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City of Mounds View Page 3 <br />October 20, 2005 <br />You are responsible for the design and implementation of programs and controls to prevent and detect <br />fraud, and for informing us about all known or suspected fraud, or illegal acts affecting the government <br />involving (a) management, (b) employees who have significant roles in internal control, and (c) others <br />where the fraud could have a material effect on the financial statements. You are also responsible for <br />informing us of your knowledge of any allegations of fraud or suspected fraud, or illegal acts affecting the <br />government received in communications from employees, former employees, grantors, regulators, or <br />others. In addition, you are responsible for identifying and ensuring that the entity complies with <br />applicable laws and regulations and for taking timely and appropriate steps to remedy any fraud, illegal <br />acts, violations of contracts or grant agreements, or abuse that we may report. <br />We may prepare a general ledger trial balance for use during the audit. Our preparation of the trial <br />balance will be limited to formatting information in the City's general ledger into a working trial balance. <br />As part of the audit, we may prepare a draft of your financial statements and related notes. In accordance <br />with Government Auditi~zg Standards, you will be required to review and approve those financial <br />statements prior to their issuance and have a responsibility to be in a position in fact and appearance to <br />make an informed judgment on those financial statements. Further, you are required to designate a <br />qualif ed management-level individual to be responsible and accountable for overseeing our services. <br />Audit Procedures -General <br />An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the <br />financial statements; therefore, our audit will involve judgment about the number of transactions to be <br />examined and the areas to be tested. We will plan and perform the audit to obtain reasonable, rather than <br />absolute, assurance about whether the financial statements are free of material misstatement, whether <br />from errors, fraudulent financial reporting, misappropriation of assets, or violations of laws or <br />governmental regulations that are attributable to the entity or to acts by management or employees acting <br />on behalf of the entity. Because the determination of abuse is subjective, Government Auditing Standards <br />do not expect auditors to provide reasonable assurance of detecting abuse. Because an audit is designed to <br />provide reasonable, but not absolute, assurance and because we will not perform a detailed examination <br />of all transactions, there is a risk that material misstatements may exist and not be detected by us. In <br />addition, an audit is not designed to detect immaterial misstatements or violations of laws or <br />governmental regulations that do not have a direct and material effect on the financial statements. <br />However, we will inform you of any material errors that come to our attention, and we will inform you of <br />any fraudulent financial reporting or misappropriation of assets that comes to our attention. We will also <br />inform you of any violations of laws or governmental regulations that come to our attention, unless <br />clearly inconsequential. Our responsibility as auditors is limited to the period covered by our audit and <br />does not extend to matters that might arise during any later periods for which we are not engaged as <br />auditors. <br />Our procedures will include tests of documentary evidence supporting the transactions recorded in the <br />accounts, and may include tests of the physical existence of inventories, and direct confirmation of <br />receivables and certain other assets and liabilities by correspondence with selected individuals, creditors, <br />and financial institutions. We will request written representations from your attorneys as part of the <br />engagement, and they may bill you for responding to this inquiry. At the conclusion of our audit, we will <br />also require certain written representations from you about the financial statements and related matters. <br />• <br />