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the completion of our audit work or require the attention of management. Tasks to be performed in Phase II include, but are not limited to: · Apply analytical procedures to assist in planning the nature, timing and extent of auditing procedures used to obtain evidential matter for specific account balances or transaction classes. · Perform substantive account balance and transaction tests. Statistical samples will be drawn from major transaction systems, including cash disbursements, cash receipts, accounts payable, and payroll. The size of the samples will be determined after the review of the internal contro system. There are three types of tests that involve audit sampling: Account Balance Tests Substantive tests of account balances are performed on year-end balances. Certain accounts justify a 100 percent examination, such as confirming a bank balance, which does not involve sampling at all. Transaction and Control Tests Substantive transaction and control tests are often combined to use one sample to achieve more than one audit objective. We would also test the controls to verify that the transactions were properly authorized in accordance with the City's procedures. Compliance Tests Compliance tests with laws and regulations are included with the tests of transactions and controls. Additional samples are sometimes necessary to test specific laws and regulations. Sample sizes for compliance testing are determined based on the number of transactions and the significance of the requirement. The audit team will report on a bi-weekly basis to the City the status of any potential adjustments / ~ ~ so the City may have adequate time to investigate, gather information and respond, if necessary. Information Technology Audit Techniques In accordance with SAS No. 94, we are required to gain an understanding of the procedures, both automated and manual, by which transactions are initiated, recorded, processed and reported, from their occurrence to their inclusion in the financial statements. During the planning stage of our audit, we evaluate the effect information technology (IT) will have in performing our audit procedures. This evaluation includes obtaining an understanding (generally through observations and inquiries of IT personnel) of the client's internal controls and identifying those controls that are automated. When key internal controls are automated, we use our IT specialist to perform a detailed review of those automated controls. Our IT specialist will then communicate to the audit engagement team as to whether such controls are working as prescribed by management. With this information, the audit engagement team determines the extent of their audit procedures. In client situations where there is significant accounting data processed electronically, we use a state-of-the-art software program to extract and summarize computerized financial data files. Some of the uses of this program are: · Retrieving aged receivables information · Extracting credit balances in accounts receivable reports · Extracting sample items from reports for testing · Merging files for the purposes of extracting information that meets predetermined criteria · Sorting information This program provides an efficient way for us to extract and test computerized accounting information, enabling us to audit through the computer, rather than around the computer. MARCUM MarcumRachlin R A C H L I N Proposal for Professional Audit Services ACCOUNTANTS. ADVISORS A DiviSion of Marcum LLP Page - 12