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Storm Water Utility Receipts <br />Condition: <br />Criteria: <br />Cause: <br />Effect: <br />Recommendation: <br />Vadnais Lake Area Water Management Organization <br />March 19, 2008 <br />Page 3 <br />During a wallcthrough of the Organization's procedures over the Storm Water Utility charges, we <br />attempted to reconcile receipts in the accounting software to deposit slips and utility billing <br />software receipts. During this testing, we were not able to reconcile amongst the three documents. <br />The Organization should have a well documented and practiced procedures manual in place for <br />important control systems. <br />There is not a documented and practiced procedure in place. <br />The process of reconciling bank statements and reconciling revenues between the accounting and <br />utility billing software becomes much more difficult. <br />We recommend that bank deposit slips and the postings into the accounting software are generated <br />from daily receipt batch reports from the utility billing software. <br />Preparation of Financial Statements <br />Condition: <br />We were requested to draft the audited financial statements and related footnote disclosures as part <br />of our regular audit services. Ultimately, it is management's responsibility to provide for the <br />preparation of your statements and footnotes, and the responsibility of the auditor to determine the <br />fairness of presentation of those statements. However, based on recent auditing standards, it is our <br />responsibility to inform you that this deficiency could result in a material misstatement to the <br />financial statements that could have been prevented or detected by your management. Essentially, <br />the auditors can not be part of your intemal control process. <br />Criteria: Internal controls should be in place to provide reasonable assurance over financial reporting. <br />Cause: From a practical standpoint, we both prepare the statements and determine the fairness of the <br />presentation at the same time in connection with our audit. This is not unusual for us to do with <br />organizations of your size. <br />Effect: The effectiveness of the internal control system relies on enforcement by management. The effect <br />of deficiencies in intemal controls can result in undetected errors in financial reporting. <br />Recommendation: It is your responsibility to make the ultimate decision to accept this degree of risk associated with <br />this condition because of cost and other considerations. We have instructed management to review <br />a draft of the auditor prepared financials in detail for accuracy; we have answered any questions <br />that management might have, and have encouraged research of any accounting guidance in <br />connection with the adequacy and appropriateness of classification of disclosures in your <br />statements. We are satisfied that the appropriate steps have been taken to provide you with the <br />completed financial statements. While the Organization is reviewing the financial statements we <br />recommend a disclosure checklist is utilized to ensure all required disclosures are presented and <br />the Organization should agree its financial software to the numbers reported in the financial <br />statements. <br />Management Response: For now, the Organization's management accepts the degree of risk associated with this condition <br />and thoroughly reviews a draft of the financial statements. <br />952.835.9090 • Fax 952.835.3261 <br />www.aemcpas.com <br />