06/04/2007 Council Packet (2) - Laserfiche WebLink

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LarssnAllen 1.1.1. CPAs, Consultants & Advisors www.larsonallen.com Honorable Mayor and Members of the City Council City of Lino Lakes, Minnesota In planning and performing our audit of the financial statements of the City of Lino Lakes, Minnesota as of and for the year ended December 31, 2006, in accordance with auditing standards generally accepted in the United States of America, we considered the City's internal control over financial reporting (internal control) as a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City's internal control. Accordingly, we do not express an opinion on the effectiveness of the City's internal control. Our consideration of internal control was for the limited purpose described in the preceding paragraph and would not necessarily identify all deficiencies in internal control that might be significant deficiencies or material weaknesses. In addition, because of inherent limitations in internal control, including the possibility of management override of controls, misstatements due to error or fraud may occur and not be detected by such controls. However, as discussed below, we identified one deficiency in internal control that we consider to be material weaknesses. A new audit standard, Statement on Auditing Standards 112 (SAS 112), Communicating Internal Control Matters Identified in an Audit, is effective this year and states that "a control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis." The standard further states, "a significant deficiency is a control deficiency, or a combination of control deficiencies, that adversely affects the entity's ability to initiate, authorize, record, process, or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the entity's financial statements that is more than inconsequential will not be prevented or detected by the entity's internal control." The new standard (SAS 112) further states that, "a material weakness is a significant deficiency, or a combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected by the entity's internal control." Material Audit Adjustments - Internal Control over the Financial Reporting Process Management is responsible for establishing and maintaining internal controls, including monitoring, and for the fair presentation in the financial statements in accordance with U.S. generally accepted accounting principles. Management is also responsible for the accuracy and completeness of all financial records and related information. Their responsibilities include adjusting the financial statements to correct material misstatements. �w LarsonAllen LLP is a member of Nexia International, worldwide network of independent accounting and consulting firms. INTERNATIONAL