Other Auditor Reports 12/31/2004

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LarsonAlleff 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, 2004, 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 IMMO 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 2004 Annual Financial Report. As of December 31, 2004, six of the capital project funds have deficit fund balances equaling a combined deficit of $1,195,975. This compares to eight capital project funds with a combined deficit fund balance of $5,553,381 as of December 31, 2003. A significant portion of this prior year deficit was eliminated during 2004 through operating transfers as well as proceeds from the sale of the Town Center property. The remaining deficits are in Tax Increment funds or related to new projects in the start up phase where it is not unusual to have a deficit balance. We commend the City for addressing these deficits and 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) Larson, Allen, Weishair & Co., LLP 1 An Independent Member of Baker Tilly International