Management Report and Recommendations 12/31/1992

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City of Lino Lakes, Minnesota Management Report, Page 48 control structure, errors or irregularities may nevertheless occur and not be detected. Also, projection of any evaluation of the structure to future periods is subject to the risk that procedures may become inadequate because of changes in conditions or that the effectiveness of the design and operation of policies and procedures may deteriorate. For the purpose of this report, we have classified the significant internal control structure policies and procedures in the following categories: • control environment • accounting system • control procedures For all of the internal control structure categories listed above, we obtained an understanding of the design of relevant policies and procedures and whether they have been placed in operation, and we assessed control risk. We noted certain matters involving the internal control structure 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 structure that, in our judgment, could adversely affect the City's ability to record, process, summarize, and report financial data consistent with the assertions of management in the general purpose financial statements. A substantial portion of certain accounting processes are performed by a single employee. Ideal conditions call for segregation of duties to establish a system of internal testing of procedures performed. Additionally, our audit disclosed that the City does not maintain a system of control over General Fixed Assets. These conditions are common to cities of this size. Any modification of internal control structure in this area, however, must be viewed from a cost/benefit perspective. A material weakness is a reportable condition in which the design or operation of the specific internal control structure elements does not reduce to a relatively low level the risk that errors or irregularities in amounts that would be material in relation to the general purpose 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 the internal control structure would not necessarily disclose all matters in the internal control structure 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. However, we believe none of the reportable conditions described above are material weaknesses. This report is intended for the information of management and others within the City of Lino Lakes, Minnesota. This restriction is not intended to limit the distribution of this report, which is a matter of public record.