail and check-clearing time:Lockboxes reduce internal processing delays but do not affect the mail delivery time or bank check-clearing processes.

C. Delays in the availability of funds after transaction initiation:Fund availability depends on banking processes, not the lockbox.

D. Writing of checks against insufficient funds:Lockboxes do not prevent the issuance of bad checks.

 References and Documents:

Treasury Financial Manual:Describes lockboxes as tools to reduce internal delays in payment processing.

GAO Financial Management Best Practices:Highlights the benefits of lockboxes in expediting deposits.

Definition of the Condition in an Audit Finding:

The "condition" describes the actual state observed during the audit. It highlights what occurred in practice, serving as the factual basis for the finding.

In this case, the condition is theabsence of receiptsfor multiple credit card purchases.

Explanation of Answer Choices:

A. We identified multiple credit card purchases without receipts to support them: Correct. This is the observed issue (condition).

B. Government policy requires a cardholder to submit receipts for all purchases: This is the "criteria," which defines the standard or rule being audited against.

C. Finance Department personnel did not regularly review purchases to ensure compliance: This is the "cause," explaining why the condition occurred.

D. We recommend that the government implements a timely review of all credit card purchases: This is the "recommendation," not the condition.

Control Environment Component:

The control environment is the foundation of an internal control system, setting the tone at the top.

Demonstrating integrity and ethical values is the first principle of the control environment, as outlined in theCOSO Internal Control Framework.

Explanation of Answer Choices:

A. Demonstrate a commitment to integrity and ethical values: Correct. This is a foundational principle of the control environment.

B. Implement control activities through policies: This relates to the "Control Activities" component, not the control environment.

C. Communicate quality information to achieve the entity's objectives: This relates to the "Information and Communication" component.

D. Establish and operate activities to monitor the internal control system: This relates to the "Monitoring Activities" component.

 What Is Internal Control Evaluation?

Internal control evaluation is the process of assessing an organization’s internal controls to ensure they are adequate and effective in mitigating risks, ensuring compliance, and achieving objectives.

 Why Is Identifying Potential Risks the First Step?

The entire purpose of internal controls is to mitigate risks. Therefore, before evaluating the controls, you need to identify the risks they are meant to address.

Once risks are identified, the organization can evaluate whether the existing controls are adequate and effective in mitigating those risks.

This approach aligns with risk-based frameworks like theCOSO Internal Control Framework, which emphasizes risk identification as the foundation for effective controls.

 Why Other Options Are Incorrect:

A. Identifying the effectiveness of management activities:This is part of control evaluation but occurs after risks and controls are identified.

B. Assessing the adequacy of controls:Controls cannot be assessed until the risks they address are identified.

C. Documenting how transactions or events are processed:While this step is important, it comes later in the process, after risks and controls are identified.

 References and Documents:

COSO Internal Control Framework:Identifies risk assessment as the foundation for designing and evaluating controls.

GAO Standards for Internal Control (Green Book):Highlights risk identification as the first step in the control process.

 Why Pay on the Discount Date?

Discount termsare offered by vendors to encourage early payment, such as "2/10, net 30" (2% discount if paid within 10 days). Paying on the discount date ensures the organization takes advantage of cost savings while still making timely payments.

This approach optimizes cash management by reducing payment obligations while maintaining good vendor relationships.

 Why Other Options Are Incorrect:

A. After the due date:Late payments can damage vendor relationships and incur penalties.

B. Prior to the due date:Paying too early does not provide additional benefits and can unnecessarily deplete cash reserves.

C. On the due date:If a discount is offered, waiting until the due date means missing the opportunity to save money.

 References and Documents:

GAO Financial Management Guide:Recommends paying invoices with discounts on the discount date to maximize cost savings.

Best Practices in Governmental Cash Management (AGA):Highlights the importance of managing vendor payments to take advantage of discounts.

 Definition of a Material Weakness:

According to auditing standards, a material weakness in internal control over financial reporting is a deficiency or combination of deficiencies that creates a reasonable possibility of a material misstatement in the financial statements that will not be prevented or detected on a timely basis.

 Key Characteristics of a Material Weakness:

Reasonable Possibility:The likelihood of a misstatement is more than remote but less than certain.

Material Misstatement:The error or omission could impact the decisions of users relying on the financial statements.

Timely Detection:The deficiency allows errors to go undetected for an extended period, potentially affecting financial statement reliability.

 Why Other Options Are Incorrect:

A.A misstatement in the basic financial statements may result from a material weakness, but the definition focuses on the reasonable possibility, not the actual result.

B.A material weakness impacts the financial statements, not "other accompanying financial information."

C.While timely detection is part of the issue, the definition focuses on the reasonable possibility of a misstatement, not management’s inability to perform specific duties.

 References and Documents:

GAAS (AICPA SAS No. 115):Provides the formal definition of material weaknesses and guidance for auditors in evaluating control deficiencies.

COSO Framework:Emphasizes the need for effective internal controls to mitigate material misstatement risks.

 What Is the Cash Management Improvement Act (CMIA)?

CMIA requires states and federal agencies to minimize the time between when federal funds are drawn (transferred to the state) and when those funds are spent (final disposition).

The goal is to reduce idle funds, ensure efficient use of federal funds, and reduce interest liabilities for both parties.

 Key Objective:

By minimizing the time between fund transfers and usage, the act ensures that federal funds are used promptly for their intended purposes, preventing excess cash from sitting idle in state accounts.

 Why Other Options Are Incorrect:

A. States to pay invoices within 30 days:This is unrelated to CMIA; it is part of general payment practices.

C. Federal agencies to take discounts:This relates to payment terms, not the timing of fund transfers.

D. Federal agencies to disburse payments via EFT:While electronic funds transfers are a common practice, CMIA focuses on minimizing idle funds, not payment methods.

 References and Documents:

Cash Management Improvement Act (1990):Mandates reducing the time between fund transfer and usage.

Treasury Financial Manual:Provides specific guidelines for implementing CMIA.

Definition of Computer-Assisted Audit Techniques (CAATs):

CAATs use software tools to perform audit tasks such as data analysis, testing transactions, and evaluating internal controls.

Obtaining accurate and relevant data is a key first step, as it forms the basis of any analysis performed using CAATs.

Explanation of Answer Choices:

A. Writing the system audit program: This is part of audit planning but not a specific feature of CAATs.

B. Verifying internal controls: While CAATs can be used to test controls, obtaining data is fundamental to this process.

C. Obtaining appropriate data: Correct. CAATs rely on accurate, relevant, and complete data for meaningful analysis.

D. Purchasing data mining software: While software is a tool for CAATs, the focus is on using data, not on acquiring the software itself.

Definition of Internal Control (According to GAO):

Internal control is aprocess implemented by managementto provide reasonable assurance that the organization will achieve its objectives in:

Operations(effectiveness and efficiency).

Reporting(reliable and accurate financial and non-financial reporting).

Compliance(adherence to laws and regulations).

Explanation of Answer Choices:

A. Help an entity achieve its objectives: Correct. This is the primary purpose of internal controls.

B. Design an ERM system: Incorrect. Enterprise Risk Management (ERM) is broader than internal control and includes risk strategy and appetite.

C. Set the tone at the top: Incorrect. While the tone at the top is part of the control environment, it is not the full scope of internal control.

D. Develop a strategic plan: Incorrect. Internal control supports strategic plans but is not directly involved in developing them.

Creditworthiness and Loan Approval:

When creditworthiness is a criterion for government loans, the applicant must demonstrate asatisfactory history of repaying debt, as this reflects their ability to fulfill repayment obligations in the future.

 Why a Satisfactory History Is Required:

Past repayment behavior is considered the best indicator of future performance. Government agencies prioritize reducing the risk of defaults by ensuring applicants have a proven history of managing debt responsibly.

 Why Other Options Are Incorrect:

A. A credit rating from a major bank:While a credit rating is helpful, it is not typically required for government loans. Instead, creditworthiness is evaluated based on repayment history and other financial factors.

C. Sufficient capitalization:This is important for business loans, but it does not address creditworthiness.

D. A promise to pay interest at the government borrowing rate:A promise is not sufficient to establish creditworthiness.

 References and Documents:

OMB Circular A-129:Requires agencies to assess creditworthiness before granting loans.

GAO Loan Management Guide:Highlights repayment history as a key criterion for loan approval.

 What Did the Accountability for Tax Dollars Act Do?

This act expanded the audit requirements tovirtually all federal agencies, not just those covered under the CFO Act of 1990.

It mandated that agencies prepare audited financial statements to improve transparency, accountability, and the management of federal funds.

 Why Other Options Are Incorrect:

A. CFO Act of 1990:This act required audited financial statements but only applied to the 24 largest federal agencies (those covered under the Chief Financial Officers Act).

C. Federal Financial Management Improvement Act of 1996:Focused on financial system compliance with federal accounting standards, not expanding audit requirements.

D. Government Management Reform Act of 1994:Extended the CFO Act requirements to consolidated government-wide financial statements, not all federal agencies.

 References and Documents:

Accountability for Tax Dollars Act of 2002:Specifies the expanded audit requirements for federal agencies.

GAO Guide on Federal Financial Management Laws:Provides a comprehensive overview of key legislation.

 What Is a Risk Profile?

Arisk profilerepresents the aggregate level and types of risks that an organization is willing to accept in pursuit of its strategic objectives. It aligns with the organization’s risk appetite and tolerance and helps prioritize and manage risks effectively.

This profile typically includes key risks, their likelihood, and potential impact, as well as how those risks align with the organization's mission and strategy.

 Why Is Risk Profile the Correct Answer?

The risk profile provides an enterprise-wide view of risks and their potential influence on achieving strategic goals. It aggregates risks across all levels of the organization and ensures that management considers them when making decisions.

 Why Other Options Are Incorrect:

A. Risk Register:While a risk register includes detailed descriptions of individual risks, it does not aggregate risk levels or types across the organization.

B. Risk and Control Evaluation Matrix:This tool evaluates specific risks and controls but does not capture the organization’s overall risk appetite or profile.

D. Risk and Control Assessment Tool:This is a generic tool for assessing risks and controls, not for aggregating the overall risk picture.

 References and Documents:

OMB Circular A-123:Specifies the need for agencies to maintain a risk profile as part of enterprise risk management.

COSO ERM Framework (2017):Defines a risk profile as central to managing risks in alignment with strategic objectives.

 What Is Internal Control Over Financial Reporting?

Internal control over financial reporting (ICFR) ensures the reliability of an entity’s financial statements. It focuses on maintaining accurate, complete, and properly valued financial information that complies with accounting standards and meets the needs of users.

 Why Is Option C Correct?

Proper valuation of assets and liabilities is a critical component of ICFR. It ensures that financial statements fairly represent the entity's financial position.

Cost allocation is also essential where applicable, such as assigning costs to programs or projects.

 Why Other Options Are Incorrect:

A. Sufficient spending authority and financial resources exist:This relates to budgetary control, not financial reporting.

B. Physical inventory of capitalized assets:Conducting a physical inventory is part of asset management, not financial reporting assertions.

D. Legislatively directed program goals:Meeting program goals is related to performance reporting, not ICFR.

 References and Documents:

GAO Standards for Internal Control (Green Book):Stresses the importance of proper valuation and cost allocation for accurate financial reporting.

COSO Framework:Emphasizes ICFR’s role in ensuring reliable and accurate financial statements.

Governmental Attestation Engagements:

These engagements involve providing assurance on specific elements of financial or non-financial information, such as compliance with laws, contracts, or bond covenants.

Reviewing revenue coverage requirements for outstanding bonds fits the scope of attestation engagements, which focus on confirming adherence to specific requirements.

Explanation of Answer Choices:

A. Monitor a subgrantee for compliance to the grant restrictions: Monitoring is a management responsibility, not typically part of an attestation engagement.

B. Establish a policy concerning fraud prevention: Establishing policies is a management duty, not a task for auditors.

C. Monitor purchasing card charges for compliance with travel policies: Monitoring is operational, not attestation-related.

D. Review the revenue coverage requirements on outstanding bonds: Correct. This falls within the scope of attestation engagements.

Response to Weaknesses in Shared Service Providers:

Shared service providers often issue reports on internal controls (e.g., SOC 1 or SOC 2 reports).

When a weakness is identified, the recipient agency must evaluate whether compensating or mitigating controls exist to address the risk, ensuring continued reliability.

Explanation of Answer Choices:

A. Consider the existence of compensating or mitigating controls: Correct. This is a standard response to internal control weaknesses, as outlined in auditing and risk management best practices.

B. Ask the service provider to correct the weakness: Incorrect. While this may be appropriate, the recipient agency is ultimately responsible for evaluating and addressing the risk.

C. Dismiss the weakness: Incorrect. Ignoring a weakness can expose the agency to risk.

D. Refer the weakness to the Contracting Officer: Incorrect. This may be part of the process, but the agency must first assess the impact and controls.

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.

Service Efforts and Accomplishments (SEA) Reporting:

SEA reporting is designed to providenon-financial performance informationabout the efficiency and effectiveness of government programs.

It evaluates how well resources are being used to achieve desired outcomes, helping stakeholders assess program performance and accountability.

Explanation of Answer Choices:

A. Evaluation of the effects of changes in public policy: Incorrect. SEA reporting does not focus on policy changes but on program performance.

B. Assessment of financial condition and results of operations: Incorrect. This is the role of financial statements, not SEA reports.

C. Assessment of the accountability of the public administrators: Incorrect. While SEA reports indirectly support accountability, their main purpose is to assess program efficiency and effectiveness.

D. Evaluation of the efficiency and effectiveness of governmental programs: Correct. This is the primary focus of SEA reporting.

 National Performance Management Advisory Commission Framework:

TheNational Performance Management Advisory Commissiondeveloped a comprehensive framework to integrateperformance measurementinto government operations.

One of its primary goals was to incorporate performance metrics into thebudget processto align resource allocation with program outcomes.

This ensures that budgeting decisions are informed by program performance, improving efficiency and accountability.

 Why the Budget Process?

By linking performance to budgeting, governments can prioritize funding for programs that demonstrate effectiveness and reduce funding for underperforming initiatives.

 Why Other Options Are Incorrect:

A. Internal control plan:Internal controls focus on risk management, not incorporating performance measurement.

B. Financial statements:Performance metrics are not reported in financial statements, which focus on financial position and results.

C. Audit procedures:Audits verify financial accuracy and compliance but do not incorporate performance measurement.

 References and Documents:

National Performance Management Advisory Commission Report (2010):Recommends integrating performance measurement into the budget process.

GAO Guide on Performance Budgeting:Explains how performance metrics inform budget decisions.

OMB Circular A-11 and Capital Asset Acquisition:

OMB Circular A-11 mandates the use ofearned value management (EVM)for measuring cost, schedule, and performance goals in capital asset acquisition projects.

EVM integrates project scope, schedule, and cost data to assess project performance and forecast outcomes.

Explanation of Answer Choices:

A. Earned value management: Correct. EVM is the prescribed method for tracking progress on capital projects under OMB Circular A-11.

B. Net present value: Used for financial analysis, such as determining the economic value of future cash flows, but not for tracking project progress.

C. Future value: Measures the value of an investment at a future point, not applicable to project tracking.

D. Regression analysis: A statistical method for identifying relationships between variables, not for measuring project performance.