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I I SECTION III - SPECIFIC AUDIT APPROACH I Overall Review Analytical procedures used at the conclusion of the audit are designed to assess the conclusions reached and evaluate the overall financial statement presentation. Internal Controls I The internal control segment is the foundation for the entire audit and involves an extensive understanding and evaluation of the City's operating and management information systems and all related internal controls. The results of this evaluation will influence the nature, timing and extent of our substantive audit procedures. This approach ensures that we achieve maximum efficiency and provides valuable feedback to management regarding the effectiveness of controls being relied upon throughout the year. I I A thorough understanding of the internal controls of an organization is critical in planning our audit procedures and providing useful comments and recommendations to the City. We utilize a standardized control overview document which assists us in identifying key elements within internal control, such as the entity's risk assessment process, the control environment, information and communication systems, and general monitoring and control activities. I Our evaluation of internal control includes considering the individual components noted above and then considering the effectiveness of internal control as a whole. We will obtain our understanding of each of the elements through the following procedures: I .:. Meeting with the City's personnel to discuss operations; and .:. Reviewing internal assessment of internal control I The control overview document helps to ensure that all elements of internal control are considered. I Subsequently, for significant internal control categories, we will obtain an understanding of the design of relevant policies and procedures, determine whether such procedures have been placed in operation and assess control risk. This review begins by holding interviews with data processing and accounting personnel and evaluating your internal system and accounting documentation. We will then prepare documentation of the major systems. To the extent it is available, we will also use internal control documentation currently available. This review is organized into major accounting cycles. I We have found through our experience that there are two primary methods to test controls. I .:. Documented controls - Tested by reviewing a sample of transactions for evidence that the control was being performed. I .:. Undocumented controls - Tested through inquiry and observation procedures with appropriate department personnel. Laws and Regulations I Statement on Auditing Standards from the American Institute of Certified Public Accountants, establishes standards for testing and reporting on compliance with laws and regulations. In all financial statement audits, the auditor must consider laws and regulations that have a direct and material effect on the financial statements. Further, the auditor designs audit procedures to provide reasonable assurance that the financial statements are free of material misstatements resulting from violations of these laws and regulations that have a direct and material impact on the financial statements. For governmental entities, this requirement is even more important given the variety of legal and contractual considerations typical of the government environment. I I Identifying applicable laws and regulations is fundamental to fulfilling the responsibility of understanding their effects. We will obtain this knowledge through the following sources: .:. Discussion of compliance requirements with the City's officials, including legal counsel. I .:. Identification of compliance matters in statutes, financial ordinances, City's policies, contracts, grants and debt agreements. I .:. Review of City's commission meeting minutes. I 19