Compliance testing may require auditor ingenuity. The CPA rm of which you are a manager has placed you in charge of the audit of the Thornburg School District. The district receives substantial nancial support from the State Education Agency. The state requires aid recipients to have annual single audits conducted by independent CPA rms. The rms are responsible for verifying that recip- ients have complied with the provisions of all nancial awards from the state. From your preliminary survey, you learn that the district received an award of$3 million to provide free hot lunches to elementary school children of low-income families. The award species that only children from families with incomes under $30,000 are eligible to participate in the program. The state requires districts to determine eligibility, but it pro- vides no guidance as to how they are to do so. Based only on this limited information, it is obviously not possible to develop a specic audit program to ensure that the district has complied with the eligibility provisions. However, before you even meet with district ofcials to discuss the audit, you wish to have a preliminary strategy in mind. 1. As best you can from the limited amount of information provided, design a strategy to test compliance with the eligibility provisions. 2. Suppose that the audit is being conducted under the federal Single Audit Act and thatthe auditors are required to adhere to all of its reporting provisions. As part ofyour examination, you nd that 25 students out of350 in the program failed to meet the eligibility requirements. Assuming that the auditors consider the amounts involved as indicative of a weakness in internal controls, how, if at all, should that nding affect your report on the program