Other Auditor Reports 12/31/2001

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Significant Accounting Policies Management has the responsibility for selection and use of appropriate accounting policies. In accordance with the terms of our engagement letter, we will advise management about the appropriateness of accounting policies and their application. The significant accounting policies used by the City of Lino Lakes are described in Note 1 to the general purpose financial statements. No new accounting policies were adopted and the application of existing policies was not changed during 2001. We noted no transactions entered into by the City during the year that were both significant and unusual, and of which, under professional standards, we are required to inform you, or transactions for which there is a lack of authoritative guidance or consensus. Management Judgments and Accounting Estimates Accounting estimates are an integral part of the general purpose financial statements prepared by management and are based on management's current judgments. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ significantly from management's current judgments. Significant accounting estimates include the following: Annual depreciation is provided in the proprietary funds using rates sufficient to fully depreciate the related fixed assets over their useful lives based on past experiences. The year end valuation of investments at fair value. The City records allowances for uncollectible receivables based upon an analysis of the collectibility of individual accounts and notes, taking into account delinquencies and payment histories. The City has recognized sick leave payable in the general long-term debt account group. The amount recorded includes amounts earned through December 31, 2001 by employees eligible for retirement at that date. In addition, an amount is recorded for those individuals not eligible for retirement at December 31, 2001, but for whom pay-out of the amount earned to that date is reasonably expected. This estimate is derived by an analysis of the pay-out history and current and anticipated future employment conditions. Significant Audit Adjustments For purposes of this letter, professional standards define a significant audit adjustment as a proposed correction of the general purpose financial statements that, in our judgment, may not have been detected except through our auditing procedures. Those adjustments may include those proposed by us but not recorded by the City that could potentially cause future financial statements to be materially misstated, even though we have concluded that such adjustments are not material to the current financial statements. We proposed no audit adjustments that could, in our judgment, either individually or in the aggregate, have a significant effect on the City's financial reporting process. We also accumulated potential adjustments, which were discussed with management, that we considered both individually and collectively immaterial and, therefore, were not made to the financial statements. These potential adjustments are summarized in the attached schedule. (5)