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City of Lino Lakes, Minnesota <br />Management Report, Page 44 <br />• Analyzed accounting methods of allocating expenses between each City's gas operation. <br />• Negotiated a new franchise agreement. <br />The new franchise agreement will provide a revenue source to the City of Lino Lakes. Key <br />features of the new agreement are as follows: <br />1. Term: January 1, 1987 through March 31, 2012. <br />2. Revenue to the City of Lino Lakes based on 7% of sales except for interruptible sales <br />which is based on 3 %. <br />3. Cancellable by the City of Circle Pines commencing on January 1, 1992. The City of <br />Lino Lakes has the right to cancel the franchise agreement through the purchase of this <br />system beginning on January 1, 1992. <br />4. Right to inspect the financial/accounting records to verify revenue calculations. <br />5. Revenue began accruing on January 1, 1987. Revenue will be received four and one- <br />half months after the year end (i.e., first receipt was in May, 1988). <br />6. The City has the right to purchase the system at stated terms beginning on January 1, <br />1992. <br />We commend the City for the successful efforts to receive a supplemental financing source for <br />the City. The City received $11,875 in May, 1989 which represents the 1988 share of earnings. <br />Earnings from inception of the new agreement total $21,490. Financial uncertainties facing <br />metropolitan cities require diversity of revenue sources to assure adequate funding of operations <br />without severe property tax increases. <br />INTERNAL ACCOUNTING CONTROLS <br />Current auditing standards require an auditor to communicate any material weaknesses in <br />internal accounting controls directly to City Council and/or City Administrators. Our examination <br />for 1988 disclosed no material deficiencies in the City's system of internal controls not identified in <br />this report or past reports to the City Council. <br />As part of our examination, we made a study and evaluation of the system of <br />internal accounting control of the City of Lino Lakes to the extent we considered <br />necessary to evaluate the system as required by generally accepted auditing <br />standards. The purpose of our study and evaluation was to determine the nature, <br />timing and extent of the auditing procedures necessary for the expression of an <br />opinion on the City's financial statements. Our study was more limited than would <br />