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• Procurement — This is typically a high risk area for most governments as there is a correlation to improper procurement processes and abuse of management responsibilities. For example, on costly construction projects, there is an inherent risk for collusion on bids, kickbacks, related party contracts, and noncompetitive procurements. An example of an audit procedure where we would utilize CAAT's is to extract data to match vendor names with employee names and addresses. • Payroll and Benefits — A significant portion of the City's budgeted expenses are for personnel costs. There is an inherently high risk of misstatement due to the risk of errors such as the improper assignment of fringe cost and withholding and the complicated nature of salary computations especially for police officers. Risk of fraud includes unapproved salary changes or fictitious employees and time records. Other Planning Procedures include: • Review budgets, organization charts, and audit pertinent procedure manuals • Design "walkthroughs" as deemed necessary • Review minutes from the City's various committees and the Commission • Review relevant ordinances, resolutions, and contracts, etc. • Prepare a list of schedules and workpapers to be prepared by the City's personnel ■ Step 3: Prepare Audit Programs: In contrast to many firms who only utilize a single partner or individual to develop their audit programs or simply use the standard boiler plate programs, we use the combined efforts of our experienced audit team to tailor audit programs for the City. With Grau's focus on client service, and our knowledge and experience, you can be assured that it will be the most effective and efficient approach to the audit of the City. A final estimation will be made by the Partner at that time of the audit team members' assignment and the amount of time allocated to the risk areas. Please see Section 2. Phase II— Execution of Audit Plan This phase of the audit includes 2 steps: the interim fieldwork and year-end fieldwork. Step 1: Interim Fieldwork — This includes many planning activities mentioned earlier and consists mainly of testing the internal control systems, computer systems, sampling of transactions for high risk areas, test of compliance and grant program transactions, if applicable. Our interim work will be performed prior to year-end, at a time that best accommodates your staffs schedule. Our specific audit procedures are streamlined and involve customized procedures that help clients manage their increased responsibilities. Step 2: Year End Fieldwork — This is the largest part of the audit process and includes both substantive audit tests and analytical review. Our processes will focus on the operating statement activities, year-end test of balances and reconciliations, confirmation procedures, and compiling the information in order to provide meaningful and materially accurate financial statement for the stakeholders of the City. Principal techniques used to acquire evidence on which the expression of our opinion on the fairness of the financial statements is reached are as follows: • Examination (inspection) —to substantiate authenticity • Observation —to ascertain compliance • Confirmation —third party evidence These procedures will be performed by the most experienced and trained senior auditors and managers who work exclusively on governmental audits. Extensive partner involvement will be used in high risk areas and throughout the engagement to coordinate, monitor and review the work performed. No staff auditor will ever be involved in a high risk area. The engagement partner and manager will meet with City representatives on all material matters as they arise and report promptly any potential audit issues. We will complete all fieldwork, including that required by the Single Audit Act, if necessary, and will provide you with a preliminary draft of the audit reports, by the date set forth in the Request for Proposal. 1 15