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41 <br />CITY OF ST. ANTHONY, MINNESOTA <br />SCHEDULE OF FINDINGS AND QUESTIONED COSTS <br />For The Year Ended December 31, 2006 <br />2006-4 Oversight of Financial Statement Preparation <br />Criteria: Management is responsible for establishing and maintaining effective internal <br />controls. These controls include the responsibility for preparation, or oversight of the <br />preparation of the financial statements in accordance with generally accepted accounting <br />principles. <br />Condition: During this year of audit, Statement on Auditing Standards (SAS) No. 112 <br />became effective. Basically, the main intent of SAS 112 is to have auditors report in writing <br />more findings involving internal control. SAS 112 specifies that an organization may not <br />rely exclusively on its auditors to perform the financial statement process. In our viewpoint, <br />SAS 112 will result in many, if not most, small to mid-size organizations receiving a finding <br />regarding financial statement preparation. <br />Like many similarly sized organizations, the City has requested assistance from us, the <br />auditors, with drafting financial statements and related notes. This is a common practice and <br />an allowable nonaudit service under the AICPA Ethics Interpretation 101-3. However, other <br />than relying on the auditors, the City staff does not perform sufficient procedures to detect if <br />there were misstatements or omission of disclosures to the financial statements. <br />Cause: The City has not established procedures to detect misstatements or omissions of <br />disclosures in the draft financial statements prepared by the auditors. <br />Lf By not having such controls, there is an increased risk that errors or omissions in <br />draft financial statements prepared by the auditors would not be detected by City <br />management. <br />Recommendation: We recommend the City review this matter and determine a course of <br />action. Any change would need to be viewed from a cost/benefit perspective. Options for <br />the City include: <br />1. Remain aware of the situation, however due to the increased cost, make the <br />choice to make no changes to current procedures. <br />2. Implement internal procedures as determined practical. Such procedures could <br />include: <br />a. Complete a disclosure checklist to ensure propriety and completeness of <br />disclosures. <br />b. Trace various trial balance accounts to the draft financial statements to ensure <br />