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PMGT 321 Public Finance

Terms

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5 types of Expenditures
1-Purchases
2-Transfer Payments
3-Debt Transfers
4-Tort Liabilities
5-Tax expenditures and Credits
What are the two types of authority for spending?
1-Ability to act often through enabling legislation
2-Ability to spend through appropriations
What is Allocation?
Lease common expenditure authority--lump sum authority where the administrator decides how to allocate the funds.
What is Apportionment?
The distribution of expenditure authority for a specific time period.
What is Allotment?
The most common expenditure authority--communicate most of authority directly to subordinates.
Obligation spending?
it is legally binding to the responsibity to pay
Commitment spending?
Contracts, entitlement notices, etc....sometimes irrevocable
What are the 5 forms of payment in public sector?
1-Petty Cash
2-Reimbursements
3-Directly from an account
4-Budget transfers
5-From an unrestricted account.
What are the two types of management for purchasing?
Decentralized and Centralized
Does decentralized purchasing have written standards?
Less likely then centralized.
Are decentralized purchasing decisions linked to budget or accounting systems?
Not necessarily
Which purchasing system is cheaper and more often used by public organizations?
Decentralized
What is the main drawback to decentralized purchasing systems?
Quality and integrity control of goods and services are often lacking.
Who is responsible for purchasing in centralized systems?
A single person or department specializing in purchasing.
Who is drafts policies and oversees function in centralized systems?
Policy Board or group
What is the main drawback of a centralized purchasing system?
Often Slower
What are the two types of interest?
Simple and Compound
What is simple interest?
Interest paid only on the principal amount
What is compound interest?
Interest paid on both the principal and interest
What three factors do you need to look to when analyzing cash flow?
Source, Amount & Date
What is the formula for calculating the time value of money?
FV=PV(1+r)^n
Futer value= Present Value times one plus the rate raised to the number of periods
What are the 4 concerns with investments?
1-Risk
2-Liquidity
3-Yield
4-Size of Investment
What are the 3 types Risk?
1-Default Risk
2-Market Risk
3-Liquidity Risk
What is Default Risk?
Probability that the issuer will be unable to redeem the investment
What is Market Risk?
Possibility of loss from choosing a relatively poor investment from all available investments
What is Liquidity Risk?
Occurs when invested money cannot be collected immediately even though the money is safe
What does risk do to the rate?
High Risk=High Rate
Low Risk=Low Rate
What is Liquidity?
Ability to readily convert to cash
What is Yield?
The rate of return above the initial investment
How can the size of investment be defined?
Larger investments generally are associated with higher return, fewer transaction costs.
What are the 3 types of investments?
1-Debt
2-Equity
3-Money Market/Mutual Fund
What is Capital BUdgeting?
A plan for the funding, acquisition, and development of public land, improvements, equipment, and facilities for use in the immediate, intermediate, and long-term future.
What are the two ways to finance Capital Budgeting?
Pay-as-you-go and Pay-as-you-use
What is Pay-as-you-go?
raise all the money and pay as you go
What is Pay as you use?
Go into debt have those who use the facility pay fees to pay off the building.
What is Debt?
Debt is an outstanding obligation to the government.
What is a deficit?
expenditures that are greater than revenues
What are the 4 types of obligation?
1- General
2- Limited Liability
3- Moral
4- No Obligation
What is General Obligation?
You have it you pay it even if it means raising taxes
What is Limited Liability Obligation?
Use Specific fees to pay for the debt
What is Moral Obligation?
Moral Obligation when there is no formal pledge but you put your name on it and if you don't pay your credit goes really low
What is Risk Management?
A systematic organized effort to eliminate or reduce harm to persons and the threat of losses to public organizations
What 4 factors should be considered when evaluating risks?
1-Frequency and Severity
2-what costs are associated
3-what can the organization do to reduce the risk and how much will it cost?
4-Is it worth the cost to reduce the risk?
What are some examples of risks?
Liability, personnel, property loss, vehicular operation
What are some ways to minimize risks?
Insure, eliminate risk, transfer legal responibility
What are some examples of overhead costs
Unemployment insurance, workers comp, cost of personnel department
What is an overhead cost?
the cost that employors must paya on their employees
What is Managerial Efficiency?
Ratio of outputs to inputs
What is Economic Efficiency?
if it is not possibly to change the state and have someone better off and no one worse off
What is Effectiveness?
measure of attainment (comparing observed output to planned output)
What is Productivity?
Amount of output per input
What are the two types of Audits?
Internal and External
What is an Internal Audit?
audit done by a department or person who is part of the organization
-quick
-done for management or planning
What is an External Audit?
Done by people that are outside of the organization
-mainly financial audits
-used by most local governments
Audit Focus: Financial?
Assess the fairness and reliability of finances
Audit Focus: Compliance?
Laws and regulations are followed
Audit Focus: Economy/Efficiency?
resource use
Audit Focus: Performance/Program Results
achievement relative to goals
What are the 3 main roles of government?
1-Distribution
2-Stablilization
3-Allocation

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