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APPENDIX B AUDITING AND THE RISK ASSESSMENT PROCESSCURRENT DEVELOPMENTS AND OTHER MATTERS Detecting Fraud, Illegal Acts, Errors and Abuse AICPA Statements on Auditing Standards provide guidance on the auditor’s responsibility to detect fraud and illegal acts. The Audit Manual and the Contract to Audit Accounts require the auditor, upon discovery, to promptly report in writing to the Comptroller of the Treasury any reasonable suspicion of fraud, (regardless of materiality) or other unlawful acts including, but not limited to, theft, forgery, credit/debit card fraud, or any other act of unlawful taking, waste, or abuse of, or official misconduct, as defined in Tennessee Code Annotated, § 39-16-402, involving public money, property, or services. The Department of Audit conducts special-purpose examinations of governmental entities previously audited by certified public accounting firms and conducts working paper reviews of government audits performed by certified public accounting firms. These examinations and reviews often result in the discovery of fraud that was not detected by the previously performed audits. The Comptroller of the Treasury has identified several areas, summarized below, where undetected fraud has occurred most often. Auditors should consider these areas when performing risk assessment procedures and designing the nature, timing, and extent of further audit procedures. The Department of Audit will determine if these areas were considered when it conducts working paper reviews of governmental audits performed by public accounting firms. 1. Cash Collections The Department of Audit has found certain audit procedures to be highly effective in detecting schemes involving misappropriation of cash. The procedures are suggested but not required. If the following procedures are already being performed, consider expanding their extent. • Review the makeup of deposits and determine that the cash and check ratio agrees with source documents (cash and checks collected). APP.B-1
Fraud Risk AssessmentCurrent Developments and Other Matters – Appendix B • Review deposit slips and determine that receipts itemized on the deposit slips are recorded in the receipt books. • Determine that deposits are being made intact and at least daily. (State law requires that deposits be made within three days of receipt). • Perform surprise cash counts. • Send third-party confirmations for significant revenues received in the mail. 2. Unrecorded bank accounts 3. Vending machine revenues 4. Unauthorized or fraudulent cash disbursements 5. Purchasing 6. Travel expenses and reimbursements 7. Credit cards and procurement cards 8. Use of government equipment, labor, materials and supplies 9. Use of government owned vehicles 10. Gasoline usage Audits of Group Financial Statements The contract to audit accounts has been modified to address certain requirements related to auditing requirements in the Codification of Statements on Auditing Standards, Section AU-C 600. The changes, though included in all audit contracts, only apply to those organizations/funds (components) whose financial statements are included in a county that is audited by the Division of Local Government Audit. For those independent public accounting firms that are acting as the auditor of group financial statements, similar matters will need to be addressed with the component auditors separately from the contract to audit accounts. Such communications may or may not be included by reference in the contract to audit accounts. The audit requirements are significant and complex, and care should be taken to ensure that audit documentation and communications address all matters related to such audits. Component auditors may be required to adjust audit procedures and the release date included in the contract to audit accounts to coordinate with the group auditor. (See item 12 below for additional summary information.) Formatted: Font: Bold Formatted: Font: Not Bold Formatted: Justified Formatted: Font: Not Bold, Italic Formatted: Font: Not Bold Formatted: Font: Not Bold Formatted: Font: Not Bold Formatted: Font: Not Bold Formatted: Font: Not Bold Formatted: Font: Not Bold Auditor’s Reports APP.B-2
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S T A T E O F T E N N E S S E E DEP
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SPECIAL PURPOSE GOVERNMENTS (INCLUD
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Trust Funds - Procedures IJ-5 Resid
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PREFACE This audit manual supersede
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Introduction This manual sets forth
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(9) Establish minimum standards for
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Section 9-3-213, Tennessee Code Ann
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SECTION A GENERAL INFORMATION Compt
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Auditing Standards and Requirements
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SECTION B REPORTING AND AUDITING RE
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Reporting and Auditing Requirements
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Page 75 and 76: SECTION JK QUICK REFERENCE LINKS Au
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Page 79 and 80: Example Schedules - Section APP.A A
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Page 89 and 90: Fraud Risk AssessmentCurrent Develo
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Page 121 and 122: APPENDIX E MISCELLANEOUS Audit Proc
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Miscellaneous - Section APP.E APP.E
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EXAMPLE OF A PROPOSAL EVALUATION ME
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