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il I ... 1l@@!lDJJi10@&]/J !fJ[j@flJ@@&j/J (Continued) II I Specific Audit Approach (Continued) I Any recommendations for operational improvement will be reasonable and constructive. If your management has already identified a relevant issue, our report will reflect this fact. To ensure full agreement with the circumstances, we will fully discuss each item with the appropriate City personnel prior to the final exit conference. We will discuss pertinent issues only after preliminary communication with the responsible City personnel. This policy means there will be no "surprises" in the report and fosters a professional, cooperative atmosphere. I I Because we wish to assist you in identifying and solving problems before they become critical, we will provide feedback on more than just the items identified in the report. Our report will communicate significant deficiencies or other instances of non-compliance and will also recommend suggestions for improving operational efficiency including decreasing costs, improving management information effectiveness, protecting assets, etc. I I We will immediately report all irregularities and illegal acts or indication of illegal acts to the Director of Finance, City Manager, City Council, and the City Attorney. I AUDIT APPROACH I Our approach to the audit engagement integrates the best of traditional auditing techniques and a total systems concept. We will consider the methods used by the City to process accounting information when planning our audit, since they influence the design of the internal control. The audit will be conducted in three phases, which are as follows: I I Phase 1- Risk Assessment (Interim and Plannina State) I A thorough understanding of your organization, service objectives and its operating environment is essential for the development of an audit plan and for an efficient, cost- effective audit. During this phase, we will meet with appropriate personnel to obtain and document our understanding of your operations and service objectives and, at the same time, give you the opportunity to express your expectations with respect to the services that we will provide. I I Our work effort will be coordinated so that there will be minimal disruption to your staff. I I " _) ~C ~,S~~~~i~!~"~~~~ I During this phase we will perform the following activities: Review the regulatory, statutory and compliance requirements within which the City operates. This will include a review of applicable laws, grant requirements, state statutes, resolutions, debt instruments, contracts, other agreements, and minutes of meetings of the City Council. · Review audit documentation of prior year auditor. Review major sources of information such as budgets, organization charts, procedures, manuals, financial systems, and management information systems. Obtain and document an understanding of the design and implementation of the City's internal control. Consider the methods that the City uses to process accounting information which influence the design of the internal control. This understanding includes knowledge about the design of relevant policies, procedures, and records, and whether they have been placed in operation by the City. Assess risk. Interim work will be completed by August 3151 of each year. Determine what controls we are to rely upon, perform walkthrough documentation and test the operating effectiveness of controls if considered necessary. Develop audit programs to incorporate the consideration of financial statement assertions, specific audit objectives, and appropriate audit procedures to achieve the specified objectives. Identify and resolve accounting, auditing, and reporting matters. A detailed audit plan and list of all schedules to be prepared by the City will be provided by July 3151 of each year. Phase II - Perform Audit Plan (Field Work Staae) The audit team will complete a major portion of transaction testing and audit requirements during this phase. The procedures performed during this period will enable us to identify any matter that may impact the completion of our work or require the attention of management. 11