HomeMy WebLinkAboutAGENDA REPORT 2010 0707 CC REG ITEM 10J ITEM 10.J.
,:orY OF NWORPARK,CALIFORN.-
MOORPARK CITY COUNCIL City Council Mooting
AGENDA REPORT of 7- 1,Aaio
ACT101W
TO: Honorable City Council �jY
FROM: Ron Ahlers, Finance Director
DATE: June 24, 2010 (Committee Meeting of July 7, 2010)
SUBJECT: Consider Additional Assignment for FAPS Committee: External
Auditors Request to Interview Audit Committee
SUMMARY
The external auditors, Teaman, Ramirez and Smith {TRS) have requested to interview
those charged with governance of the organization. Specifically, TRS would like to
interview the Audit Committee of the City of Moorpark. Since we do not have an "Audit
Committee", we suggested that TRS interview the FAPS Committee. The nature of the
interview will involve fraud prevention. TRS will interview each member of the FAPS
Committee individually. This will be an additional annual assignment for the FAPS
Committee.
BACKGROUND
Statement on Auditing Standards No. 99: Consideration of Fraud in a Financial
Statement Audit, commonly abbreviated as SAS 99, is an auditing statement issued by
the Auditing Standards Board of the American Institute of Certified Public Accountants
(AICPA) in October 2002. SAS 99, which supersedes SAS 82, was issued partly in
response to accounting scandals at Enron, WorldCom, Adelphia, and Tyco. The
standard incorporates recommendations from various contributors including the
International Auditing & Assurance Standards Board. SAS 99 became effective for
audits of financial statements for periods beginning on or after December 15, 2002.
SAS 99 defines fraud as an intentional act that results in a material misstatement in
financial statements. There are two types of fraud considered: misstatements arising
from fraudulent financial reporting (eg. falsification of accounting records) and
misstatements arising from misappropriation of assets (eg. theft of assets or fraudulent
expenditures). The standard describes the fraud triangle. Generally, the three `fraud
triangle' conditions are present when fraud occurs. First, there is an incentive or
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Honorable City Council
July 7, 2010
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pressure that provides a reason to commit fraud. Second, there is an opportunity for
fraud to be perpetrated (eg. absence of controls, ineffective controls, or the ability of
management to override controls.) Third, the individuals committing the fraud possess
an attitude that enables them to rationalize the fraud.
SAS 99 requires the auditor to gather information necessary to identify risks of material
misstatement due to fraud by the following:
• Making inquiries of management and others within the entity.
• Considering the results of analytical procedures performed in planning the audit.
• Considering fraud risk factors.
• Considering certain other information.
SAS 99 requires auditors to ask management questions about their awareness and
understanding of fraud. Auditors will then make a decision as to whether they need to
'educate' management about fraud and the types of controls that will deter and detect
fraud. The standard also requires auditors to make inquiries of the audit committee,
internal audit personnel and others within the entity.
DISCUSSION
In order to comply with SAS 99, TRS has requested to make the following inquiries of
the FAPS Committee:
1) Their views about the risks of fraud.
2) Whether they have knowledge of any fraud or suspected fraud affecting the City.
3) Whether they have an active role in oversight of the City's assessment of the
risks of fraud and the programs and controls established to mitigate those risks,
and if so, how they exercise such oversight activities.
FISCAL IMPACT
None.
STAFF RECOMMENDATION
Approve additional assignment for the FAPS Committee to serve as the Audit
Committee to comply with SAS 99.
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