AUDIT FOR BEGINNERS

Navigating the Basics: A Comprehensive Guide to Auditing for Beginners

2023-12-27T04:33:00.000-08:00

Introduction:

Welcome, aspiring auditors and financial enthusiasts, to AuditForBeginners! In today's post, we're diving into the fundamentals of auditing – an essential aspect of financial management that ensures transparency and trust in business operations. Whether you're a student, a professional looking to broaden your skill set, or just someone curious about the world of auditing, this guide is tailored just for you.

Understanding the Essence of Auditing:

Auditing is the systematic examination of financial information, transactions, and processes to verify their accuracy, legality, and adherence to established standards. It plays a crucial role in maintaining the integrity of financial reporting and fostering confidence among stakeholders.

Key Components of Auditing:

Financial Statements:
- Explore the primary financial statements (income statement, balance sheet, and cash flow statement) and understand their significance in auditing.
Internal Controls:
- Learn how businesses establish and maintain internal controls to safeguard assets, prevent fraud, and ensure accurate financial reporting.
Audit Procedures:
- Delve into the various audit procedures used to gather evidence and assess the reliability of financial information.

Audit Types:

External Audit:
- Uncover the role of external auditors in providing an independent and unbiased assessment of a company's financial statements.
Internal Audit:
- Explore how internal auditors work within organizations to evaluate internal controls, assess risks, and improve operations.

Challenges and Ethical Considerations:

Examine the common challenges faced by auditors, from evolving regulations to ethical dilemmas, and discover how professionals navigate these complexities.

Tools of the Trade:

Introduce yourself to the tools and technologies used in auditing, such as audit software, data analytics, and artificial intelligence.

Career Paths in Auditing:

Explore the diverse career opportunities in auditing, including public accounting, internal auditing, forensic auditing, and advisory roles.

Conclusion:

Embarking on a journey into auditing can be both intellectually rewarding and professionally enriching. Whether you're considering a career in auditing or simply want to enhance your financial literacy, this guide is your gateway to mastering the basics.

Stay tuned for more insightful posts on AuditForBeginners as we continue to unravel the intricacies of auditing and financial management. Remember, every audit is an opportunity to contribute to the transparency and credibility of the financial world.

Happy auditing!

International Standards on Auditing (ISA)

2010-06-16T05:14:00.001-07:00

International Standards on Auditing (ISA) are professional standards for the performance of financial audit of financial information. These standards are issued by International Federation of Accountants.

1.1 Respective responsibilities

1.2 Audit planning

1.3 Internal Control

1.4 Audit evidence

1.5 Using work of other experts

1.6 Audit conclusions and Audit report

1.7 Specialized areas

1.1 Respective responsibilities

ISA 200 Objective and General Principles Governing an Audit of Financial Statements

ISA 210 Terms of Audit Engagements

ISA 220 Quality Control for Audits of Historical Financial Information

ISA 230 Documentation

ISA 240 The Auditor's Responsibility to Consider Fraud in an Audit of Financial Statements

ISA 250 Consideration of Laws and Regulations in an Audit of Financial Statements

ISA 260 Communications of Audit Matters with Those Charged with Governance

1.2 Audit planning

ISA 300 Planning and Audit of Financial Statements

ISA 310 Knowledge of the Business

ISA 315 Understanding the Entity and its Environment and Assessing the Risks of Material Misstatement

ISA 320 Audit Materiality

ISA 330 The Auditor's Procedures in Response to Assessed Risks

1.3 Internal Control

ISA 400 Risk Assessments and Internal Control

ISA 401 Auditing in a Computer Information Systems Environment

ISA 402 Audit Considerations Relating to Entities Using Service Organizations

1.4 Audit evidence

ISA 500 Audit Evidence

ISA 501 Audit Evidence - Additional Considerations for Specific Items

ISA 505 External Confirmations

ISA 510 Initial Engagements - Opening Balances

ISA 520 Analytical Procedures

ISA 530 Audit Sampling and Other Means of Testing

ISA 540 Audit of Accounting Estimates

ISA 545 Auditing Fair Value Measurements and Disclosures

ISA 550 Related Parties

ISA 560 Subsequent Events

ISA 570 Going Concern

ISA 580 Management Representations

1.5 Using work of other experts

ISA 600 Using the Work of Another Auditor

ISA 610 Considering the Work of Internal Auditing

ISA 620 Using the Work of an Expert

1.6 Audit conclusions and Audit report

ISA 700 The Auditor's Report on Financial Statements

ISA 710 Comparatives

ISA 720 Other Information in Documents Containing Audited Financial Statements

1.7 Specialized areas

ISA 800 The Auditor's Report on Special Purpose Audit Engagements

ISA 810 The Examination of Prospective Financial Information

1.7 Specialized areas

ISA 800 The Auditor's Report on Special Purpose Audit Engagements

ISA 810 The Examination of Prospective Financial Information

Audit Responsibilities and Objectives

2010-06-16T03:43:00.000-07:00

1.1 Financial Statement Responsibilities

1.2 Categories of Fraud

1.3 Auditor Responsibility for Detection of Illegal Acts

1.4 Managing the Audit Process

1.5 Phases of the Audit Process

1.1 Financial Statement Responsibilities

1.1.1 Overall Objective of Financial Statement Audit

1.1.2 Client Management Responsibilities

1.1.3 Auditor Responsibilities

1.1.4 Terminology

1.1.1 Overall Objective of Financial Statement Audit

The expression of an opinion of the fairness, with which they present fairly, in all respects, financial position, results of operations, and cash flows in conformity with GAAP.

1.1.2 Client Management Responsibilities

Financial statements and internal control

CEO and CFO of public companies certify quarterly and annual financial statements submitted to the SECP. The Act also provides for criminal penalties for anyone who knowingly falsely certifies the statements.

1.1.3 Auditor Responsibilities

Auditor must plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by error or fraud.

1.1.4 Terminology

A. Material v. Immaterial

B. Reasonable Assurance

C. Error v. Fraud

D. Professional Skepticism

A Material v. Immaterial

Misstatements are usually considered material if the combined uncorrected errors and fraud in the financial statements would influence a reasonable person using the statements.

It would be extremely costly and probably impossible to hold the auditor accountable for immaterial errors and fraud.

B Reasonable Assurance

Auditors cannot guarantee that there are no material misstatements because:

Auditors use judgment based on samples. Errors in judgment can occur.

Accounting presentations are based on complex estimates that involve uncertainty.

Fraudulently prepared financial statements are difficult to detect, especially if there is collusion

C Error v. Fraud

An error is an unintentional misstatement of the financial statements, whereas fraud is intentional.

For fraud, there is a distinction between misappropriation of assets and fraudulent financial reporting.

D Professional Skepticism

Audit should be designed to provide reasonable assurance of detecting both material errors and fraud in the financial statements.

Although an auditor should not assume that management is dishonest, the possibility of dishonesty must also be considered.

1.2 Categories of Fraud

1.2.1 Fraudulent Financial Reporting

1.2.2 Misappropriation of Assets

1.2.1 Fraudulent Financial Reporting

Fraudulent financial reporting is often committed by management.

Harms users of the financial statements by providing incorrect information.

Survey results indicate that some of the most common techniques to misstate financial statements are:

I. Recording revenues prematurely

II. Recording fictitious revenue

III. Overstatement of assets such as receivables, inventory, etc.

1.2.2 Misappropriation of Assets

Often perpetrated by employees and sometimes management.

Harms investors because assets are no longer available.

Misappropriations often result in fraudulent financial reporting to hide the theft.

1.3 Auditor Responsibility for Detection of Illegal Acts

Illegal acts as violations of laws or government regulations other than fraud.

1.3.1 Direct-Effect Illegal Acts

1.3.2 Indirect-Effect Illegal Acts

1.3.3 Evidence Accumulation when there is Suspicion of Illegal Acts

1.3.4 Auditor Actions for Known Illegal Acts

1.3.1 Direct Effect Illegal Acts

Certain illegal acts directly affect specific account balances. For example, violation of federal tax laws.

Auditor responsibility for direct-effect illegal acts is the same as for errors and fraud.

1.3.2 Indirect-Effect Illegal Acts

Indirect-effect illegal acts do not affect financial statements directly, but result in potential fines.

Auditing standards clearly state that auditors provide no assurance that such illegal acts will be detected.

1.3.3 Evidence Accumulation when there is Suspicion of Illegal Acts

Auditor should inquire of management at a level above those likely to be involved.

Auditor should consult with the client’s legal counsel who is knowledgeable about the potential illegal act.

Auditor should consider accumulating additional evidence to determine whether there actually is an illegal act.

1.3.4 Auditor Actions for Known Illegal Acts

Consider the effects on the financial statements.

Consider the effect on management representations.

Communicate with the audit committee.

Report the matter to the SECP after consultation with the auditor’s legal counsel.

1.4 Managing the Audit Process

1.4.1 The Cycle Approach

1.4.2 The Testing of Client Assertions

1.4.3 The Cycle Approach

1.4.1The Cycle Approach

A common way to divide an audit is to keep closely related types of transactions and account balances in the same segment. The following segments exist in many businesses:

Sales and collection

Acquisition and payment

Payroll and personnel

Inventory and warehousing

Capital acquisition and repayment

1.4.2 The Testing of Client Assertions

Management assertions are implied or expressed representations by client management about classes of transactions and related accounts in the financial statements.

A. Presentation and disclosure

B. Existence or occurrence

C. Rights and obligations

D. Completeness

E. Valuation or allocation

A Presentation and Disclosure

Management Represents

Financial statement components are properly combined or separated, described and disclosed.

Auditor Tests

Auditor tests whether financial statements are presented in accordance with GAAP.

B Existence or Occurrence

Management Represents

Existence is concerned with whether assets, obligations, and equities included in the balance sheet actually existed on the balance sheet date.

Transactions recorded occurred during the accounting period.

Auditor Tests

Auditor tests for overstatement of items

C Rights and Obligations

Management Represents

Client organization possesses ownership rights to recorded assets

Client records show liabilities owed as of the balance sheet date.

Auditor Tests

Auditor tests asset ownership and liability claims.

D Completeness

Management Represents

All transactions and accounts that should be presented in the financial statements are included.

Auditor Tests

Auditor tests for understatement of items

E Valuation or Allocation

Management Represents

All asset, liability, equity, revenue, and expense accounts have been included in the financial statements at appropriate amounts.

Auditor Tests

Auditor tests whether account balances are valued and allocated in accordance with GAAP.

1.5 The Phases of the Audit Process

Phase I – Plan and Design an Audit Approach

Phase II – Tests of Controls and Substantive Tests of Transactions

Phase III – Analytical Procedures and Test of Details of Balances

Phase IV - Complete the Audit and Issue an Audit Report

Phase I – Plan and Design an Audit Approach

Two key aspects are imperative in the planning process:

Obtain knowledge the client’s business strategies and processes and assess risks. This is used to help assess the risk of misstatement in the financial statements.

Understand internal control and assess control risk. Strong internal controls may justify less accumulation of evidence.

B. Phase II – Tests of Controls and Substantive Tests of Transactions

Control risk is the risk that internal controls will fail to catch inappropriate information reporting. To justify reducing the planned assessed control risk when internal controls are strong, the auditor must test compliance with controls.

Depending on the assessed level of control risk, the auditor will then perform substantive testing of transactions to verify the monetary amounts of transactions.

Phase III – Analytical Procedures and Tests of Details of Balances

Analytical procedures use comparisons and relationships to assess whether account balances or other data appear reasonable.

Tests of details of balances involve specific procedures to test for the monetary misstatement of balances in the financial statements. Most of this evidence comes from a source outside of the client.

Phase IV – Complete the Audit and Issue a Report

After completion of the audit work, it is necessary to combine the information obtained and decide if the financial statements are fairly stated.

Appropriate report is then written.

Summary

Client and auditor responsibilities

Fraudulent financial reporting vs. misappropriation of assets.

Testing client assertions

Phases of the audit process

Disaster Recovery Plan - TEST STEPS

2010-04-06T11:14:00.000-07:00

Review disaster recovery plan.

Verify that the plan contains a date qualifier to ensure currency.

Verify that the plan has been updated within the past 12 months.

Verify that their is effective monitoring of the plan's state of readiness.

Verify storage location of the plan.

If different from above, verify the storage location of the implementation team contact list.

Verify that the implementation team list contains names of team members, job titles, location, office & home telephone numbers.

Validate that the implementation team list contains active associates, their present title and location, including current home and office telephone numbers.

Verify that team members are aware of their roles and responsibilities.

Verify that a testing and training schedule exists and is adequate (at least annually)..

Verify date of last drill.

Verify that the weaknesses identified in the last drill have been addressed and corrected.

Verify plans documented correspond to the Business Continuation plan.

Verify that the plan reflects the current system environment.

Verify that all mission critical programs, data files, computer resources (and operating systems) are covered.

Verify that the non-covered systems are noted.

Verify that the plan incorporates prioritization of critical applications and systems.

Verify that the plan covers procedures for disaster declaration, general shutdown and migration of operations to the backup facility site.

Verify that the plan includes time requirements for recovery/availability of each critical system, and that they are reasonable.

Review any agreements for use of backup facilities and related documents. Verify that the site is adequate.

Verify that the site has appropriate hardware and telecommunications devices to restore operations.

Verify the procedures for periodic evaluation of the backup facilities and equipment to ensure their adequacy including when the facilities last used.

Verify that the site is adequately secured from unauthorized access.

Verify that the proper security is in effect on the backup equipment and software.

Verify that the arrangements with the backup site are of a nature and at an organization level where there appears to be a substantial probability that they would and could be honored for substantial periods (e.g., 50 hours per week for two consecutive weeks).

Verify that the plan includes contingencies in case of prolonged adverse circumstances.

Verify that inventories noted in the plan reflect the current operating environment.

Verify that the plans contain written operating instructions and procedures including procedures to regenerate the system..

Verify storage location of the inventories.

Verify that the plan includes controlled procedures for restoration of the original site for normal operations.

Review the effectiveness of the backup procedures in general.

Verify that the critical program, data files and computer resources defined for backup are in fact created and sent offsite.

Verify that the same is true for procedure and job libraries (verify that the current media library maintained by the user area corresponds to the library at the offsite facility).

Verify that the same is true for operating instructions and other key documentation.

Verify that the same is true for papers relating to systems and programs under development.

Verify that the backup copies for onsite, offsite, and legal retention are appropriate.

For applications with on-line updating of databases, verify that procedures are in place to aid in database recovery to include a) tape/disk logging of input transactions; b) logging of before and after images of updated database records; c) ability to backup or nullify a transaction; d) use of checkpoint/restart software.

Review the arrangements for offsite storage of key data files and documents.

Verify that the offsite storage facilities are so located that a disaster could not destroy the records in both the D&B facility and the storage facility.

Verify the procedures to obtain offsite copies to the backup site is adequate, efficient and timely.

Disaster Recovery Plan - DOCUMENTATION

2010-04-06T11:12:00.001-07:00

Obtain a copy of the organization's disaster recovery plan.

Obtain a list of implementation team members list.

Obtain a current copy of the organization chart.

Obtain current inventory list.

Obtain a copy of agreements relating to use of backup facilities.

Disaster Recovery Plan - QUESTIONNAIRE

2010-04-06T11:12:00.000-07:00

Is there a disaster recovery plan? If a plan exists, when was it last updated?

What are your procedures for updating the plan?

Who is responsible for administration or coordination of the plan?

Is the plan administrator/coordinator responsible for keeping the plan up-to-date?

Is there a disaster recovery implementation team (i.e., the first response team members who will react to the emergency with immediate action steps)?

Where is the disaster recovery plan stored?

Where are the implementation team contacts list stored?

Where is the backup facility site? Are there alternate sites?

What is your schedule for testing and training on the plan?

When was the last drill performed?

Did the drill include use of the backup facilities? If not, when were the backup facilities last used? If over 1 year, how has the organization determined that its programs can still run on the backup equipment?

What was the outcome of the drill? How did it improve preparedness?

What critical systems are covered by the plan?

What systems are not covered by the plan? Why not?

Does the plan operate under any assumptions?

What are the procedures for activation of the plan?

Are inventories as they relate to your critical systems kept (including LAN servers and communication devices)?

If inventories are kept, where are they stored?

Are there formal procedures that specify backup procedures and responsibilities?

What functions/systems/components are covered under such procedures?

What training has been given to personnel in using backup equipment and established procedures?

Where is the off-site storage site?

Disaster Recovery Plan - OBJECTIVE:

2010-04-06T11:09:00.000-07:00

To verify that the disaster recovery plan is adequate to insure resumption of computer systems in a timely manner during adverse circumstances, is in line with the current Business Continuation plan, and reflects the current business operating environment.

Food & Beverage Cost Control

2010-03-15T07:27:00.001-07:00

Objective:

To ensure food and beverage cost incurred is reasonable, properly supported and accounted for.

1. 0 Purchase

1.1 Quotation

Ensure vendors selected are approved by management.

Ensure vendor list is periodically reviewed by management.

Ensure purchase request is properly approved by user department.

Check quotations are obtained from vendors according to corporate
policy (monthly/quarterly update of price).

Match quotations with price comparison list.

Ensure vendors are selected based on quotations submitted and, more
importantly, on vendor’s past performance.

Ensure quotation selected is approved by purchasing manager.

Ensure cost plus vendor is approved by financial controller and general
manager.

1.2 Purchase Order

Match purchase order to supporting quotation to ensure corporate
policy on selection of vendor is followed.

Ensure management has checked the estimated inventory level does not exceed the maximum inventory level. If exceeded, customer order is needed to support the purchase.

Check estimated inventory level to past utilization rate to ensure no over purchase.

Ensure purchase orders are properly authorized by management according to authority level.

2.0 Receipt

Check goods received are supported by approved purchase order.

Ensure goods received are properly inspected for quality and quantity/net weight by Receiver.

Check goods received to ensure expiry date of product is acceptable.

Ensure fresh/frozen/chilled food items received are marked with receipt date to alert kitchen staff of potential usage period.

Match invoice details to goods received.

Check casting of invoice.

Check posting to receiving report, inventory ledger and/or accounts payable/general ledger.

Ensure goods rejected are returned to vendor with credit note issued.

3.0 Usage

Ensure issues for storeroom are supported by approved stock requisition.

Perform yield test for high cost food items to ensure actual utilization rate as compared to standard utilization rate is acceptable.

Ensure bottles and sales slips for high cost beverage items are returned to storeroom to exchange for new issues of beverage. Empty bottles must be destroyed by store personnel to avoid duplicate issue of beverage.

Ensure portion control is properly exercised.

Check wastage to ensure no saleable portion is abandoned.

Ensure voided orders are not served to customers.

Review monthly wastage to ensure wastage (in amount and in percentage) is acceptable.

4.0 Cost

Ensure recipe and menu cost control is prepared timely and updated every six months by Head Chef.

Ensure accurate costing before menu price is finalized.

Ensure all food and beverage portion/serving sizes are established in conjunction with costing and pricing of menus.

Ensure free pouring is properly monitored.

Check food and beverage cost only includes costs incurred for revenue generating activities. Costs incurred for non-revenue generating activities (i.e. duty meal and entertainment) are treated in accordance with the nature of the activity.

Ensure food cost percentage and beverage cost percentage, as compared to budget and/or last year performance, is reasonable. For significant fluctuation, explanation is required.

Ensure weekly food and beverage cost report has been prepared for timely control of food and beverage cost.

Ensure management has reviewed the monthly and year-to-date food cost percentage and beverage cost percentage.

AUDIT PROGRAM INCOME STATEMENT

2010-03-15T07:26:00.000-07:00

1.0 IDENTIFY ACCOUNTS THAT REQUIRE FURTHER AUDIT ASSURANCE

1.1 Identify income statement accounts that require further audit assurance by considering:

Audit tests of related asset and liability accounts,

The results of analytical procedures (e.g., annual fluctuation analysis and comparative analyses of income statement accounts), and

The reasonableness of income statement accounts based on knowledge of the division and its business.

GUIDANCE:

In deciding on the appropriate audit procedures for income statement

accounts the auditor should assess the risk of error and fraud in those

accounts. Relevant considerations include information gathered or

updated about the division, including the adequacy of the division's

accounting records and procedures; the nature of the account balance;

key performance indicators; management information identified when

assessing the control environment; and conclusions reached when assessing

other aspects of the control environment.

The auditor should bear in mind that the assessment of the risk of error

and fraud in these accounts is addressed primarily by audit procedures

directed at the balance sheet accounts and analytical procedures. For

example, assurance is obtained about the completeness of revenues by

auditing trade accounts receivable and identifying and testing

completeness controls; assurance is obtained about depreciation and

possibly repairs and maintenance expenses by auditing property, plant and

equipment and related accounts; assurance is obtained about interest

expense by auditing notes payable and related accounts. The risks that

remain within the income statement relate to a material misclassification

within the accounts and to fraud. It is normally sufficient to perform

analytical procedures to address these risks. If those procedures do not

provide the necessary assurance, the auditor may need to examine evidence

in support of the account balance by performing tests of details.

It may also be appropriate to examine evidence in support of the account

balance for other reasons, such as:

Statutory or regulatory requirements, or

To obtain information useful in identifying other risks.

2.0 PERFORM ANALYTICAL PROCEDURES

For those accounts requiring further assurance, perform analytical

procedures at a more detailed level, combined, where appropriate,

with analysis and tests of items in the account balance. The

procedures should be limited to those necessary to provide the

particular audit assurance sought.

PBX TELECOMMUNICATIONS AUDIT PROGRAM

2010-03-15T07:25:00.000-07:00

1.0 Protection Management

1. Who is responsible for maintaining and operating the equipment?

2. Are maintenance agreements the most cost effective agreements available?

3. Surely there are a lot more protection management responsibilities than this. What are they, how can they be clarified, how do they relate to the rest of this checklist?

2.0 Protection Policy

1. Is there a company written policy on phone use?

2. What is it? Are there particular features it should have, and what are they?

3. Are there things it should not have, and what are they? Why

4. is the policy set as it is, who sets it, how does it change,is it realistic for the environment?

3.0 Standards and Procedures

1. Are Customer Service Records reconciled with the Property Accounting Fixed Asset Register?

2. Are monthly phone bill tracking reports reviewed?

3. Are PBX traffic, performance, circuit outage, and problem reports reviewed by telecom management?

4. Is there an agreement with the LEC, the IXC, and the equipment vendors for the ability of only authorized personnel to request service level changes, and to report errors?

5. Is there a regular dump of Incoming Peg Count, Attendant Response, All Trunks Busy, Service Queue, and Trunk Group Overflow reports? Reported to telecom management?

6. What are the procedures for making PBX SW or HW changes.

7. Is the PBX program backed up whenever changes are made?

8. Does anyone on the telecom staff carry a pager number during off-hours?

9. Are all orders for services in writing? Are confirmations in writing?

10. Are service order numbers used?

11. Are bills reviewed for accuracy? How often?

12. Are monthly telephone bills distributed to department managers for review? Do they sign approval and return them?

13. How are phone charges allocated to each cost center? Are they accurate?

14. Are all toll calls billed verified against the PBX traffic reports?

15. How are billing issues resolved?

16. Is there internal recording of Install/Remove services?

17. Are all leased trunks, lines, and circuits billed verified against the PBX inventory reports?

18. Are services for part of the month pro-rated?

19. Is Call Detail Recording (CDR) or Call Accounting reconciled with phone bills?

20. Are maintenance bills reviewed, broken down, and verified? By who? How and who approve replacement parts?

4.0 Documentation

1. Obtain network maps and topology diagrams, telecommunication records, and policy and procedure guides. Are they up to date and easily understood?

2. Are Customer Service Records listing the equipment reviewed and retained? By whom?

3. Are monthly phone bill tracking reports generated?

4. Accurate and up to date list of current trunks and leased lines?

5. Are circuit numbers clearly marked on channel banks,CSU/DSUs, and modems?

6. Is there an up to date list that correlates telephones and Central Office lines to ports on the PBX?

7. Are MDFs and IDFs clearly labeled?

8. Are the procedures for making PBX SW or HW changes fully documented?

9. Is there a list of authorized contacts?

10. Does the telecom manager have a list of home phone numbers for the LEC, IXC, and PBX account executives?

11. Are PBX operating manuals available to telecom staff?

12. Are there 3rd party calls on the phone bills?

13. Is Call Detail Recording (CDR) or Call Accounting enabled?

14. This is an interesting list. It is probably not comprehensive, but it is more so than the other areas. There is no question

15. about where the documentation is kept and who has access, how the documentation tracks to the other areas, etc. but it's a real good start.

5.0 Protection Audit

Who audits the PBX, how often, what do they look for, etc. This is

covered to some extent in standards and procedures, but

only a few issues are loosely covered and no explanation of

why is provided. Audit has to be done by specific people

who do PBX audits in order to be effective.

6.0 Technical Safeguards

1. Are DISA capabilities activated?

2. Are "leaky PBX" capabilities designed?

3. Is there a modem on the PBX programming port?

4. Is there a UPS?

5. Are 976, (900), and (700) calls blocked?

6. Is Call Detail Recording (CDR) or Call Accounting enabled?

This is a starting point, but hardly comprehensive. A good

PBX auditor will cover many other technical issues.

This is, of course, PBX specific, so it's hard to make

a generic list, but more than these items should be included.

7.0 Incident Response

1. Is there a disaster recovery plan?

2. Is there a standby site for moving operations in the event of a disaster? Does it have sufficient trunking for voice and data? Is it periodically re-evaluated or tested?

3. Is the PBX program backup stored off-site?

4. Has a "bounty hunter" telecom payment consultant been used in the past? Results?

5. Do maintenance agreements guarantee technician response time?

This is deisnged for disaster recovery only. It doesn't

take a comprehensive view of incidents and how they are

responded to. How do we respond to day-to-day incidents?

How do we detect them? Who does it? What tools do they need? etc.

8.0 Testing

1. Has the disaster recovery plan been tested?

2. Is the UPS tested?

(There are a lot of other testing issues that have to be addressed in a comprehensive PBX audit.)

9.0 Physical Protection

1. Where is the telephone equipment (PABXs) located?

2. Who has access to the equipment?

3. What are the visiting procedures for accessing the equipment?

4. Are craftspeople escorted?

5. Is there fire suppression equipment installed and tested?

6. Are cabinet doors kept closed and locked?

7. Do the cables entering and leaving the PBX or equipment room pass through firestop material?

8. Are power circuits clearly marked?

(This is a good starting list, but not a comprehensive list of physical security issues to be considered.)

10.0 Legal Considerations

1. What are the purchase/lease/rental agreements for telecom equipment?

2. What maintenance agreements are signed?

( It's a start, but where is corporate liability covered?nHow about employee agreements? Is policy properly verified by legal, and is it enforcable? How do we proceed to track down attackers so that we can prosecute, or do we want to prosecute? Is there adequate insurance? etc.

11.0 Protection Awareness

1. Are there education programs for users?

(This is not an adequate question to cover the issue of awareness.)

12.0 Training and Education

1. What training is provided telecom staff for the PBX?

(This is not an adequate question to cover these issues.)

13.0 Organizational Suitability

(This is not addressed in the audit at all.)

Capital Construction (Cost Type) Projects Contract Administration

2010-03-15T07:24:00.000-07:00

A. Office Review Preliminary

1. Review and brief the contract. Take note of special contract provisions, rates, clauses, etc.

2. Review system surveys, prior audit reports, prior audit working papers and permanent files. Note areas of weakness.

3. Evaluate adequacy of the contractor's accounting practices, costing procedures and internal controls.

4. Review progress and/or final cost estimates.

Check cost statements for mathematical accuracy, as appropriate.

Verify final cost to job cost ledger.

Compare contract costs with proposal, contract estimate, bid documents and/or other related data.

5. If necessary, explain billing procedures, record keeping requirements, Government regulations and directives to contractor.

6. Indicate items requiring Contracting Officer's (Grantee) approval and unallowable costs that the contractor should omit from its billing.

7. Consider use of random sampling techniques for representative audit conclusions to the extent that cost element transaction universes are conducive thereto.

B. Audit Of Direct Elements Of Cost

1. Wages and Salaries

Determine if the responsibility for payroll activities such as time keeping, payroll computation, payroll preparation and payroll distribution is divided among several organizational units.

Determine that time tickets, distribution records, payroll, checks, personnel action, etc., are signed and/or approved by duly authorized Contractor personnel.

Examine personnel records to determine authority for employment and rates used.

Ascertain that overtime, wage and salary rates and classifications are approved by the Contracting Officer (Grantee) or, are in accordance with terms provided in the contract.

Check hours and rates billed to basic time records, distribution records and payroll. Check labor distribution summary for total hours worked during payroll period for each employee selected.

Determine that labor costs claimed are properly classified as direct labor and allocable to the contract.

Verify computations, extensions and footings.

Compare total dollar amount of payroll with total dollar amount of labor distribution summary and trace posting of direct labor (both contract and other work) to general ledger and/or subsidiary ledger accounts.

Selectively examine cancelled checks to determine that payments have been made by the Contractor.

Prepare a listing of unclaimed wage and salary checks and follow through for proper disposition.

Fringe benefits can be treated as part of the direct labor costs if the accounting system so provides. The auditor should assure himself or herself that such treatment is equitable to the contract since some charges, such as social security taxes, apply to only a portion of annual salaries of wages.

When practical, observations should also be made to determine whether employees are performing in assigned job classifications and whether they are being correctly charged to the benefiting contract project or activity.

2. Purchased Material and Services

Ascertain approval of procurement procedures. Check contract terms for specific Contracting Officer's approval requirements.

Selectively review purchases to determine:

(1) Mathematical accuracy and propriety of price, quantity, and description of items procured.

(2) Propriety and existence of source procurement documentation (from purchase requisition to receipt and payment of purchase).

(3) That codings are correct and posting are being made to cost distribution records, properly controlled by general accounts in Contractor's ledgers.

(4) That an internal system has been set up to control credits to contract costs.

Note: When the total costs of material or service is significant, the auditor should include large and sensitive items of cost in his or her test selection.)

Review description of materials to screen overhead type materials from direct charges.

Determine that Contractor has appropriate property control records.

3. Materials Withdrawn From Contractor's Stores

Compare a representative portion of invoices covering items charged to stores to the stores' records to determine accuracy of the posting of quantities and prices.

Examine a representative number of material requisitions to determine:

(1) That pricing is consistently applied on the basis of an acceptable method, such as first-in-first out, etc.

(2) That the requisitions have been posted to the stores' records.

(3) That the using department is indicated by receipt or other designation.

(4) That computations are accurate.

(5) That requisitions are au- thorized and receipt of materials is acknowledged by responsible personnel.

(6) That the accounting distribution is proper.

(7) That quantities are not excess to requirements and have been approved by a County Inspector.

Review summaries of requisitions to determine:

(1) That requisitions are correctly listed and that summary totals are correct.

(2) That the total distribution is approved by a responsible executive.

Review the requisitions to disclose the inclusion of items similar to those charged directly from purchase invoices. Investigate all such items to disclose possible duplication. Materials charged from stores directly to a contract should be screened to eliminate overhead type materials.

4. Travel Expenses

Review and evaluate the Con- tractor's travel policies for reasonableness and consistency. In the absence of Contractor policies or specific contract terms, County travel regulations should apply.

The auditor shall determine whether:

(1) Required original travel reports include employee's name, purpose of trip, points of travel, dates of departure and arrival, mode of transportation, details of expenses or per diem rates in accordance with the terms of the contract and related directives, executive approval of the travel, employee's receipt if paid in cash, or check number if paid by check.

(2) The reports are accurate as to computations.

(3) By selective examination of cancelled checks and/or receipts, payments have been made by the Contractor.

(4) Charges are verified to general ledger and/or job cost ledgers.

(5) The expenses claimed are allowable in accordance with generally accepted accounting principles (GAAP) or applicable federal regulations.

5. Other Direct Costs

In addition to direct labor, material, and travel, there are other types of expenses which may be directly costed. These expenses are generally referred to as "other direct costs", and include such items as subcontractor charges, consultant fees, equipment, reproduction printing, etc.

In reviewing other direct costs, the auditor should:

(1) Determine that the contractor's cost representations are reliable and adequately supported.

(2) Determine that the amounts charged to the contract are reasonable and allowable.

(3) Determine whether the Contractor has been consistent in allocating such costs between the subject contract and other work.

(4) Verify costs to the general and/or job cost ledger.

(5) Selectively examine can- celled checks to determine that payment has been made.

(6) Ascertain if the Subcontract costs are subject to audit by reason of dollar threshold or contract terms.

If equipment costs are claimed, determine if there is government or County control over use and location of equipment. If government furnished equipment is involved, ascertain that items are controlled and identified.

C. Indirect Charges

1. Background

Overhead, Fringe Benefits, and General and Administrative (G&A) rates are methods of distributing indirect costs. An indirect cost is one which, because of its incurrence for common or joint objectives, is not readily subject to treatment as a direct cost. The direct costs are accumulated into logical cost groupings (1) common to all the costs and (2) reasonably indicative of the benefits provide by the indirect costs. Burden rates should not be based on cost factors that do not, per se, generate overhead. Thus, direct materials generally should not be included in the base for distributing a single overhead pool. However, direct materials may be used as a base for distributing a limited cost center, such as a Contractor's procurement department. The same type of expense may be charged as direct or indirect. However, the auditor should ensure that a cost item is not charged as a direct expense and also built into the overhead rate.

The major differences among Overhead, Fringe Benefit and G&A rates is the base upon which each is distributed. Fringe benefit rates are generally based upon direct and indirect labor. Overhead rates (including G&A overhead) are usually based on direct labor; however, overhead rates can also be based on direct labor including fringe benefits. G&A rates generally are based on total direct and indirect field expenses including direct and indirect labor, fringe benefits, overhead and material. The principles for evaluating all of the aforementioned rates are substantially the same.

Note: The extent of audit effort required in this area will normally depend on the significance of the overhead factor in relationship to total contract costs. DPW as well as selective Housing and Community Developments (HCD) contract General Conditions provide for a maximum 15 percent markup on all change orders. The 15 percent markup Compensates for all types of overhead, including job-site, G&A, supervision, bonds and insurance. Change orders on DPW contracts should not include a separate amount for overhead.

2. Preliminary Steps (For jobs where overhead is not fixed per contract)

Review contract or contracts involved for all provisions pertinent to audit. Note particular elements of cost to be reimbursed as direct charges but which are ordinarily treated as overhead. Also note types of overhead such as manufacturing, engineering, general and administrative, etc., and rates of overhead such as actual, fixed rate redeterminable, fixed rate for life of contract, etc.

Obtain the following from the Contractor:

(1) Chart of accounts with appropriate explanation of items to be charged to each account.

(2) Copies of leases and other pertinent documentation.

(3) Trial Balance and financial statements for period under review.

(4) Schedule indicating a breakdown of overhead proration bases by jobs or contracts.

(5) Accounting and corporate policies.

Review corporate minutes of meetings of directors and executive committee for any information that would affect accounts under audit.

Review internal audit reports and external audit reports, tax returns, etc.

Compute the amount by which overhead pools or the distribution base would have to be adjusted in order to change the rate by one percent. Use this data as a comparative device to determine the amount of time to spend on questionable items.

Where the contractor has followed a policy of charging items ordinarily treated as overhead directly to the contracts, the auditor should make sufficient tests to satisfy himself or herself that the contractor has not duplicated any direct or indirect charges.

Review scrap, purchase discounts, and all miscellaneous income accounts to determine that credits to contract costs are being properly applied, either directly or through overhead.

Review changes in surplus account to determine whether a credit should be applied to contract costs.

In determining allowability of costs, check for compliance with provisions of OMB Circular A-87 and the Federal Acquisition Regulations, Part 32, when applicable.

Ascertain that costs requiring approval have been approved by the Contracting Officer/Grantee.

Examine all significant year end or period end adjustments and all accrual accounts for propriety and effect on the overhead examination.

Notify Contracting Officer/ Grantee of all deviations from approved accounting policies.

Compare Federal Tax returns with the books to ascertain any major differences in accounting policies.

3. Overhead Expenses Review

Foot trial balances and verify account balances with general ledger and/or subsidiary ledgers.

Schedule overhead expenses by months so that unusual month to month fluctuations can be readily detected and analyzed, if practical.

Analyze accounts on a test check basis for unallowable or unallocable items.

Perform adequate test checks of indirect labor accounts to ascertain that direct type labor is not being charged to overhead accounts.

Perform analysis of all sensitive accounts such as travel, legal and accounting expenses, etc.

4. Basis of Proration

Direct Labor Dollar Base

(1) Reconcile that portion of the direct labor base, pertaining to the Grantee's contract or

(2) Determine that no inequities exist, as a result of using a direct labor dollar base.

Other Bases

(1) If a basis for prorating overhead expenses, other than direct labor dollars (as indicated above) is used, adequate tests should be made to determine the accuracy, equity and propriety for the use of such base.

(2) There are many other bases which can be used to distribute overhead pools, for example:

Direct Labor Hours

Costs of Goods Manufactured

Direct Prime Dollar Costs

Costs of Sales

Total Expenditures

Machine Hours Base

The base chosen should be the most equitable base for allocation of the particular expense pool or category.

(3) Determine that each allocation base used includes all applicable costs, hours, or other units since this factor has an important effect on the distribution ratio.

5. Final Steps

After the indirect expense pools have been verified and the bases for distribution have been accepted, determine the accuracy of the overhead rate calculations and the accuracy of the related distribution of indirect costs to County contracts.

Summarize results of audit.

Discuss findings with Contractor.

Prepare appropriate report.

PREPARATION OF THE AUDIT REPORT

The audit report is the end product of the audit effort, and quality is of utmost importance. The ultimate success of a proposal evaluation report is dependent on how well audit information is conveyed to contracting personnel. Therefore, the report should be clear, comprehensive, concise, and convincing. It must be written in generally understandable terms since it is unlikely that users will be professional accountants. Finally, the report should avoid arbitrary and unreasonable determinations since they can result in the disregard of sound audit exceptions.

Auditors are encouraged to discuss audit determinations with Contractor personnel during and upon the completion of audit assignments. Such discussions are useful to confirm factual data, confirm findings, and identify areas of controversy. However, specific amounts of audit findings need not be disclosed. Audit findings pertaining to forecasts should not be discussed since these are a matter of judgment, the disclosure of which could impair the County's negotiation position

Completion of Audit

After the auditor has completed the field audit work, he/she is to ensure that working paper files are prepared in accordance with the audit manual concerning audit working papers. This is to include the preparation of lead schedules, summary of results of audit, indexing the working papers, cross-referencing all working papers and making sure that all pertinent working papers are filed and in the proper sequence.

Discuss audit findings with the Audit Supervisor during the course of the audit and then again at the conclusion of the audit.

Prepare a draft audit report summarizing the audit findings.

The Audit Supervisor will review the draft audit report and the working paper files and make appropriate review notes and comments.

1. Discuss the Audit Supervisor's notes and comments.

2. Do additional work as requested by the Audit Supervisor

After the auditor has completed all necessary work requested by the Audit Supervisor and the draft report and the working paper files have been approved by the Audit Supervisor, the Audit Supervisor will schedule a closing conference with the Contractor to discuss the audit findings.

A summary of the closing conference with the Contractor will be included in the audit working paper files with all pertinent comments by the Contractor.

The Audit Supervisor will then schedule a meeting with the applicable County personnel to discuss the preliminary results of audit. Include any comments made at the meeting in the audit working paper files.

Construction Audit Program

2010-03-15T07:23:00.000-07:00

I. General Procedures

A. Review the written policies and procedures for completeness, adequacy and proper approval.

B. Verify that employees have system access compatible with their job descriptions. Additionally, ensure that only current employees have system access.

C. Per inquiry and observation determine that user Ids and passwords are adequately protected. Specifically, ensure the following:

1. Passwords are not shared.

2. Passwords are not written or kept near the user's workstation.

3. Passwords should not be trivial or easy to guess.

D. Through inquiry and observation determine that when an employee leaves a workstation, they must sign off or end the session temporarily.

E. Inquire of appropriate personnel regarding controls in place to protect records from theft, misuse, and misappropriation. Determine the adequacy of controls.

II. Official Checks/Accounts Payable

A. Review the monthly reconciliations performed in the prior year and ensure they are being performed timely (monthly basis).

B. Verify the mathematical accuracy of the reconciliations by re-footing them and agreeing the balances to the appropriate subledgers (bank statement).

C. Per review of the bank statements, verify that the balance in the account does not exceed $3,000.

D. Review the sequence of official checks used during the audit period and ensure all numbers are noted as issued or voided. Locate voided checks and investigate any numbers which cannot be accounted for.

E. Review a sample of checks and perform the following:

1. Verify that the checks are properly completed and approved by A/P MANAGER/SUPERVISOR.

2. Verify that payment of the item was properly supported by an approved invoice or other appropriate document.

3. The amount of the check agreed to the invoice.

4. Verify the invoice was paid timely.

III.
Contractor Payments

A. Select a sample of payment vouchers and perform the following:

1. Verify that voucher is properly supported by an approved invoice or other appropriate document. (Agree amounts.)

2. Verify that the voucher/invoice was approved by A/P MANAGER/SUPERVISOR or A/P MANAGER/SUPERVISOR (for environmental affairs).

3. Obtain the corresponding check and agree amounts.

4. Verify the invoice was paid timely.

IV. System Balancing

A. Verify that there is evidence that the balances on the two systems (D-Base and CTI) are compared on a weekly basis to identify any input errors.

V. Bid Process

A. Select a sample of construction jobs (include environmental jobs) and perform the following:

1. Verify that the Construction Department obtained at least three bids for the job prior to awarding the contract.

2. Verify that the lowest bid was selected.

3. If a General Contractor was hired, verify that the GC obtained obtain at least 3 bids from subcontractors and that the selected subcontractors were approved by the Construction Department.

VI. Contractor Requirements

A. Select a sample of construction jobs and perform the following:

1. Verify that a formal contract developed by the American Institute of Architects is on file for large contracts (typically over $5,000) or for smaller contracts, a standard Letter of Authorization not to exceed a specified amount is on file.

2. Verify that there is evidence of insurance with TMC as an additional named insured for the general liability, excess liability, and automobile liability in accordance with the contract specifications. Additionally, verify that a 30 day cancellation notice is included on the insurance policy and TMC is named for notification purposes.

3. Verify that both types of contracts are signed by the contractor and approved by A/P MANAGER/SUPERVISOR.

4. Select a sample of work change orders and verify that they have been authorized in writing by the owner (A/P MANAGER/SUPERVISOR)

5. Verify that lien waivers have been provided by the contractor, subcontractors and suppliers at or before time payment is made in accordance with the schedule in the signed AIA contract.

VII.
Management Reports

A. Review a sample of management reports and perform the following:

1. Verify the accuracy of reports (e.g. Budget, Committed and Spent Report, Estimate to Complete, etc.) by comparing information on the reports to the CTI/D-Base system or other supporting documentation.

2. Determine that the reports are distributed to the appropriate level of management.

AUDIT PROGRAM PROPERTY, PLANT AND EQUIPMENT

2010-03-15T07:16:00.000-07:00

Test Account Detail
Obtain or prepare a detailed analysis of account
balances (1).
Test balances for reasonableness, fluctuations and
omissions (2).
Test mathematical accuracy of the analysis (3).
Examine documentation and reconcile detail records
(4).
Recompute or apply analytics to test depreciation (5).
Compare charges or credits to income statement
accounts (6).
Perform procedures to test completeness of account
balance (7).

Additional Procedures
Physically inspect assets (8).
Review documentation for assets leased to others (9).
Determine that lease disclosures conform with SFAS
No.13 (10).
Consider carrying values of assets (11).
Identify fully depreciated assets (12).
Review interest capitalization (13).
Obtain information for disclosure (14).

AUDIT PROGRAM
PROPERTY, PLANT AND EQUIPMENT
GUIDANCE

The auditor should consider the nature of the account balance and the
risks associated with transactions flowing through it. The steps in this
area may also be applied to capitalized leases.

When preparing this program the auditor should consider and design audit
procedures that address relevant presentation and disclosure
requirements.

GUIDANCE-PROPERTY, PLANT AND EQUIPMENT
AUDIT PROGRAM
PROPERTY, PLANT AND EQUIPMENT

Test Account Detail

OBTAIN OR PREPARE A DETAILED ANALYSIS OF ACCOUNT
BALANCES (1).

1. Obtain an understanding of the accounting policies relevant to
property, plant and equipment and depreciation. Obtain or prepare
an analysis of those accounts, including:

a. Description of accounts by classification.

b. Balances at beginning of period.

c. Additions and depreciation expense during the period.

d. Disposals (e.g., assets sold, abandoned, written off)
including related gain or loss and related adjustments to
accumulated depreciation during the period.

e. Balances at end of period.

Trace the beginning and ending balances to the general ledger and
previous audit's working papers.

Done by Date
..../../..

GUIDANCE:

When obtaining an understanding of accounting policies relevant to
property, plant and equipment the auditor should judge their
appropriateness in the light of generally accepted accounting principles
and correlate them with knowledge obtained about the division's
operations, the economic environment and activity in the accounts.
This information is useful in addressing, among other things, the risks
associated with the treatment of capitalized costs, depreciation charges
and abandonments of property, plant and equipment.

TEST BALANCES FOR REASONABLENESS, FLUCTUATIONS AND
OMISSIONS (2).

2. Review the balances for reasonableness, expected or unexpected
fluctuations between periods and obvious omissions.

Done by Date
..../../..

TEST MATHEMATICAL ACCURACY OF THE ANALYSIS (3).

3. Test mathematical accuracy of the analysis.

Done by Date
..../../..

EXAMINE DOCUMENTATION AND RECONCILE DETAIL RECORDS
(4).

4. a. Examine documentation (e.g., invoices, purchase agreements,
titles, construction contracts, authorizations) that supports
property, plant and equipment additions.

b. Examine documentation (e.g., bills of sale, authorizations) that
supports asset disposals and related adjustments to accumulated
depreciation.

c. Reconcile the analysis to detailed records of property, plant and
equipment.

Done by Date
..../../..

GUIDANCE:

When examining documentation to support property, plant and equipment
additions the auditor should be particularly aware of the risks associated
with capitalizing costs of self-constructed assets. In this regard, the
auditor considers:

a. The appropriateness of accounting policies followed;

b. The appropriateness of capitalized costs, including overhead and other
cost allocations requiring judgments and estimates; and

c. Other issues, including economic lives used and the date assets were
put into service.

Steps 4.a. and b. require a decision on the extent of testing. The
auditor should use judgment in determining the extent of tests considering
factors such as the adequacy of the division's procedures for recording
fixed asset additions and retirements, the type and frequency of errors in
prior periods, the complexity of transactions and the materiality of the
amounts involved.

When testing acquisitions the auditor should be alert for
interdepartmental transfers and consider whether profit is included in
asset costs so that their carrying values are questionable.

RECOMPUTE OR APPLY ANALYTICS TO TEST DEPRECIATION (5).

5. Determine whether the depreciation practices followed by the company
are in conformity with GAAP and consistent with the prior period.
Such practices may include estimates of useful lives and salvage
values, procedures for the depreciation of additions and
retirements, and the accounting for fully depreciated assets. By
recomputation or the application of analytical procedures, test
calculation of current period's depreciation.

Done by Date
..../../..

GUIDANCE:

Analytical procedures may be an efficient and effective way of testing
current-period depreciation. The reasonableness of depreciation expense
should be judged in the light of the division's operations, established
depreciation rates and activity in the asset accounts during the period.
Examples of analytical procedures include reviewing amounts compared with
prior periods or independently estimating the expense by asset category.

COMPARE CHARGES OR CREDITS TO INCOME STATEMENT
ACCOUNTS (6).

6. Compare amounts charged against (e.g., write-offs, loss on disposal)
or credited to (e.g., gain on disposal) income with income statement
accounts. Investigate significant differences.

Done by Date
..../../..

PERFORM PROCEDURES TO TEST COMPLETENESS OF ACCOUNT
BALANCE (7).

7. Ascertain the completeness of property, plant and equipment by
reviewing fluctuations in the repair and maintenance accounts and,
where appropriate, examining charges to these accounts to determine
whether amounts should be capitalized.

Done by Date
..../../..

Additional Procedures

PHYSICALLY INSPECT ASSETS (8).

8. Review the division's procedures for ascertaining the existence and
ownership of recorded assets and consider the necessity of
independently testing the physical existence of and, if appropriate,
the title to property, plant and equipment, including construction
in process.

Done by Date

GUIDANCE:

In deciding whether to independently test the physical existence of and
title to property, plant and equipment the auditor should consider:

a. The susceptibility of the assets to loss, theft or destruction.

b. The operation of the business that would provide evidence to indicate
that assets still exist and continue to operate, such as continued
sales of products produced by plant and equipment.

c. Circumstances within the organization, such as decisions to modernize
plant and equipment or to discontinue a product line.

d. Whether the division's procedures are designed to adequately ensure the
existence and ownership of assets. Examples of these procedures
include maintenance and periodic reconciliation of detailed records to
control accounts, periodic physical inspection of assets, and
maintenance of records of title such as deeds, purchase agreements and
other documents that support the ownership of assets.

By considering factors a. to d. the auditor assesses the risk that
existence and ownership could be compromised because of the nature of the
asset and unusual factors in the business. Other substantive tests may
also provide evidence of ownership of assets, for example, identifying
assets held as collateral for debt.

In the light of these risks the auditor expects that the division would
establish procedures, as appropriate, to ensure the existence and
ownership of assets, and these procedures may be tested.

Having considered these factors and tests of the division's procedures, if
they are performed, the auditor assesses the risks to existence and
ownership of assets. If these risks are other than low, independent
tests of the physical existence of and title to assets should be
performed.

DETERMINE THAT LEASE DISCLOSURES CONFORM WITH SFAS
NO.13 (10).

10. a. Examine records of leased assets, lease agreements and other
relevant data for leases capitalized during the period to
determine whether they were properly capitalized in conformity
with SFAS No. 13 (as amended).

b. Examine support for rentals under operating leases to determine
whether leases should be capitalized in conformity with SFAS
No.13 (as amended).

Done by Date
..../../..

CONSIDER CARRYING VALUES OF ASSETS (11).

11. Consider whether adjustments should be made to reflect the inability
to recover the carrying value of assets.

Done by Date
..../../..

GUIDANCE:

The auditor should consider whether the following factors, which may
indicate unrecorded retirements or questionable carrying values, are
present:

a. Additions that replace existing property.

b. Major changes to plant layout or product design.

c. Changes in insurance coverage.

d. Idle or abandoned property, plant or equipment.

e. Property held for sale.

f. Excess capacity.

The auditor should also consider developments in the division's business
and industry and evidence from performing other audit procedures to
determine whether the carrying values of assets have been impaired.

IDENTIFY FULLY DEPRECIATED ASSETS (12).

12. Identify fully depreciated assets carried in the property records.
Obtain assurance that such assets are still utilized (i.e., that
they have not been discarded or abandoned). Consider whether this
may indicate that depreciation rates may not be appropriate.

Done by Date
..../../..

REVIEW INTEREST CAPITALIZATION (13).

13. a. Examine supporting documentation for interest capitalized during
the period in conformity with SFAS No. 34.

b. Inquire of management regarding the existence of any capital
projects that require a period of preparation before being ready
for their intended use, for which interest has not been
capitalized. If such projects exist, examine project
authorizations, progress payments and other supporting data
(including notes payable and long-term debt) to determine
whether interest should be capitalized in conformity with SFAS
No. 34.

Done by Date
..../../..

Hotel Audit Program

2010-03-15T07:15:00.000-07:00

REVENUE

Audit Objectives

1. To ascertain that all billable services are properly reported and accurately reflected in the financial statements.

2. To determine that adjustments to revenue are appropriate and approved.

3. To determine that Company procedures and policies regarding revenue recording and reporting are carried out in accordance with current requirements.

4. To ensure that controls and procedures in use are efficient, effective and economical.

Audit Program

1. Evaluate the Internal Control Questionnaire for weaknesses. If risk is high, consult with In-Charge or prepare SAFs.

2. Obtain vouchers for all revenue adjustment transactions (today's voids, non-guest paid outs, guest paid outs, previous day corrections, and refunds) for two test days (one week day and one weekend day)selected during pre-audit.

A. Trace total voucher amount to final revenue detail report to determine if all adjustments are supported by vouchers. If vouchers do not balance, document procedures for daily balancing.

B. Review vouchers for propriety, proper completion (guest name, room or account number, date, amount, adequate explanation, and name of preparer), and approval. Refund vouchers and guest paid outs should include guest signature. Paid outs should be supported with a receipt.

Evaluate volume of vouchers and exceptions noted to determine if
testing should be expanded. For expanded testwork, perform C.

Note: Auditors should use judgment on the level of detail documentation required. For hotels using System 21, include copies of the All Users-Voucher List reports for the test days.

C. Test an additional _____days' vouchers only for those attributes in which deficiencies were noted in original scope. Trace to folios as deemed necessary. Selection of additional days should be based on causes of deficiencies (e.g. controls lax only on weekends).

3. Based on pre-audit analysis and ICQ assessment test 100% Guarantee vouchers, if warranted. (Note: determine during pre-audit if the property participates in the program, i.e., conference centers and other non-brand hotels may not participate.) Agree most recent month vouchers and/or logs to the IDAR, or other monthly final revenue report.

4. Based on the P&L review, determine if Guaranteed No-shows were consistently billed. Perform testing as deemed necessary, i.e., Variances to budget and history are unfavorable, and there is no current month activity.

5. Document in memo form; Vacant room inspection procedures.
-Are all rooms not reporting revenue inspected daily?
-What report is used for the inspection?
-Who performs the inspection?
-What time is the inspection performed?
-How is the inspection documented?
-How are carryovers and late check-ins treated?
-What time are discrepancies reported to the front desk?
-GNS inspection procedures, if applicable.

6. Obtain contract between hotel and Pay TV provider. Include copy of commission terms in W/Ps. Discuss procedures for ensuring Pay TV revenue is recorded. Review Pay TV account per the P&L, noting YTD balance should normally be a profit. Perform step A or B.

A. If property has On Command Video or other system with a percentage commission due the hotel, review last two months' invoices to determine if commission received complies with contract and amount remitted was properly calculated prior to payment. Test for any threshold provisions such as revenue PAR. Include copies of invoices in w/ps.

B. If property does not have a system with a percentage due hotel,
evaluate profit/loss based on current assumptions. (i.e., budgeted at break even).

7. Review P&L for telephone revenue. If materially unfavorable to budget and/or history (and for ALL ES, HI, HS, HIS, PVR), test as follows:

Review two day's telephone reconciliations to ensure system is reconciled to daily revenue reports. Variances in excess of $15 should be investigated and documented. Include copies of reconciliations in w/ps.

Otherwise, in memo form, document P&L analysis and pertinent information such as interfaced systems, daily balancing procedures, etc.

8. Perform testing of other miscellaneous revenue sources applicable to the hotel such as parking, attraction ticket sales, etc. Discuss test approach with In-Charge as deemed necessary. Include copies of documents to support testwork.

9. Document discussions with Corporate Tax or CAO Senior Accountant. If warranted, test the following (test at all stand alone properties):

A. Review tax documentation to determine that tax rates are appropriate for the following areas (as applicable):
Room service delivery charges
Banquet service charges
Package plans
Mandatory restaurant service charges

B. In addition, review Quarterly Tax Return documents and support to ensure the property has procedures in place to correctly identify, record and track tax-exempt sales (at stand alone properties only). For centralized properties, ask during pre-audit discussions if exempt sales are tracked.

10. Review lease/rental agreements for hotel space. Determine that recorded revenues agree to the terms specified. Include copies of applicable lease documents in w/ps (including restaurant lease, if applicable).

11. For hotels with company managed gift shops, perform the following:

A. Discuss with management procedures in place to verify all gift shop revenue is properly recorded. Ensure an inventory count is performed by management monthly.

B. Based on the P&L review, evaluate YTD gift shop profit margin for reasonableness as compared to budget.

12. Review significant observations with the General Manager and prepare MDPs and SAFs.

ACCOUNTS RECEIVABLE

Audit Objectives

1.To determine the accounts receivable balance as stated on the balance sheet is properly supported and that the supporting accounts receivable balances are bonafide and collectible.

2. To ensure controls and procedures in use are efficient, effective and economical.

Audit Program

1. Evaluate the Internal Control Questionnaire for weaknesses. If risk is high consult with In-Charge or prepare SAFs.

2. Review A/R aging:
A. Judgmentally select a sample of accounts from the aging ensuring all categories of receivables are adequately covered. Heavier concentration should be placed on old and unusual items. Total amount selected for testing would normally be between 15% and 20% of City Ledger. Test for the following: (Minimum sample size = 15)

* Agreement to supporting documentation. Either file with all applicable folios, banquet checks, etc., or ability to review all billing items on-line.

* Initial billing date timely, based on check-out date.

* Consistent documentation of collection efforts.

* Approved direct bill authorization.

NOTE: These attributes should also be tessted for paid balances. If a separation of duties problem exists, trace payments from the mail check log, to posting reports, to the validated deposit slips.

B. Review for unusual items (i.e. credit balances, returned checks, skip accounts, one company with balance in several different categories).
If material and unusual items are noted, test to determine if inadequacies in the control environment exist (e.g., review of the high balance report, Telecheck procedures, etc.)

C. Trace aging total to the General Ledger and to A/R recap.

3. Obtain a current detail list of advanced deposits sorted by arrival date.
Review list to determine if deposits are properly maintained (arrival date listed and not past due). Be aware that debits in this ledger may indicate procedural deficiencies.

NOTE: General guidelines: deposits over one month past due should have been refunded or otherwise resolved. Perform testing as necessary

4. Determine if Corporate guest checks or property specific gift certificates are sold at the property. If so, in memo form, perform the following by observation:

* Bulk storage is restricted.

* Certificates are pre-numbered.

* Control log is used.

* Next available certificate on log is verified.

5. Obtain a current listing of guest ledger account balances. Review detail support on-line for unusual items and high balances to determine if non-current items or unbilled charges exist. Note: Purpose of this test is to determine that all accounts are transferred to city ledger or otherwise settled within 5 business days of function end or check out. The hotels may know these accounts as "Checked out with a balance", "House Accounts", "O Status accounts", "H Status accounts" or other variations.
Some systems will automatically transfer accounts to the city ledger, other systems may "hold" the account on the guest ledger, pending an approved city ledger account number.

6. Review write-offs. If material, review selected write-offs for adequate support, proper collection efforts, proper approval (per approval matrix and management contract), and reason for write-off. Be alert to consistent causes (e.g., front desk personnel failure to follow established hotepolicies).

7. Credit Card Chargebacks:

A. For properties using Doubletree and Red Lion manuals, test as follows:

-Ensure that no outstanding chargebacks remain as a reconciling item on the bank recs.

-Ensure that chargebacks are posted to the guest or city ledger. The amount should be adjusted against revenue. For some accounts, an A/R account may be set up for further collection attempts.

-Ensure that all inquiries and chargebacks are responded to timely.

B. For properties using business controls manuals, test as follows:

-Review YTD P&L balance for materiality.

-Document procedures, determine:
Hotel has admin account, cleared monthly.
Account reconciled to the G/L monthly.
Chargebacks are valid/supported.
Invalid chargebacks collected through A/R.

-Review two months' reconciliations. Reconciling items should be explained. Include copies of reconciliations in workpapers.

-Review three months' inquiries. Review documentation to ensure credit card inquiries were responded to by the due date to prevent automatic chargebacks.

-Review YTD AS400 detail for timely offset. Include AS400 printouts in workpapers.

8. Review the credits issued to credit card report obtained during pre-audit.

-Query six months, sorted cards. Include list in workpapers.

-If two or more credits, or if material, query corresponding charges. Include list in workpapers.

-Review possible duplications to ensure no duplicate credits were issued.

-If no corresponding charge, test ROCI and expand testing as necessary.

-Review credits on two most recent ROCIs for validity, support, approval, etc. Include copies in workpapers.

For decentralized hotels not using First Tennessee processing, enter the Last two months' credits into a spreadsheet and sort by credit card number. Follow-up on duplicate and/or material credits issued. Include spreadsheet In the workpapers. Expand testing as deemed necessary.

9. Obtain final trial balance (A) reports for the last week of the test month.

A. Review the allowance accounts for each day to verify that uncollectible accounts were not inappropriately allowanced from revenue.

B. Trace unusual items to detail support.

C. Also, for properties using the business controls manual, verify that credit cards are allowanced daily.

10. For properties with leased restaurants:

A. Document procedures for ensuring restaurant room charges are posted to the front desk system daily and verified against POS records.

B. Obtain one week's restaurants invoices and ensure amounts billed each day agree to the applicable final trial balance accounts. Discuss variances with management and expand testing as necessary.

Include copy of invoice in workpapers.

C. If necessary, based on results of steps A. & B., review five days balancing documentation.

11. Review significant observations with the General Manager and prepare MDPs and SAFs.

CASH

Audit Objectives

1.To ensure accountability exists for cash and cash equivalents received by the hotel and such accountability is properly maintained.

2. To ensure controls and procedures in use are efficient, effective and economical.

Audit Program

1. Evaluate the Internal Control Questionnaire for weaknesses. If risk is high consult with In-Charge or prepare SAFs.

2. Obtain Deposit Witness Logs for test days selected. Include copies in w/ps
Test for:

* Signature of cashiers
* Signature of witness to drops
* Signature of person removing envelopes
* Signature of witness to the removal of envelopes
* Agreement of the number of envelopes removed and number dropped
* Agreement of total deposit to certified deposit slip and final reports

Evaluate exceptions noted to determine if additional testing is necessary. If so, perform the following:

Select additional ____ day's Deposit Witness Logs for testing. Review for deficiencies noted in original testing.

3. Obtain Mail Check Registers (Logs) for the test days selected. Select alternate days for test days with no activity. Include copies in w/ps.

A. Trace checks listed on the Mail Check Register to the Bank certified Deposit slip and to posting reports (final).

B. Review Mail Check Registers to ensure:

* Mail is opened/logged by person other than A/R designate
* All checks individually listed on log
* Copies of check log and checks are forwarded to A/R designate
* Original checks are deposited in drop safe by receiver
* Copies of check logs and checks to be filed chronologically (not a requirement at properties using DT or RL manuals)
* Properties using business control manuals should have signatures of the three employees involved in recording, posting and verifying MCR.

Evaluate exceptions noted to determine if additional testing is necessary. If so, perform step C.

C. Test one month's Mail Check Registers. Testing should be based on Exceptions noted in original testing.

4. -Review AS400 and bank recs for material o/s. Include copies in w/ps.

-Document monitoring procedures and procedures for issuing warnings.
-Review two months' o/s log for explanations and warnings issued.
Include copies in workpapers.
-Review material j/e's noted during AS400 review. Test as necessary.
-Trace large shortages to employee files for write-ups.

5. A. Document segregation of hotel funds and who has access. Agree total funds to the G/L.

B. Review count sheets from the most recent two months for all banks, excluding rotating banks. Include copies of count sheets in w/ps.

Determine if banks are periodically, independently verified.

C. Observe opening of the house safe to ensure the combination is required for entry (i.e., the safe is not on day lock). Also, document the drop safe opening requirements. NOTE: Properties using business controls manuals require dual access for drop safes. Management should not be informed in advance of these procedures.

D. Perform surprise counts of main house funds. (All funds except rotating banks at EMB, HI, HS and HIS; main safe only at DT, DGS, RL) Include copy of the count in w/ps. If there are typically material variances in cashier bank counts (or if counts are not done monthly), count a sample of cashier banks. Include copy of the counts in w/ps. Investigate material variances. Review petty cash vouchers included in banks for old or unusual items. Investigate as necessary.

6. A. Prepare a deposit lag summary using the Cash Worksheet for the most recent month. Include in w/ps. Determine if daily deposits were timely

Deposits must be made daily (except weekends and holidays). Armored car service should be used, or two persons must take the deposit to the bank.

B. Determine when the last deposit was made (from certified deposit slips).
Verify that funds not deposited with the bank are physically on-hand.
Also, determine that all deposits in transit listed on prior month bank reconciliation cleared the bank during the next month.

C. If significant or unusual lags are noted, determine if additional testing is necessary by performing the following: -Compare results of lag testing to MCR tests for parallel issues.

7. For stand-alone properties, document cash management practices. Verify that excess funds are timely transferred to an interest bearing account.

8. Document the security of blank check stock (Travel agent, liquor, A/P)
Determine that stock is secured, that sequential logs of checks
used/voided are maintained, and access is restricted to appropriate personnel. Document in memo form.

9. Review significant observations with the General Manager and prepare MDPs and SAFs.

BALANCE SHEET ACCOUNT RECONCILIATIONS

Audit Objectives

1. To ascertain Company procedures and policies regarding the processing and maintenance of Balance Sheet Account Reconciliations are carried out in accordance with current requirements.

2. To determine Bank Account Reconciliations are supported and comply with Company standards for activity and reconciling items.

3. To ensure controls and procedures in use are efficient, effective and economical.

Audit Program

1. Determine that balance sheet and bank account reconciliations have been completed and proper support documentation is attached.

2. Determine that support documentation traced and agreed to the Trial Balance.

3. Determine that reconciliations have been reviewed and approval is noted on the reconciliation.

Note: Properties which are processed through CAO will have balance sheet reviews at year end. Include bank reconciliation review for the audit file.

ACCOUNTS PAYABLE
Audit Objectives

1. To ascertain Company procedures and policies regarding the processing and maintenance of accounts payable are carried out in accordance with current requirements.

2. To determine vendor invoices and petty cash reimbursements are timely approved and processed for payment.

3. To ensure controls and procedures in use are efficient, effective and economical.

Audit Program

1. Evaluate the Internal Control Questionnaire for weaknesses. If risk is high, consult with In-Charge or prepare SAFs.

2. For Stand Alone Properties:
A. Determine if property is consistently processing and paying invoices by performing the following:

From the Accounts Payable Aging, review for outstanding invoice dates greater than 60 days old. Discuss exceptions with A/P employee and/or Controller to determine if reasoning is valid - i.e. disputed invoice.

B. From the paid checks register (test month), chose a judgmental sample of twenty paid invoices for testing, determine:

* Paid invoices contained documented evidence of receipt of goods
* Invoices were approved by the proper level of authority
* Invoice extensions/totals are correct on hand written invoices
* Invoiced items agree in price/quantity to approved Purchase Order
* Approved Purchase orders were attached if applicable
* Use tax - if applicable - was accrued

3. For Centralized properties, print accounts payable ledger report (3 months)

A. Test two months' post reports for timeliness. Also, review the
Voucher Selection Report obtained during pre-audit for untimely
Payments (i.e., holding invoices).

B. Review post reports to determine if a significant number of individuals' names are noted. If so, generate the account detail from MDM for the following accounts:

103200-1910 Contract Employment
123200-1910 Contract Employment
102300-0100 Repairs Expense
102700-0100 Expendable Supplies
422300-0100 Repairs Expense

Review the account detail for multiple payments to individuals.
Follow-up with management to ensure outside individuals Are properly paid through the payroll function.

B. -Review YTD travel advances. Include copies in w/ps.
-Review accrued use tax. Include copies in w/ps.

C. Review MDM system security to ensure the AP Approval,
Security Maintenance and HR functions are properly assigned (requirements vary, test as necessary).

4. Review employee expense reports for the test month, (perform for standalone properties only)

* Reports are approved by the proper level of authority
* All expenses greater than $25 are supported with paid receipt
* Reports include business purpose and name(s) of person(s)
entertained.

5. Discuss significant observations with the General Manager and prepare MDPs and SAFs.

PAYROLL
Audit Objectives

1. To ascertain that internal controls surrounding the processing and maintenance of payroll records are adequate to provide reasonable assurance against the perpetration and concealment of irregularities, as well as enhancement of the reliability of financial statements.

2. To determine Company procedures and policies regarding the processing and maintenance of payroll records are carried out in accordance with current requirements.

3. To ensure controls and procedures in use are efficient, effective and economical.

Audit Program

1. Evaluate the Internal Control Questionnaire for weaknesses. If risk is high, consult with In-Charge or prepare SAFs.

2. Review last two Payroll Audits (quarterly per business control manual, bi-annual per other manuals).

Ensure that: (formats of audits may vary)
* Audits are performed semi-annually or quarterly as required
* Performed by someone who is not part of payroll processing

Based on exceptions noted, judgmentally select a sample of employees from the current Payroll Register and physically verify their existence.
This may involve observation of payroll payoffs.

3. A. Obtain a current pay period's approved edit/punch detail report and the corresponding Payroll Register. Include copies of reports in w/ps.

B. Compare total gross hours, by department, per the edit/punch detail reports to the Payroll Register.

C. Verify on-demand and manual checks.

D. Verify management approval.

E. Verify that payroll is reconciled each pay period.

Note: If total gross hours per the edit/punch detail reports do not agree with the Payroll register, consider the following:

* The property may group several departments together under one department number.

* P.T.O. (Paid Time Off) and other checks that are written "on demand" would not be listed on the edit/punch detail reports but would appear on the Payroll Register. The property should have support for any checks written "on demand"

If necessary, expand testing to include additional pay periods.

4. From the files for each employee in the selected sample, determine that:

* The highest rate of pay on the register is supported by an approved PAF/PAR.
* Completed W-4 forms are on file.
* Completed 1-9 forms are on file.
* All non-mandated deductions are supported by signed documentation.

5. A. For banquet employees, determine that:

* Banquet service charges on the Banquet Worksheet agree to service charges shown on payroll records.
* If applicable, employees are paid in accordance with section 7 (i) of the Fair Labor Standards Act.

B. For all tipped employees, determine that section 7 (g) is followed:

* All tipped employees who earn in excess of $20 per month in tips:
-- Report tips (cash and charge) each pay period
-- Earn at least minimum wage for all hours worked (including tip credit)

6. Review significant observations with the General Manager and prepare MDPs and SAFs.

FOOD AND BEVERAGE REVENUE CYCLE
PRE-CHECK SYSTEM

Audit Objectives

1. To ascertain that:

A. All F&B revenues are properly reported and accurately state.

B. Adjustments to revenue are appropriate and authorized.

C. Company procedures and policies regarding the recording and
reporting of revenue are carried out in accordance with existing requirements.

D. Controls and procedures in use are efficient, effective and economical.

Audit Program

1. Evaluate the Internal Control Questionnaire for weaknesses. If risk is high, consult with In-Charge or prepare SAFs.

2. A. Perform a bar observation when you first arrive on property observe the following:

* Checks are presented to guests after the order has been recorded
in the register and prior to payment.
* Room key or credit card is obtained from guests running a tab
* Portion control is utilized (posi-pour or jigger)
* Orders from the dining room are "red lined" to prevent servers from under reporting bar sales. (Red lining is not applicable if the bar is equipped with a precheck system)
* Bartender verifies guests requesting room charge have established credit privileges at the front desk before serving drinks. (May use Cash Only List, or POS may be interfaced to PMS)

Note: It may be necessary to perform more than one observation to observe all the items noted above. Judgment should be used to determine adequate information is obtained to form conclusion.

B. If problems are noted, determine if bar spotter services are utilized.
Discuss with F&B management the result of the bar observations and review of spotter's reports. Determine if management has specific directives regarding the establishment of credit and portion control.

Evaluate exceptions noted to determine if additional testing is deemed necessary.

3. If a buffet is offered and volume of business is significant, document control procedures and evaluate for adequacy.

Note: The pre-check feature of the cash register is not useful as a control over buffet revenue. Instead, mitigating controls are necessary and should be tested accordingly.

A. Determine the following:

* Guest checks are controlled by the Host or Cashier as opposed to
Servers.
* The number of covers and table number is recorded on the guest
check prior to seating guests.
* A control log is used to track usage of checks, corresponding table number and number of covers per check.
* Guest checks are settled by the Host/Cashier.

Perform testing as necessary. Contact In-Charge for assistance.

B. Discuss management's procedures for verifying all potential buffet revenue was collected. (If Buffet revenue is recorded as a separate category on the final register reports, ensure management verifies buffet revenue based on covers per the control log). Include copies of control log and final register reports in w/ps.

4. Observe and document the security of POS manager's keys for processing voids. (i.e., key is not left in register, kept in drawer at register, etc.). If key controls are lax, expand testing by performing the following:

Obtain the final register reports (i.e. Z tapes) for two days with voids and perform the following:

A. Trace the void total per the final reports to the actual void checks. These should be included in the Manager's packet for each day, and should have evidence of management review.

B. Review void tickets to ensure voids are adequately explained.

5. Discuss procedures for posting F&B revenue per the final register reports to the Daily Final Report. Select two days' final register reports, F&B worksheets and Daily Final Reports and perform the following:

Trace food and beverage revenues from the final register through the worksheet to the Final Daily Report. Investigate material differences.

Expand testing as deemed warranted. Include copies of all work in wps.

6. Discuss procedures for posting guest room charges to the PMS.
Note: The restaurant system may or may not interface with the PMS. Test as necessary.

7. Review significant observations with the General Manager and prepare SAFs and MDPs.

FOOD AND BEVERAGE INVENTORY CYCLE

Audit Objectives

1. To ascertain the internal controls surrounding the recording, reporting and maintenance of inventories are adequate to provide reasonable assurance against the perpetration and concealment of irregularities.

2. To determine that Company procedures and policies regarding the
recording, reporting, and maintenance of inventories are carried out in accordance with existing requirements.

3. To ensure that controls and procedures in use are efficient, effective and economical.

4. To determine that the receipt and disposition of inventories is
accurately and properly reported.

Audit Program

1. Evaluate the Internal Control Questionnaire for weaknesses. If risk is high, consult with In-Charge or prepare SAFs.

2. A. Tour the kitchen area, receiving docks, and all storerooms. Document results.

* Be alert to general conditions, excess quantities, obsolete items, etc.
* Orders are pre-checked prior to preparation.
* Ensure proper security over receiving dock, kitchen exits, storage areas and garbage area.
* List all exits from the kitchen and their relationship to outside exits.
* Ensure external building exits directly from or near the kitchen are locked at all times or controlled with alarm systems.
* Evaluate results of tour in relation to ICQ.

B. Document key controls over F&B storage areas and evaluate for
adequacy. For each storage area determine:

* When they are opened/unlocked
* How many keys and who has possession
* How keys are controlled and secured at the end of the day
* Bottles are marked with an identification stamp or sticker.

3. Review inventory sheets for reasonableness of quantity and pricing. Relate quantities to tour of storeroom and investigate any unusual quantities. Recalculate a sample of item cost exceptions (or obtain disks with inventories and review formulas). Trace any unusual pricing to the most recent invoices. Note who performs/documents inventory. (non-F&B employee involvement required). If exceptions are noted expand testing as warranted.

4. Test par liquor records by performing an actual count. Include copies of par listing in workpapers. Sample size should be 10 items. Complete the following:

Select ten items from the Par list and locate bottles in the bar. Also, select ten items from the bar and trace to the Par list. Expand testing as necessary.

Banquets

5. Select two banquets from the Banquet Function Book and perform
the following: (Include two cash bar functions)

A. Verify a banquet/catering contract is on file and signed by the customer

B. Trace each function to the posted banquet guest check. Include check copies in wps.

C. Ensure each function's revenue was posted to the PMS. If more than one function took place on test days, trace total revenue from the banquet recap to the Final Daily Report. Include copies in wps.

6. Evaluate cash bar procedures (using two from 5. above). Verify that sales potential calculations are completed.

7. Review significant observations with the General Manager and prepare MDPs and SAFs.

HOTEL FRONT OFFICE OPERATIONAL AUDIT

2010-03-15T07:14:00.002-07:00

AUDIT QUESTIONS :
Guest Services

Does the front desk have proper signage, so guests don't wait in the wrong place?

Are the procedures for guests waiting in lines for check-in/check-out frequently monitored and changed if necessary?

Are procedures established for receiving and processing of guests who are members of special hotel guest programs or who are destined for "special guest (VIP, Club Concierge, etc.)" floors or sections?

Are hotel guest service hours (restaurants, pool, etc.) known by front office staff?

Are procedures established for processing guest mail?

Are special procedures in place for processing guest express/special delivery mail?

Are guest safety deposit box procedures established and implemented?

Are affiliate (chain) current hotel directories available to the guests?

Do front office receptionists and cashiers have friendly, positive attitudes?

Telephone (PBX)

Are phones answered promptly and courteously?

Do telephone operators have full knowledge of hotel services as well as local services, attractions, and points of interest?

Is an information directory maintained and accessible?

Does the department provide for proper handling of messages taken:

for guests in the hotel?

for guest with reservations?

for meeting rooms?

and for rooms requesting no calls?

In manual systems, are time stamps used on messages, phone charges, mail, and folios?

In manual systems, are message lights turned off promptly?

In automated systems, are unretrieved guest messages followed up periodically?

Are procedures in place for wake-up calls?

Are telephones for the hearing impaired available (in compliance with ADA audit):

guest rooms?

house phone?

public phone?

Do front desk office cashiers update local phone meters at check-out in semiautomatic systems?

Are phone and operator service bills reviewed regularly for accuracy?

Is credit received from telephone company for disputed calls?

Are equipment rental charges checked periodically?

Are local and long distance carriers reviewed regularly for quality, service, and pricing?

In an automated system, is there a system for recording and reviewing phone charges for unoccupied or late check-out rooms?

Fire Protection Audit Checklist

2010-03-15T07:14:00.001-07:00

Fire Alarm System

1. Is the F.A.S certified?

2. Is the F.A.S tested regularly?

Automatic Fire Sprinkler System (AFSS)

1. Are the inside stand pipes and valves inspected regularly?

2. Are the outside private fire hydrants flushed on a routine preventive maintenance schedule at least once a year?

3. Are AFSS water control valves, and air and water pressure checked weekly/periodically as required?

4. Is the maintenance of AFSS assigned to responsible persons or to a sprinkler contractor?

5. Are sprinkler heads protected by metal guards when exposed to physical damage?

6. Is proper clearance maintained below sprinkler heads?

Extinguishers

1. Are portable fire extinguishers provided in adequate number and type?

2. Are fire extinguishers mounted in readily accessible locations?

3. Fire extinguishers have current inspection tags?

4. Are fire extinguishers recharged regularly and noted on the inspection tag?

5. Are employees periodically instructed in the use of extinguishers and fire protection procedures?

Doors/Exit

1. Are fire doors not blocked open?

2. Are fire doors and shutters in good operating condition?

3. Are fire doors and shutters unobstructed and protected against obstructions, including their counterweights?

4. Are fire doors and shutter fusible links in place?

5. Are exits not obstructed and kept unlocked during normal business hours or special events?

6. Are exits properly marked, exit signs illuminated?

Plan/Documentation

1. Good housekeeping practiced - excess paper, computer cartons, and trash removed

2. Office has current emergency action plan - occupants trained upon initial hire and as necessary thereafter

3. Is your local fire department well acquainted with your facilities, its location and specific hazards?

4. Electric space heaters only as approved by Facilities Engineering

Food & Beverage Cost Control

2010-03-15T07:10:00.000-07:00

Objective

To ensure food and beverage cost incurred is reasonable, properly supported and accounted for.

1.0 Purchase

1.1 Quotation

Ensure vendors selected are approved by management.

Ensure vendor list is periodically reviewed by management.

Ensure purchase request is properly approved by user department.

Check quotations are obtained from vendors according to corporate policy (monthly/quarterly update of price).

Match quotations with price comparison list.

Ensure vendors are selected based on quotations submitted and, more importantly, on vendor’s past performance.

Ensure quotation selected is approved by purchasing manager.

Ensure cost plus vendor is approved by financial controller and general manager.

1.2 Purchase Order

Match purchase order to supporting quotation to ensure corporate policy on selection of vendor is followed.

Ensure management has checked the estimated inventory level does not exceed the maximum inventory level. If exceeded, customer order is needed to support the purchase.

Check estimated inventory level to past utilization rate to ensure no over purchase.

Ensure purchase orders are properly authorized by management according to authority level.

1. Receipt

Check goods received are supported by approved purchase order.

Ensure goods received are properly inspected for quality and quantity/net weight by Receiver.

Check goods received to ensure expiry date of product is acceptable.

Ensure fresh/frozen/chilled food items received are marked with receipt date to alert kitchen staff of potential usage period.

Match invoice details to goods received.

Check casting of invoice.

Check posting to receiving report, inventory ledger and/or accounts payable/general ledger.

Ensure goods rejected are returned to vendor with credit note issued.

2. Usage

Ensure issues for storeroom are supported by approved stock requisition.

Perform yield test for high cost food items to ensure actual utilization rate as compared to standard utilization rate is acceptable.

Ensure portion control is properly exercised.

Check wastage to ensure no saleable portion is abandoned.

Ensure voided orders are not served to customers.

Review monthly wastage to ensure wastage (in amount and in percentage) is acceptable.

3. Cost

Ensure recipe and menu cost control is prepared timely and updated every six months by Head Chef.

Ensure accurate costing before menu price is finalized.

Ensure all food and beverage portion/serving sizes are established in conjunction with costing and pricing of menus.

Ensure free pouring is properly monitored.

Ensure food cost percentage and beverage cost percentage, as compared to budget and/or last year performance, is reasonable. For significant fluctuation, explanation is required.

Ensure weekly food and beverage cost report has been prepared for timely control of food and beverage cost.

Ensure management has reviewed the monthly and year-to-date food cost percentage and beverage cost percentage.

Disaster Recovery Plan

2010-03-15T07:08:00.000-07:00

OBJECTIVE:
QUESTIONNAIRE
DOCUMENTATION
TEST STEPS

ICQ

2009-08-30T02:19:00.000-07:00

Download Purchases and Accounts payable ICQ

Download Organization Structure ICQ

What is internal Audit

2009-07-20T07:51:00.000-07:00

As defined by the Institute of Internal Auditors (IIA), "Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization's operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.

Internal Auditors' roles include monitoring, assessing, and analyzing organizational risk and controls; and reviewing and confirming information and compliance with policies, procedures, and laws. Working in partnership with management, internal auditors provide the board, the audit committee, and executive management assurance that risks are mitigated and that the organization's corporate governance is strong and effective. And, when there is room for improvement, internal auditors make recommendations for enhancing processes, policies, and procedures."