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I MSLMOORE STEPHENS LOVELACE teas s .ADVISORS 1 Our auditors use extensive sampling procedures to obtain satisfactory audit evidence. ISampling procedures routinely include statistical and non-statistical sampling based upon: • the overall objective of the test • the nature of the sample population I • the sample size • the nature of the item(s)being examined • the anticipated outcome of the sample results • the significance of the results Ordinarily, the significant portions of the sampling expected to be performed are identified at the onset I of the engagement and are coordinated with the remaining auditing procedures to produce timely and efficient results. We currently expect to perform the following types of sampling: I Attribute Sampling - To test the rate of deviation from a prescribed internal control procedure to determine whether planned reliance on that control is appropriate. In addition to tests of compliance I with prescribed control procedures, attribute sampling will be used for certain substantive procedures to test for possible unrecorded transactions and for testing existing account balances. IVariable Sampling-To reach a conclusion about the adequacy or reasonableness of an account balance. Examples of areas where we will apply sampling strategies include: I • The selection of cash receipts postings to test for • The selection of debt payment transactions to determination of compliance with related test for timeliness of,and completeness of, statutory requirements and utility rate schedules payments to paying agents for debt costs and 1 • CRA transactions fiscal agent fees • The selection of cash disbursements and payroll • The selection of other transactions to transactions for compliance testing determine compliance with laws and I • Journal entries regulations Extent of Use of EDP Software in the Engagement I To the extent possible, it is our policy to incorporate the use of Computer-Assisted Audit Techniques (CAATs) in all phases of our audit. Our Firm understands the efficiencies and effectiveness derived with the proper use of these audit techniques. We have committed significant Firm resources to I provide your audit team with the tools and training to use these techniques. Our Firm uses IDEA data- mining software. This software enables us to take virtually any output file format from your financial reporting package and convert it into a usable data format for our staff to perform CAATs, such as: I . Comparison of employee and vendor addresses to identify employees who are also vendors, • Analyzing numerical sequences from large populations to identify missing or duplicate I checks or invoices, • Sorting payments to identify transactions that fall just under financial control or contract limits, 1 • Unexpectedtrends in the number of, or amounts of, payments to vendors, and • Search for false employees by comparing the human resources database with the payroll system database. 1 311