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Phase I: Strategic Planning A thorough understanding of the City and its operating environment is essential for developing an efficient, cost-effective audit plan. During this phase, the engagement partner and key supervisory personnel will meet with the appropriate personnel to update an understanding of operations. You will also have the opportunity to express your expectations regarding the services that we will provide. This effort will be coordinated so that there will be minimal disruption to your staff. During this phase we will perform the following activities: · Review the current regulatory and statutory compliance requirements within which the City operates. This will include a review of applicable federal and state regulations; ordinances, bond covenants, contracts, and other agreements; meeting minutes of the City Commission. · Review major sources of information such as budgets, organization charts, procedures manuals, financial systems and management information systems. · Determine the most practical and effective way to apply computer-aided audit tools to convert and analyze data and generate reports. · Review internal control systems, including determining an audit risk assessment. · Consider the methods used to process accounting information that influence the design of the internal control system. This includes understanding the design of relevant policies, procedures, and records and whether they have been placed in operation. · Design audit programs to ensure that they incorporate financial statement assertions, specific audit objectives and appropriate audit procedures to achieve the specified objectives. · Identify and resolve accounting, auditing and reporting matters. · Prepare detailed audit plans, including a list of schedules to be prepared by City personnel. ~~ ,. - - -~ Risk-Based Audit Technologies The Firm employs a risk-based approach early in the audit process. This approach considers how the overall risk identified in the general risk analysis affects specific account balances. We consider, in part: · Relative significance of the account to the financial statements as a whole · Volume of transactions · Susceptibility of the account to fraud · Accounts that have traditionally required significant adjustments · Account with complex calculations, judgment, and accounting issues that have a high assessed level of inherent risk Based on these considerations, we assess the inherent risk and control risk to determine the overall audit risk. Once this assessment is completed, the audit procedures to be used are determined. By redirecting our efforts through a risk-based approach, audits are significantly enhanced, which provide greater value to our clients. The Firm will use several approaches to conduct the audit engagement of the City. These approaches include traditional audit techniques and strategies, and an evaluation of the systems utilized by the City. Specific Fraud Investigative Techniques Statement of Auditing Standards No. 99 imposes on auditors the additional responsibility to "plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements due to fraud." By redirecting our efforts through a risk-based approach and additional fraud inquiry techniques, audits are significantly enhanced. Phase II: Execution of Audit Plan 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 matters that may impact MARCUM MarcumRachlin R A C H L I N Proposal for Professional Audit Services ACCOUNTANTS" ADVISORS A Division of Marcum LLP Page - 11