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Proposed Segmentation of the Engagement The phases for our audit will be broken down as follows: Although most firms use standardized audit Phase 1 E> Phase 2 Phase 3 programs and checklists that are ready for •Planning-a Execution.of --•Completion purchase, Grau's audit Phase Audit Plan and Delivery team will design programs and checklists that are specifically tailored to you. • • S Phase 1: Planning Phase Grau believes a well-planned audit is crucial to the success of this engagement, and as such we put significant efforts in the planning stages of the audit, especially in the initial year, to ensure an effective and efficient audit. Further, as appropriate, our audit will be planned to provide for a low level of audit risk. There are 3 steps in our planning phase. Step 1: Meet with the City's key management: Grau will be available to meet with key 1 management immediately upon award of the contract. During this time, we also interview City Commission members to give them an opportunity to discuss their concerns as well. This gives us further insight and knowledge into the City's core issues. During these initial meetings, our discussion will include: • our audit approach • lines of communication • scheduling to minimize disruption of your staff • audit scope and alternatives • • areas management and Commission have concerns we encourage you to express • areas we deem high risk your expectations with respect to 9 the services we provide. • timeline for audit services Step 2: Gather Information: During this phase, an understanding of the City, its internal controls, business process, computer system, financial reporting system, and organizational structure is obtained so that the audit team can properly assign risk and focus the audit procedures in those areas that are high risk. We will meet with key personnel to obtain an understanding of your operations. Each area above will be evaluated with the City's management and then tests will be performed to determine the effectiveness of controls in those areas. All information gathered will be documented in our electronic workpapers using memos, charts and spreadsheets. In addition, the City's policy manuals will be stored in our electronic permanent file for future use. We would suggest focusing attention on the following potential high risk areas, based on our experience with other entities similar to yours: • Fixed Assets — Based on our extensive experience in government, this is a common area of concern. A fixed asset inventory should be done periodically and items should be tagged and controlled. We will, whenever possible utilize CAAT (Computer Aided Auditing Techniques) and design test to search for fraud, where possible. 14