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ABDO EICK & // IJ _J M 1 L' 1 S LLP Certtfied Public Accountants & Consultants Grandview Square 5201 Eden Avenue Suite 370 Edina, MN 55436 Honorable Mayor and Council City of Lake Elmo, Minnesota February 17, 2006 We have audited the financial statements of the governmental activities, the business -type activities, each major fund, and the aggregate remaining fund information the City of Lake Ehno (the City), Minnesota, as of and for the year ended December 31, 2005 which collectively comprise the basic financial statements as listed in the table of contents and have issued our report thereon dated February 17, 2006. Professional standards require that we provide you with the following information related to our audit: Our Responsibility Under Auditing Standards Generally Accepted in the United States As stated in our engagement letter, our responsibility, as described by professional standards, is to plan and perform our audit to obtain reasonable, but not absolute, assurance that the financial statements are free of material misstatement and are fairly presented in accordance with accounting principles generally accepted in the United States. Because an audit is designed to provide reasonable, but not absolute assurance and because we did not perform a detailed examination of all transactions, there is a risk that material errors, fraud, or other illegal acts may exist and not be detected by us. In planning and performing our audit of the financial statements of the City, for the year ended December 31, 2005, 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 material weaknesses in internal control. As part of obtaining reasonable assurance about whether the financial statements are free of material misstatement, we performed tests of compliance with certain provisions of laws, regulations, contracts and grants. However, the objective of our tests was not to provide an opinion on compliance with such provisions. We noted no instances of non-compliance during our audit. 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 are described in Note 1 to the financial statements. The City implemented the requirements of GASB Statement No. 40 - Deposit and Investment Risk Disclosures - an amendment of GASB Statement No. 3 during 2005. This changed the footnote disclosure related to deposits and investments. 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. 952.835.9090 • Pax 952.835.3261 www.aemepas.com