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U.S. General Services Administration Techniques for Establishing a Successful Audit Process Dave Ruda Director Citi July 2012

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U.S. General Services Administration

Techniques for Establishing a Successful Audit

Process

Dave Ruda

Director

CitiJuly 2012

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2012 GSA SmartPay Conference

“Fine Tune Your Payments Program with GSA SmartPay”

This material is intended for use by the GSA only

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House Rules

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Techniques for Establishing a Successful Audit Process

(agency name)

To ensure the best possible learning experience for participants, please adhere

to the following house rules:

• Turn electronic devices to vibrate

• No video-taping or audio recording is allowed

• Hold questions to end of session

• Ensure your participant badge is scanned to receive CLP credits

− For each course

• Take advantage of opportunities to provide feedback

− Please select the “Citi Q&A” icon on any Citi PC at the conference

− Answers to be e-mailed after the conference within 60 days

Federal Agencies

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Schedules Available at the Welcome Center Federal Agencies

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Techniques for Establishing a Successful Audit Process

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Interactive Training Events – GSA All Audiences

Citi offers Computer-Based Training (CBT) via the Citi Commercial Card Learning

and System Support (CLASS) in CitiManager.

Visit home.cards.citidirect.com and from the Web Tools tab select the CLASS

link

Please contact your Account or Client Manager if you are interested in setting up a

training session. Training can be conducted at a Citi Training Location, on-site at

your office or via the web.

Regional Citi Training Locations

– Norfolk, VA

– Washington, DC

Techniques for Establishing a Successful Audit Process

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Techniques for Establishing a Successful Audit Process

This session is designed to enhance your

knowledge of techniques that will assist you to

more effectively and proactively manage your

card program by:

• Preventing fraud, waste and abuse

• Preparing for an audit

Goals & Objectives

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Federal Agencies

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Agenda

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Federal Agencies

1. Preventing and Detecting Fraud, Waste and

Abuse

2. Establishing Your Audit Program

3. Tips for Establishing Policies and

Procedures

4. Compliance

5. Fraud, Waste and Misuse Indicators

6. Tools

7. Summary

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Techniques for Establishing a Successful Audit Process

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1. Preventing and Detecting Fraud, Waste and Abuse

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Techniques for Establishing a Successful Audit Process

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Preventing Fraud, Waste and Abuse Federal Agencies

Techniques for Establishing a Successful Audit Process

Integrating Deterrents into Your Card Program

– Card distribution methodology

– Management controls

– Transactions and receipt documentation

– Controls strategy

– Audit process and testing

Prevention

– Establishing roles and responsibilities

– Creating separation of duties

– Implementing appropriate polices

– Documenting clear procedures

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Establishing Roles and Responsibilities Federal Agencies

Techniques for Establishing a Successful Audit Process

Program Management Teams

– A/OPCS

– Program Managers

– Finance Managers

Cardholders

Approving Officials

Citibank

Suppliers

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Ensuring Separation of Duties Federal Agencies

Techniques for Establishing a Successful Audit Process

Critical step in preventing fraud, waste and abuse

Key factor in creating an effective control environment

– Auditors will check your program for separation of duties!

Example of a separation of duties: The person who orders the card is not the person

who receives the card

Example of technology access: Is the person who establishes the accounting codes

also the person who downloads and brings them into your general ledger?

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Implementing Appropriate Policies Federal Agencies

Techniques for Establishing a Successful Audit Process

The foundation of your success is through appropriate policies

Align your policies with your organization’s mission

Keep your policies up-to-date…Auditors will look for up-to-date policies

– Examples:

Prohibit personal use

Limit cash access to those who need it and with appropriate amounts

Prohibit splitting of transactions

Card sharing should not be allowed

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Documenting Clear Procedures Federal Agencies

Techniques for Establishing a Successful Audit Process

Procedures support your policies

Need to make your procedures easily understood and accessible for your

cardholders and approving officials

Typically procedures include:

– General information about the program

Background

Statement of purpose

Program Contacts

Roles and Responsibilities

– Cardholders

– Approving Officials

– Program Management Team

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Documenting Clear Procedures Federal Agencies

Techniques for Establishing a Successful Audit Process

Obtaining a Card

– Process, requirements and approval

Training and Card Activation

Account/Card Security

– Retention and storage

– How to avoid scams

Card Usage

– Prohibited uses

– Document requirements

– Procedures for declined transactions

– Request for temporary limit increase or additional MCCs

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Documenting Clear Procedures Federal Agencies

Techniques for Establishing a Successful Audit Process

Transaction Review

– How to Use Citi’s EAS

– Accounting

– Disputes and potential fraud

– Oversight and approval

– Records retention

Cancelling a Card

– Lost/stolen

– Exit procedures

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Program SetUp and Using Systematic Controls Federal Agencies

Techniques for Establishing a Successful Audit Process

Type Description

Single Purchase Limit Max dollar limit for a transaction

Monthly Max dollar allowed for a defined period

Velocity Limits the number of times a card can be

used

MCC Blocks Prevents purchases at specific commodity

types

ATM Blocking Limits cash access

New Account Listing Review new account report each cycle or

day

Account Maintenance Changes Review changes to accounts

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2. Establishing Your Audit Program

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Techniques for Establishing a Successful Audit Process

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Types of Audits Federal Agencies

Techniques for Establishing a Successful Audit Process

Process Audits

– Test your organization’s policies

– Effectiveness of your controls

Transactional Audits

– Focus on card activity

– Reviews for supporting documentation

– Sampling techniques

You will be expected to address both kinds of audits.

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Basic Card Program Building Blocks–Steps to

RememberFederal Agencies

Techniques for Establishing a Successful Audit Process

ReconciliationHave proper procedures

in place

Payment &

Settlement

Use automation & default accounting

codes when possible

Order

Placement

Match cardholder controls to your ordering

guidelines

SourcingTransparency & knowing your contract terms &

conditions

Controls &

Audit

Have visibility into spending

& audit triggers

Reporting

Back data

integration, vendor

spending review

ReconciliationHave proper procedures

in place

Payment &

Settlement

Use automation & default accounting

codes when possible

Order

Placement

Match cardholder controls to your ordering

guidelines

SourcingTransparency & knowing your contract terms &

conditions

Controls &

Audit

Have visibility into spending

& audit triggers

Reporting

Back data

integration, vendor

spending review

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Establishing an Audit Program–Getting Started Federal Agencies

Techniques for Establishing a Successful Audit Process

Why do you need an audit program?

– GAO’s Mandate

Strengthen internal controls

Updated OMB Circular as of January

2009!

– Ability to detect fraud, waste and abuse

Create your team

– Get your stakeholders involved

Use technology when possible

Mandate training

– Start before the card is used

Implement peer reviews

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Establishing an Audit Program–Preplanning

Is CriticalFederal Agencies

Techniques for Establishing a Successful Audit Process

Project Plan Basics

– Setting Objectives

– Establishing the Scope

What do you want to test?

Not a “fishing trip”

– Creating a project charter

– Identifying business processes

Sources of supply?

Reconciliation?

– Identifying Risks

– Identifying Controls

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Establishing an Audit Program–Create Self

Audit Control QuestionnaireFederal Agencies

Techniques for Establishing a Successful Audit Process

Questionnaire to guide you where you need help:

– Do cardholders, AO, A/OPCS understand the purpose,

policies and procedures governing the use of cards?

– Have all cardholders received training on the use of their

card prior to using?

– Do cardholders and approvers receive reminders when

there are statements to review?

– Do cardholders and approvers know what the accounting

cycle cutoff dates are, and the day of the month when

transactions post?

– Do cardholders know whom to contact if their card is lost,

stolen or compromised?

– Do cardholders know that splitting a purchase into more

than one charge to stay under their approved transaction

limit is prohibited?

– Are all original receipts or other supporting

documentation retained per agency policy?

Tip!

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Establishing an Audit Program–Start with

the Problem AreasFederal Agencies

Techniques for Establishing a Successful Audit Process

Purchase

– Cardholder reconciliation

– Approving Official review

– Split/Fragmented Payment

– Exceeded Cardholder Authority

– Training Program

Travel

– Delinquencies

Expense Report Submission

– Cash advances

– Declined authorizations

– Appropriate Travel Management Centers

(TMC)

– Use of GSA City Pair Airfare

– Training Program

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Establishing an Audit Program–Main

Components of An Audit ProgramFederal Agencies

Techniques for Establishing a Successful Audit Process

The Top Three:

Ongoing Card Program Reviews

Document Retention Audits

Internal Periodic Audits

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Establishing an Audit Program–Ongoing

Card Program ReviewFederal Agencies

Techniques for Establishing a Successful Audit Process

Frequent card program reviews (e.g. weekly or

monthly) should be conducted by the Program

Administrator to identify any misuse

Items to watch for:

– Split transactions (i.e. two or more transactions

that show the following similarities: same date,

same supplier, same cardholder and same

amounts)

– Unusual increase in the cardholder’s average

spend and/or highest spend amount

– Purchase amounts over transaction limits

– Purchase amounts within 1% to 3% below

purchase limits

– Purchases with unauthorized suppliers

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Establishing an Audit Program–Document

Retention AuditsFederal Agencies

Techniques for Establishing a Successful Audit Process

AOPCs should also conduct periodic audits to

ensure compliance with the your documentation

and retention policies.

A documentation and retention audit specifically

includes:

● Confirmation that all cardholders have completed

the mandatory cardholder training

● Verification that all cardholders have a signed, up-

to-date Cardholder Agreement on file

● Analysis of all records to ensure that all card

program or user profile changes are properly

documented

● Review of card statements to ensure that

cardholders are retaining purchase receipts with

the statements

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Establishing an Audit Program–Document

Retention AuditsFederal Agencies

Techniques for Establishing a Successful Audit Process

Internal audits should be performed

periodically and include a review of card

statements.

Card statements should be audited for:

● Compliance with review, approval, and

documentation/retention policies

● Frequency of exception requests (e.g.

transaction limits and MCC blocks)

● Purchases with non-compliant suppliers

and spend types

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Establishing an Audit Program – Internal Periodic

AuditsFederal Agencies

Techniques for Establishing a Successful Audit Process

Finding the High Risk Population:

Perform a random sample

– Start with 5% to 10% of active

cardholders

– Include 50% of at-risk cardholders

– At-risk cardholders typically meet one or

more of the following criteria:

Review high-dollar transactions

Review high frequency of

transactions within the billing cycle

Look at prior history of non-

compliance (e.g. spend with

unauthorized suppliers or blocked

MCCs)

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3. Tips for Establishing Policies & Procedures

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Techniques for Establishing a Successful Audit Process

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Tips for Establishing Polices & Procedures Federal Agencies

Techniques for Establishing a Successful Audit Process

Policies Should Encourage Risk

Management Over Risk Avoidance:

Set specific policies to ensure proper

controls are in place

Create cross-functional team when

establishing policies

– Involve auditors, IG representatives

Publish procedures and widely distribute

– Develop agency-wide newsletters

– Use your intranet

– Incorporate policies into new cardholder

training

– Use policies as the outline for training

agenda

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Tips for Establishing Polices & Procedures Federal Agencies

Techniques for Establishing a Successful Audit Process

Communication Is Key!

Develop reminder messages for all cardholders

and managers

Questions should be open ended

Ask “how” and “why” questions

Use statement messages or broadcast e-mails

Review policies and procedures annually

Modify according to audit findings and

feedback received during training sessions

“Thank yous” are always appropriate!

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4. Compliance

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Techniques for Establishing a Successful Audit Process

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Compliance–Good Training and Follow-up Federal Agencies

Techniques for Establishing a Successful Audit Process

What is the notification and follow-up process?

Is non-compliance the result of…

– Overly strict policies?

– Vaguely worded policies?

Empower cardholders and managers-then

hold them accountable

Institute mandatory, recurring compliance

training for cardholders and managers

Ask current cardholders to lead training

sessions and/or mentor new cardholders

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Compliance–Record Keeping and

Document RetentionFederal Agencies

Techniques for Establishing a Successful Audit Process

Measure compliance with records

Determine appropriate storage–centralized/decentralized

Investigate electronic storage

Review proper record-keeping techniques during training using actual examples

Maintain attendance sheets from each training session

Ensure all cardholders sign an agreement

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Compliance–Program Audit Tool

New for SmartPay2Federal Agencies

Techniques for Establishing a Successful Audit Process

Program Audit Tool: An audit, assessment and compliance assistance tool

Electronic record of enforcement of policies

Identifies “Transactions of Interest” that meet predefined business rules

Allows AOs, APCs and auditors ability to identify misuse, abuse and perform monthly audit requirements– Rules-based filters

– Dashboard summary view

– Report cards

Integrated with Citibank Custom Reporting System (CCRS)

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5. Fraud, Waste and Misuse Indicators

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Techniques for Establishing a Successful Audit Process

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Fraud Waste and Misuse Indicators–Account

Management ExceptionsFederal Agencies

Techniques for Establishing a Successful Audit Process

Account credit limit in excess of <X>

Single transaction limit in excess of <X>

Account cash limits over <X>

Account cash limits over <X>% of total account credit limit

New account not activated within 30 days of open date

New account not used within <X> months of account open date

# of cardholder accounts per hierarchy unit <X>

# cardholder account per billing account <X>

# of inactive accounts per billing account, inactive = no activity for Y months

NSF payment

NSF payment with history of other NSF

Posted payment amount that is <X>% of cardholder credit limit (111% recommendation)

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Fraud Waste and Misuse Indicators–Transaction

Exception RulesFederal Agencies

Techniques for Establishing a Successful Audit Process

Posted Transaction(s) causing “over cardholder credit limit” status

Merchant city = cardholder account city

<X>% of transaction from same merchant over <Y> billing cycles

More than <X> # of merchant credits per billing cycle

Merchant name = last name of cardholder

Transaction amount in excess of account Single Credit Limit

Single transaction amount within <X>% of credit limit

Transaction amount over $<X>

Posted transaction on closed account

Suspect Merchant Names <X>

Split Ticket–multiple transactions from same merchant, same transaction date

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6. Tools

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Techniques for Establishing a Successful Audit Process

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Tools–Program Audit Tool–Overview Federal Agencies

Techniques for Establishing a Successful Audit Process

PAT is:

– A comprehensive reporting and data-mining solution

– Integrated within CCRS

– Helps AOPCs identify potential fraud and misuse

– Lets you establish business rules and flag exceptions to your policies

– Creates systematic, documented procedure for monitoring monthly card usage

– Minimizes misuse by ensuring that cardholders are adhering to organizational

guidelines and policies

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Tools–Program Audit Tool–Overview Federal Agencies

Techniques for Establishing a Successful Audit Process

The Citibank Program Audit Tool gives program administrators the ability to review

their entire portfolio of accounts, as well as delve deeper into each and every

transaction as needed. Specific features include:

– Systematic report generation and distribution based on pre-defined parameters

– Access to audited data 48 hours after each statement cycle

– Ability to define data-mining criteria at the hierarchy level

– A one-screen “dashboard” view of audit status and action items

– Automated e-mail notifications to appropriate staff and management

– Complete exception modeling capabilities

– Single sign-on access

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Tools–Program Audit Tool Federal Agencies

Techniques for Establishing a Successful Audit Process

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Tools–Program Audit Tool–Rules Federal Agencies

Techniques for Establishing a Successful Audit Process

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Tools–Program Audit Tool–Rules Federal Agencies

Techniques for Establishing a Successful Audit Process

Actions to Take:

• Delete Rule Set

• Activate/Deactivate

Rule Set

• View Rule Set

• Edit Rule Set

Click on Rule Set

Management from

the Program Audit

Tool folder view to

launch this screen.

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Tools–Program Audit Tool–The Stoplight! Federal Agencies

Techniques for Establishing a Successful Audit Process

Easy-use summary of the transactions that were caught with your rules!

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Tools–Program Audit Tool–Results Federal Agencies

Techniques for Establishing a Successful Audit Process

Actions Allowed:

• Clicking on the red

button takes you to

the Account

Violation

Exception Report

• Clicking on Next >

takes you to

Transaction

Summary Report

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Tools–Program Audit Tool–Results Federal Agencies

Techniques for Establishing a Successful Audit Process

Pick actions from the

drop-down list and

put comments in the

text box.

Click Save button and then

press OK to confirm.

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Tools–Program Audit Tools Federal Agencies

Techniques for Establishing a Successful Audit Process

Report Title Report Definition

Filtered Transactions

Report

A prompted report displaying each flagged transaction individually, its account number, cardholder name,

reference number, transaction date, flagged rule, merchant name, transaction amount and current review

status

Planned Actions Report A prompted report displaying a detailed breakdown by hierarchy of the flagged transactions, and the

corresponding transaction date, cardholder name, planned action, account number, AO name, merchant

name and transaction amount

Post Review

Transaction Listing

A prompted report displaying a breakdown by hierarchy of all the flagged transactions by review status (not

reviewed, reviewed, rejected). The specific violation rule is assigned to the individual record listing the

relevant transaction amount

Report Card Violations A prompted report displaying a detailed breakdown by hierarchy of the flagged transactions, and the

corresponding corrective action and account name

Filtered Transactions

Report

A prompted report displaying each flagged transaction individually, its account number, cardholder name,

reference number, transaction date, flagged rule, merchant name, transaction amount and current review

status

Planned Actions Report A prompted report displaying a detailed breakdown by hierarchy of the flagged transactions, and the

corresponding transaction date, cardholder name, planned action, account number, AO name, merchant

name and transaction amount

Post Review

Transaction Listing

A prompted report displaying a breakdown by hierarchy of all the flagged transactions by review status (not

reviewed, reviewed, rejected). The specific violation rule is assigned to the individual record listing the

relevant transaction amount

Report Card Violations A prompted report displaying a detailed breakdown by hierarchy of the flagged transactions and the

corresponding corrective action and account name

Summary Report A prompted report displays for all cycles and hierarchies the Count and Values for:

Total Posted

Total for date range

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Tools – Program Management

is Easy With the Right ToolsFederal Agencies

Techniques for Establishing a Successful Audit Process

Here are some ideas:

● Employ electronic audit methods

● Test all transactions each month

● Use Citibank® electronic tools to identify transactions requiring more research

● Transactions by MCC

● Review declined transactions

● Similar transactions each month

● GSA’s Blueprint for Success

● GAO Web site: www.gao.gov

– Auditing and Investigating the Internal Controls of Government Purchase Card Programs (Publication no: GAO-03-678G)

● OMB: www.whitehouse.gov/omb

● Improving the Management of the Government Charge Card Program

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Summary Federal Agencies

Techniques for Establishing a Successful Audit Process

This session was designed to enhance your

knowledge of techniques that will assist you to

more effectively and proactively manage your

card program and prepare for an audit.

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Dave Ruda

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Federal Agencies

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Techniques for Establishing a Successful Audit Process

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Techniques for Establishing a Successful Audit Process

Survey

®

Department o

DefenseFederal Agencies)

52

Please take the course survey online by visiting:

www.gsasmartpayconference.org/survey

or by using the link sent to you via email from Feedback Systems.

Surveys can be taken through any mobile device.

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efficiency, renewable energy & mitigation

In January 2007, Citi released a Climate Change Position Statement, the first US financial institution to do so. As a sustainability leader in the financial sector, Citi has taken concrete steps to address this important

issue of climate change by: (a) targeting $50 billion over 10 years to address global climate change: includes significant increases in investment and financing of alternative energy, clean technology, and other carbon-

emission reduction activities; (b) committing to reduce GHG emissions of all Citi owned and leased properties around the world by 10% by 2011; (c) purchasing more than 52,000 MWh of green (carbon neutral) power

for our operations in 2006; (d) creating Sustainable Development Investments (SDI) that makes private equity investments in renewable energy and clean technologies; (e) providing lending and investing services to

clients for renewable energy development and projects; (f) producing equity research related to climate issues that helps to inform investors on risks and opportunities associated with the issue; and (g) engaging with

a broad range of stakeholders on the issue of climate change to help advance understanding and solutions.

Citi works with its clients in greenhouse gas intensive industries to evaluate emerging risks from climate change and, where appropriate, to mitigate those risks.

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IRS Circular 230 Disclosure: Citigroup Inc. and its affiliates do not provide tax or legal advice. Any discussion of tax matters in these materials (i) is not intended or written to be used, and cannot be

used or relied upon, by you for the purpose of avoiding any tax penalties and (ii) may have been written in connection with the "promotion or marketing" of any transaction contemplated hereby

("Transaction"). Accordingly, you should seek advice based on your particular circumstances from an independent tax advisor.

Any terms set forth herein are intended for discussion purposes only and are subject to the final terms as set forth in separate definitive written agreements. This presentation is not a commitment to lend, syndicate a

financing, underwrite or purchase securities, or commit capital nor does it obligate us to enter into such a commitment, nor are we acting as a fiduciary to you. By accepting this presentation, subject to applicable law

or regulation, you agree to keep confidential the information contained herein and the existence of and proposed terms for any Transaction.

Prior to entering into any Transaction, you should determine, without reliance upon us or our affiliates, the economic risks and merits (and independently determine that you are able to assume these risks) as well as

the legal, tax and accounting characterizations and consequences of any such Transaction. In this regard, by accepting this presentation, you acknowledge that (a) we are not in the business of providing (and you

are not relying on us for) legal, tax or accounting advice, (b) there may be legal, tax or accounting risks associated with any Transaction, (c) you should receive (and rely on) separate and qualified legal, tax and

accounting advice and (d) you should apprise senior management in your organization as to such legal, tax and accounting advice (and any risks associated with any Transaction) and our disclaimer as to these

matters. By acceptance of these materials, you and we hereby agree that from the commencement of discussions with respect to any Transaction, and notwithstanding any other provision in this presentation, we

hereby confirm that no participant in any Transaction shall be limited from disclosing the U.S. tax treatment or U.S. tax structure of such Transaction.

We are required to obtain, verify and record certain information that identifies each entity that enters into a formal business relationship with us. We will ask for your complete name, street address, and taxpayer ID

number. We may also request corporate formation documents, or other forms of identification, to verify information provided.

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as of the date hereof and are subject to change without any notice. We and/or our affiliates may make a market in these instruments for our customers and for our own account. Accordingly, we may have a position

in any such instrument at any time.

Although this material may contain publicly available information about Citi corporate bond research, fixed income strategy or economic and market analysis, Citi policy (i) prohibits employees from offering, directly or

indirectly, a favorable or negative research opinion or offering to change an opinion as consideration or inducement for the receipt of business or for compensation; and (ii) prohibits analysts from being compensated

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procedures designed to limit communications between its investment banking and research personnel to specifically prescribed circumstances.

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