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I I SECTION III - SPECIFIC AUDIT APPROACH Phase III - Completion and Delivery I In this phase of the audit, we will complete the tasks related to the closing of year-end balances and financial reporting. This will include final testing in the areas of compliance, balance sheet accounts, revenue and expenditures, among others. All reports will be reviewed with management before issuance, and the partners will be available to meet with the commission to discuss our report and address any questions they may have. I Audit Management Plan I Our audit approach is to develop a specific audit action plan tailored to the individual needs of our client. For each audit we develop the most efficient combination of audit techniques selected from the following methodologies. I Auditing Standards promulgated by the American Institute of Certified Public Accountants provide guidance for auditors in assessing the internal control structure for the purpose of the audit. As auditors, we consider the internal control structure which consists of the following five elements. I The Control Environment The control environment includes the management philosophy, operating style, organizational structure, functions of various boards and committees, methods of assigning responsibility, personnel policies and procedures, and various other factors that reflect the City's concern with control in the area of finances. We will read the various documents that impact this environment, and talk to employees to see how these ideologies are portrayed at various levels. I Risk Assessment After understanding the control environment, we will identify and assess the relevant risks to achieving the objectives of the financial system. I Control Activities The control procedures are integrated in the components of the control environment and accounting system. While gaining an understanding of those areas, we will assess the control procedures that the City has in place. Consideration will also be given to potential improvements to the efficiency and effectiveness of the procedures in place. Any suggestions for improvement will be communicated to the appropriate person(s). I I Information and Communication We will document the formal and informal information flow relating to the processing and recording of financial transactions. I Monitoring In this final component we will review City practices that are in place to monitor the performance of its internal control structure. Sampling Considerations I Our professionals will utilize sampling methodologies designed to ensure effective audit procedures are applied in the most efficient manner. I Sampling Techniques We will utilize representative audit sampling procedures with respect to substantive tests of details and tests of controls and tests of compliance, where a sample of documentation is to be tested as the principal evidence of a control. During tests of controls, the tests will generally consist of a combination of corroborative inquiry and either observation, examination of documents or re-performance. We will use attribute sampling to test documentary evidence as documentation will be the principal corroborative evidence of identified controls. I I Statistical and Non-statistical Sampling Substantive tests of details and tests of controls can be performed using either statistically or non-statistically based techniques. Statistical approaches will be based on our calculation of risk factors. If a non-statistical approach is deemed appropriate, we will design our procedures to obtain levels of assurance that we judge to be equivalent to those required when using statistically based techniques. I I I 17