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VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION <br />VADNAIS HEIGHTS, MINNESOTA <br />SCHEDULE OF FINDINGS AND RESPONSES - CONTINUED <br />DECEMBER 31, 2009 <br />F Description <br />2009-2 Preparation of Financial Statements <br />Condition: <br />We were requested to draft the audited financial statements and related footnote <br />disclosures as part of our regular audit services. Ultimately, it is nkipagement's <br />responsibility to provide for the preparation of your statements and footnotes, and the <br />responsibility of the auditor to determine the fairness of presentation of those <br />statements. However, based on recent auditing standards, it is our responsibility to <br />inform you that this deficiency could result in a material misstatement to the financial <br />statements that could have been prevented or detected by your management. <br />Essentially, the auditors cannot be part of your internal control process. <br />Criteria: Internal controls should be in place to provide reasonable assurance over financial <br />reporting. <br />Cause: From a practical standpoint, we both prepare the statements and determine the <br />fairness of the presentation at the same time in connection with our audit. This is not <br />unusual for us to do with organizations of your size. <br />Effect: <br />The effectiveness of the internal control system relies on enforcement by <br />management. The effect of deficiencies in internal controls can result in undetected <br />errors in financial reporting. <br />Recommendation: It is your responsibility to make the ultimate decision to accept this degree of risk <br />associated with this condition because of cost and other considerations. We have <br />instructed management to review a draft of the auditor prepared financials in detail <br />for accuracy; we have answered any questions that management might have, and have <br />encouraged research of any accounting guidance in connection with the adequacy and <br />appropriateness of classification of disclosures in your statements. We are satisfied <br />that the appropriate steps have been taken to provide you with the completed <br />financial statements. While the Organization is reviewing the financial statements we <br />recommend a disclosure checklist is utilized to ensure all required disclosures are <br />presented and the Organization should agree its financial software to the numbers <br />reported in the financial statements. <br />Management Response: For now, the Organization's mlivigement accepts the degree of risk associated with <br />this condition and thoroughly reviews a draft of the financial statements. <br />-47- <br />