UNIT 1 ASSIGNMENT SOLUTIONS

What is the meaning of independence from the perspective of the government

auditor and why is independence so important?
According to the Yellow Book, auditors should maintain their independence so that their
opinions, findings, conclusions and recommendations will be impartial and viewed as
impartial by third parties. Auditors should avoid situations that could lead third parties
to conclude that the auditor is not independent and thus not capable of exercising
objective and impartial judgment. Independence is a key characteristic of the
performance auditor. Performance auditors assess the effectiveness of an entitys internal
controls and the control environment is the underpinning for all other internal controls.
Auditing the control environment brings the auditor face to face with the ethics and
attitudes of management. Unless the auditor is independent, he or she will be unable to
effectively assess that component of internal control.
One can argue that independence is more important for the auditor than for other
professionals. Other professionals, such as doctors and lawyers, have many clients.
Typically, their responsibility is to advocate for the interests of the client. The
government auditor, however, has a responsibility to the public and to other levels of
government providing resources to report on the use of taxpayer resources. They do not
necessarily advocate for the interests of the management they are auditing, even though
in many cases, management may have hired them. The fiduciary responsibilities of
auditors to the public came out forcefully during the recent corporate financial reporting
scandals.

UNIT 2 ASSIGNMENT SOLUTIONS

Describe the term performance audit and describe the subject matter of the four
broad objectives embraced by performance auditing.
A performance audit entails "an objective and systematic examination of evidence to
provide an independent assessment of the performance and management of a program
against objective criteria. Performance audits to provide information to improve
program operations, facilitate decision-making by those responsible for taking or
overseeing corrective action, and improve public accountability. The four broad
objectives of performance auditing are:
the extent to which a program is achieving its
goals and objectives.
acquiring, protecting and using resources in the most
productive manner.
managements plans, methods and procedures designed to meet the
entitys missions, goals and objectives.
adherence to laws, regulations,
contract provisions and grant agreements.

UNIT 3 ASSIGNMENT SOLUTIONS

Describe why an internal control system can only provide reasonable assurance, rather than
absolute assurance, that an organization will achieve its objectives.
Internal controls come at a cost. For example, an agency might employ one supervisor for every
eight caseworkers to ensure that the caseworkers are following the required procedures and
making appropriate decisions. The agency may have decided on a ratio of one to eight because it
concluded that a ratio of, say, one to four, was too costly relative to the additional benefits that

might be achieved from the increase in the intensity of supervision. The nature and extent of
internal controls to be instituted is itself part of the risk assessment process. In the foregoing
illustration, management concluded that getting closer to absolute assurance regarding
caseworker actions was too expensive and could actually be wasteful of taxpayer resources
relative to the alternative needs for using taxpayer resources to. Further, no matter how many
caseworkers and caseworker supervisors were to be employed, external factors influencing the
program would preclude getting absolute assurance that no negative events would occur. Thus,
the objective of a system of internal control is to provide reasonable assurance considering
costs and other factors.

UNIT 4 ASSIGNMENT SOLUTIONS

The control environment is often described as the tone at the top. Describe what that
phrase means, as well as its implications for establishing the scope of a performance audit.
The "tone at the top" refers to the control environment established by an organization's top
managers. It encompasses such matters as the integrity and ethical values of the top managers and
their attitude and behavior toward organizational discipline and control. The importance of the
"tone at the top" derives from the fact that the attitudes of an agency's key personnel significantly
affect the behavior of their subordinates. Hence, the stronger the ethical values and control
attitudes of top management, the more likely it is that the internal control structure will
accomplish what it is intended to do.
The scope of a performance audit depends partly on the auditor's assessment of risk. If an auditor
can establish that the "tone at the top" is strong, he or she may place greater reliance on the
operation of the internal control system. An auditor can reduce the audit scope if there is a low
likelihood that negative events will occur or a strong likelihood that management will be able to
promptly detect negative events that do occur. The reduction in audit scope may take the form of
reduced testing of actual practices and elimination of certain steps the auditor might otherwise
need to take. By contrast, a weak "tone at the top" may cause the auditor to perform more
extensive testing of actual practices.

UNIT 5 ASSIGNMENT SOLUTIONS

Describe the purpose of making a preliminary survey. Discuss how making a preliminary
survey relates to the preparation of the audit program.
A preliminary survey is needed to help the auditor plan the audit scope. The preliminary survey
involves:
program;
fy general or specific areas of greatest risk to efficient and effective
performance of the program;
ternal and external reports affecting
agency accomplishments and problems; and
Based on the preliminary survey, the auditor should be in a position to identify the major areas of
audit concentration. The auditor may decide to not cover certain aspects of the agency or the
program. More detailed programs in each area can be developed as the auditor starts to review
details of policies and procedures affecting the area. The auditor may also decide to increase or
decrease the audit scope in particular areas as the audit progresses.

UNIT 6 ASSIGNMENT SOLUTIONS

Why are management comments of the audit findings included in the audit report?
According to the Government Auditing Standards, auditors should follow up on significant
findings and recommendations from previous audits that could affect the current audit objectives.

They should do this to see if the appropriate agencies took timely and appropriate corrective
actions. The audit report should disclose the status of uncorrected significant findings and
recommendations from prior audits that affect the audit objectives.
Management comments in the audit report let the reader know if management agrees or disagrees
with the audit finding and management is responsible for deciding the appropriate action to be
taken in response to reported audit findings.
In subsequent audits the auditors should determine that corrective action was taken and is
achieving the desired results, or that senior management has assumed the risk of not taking
corrective action on reported findings. There are a number of factors the auditor should consider
in determining appropriate follow-up procedures. These include the: significance of the reported
finding, degree of effort and cost needed to correct the reported condition, risks that may occur
should the corrective action fail, complexity of the corrective action, time period involved.
Certain reported findings may be so significant as to require immediate action by management.
When these conditions exist, the auditors should monitor the operations until management has
corrected the underlying conditions. This might occur when a major internal control weakness has
resulted in the loss of significant assets or the publics health and safety is at risk.

UNIT 7 & 8 ASSIGNMENT SOLUTIONS

1. Describe the basic objectives of a good inventory management system, covering both
availability of inventory and physical accountability for inventory.
From the perspective of availability, the objective of an inventory management system is to
provide reasonable assurance that there will be sufficient quantities of supplies and materials on
hand when needed, but that the quantities will not be so great as to cause unnecessary carrying
costs (costs of storage, money, and protection against loss). Regarding physical accountability,
the objective of the system is to ensure that amounts received are recorded accurately, accounted
for until used, stored in an accessible manner, and kept safe from loss due to theft, damage, and
deterioration.
2. Describe the major risks of loss (either from direct loss or from the failure to earn
revenues) inherent in the management of accounts receivable, cash, and investments.
Accounts Receivable. Losses in accounts receivable may occur from:

-up promptly and effectively when bills are not paid timely;
as lapping, unauthorized write-off of receivables, and illegal removal of accounts from files.
Cash. Losses in cash may occur from:

converting the proceeds to personal use;

tly deposit cash or checks;
-interest bearing accounts even though portions of the cash will not
be needed immediately and could be invested in interest-paying instruments;
ulting in excessive "compensating
balances."
Investments. Losses in investments may occur from:

investing cash needed shortly in volatile equity securities;

example, by obtaining collateral for deposits and having securities held by an agent of the
government.)

UNIT 9 ASSIGNMENT SOLUTIONS

Discuss why preparing complete and unambiguous specifications is important in procuring
(a) construction of an office building and (b) services required by a social services
department to improve employment potential for public assistance recipients.
a. Office building. Complete and unambiguous specifications are needed to avoid costly change
orders. The design of the building must fully reflect the needs of the users and be "hardened" after
coordination with the users.
position to take advantage of contract ambiguities to seek
change orders, and administrative officials should not be in position to ask for changes.
contractor to account for building in accordance with specifications.
b. Social services contract. Complete and unambiguous specifications are needed to hold the
contractor to account for providing the services the department wants. Specifications in this case
might include complete descriptions of the courses and even performance standards, expressed in
terms of students achieving passing grades on exams and even getting and holding jobs for
specified lengths of time.

UNIT 10 ASSIGNMENT SOLUTIONS

You are assigned to audit the effectiveness of the vehicle maintenance division of the
sanitation department of a large city. Without describing the specific audit steps, discuss the
major matters that you would cover in such an audit.
A large city's sanitation department probably maintains a fleet of sanitation trucks to pick up and
dispose of trash and a fleet of mechanical brooms to pick up litter. Here are some matters you
might cover in auditing the effectiveness of the vehicle maintenance division:
ing and follow-up system. Does the manager know, from the reporting
system, the number of vehicles that are out of service for preventive maintenance? For emergency
repair? How do these numbers compare with a benchmark? Increasing numbers of breakdowns in
service may indicate an aging fleet, but it may also indicate insufficient preventive maintenance.
Are all collection and sweeping routes covered, or are some routes uncovered because excessive
emergency repair has caused excessive vehicle downtime?
e long-term planning and short-term planning and budgeting systems. Long-term planning is
needed to ensure adequate replacement of old and obsolete vehicles and acquisition of new
vehicles to meet expanding service. Short-term planning is needed to ensure the budget includes
provision for sufficient routine preventive maintenance to avoid breakdowns in service and to
ensure that vehicles attain their expected lives.
of
preventive maintenance and dates and costs of emergency repairs. Types and frequency of
emergency repairs may provide evidence of poor preventive maintenance and evidence of latent
defects in vehicles covered by warranties.
tion. Does the performance measurement system cover customer satisfaction
with quality of garbage pickup service? If so, does it cover the sanitation trucks; for example; is
there a question about whether sanitation trucks leak gas and oil or are unsightly?

UNIT 11 ASSIGNMENT SOLUTIONS

The mayor of a large city asks the city auditor to make a performance audit of an agency
responsible for inspecting the sanitary conditions of all restaurants to make certain that the
unit is "operating efficiently." Describe three specific audit steps that the auditor might

plan to comply with the mayor's request.

Audit steps to evaluate the efficiency of an agency responsible of inspecting sanitary conditions
of restaurants:
ng priorities in scheduling restaurants for
inspection. Is there a procedure for assigning priorities? How are priorities established? Is
previous inspection experience considered? Are customer complaints considered?
rocedures regarding such matters as:
o keeping inspector travel time to a minimum,
o reducing inspector time spent in the office to a minimum,
o reducing inspector paperwork by using computer technology.
e quantitative accomplishments of the
inspectors. Is there a specific inspection protocol covering what needs to be inspected and how
long the inspection should take? Are there standards for assessing the quantity of inspections
performed by individual inspectors? Is there a reporting system for monitoring the number of
inspections performed?
restaurant sanitary standards. Does the agency follow-up against those who don't pay the fines
when due?

UNIT 12 ASSIGNMENT SOLUTIONS

You are assigned to audit the state agency responsible for overseeing juvenile delinquency
prevention programs. The state finances programs in each of its 20 counties. All counties
are required to have an intensive counseling program directed as high-school aged youths
considered to be at "high risk" and a recreation program directed at the general youth
population.
Required: You are a state auditor assigned to audit the efficiency and effectiveness of the
program. You plan to visit the state agency and a sample of the counties Describe four
controls or strategies you would expect the state to institute as part of its oversight process.
This state oversight agency is responsible for effective and efficient use of state-provided funds.
Because the state finances the programs, the 20 counties are agents of the state in accomplishing
the programs. Possible control procedures or strategies are:
s funds on a rational basis. What is rational
might be based on a combination of, say, county juvenile delinquency rates, county population,
and previous evidence of success of individual counties in dealing with the problems.
funds and what they expect to accomplish. The program plans must be submitted not less than,
say, 90 days before the year begins.
ram plans in a timely manner, say, not less than 30 days
before the year begins.
performance indicators prepared by the state agency in cooperation with county agencies. Reports
should be sent to the state agency by, say, 60 days after year-end.
others. Develop "best practices" based on what the counties within the state have done, and on
what other states have accomplished. Advise all counties of best practices through periodic
meetings and in writing.

UNIT 13 ASSIGNMENT SOLUTIONS

In auditing "Attendance and Dropout Rates" and "Special Education Programs," the
authors suggest that it would be appropriate to audit school districts showing both the most
and the least improvement over time or those showing both the best and worst

performance.
Required: In doing an audit, what, if any, advantage is there to that suggestion? Why not
just audit the districts showing the least improvement?
Auditors need criteria (or standards) by which to evaluate an agency's activities. In making
recommendations for improvement to the head of an agency, what better source could there be
than the practices actually used successfully by some of the entities within the agency! The
reasons for selecting some of the "best and worst," rather than only the worst may be summarized
this way:
by the school districts in the attendance and special education programs. The auditor's final report
may present a one-sided view of what is happening in the programs.
improved. What specific strategies and management controls caused the improvement in the
districts whose attendance rates improved? Why did the children in special education do better in
some districts than others? Knowing this will help the auditors understand why the poorly
performing districts failed to improve.
tter districts to illustrate why the worst
districts failed to improve adds credibility to the audit process and makes the end report more
valuable to the reader. It actually makes the audit easier. In short, this an application of the
"comparative analysis" audit technique discussed in chapter 5.