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Lars nAllern' CPAs, Consultants & Advisors www.larsonallen.com Honorable Mayor and Members of the City Council City of Lino Lakes, Minnesota In planning our audit of the financial statements of the City of Lino Lakes for the year ended December 31, 2005, we considered its internal control in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide assurance on the internal control. We noted no matters involving internal control and its operation that we consider to be reportable conditions under standards established by the American Institute of Certified Public Accountants. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation of the internal control that, in our judgment, could adversely affect City's ability to initiate, record, process, and report financial data consistent with the assertions of management in the financial statements. A material weakness is a reportable condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that errors or fraud in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions Our consideration of internal control would not necessarily disclose all matters in internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses as defined above. During the course of our audit, several items came to our attention that we feel could be addressed by the City of Lino Lakes to more efficiently run the City's operations or improve its internal controls. We herein submit the following suggestions to the City of Lino Lakes for their consideration. Auditor Comments: Capital Project Deficits The financial statements for the capital project funds are presented in Statements 3, 5, 12 and 13 of the 2005 Annual Financial Report. As of December 31, 2005, five of the capital project funds have deficit fund balances equaling a combined deficit of $859,840. This compares to six capital project funds with a combined deficit fund balance of $1,195,975 as of December 31, 2004. The most significant remaining deficit is in the Dedicated Parks fund in the amount of $734,870. While we recognize the significant improvements made related to fund balance deficits since fiscal year 2003, we urge the City to continue its review of capital projects as they progress. Plans should be made to address projected deficits as they are identified. (7) I.ar,on. Allen, A1ekhair & Co.. 1.1,1' I An Independent Member of Baker "hilly Internutional