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HomeMy WebLinkAboutCORRESPONDENCE - RFP - P953 AUDITING SERVICESLARIMER EMERGENCY TELEPHONE AUTHORITY (LETA) has been an audit client since 2000. Similar to the MPO, LETA is an example of an entity formed by intergovernmental agreement. Thus, we have assisted them in working through the related budget and TABOR issues. Alan Holmberg is the engagement shareholder. Their administrator, Debbie Tellez is our primary contact (472-5348). Speeifie Audit Approae Following is a proposed work plan, including audit methodology and the various sources of information needed: ACTIVITY TIMING Entrance conference; audit planning Interim fieldwork to primarily review and evaluate the internal control structure, and perform tests of controls with the intent of being able to rely on those controls. Mailing of bank account confirmations and other confirmations. Final fieldwork to audit each of the funds of the MPO as well as the general areas of cash and investments, accounts payable, receivables, and advances. Information needed will include working trial balances and budget comparisons for each fund as well as copies of selected account analyses prepared by the MPO's finance staff. Audit work includes comparison of activity to prior year as well as tracing large transactions to supporting documentation. Unusual transactions or activity new to the MPO will be discussed with management and the contract, agreement, etc., reviewed for proper accounting. Review of Board minutes for indication of grants, contracts, or agreements not noted in the audit of fund files. Observation of records and inquiry of management of any commitments, contingencies, and subsequent events. Written communication with your Attorney for information on litigation, claims, and unasserted claims. Review the first draft of the financial statements and footnotes. Conduct exit conference. Early December January March March Early April Make final presentation of report and management letter to the MPO Council. April/May north front range pro 2004 - 9 - aFollowing is additional requested information on the details of our audit approach: a. Our approach to understanding your major segments is to first obtain an understanding of the accounting system and internal controls. This may include review of MPO procedures or accounting manuals, interviews with key personnel, and walk-throughs of key transactions cycles. Audit test work over cash typically includes confirmation of balances and tests of bank reconciliations. Receivables are tested through review of subsequent receipts and grant billings. Fixed asset depreciation schedules are reviewed, and additions tested. Accounts payable are audited through tests of subsequent disbursements and review of payroll, payroll tax and accrued vacation accruals. Deferred revenue is considered for any grant receipts received which have not been earned. Advances from members will be reviewed. Grant revenue is tested through review of reimbursement requests and possibly confirmation. Program revenues are compared to prior periods. Expenditures are tested through disbursement testing and analytical review. b. A detailed time budget by staff level and proposed segment is as follows: Shareholder Manager In -Charge Planning 1 6 4 Client Conferences 2 3 -- Internal Control Review -- -- 4 Audit test work 1 15 20 Research and Supervision 1 1 -- Workpaper Review 2 2 -- Review Financial Statements and MDA 2 2 4 Management Letter 1 1 -- Total 10 30 32 c. Audit sampling is anticipated to be used in the audit, particularly in transaction testing over payroll and purchasing/disbursements. We do not rely on sampling exclusively, as we consider it important to test large or unusual transactions or balances on a 100% basis, not a sample basis. Our firm's approach to sampling is usually that of "judgmental' sampling as opposed to "statistical" sampling. One area that absolutely requires additional audit samples is the Single Audit procedures over federal programs. Adequate samples must be selected in the major program for the auditor to report on internal controls and give an opinion on compliance with laws and regulations. We use sample sizes of 25-30 expenditures per major program, as long as controls are reasonable and there have not been significant exceptions in previous years. We would propose to select these transactions systematically from the population of all expenditures subject to full or partial federal reimbursement. Special care would be taken to ensure that a wide range of transactions was selected including payroll, benefits, capital outlay, payments to vendors, and payments to program participants, if any. Inorth front range pro 2004 - 10 - d. Our firm has made a commitment to be up-to-date with the use of "paperless" audit software in the engagements. We facilitate this with notebook computers with several software applications on -site during the audit. We use these in conjunction with the client's system to the fullest extent possible to save our time and your time. e. For example, some clients prefer to give us account analyses on disk or by e-mail, and we can efficiently add our audit procedures. Our overall goal in "paperless" audit software is to work with clients to take advantage of the technology available from their systems and ours to produce a more efficient process. f Analytical procedures are first used in the planning of an engagement whereby unaudited financial information is reviewed to identify significant changes for further review. The most extensive analytical procedure planned for the audit is the comparison of current year account balances to the prior year account balances. Any significant variation among these factors is reviewed with MPO staff, and further evidence is examined to document the propriety of the change. We believe in going beyond these basic procedures to analyze trends and relationships between years more significantly. This is a very cost-effective use of audit resources and often results in trends and analyses that are also useful to the client. Potential applications of analytical review include: â€ĒS Percent return on investments. ❖ Payroll costs per employee ❖ Operating costs per various units of production. ❖ Program revenues per units of service. f. The review and testing of internal controls is of added importance in the MPO audit. Internal control review is also very important because of the MPO's growing activities and potential growth. The first consideration is of the MPO's internal control environment. This includes analysis of such factors as management's philosophy and operating style, organizational structure, methods of assigning authority, and personnel policies and practices. The control environment reflects the overall attitude, awareness, and actions of the MPO Council and management concerning the importance of internal controls. The second phase of the internal control structure is the accounting system. This includes analysis of how transactions are initiated, processed and ultimately recorded in the general ledger. All significant cycles of transactions are reviewed through interviews with employees, inspection of documents used, and walk-throughs of transactions through the entire system. The results of this review is documented through checklists, flowcharts, and narratives. Inorth front range pro 2004 - 11 - A final phase of control evaluation is the identification of the policies and procedures management has established to provide reasonable assurance that financial records are accurate and assets are safeguarded. The existence and effectiveness of controls is a very important factor in designing audit tests to uncover material financial misstatements. PR g. There are many contracts, laws and regulations for which the MPO's auditor is responsible for testing compliance with. Most of these are financial in nature. The auditor does not have detection responsibility for general laws and regulations, such as civil rights statutes or environmental regulations. Our approach to this testing is to review the primary contracts, laws, and regulations applicable to the MPO, and determine which could directly affect the financial statements if noncompliance occurred. We then test these provisions in proportion to the likelihood and impact of noncompliance. The major potential source for laws affecting intergovernmental entities is the Colorado Revised Statutes. Remaining sources of laws and regulations include the MPO's policies, (e.g. purchasing and investment regulations), the provisions of federal grants, and others, such as arbitrage and continuing disclosure. h. This section will discuss the approach to be taken in drawing audit samples for tests of compliance. Control/compliance tests will be primarily performed in the areas of purchasing, disbursements and payroll. Purchasing transactions will be selected from the range of check numbers issued during the year. Those checks selected will be tested in detail for purchase approval, receipt of goods, approval of invoice, purchasing policies, and compliance with contracts, if applicable. Payroll transactions will be selected from the range of payroll checks or direct deposit advices issued during the year. These will be tested for accuracy, pay rates, contract or timesheet, approval, payroll deductions, and legal requirements (W-4, I-9, etc.). Some types of laws, regulations, and contracts can be tested without selecting additional audit samples. For example, the purchasing policies of the MPO will be tested in conjunction with the test of controls over expenditures. Compliance with grants and contracts can best be determined in the audit by reviewing these documents to determine if any provisions would apply to transactions of the period. Identifiication of Anticipated Potential Audit Problems We are not aware of any anticipated audit problems regarding the 2004 audit of the MPO. Of course, there are always unexpected circumstances, different kinds of transactions, and changes in accounting standards that come up during the performance of an audit. Our method of dealing with these factors is to identify them as soon as possible and to immediately communicate with MPO officials to determine what efforts will be necessary to work through the situation. Typically, extra efforts are required of both the audit firm and the MPO staff. The professional attitude of the MPO staff, as well as our considerable audit experience, has given us an excellent track record in resolving unanticipated difficulties. north front range pro 2004 - 12 - NORTH FRONT RANGE MPO SCHEDULE OF PROFESSIONAL FEES AND EXPENSES FOR THE AUDIT OF THE FINANCIAL STATEMENTS Standard Quoted Hourly Hourly Hours Rates Rates Total Shareholder Manager In -Charge Auditor 10 $ 175 30 115 32 75 $ 130 80 55 $ 1,300 2,400 1,760 Subtotal N/A N/A $ 5,460 Out-of-pocket expenses 140 Total all-inclusive maximum price for 2004 audit $ 5,600 -16- SCHEDULE OF PROFESSIONAL FEES AND EXPENSES FOR ADDITIONAL SERVICES Maximum All -Inclusive Nature of Service to be Provided Total Price 2004 Audit of North Front Range MPO 2005 Audit of North Front Range MPO 2006 Audit of North Front Range MPO 2007 Audit of North Front Range MPO 2008 Audit of North Front Range MPO $ 5,600 5,800 6,100 6,400 6,700 -17- SCHEDULE OF PROFESSIONAL FEES AND EXPENSES FOR ADDITIONAL SERVICES NOT SPECIFIED IN APPENDIX F Standard Hourly Rates Quoted Hourly Rates Shareholders $ 175 $ 130 Manager 115 80 Supervisory Staff 75 55 Staff 60 50 Other (specify) Out of pocket expenses: Meals and lodging (amount per person per day) $ 8 (lunch) Transportation (cents -per -mile) 37.50 Other (specify) -- -18-