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Compensating controls mitigate risks when ideal segregation or preventive controls are impractical. For example, supervisory review may substitute when staffing is too small to separate duties. They do not reduce risk to zero (Option A). They are not solely preventive (Option D) and are broader than monitoring (Option C). Exam 3 stresses pragmatic internal control design. Option B is correct.

Government-wide statements use the economic resources measurement focus and accrual accounting, reporting long-term assets and liabilities. Governmental funds use current financial resources (Option A). Cash (Option C) and budgetary (Option D) bases are non-GAAP. Exam 2 emphasizes this distinction. Option B is correct.

CGFM Exam 3 emphasizes that effective internal control requires relevant, timely information and communication to enable staff to carry out responsibilities. In this scenario, management implements schedules, reminders, and assignment of responsibility—mechanisms that transmit the right information to the right people at the right time. These practices support control activities (e.g., on-time reporting) by ensuring requirements are known and tracked. While tone at the top (control environment) matters, Option B alone is too narrow because the actions are operational communication tools and procedures. Risk tolerance (Option C) is a governance concept; setting tolerance does not itself ensure operational compliance. External assurance by auditors (Option D) is separate from internal control; audits may detect issues after the fact but do not constitute management’s control process. Therefore, Option A best fits: information and communication are being structured to reinforce compliance with grant reporting deadlines—aligning with Green Book and COSO concepts embedded in Exam 3, including establishing responsibilities, communicating expectations, and enabling follow-through to mitigate compliance risks.

CGFM Exam 3 highlights internal control evaluation using COSO and GAO Green Book frameworks. In this scenario, auditors are performing an independent review of payroll to ensure controls are working as intended. This is a monitoring activity—evaluating the effectiveness of controls over time and detecting breakdowns. Control environment (Option A) relates to tone at the top, ethics, and organizational structure. Risk assessment (Option B) involves identifying risks such as payroll fraud and designing controls to mitigate them. Control activities (Option C) are the procedures implemented (e.g., segregation of duties, reconciliations) to prevent ghost employees from being added in the first place. Monitoring (Option D) goes a step further: it tests and evaluates whether those control activities are functioning properly. Regular audit testing is a classic form of monitoring, allowing management to detect problems early and take corrective action. Therefore, Option D is the best answer as it directly reflects the monitoring component.

Proprietary funds (Enterprise, Internal Service) prepare a Statement of Net Position, similar to a balance sheet, reporting assets, liabilities, and net position. Revenues/Expenditures (Option B) is for governmental funds. The Statement of Activities (Option C) is government-wide. Budgetary comparison (Option D) applies to governmental funds. Exam 2 stresses proprietary reporting. Option A is correct.