Comprehensive Annual Financial Report 12/31/2001

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The part of the Town Center area located on the northeast quadrant of I -35W and Lake Drive began developing as a commercial retail center known as the Lino Lakes Marketplace in late 2001. This development includes a Target Super Store, a Kohl's Department Store and several smaller retail shops. This is expected to be substantially complete in 2002 and fully completed by 2004. The development has spurred the need to upgrade Lake Drive from I -35W to 77th Street and to complete Apollo Drive east of Lake Drive, along with the installation of underground utilities and traffic control systems. The cost of the project will be assessed against the new development. The Village, the southeast quadrant of the Town Center, is the site of the newly completed Lino Lakes Civic Complex. This $6 million facility that houses city hall, police and a Centennial School District program, is a critical component to the success of a mixed use Town Center. The location of the complex is part of the economic development effort in providing a strong civic focus within the mixed -use center. The Civic Complex recently received an award from the League of Minnesota Cities for innovation and excellence in housing, economic development and community spaces. The city is considering participating in the construction costs of a YMCA in The Village section of the Town Center as an alternative to building a City Community Center. The YMCA is anticipating building a new recreation facility in the near future. FINANCIAL INFORMATION Internal Controls Management of the City is responsible for establishing and maintaining an internal control structure in the accounting system designed that the assets of the City are protected from loss, theft, misuse and to ensure that fair, reliable and accurate accounting data is compiled to allow for the preparation of financial statements in conformity with U.S. generally accepted accounting principles. The internal control structure is designed to provide reasonable, but not absolute, assurance that these objectives are met. The concept of reasonable assurance recognizes that: 1) the cost of a control should not exceed the benefits; 2) the valuation of costs and benefits requires estimates and judgements by management. As part of the City's annual audit, the internal control system is evaluated to the extent necessary for audit purposes and changes are recommended when needed. Budgeting Controls The City maintains budgetary controls to ensure compliance with legal provisions embodied in the annual appropriated budget approved by the City Council. Activities of the General Fund and the Program Recreation Special Revenue Fund are included in annual appropriated budgets. The legal level of budgetary control is established at the department level, but management control is exercised at the line item level. As demonstrated by the statements and schedules included in the financial section of this report, the City continues to meet its responsibility for sound financial management. General Fund The General Fund accounts for all revenues and expenditures necessary to provide basic governmental operations of the City. 5