MACIAS GINI & O'CONNELL LLP 3f -2012

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SECT.IONA: SPECIFIC AUDIT APPROACH AND METHODOLOGY. As part of the annual audit, we will evaluate the internal control structure in order to determine the nature and extent of our audit procedures. Frequently, this evaluation process leads to worthwhile suggestions for improving the internal control structure as well as the efficiency and effectiveness of accounting operations and procedures. All of our recommendations will be discussed at an exit conference with relevant City personnel and, if appropriate, presented in writing at the completion of our audit. We are available each year to attend relevant meetings of the City Council. Approach to the Single Audit Our approach to the Single Audit will begin with the identification of Major Federal Financial Assistance Programs from the list of Federal Assistance Program expenditures that City staff will provide. We will require a preliminary listing in connection with our interim audit work. At that time we will identify the major accounting cycles such as cash receipts, purchasing and cash disbursements, payroll procedures, investment procedures, etc. which affect Federal programs, We will prepare flow charts and /or other documentation of these accounting cycles and identify the internal control procedures that the City has established, We will then perform tests of transactions for each of these accounting cycles in order to satisfy ourselves that the internal controls are functioning as intended, We will then work with City staff to identify the systems you have established to monitor compliance with the requirements of the Major Federal Financial Assistance Programs. Next we will select transactions, reports, files, etc. to test that the compliance systems are functioning as intended. We will complete the additional audit procedures in connection with the single audit during the financial audit process. Much of this work will be accomplished in connection with the interim audit work. It will be completed during the final audit work so that we can discuss drafts of the various financial and compliance reports at the same time that we are discussing the other financial reports. Assistance by City Staff We understand that the City has limited staff. As your continuing auditors we will require less assistance from your staff than other auditors as we are already familiar with the controls you have established to monitor compliance with federal programs. Additionally, we will not require the same level of technical assistance in. familiarizing our staff with the flow of information through major and minor accounting cycles such as cash receipts, cash disbursements, payrolls, accounting grants, etc. We understand the overall activities of the finance department such as the preparation and approval of journal entries, the reports generated by your computerized accounting system, and the schedules generated in connection with the year- end closing. By continuing to allow MGO to serve the City the assistance required by City staff will be limited. We will provide a listing of documents and schedules to be prepared by City staff at our entrance conference.