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City Council Regular Meeting Minutes May 22, 2007 Page 3 2 Ms. Moeller explained that the 2006 Internal Control Report is based on new standards (SAS 3 112), which lowered the threshold for reporting internal control matters and re -defined internal 4 control deficiencies. She stated a significant deficiency is much broader than a reportable 5 condition. She explained that many more findings would be in the Internal Control Report as 6 opposed to the Management Letter. 7 8 Ms. Moeller stated nine deficiencies were reported in the Internal Control Report. She 9 commented Staff is in the process of reviewing the findings and taking corrective actions. 10 11 Ms. Moeller reported the 2005 findings were resolved in 2006. She stated these included two 12 items under legal compliance and seven items under internal control. 13 14 Ms. Moeller discussed the Management Letter. She reported the combined fund balances and 15 net assets on December 31, 2006 were $17,230,146. She indicated there was an increase of 16 $94,506 in the general fund balance during 2006. She pointed out the fund balance on December 17 31, 2006 was $1,282,225. 18 19 Ms. Moeller stated funds were designated appropriately in 2006 and no funds were undesignated 20 as of December 31, 2006. She pointed out the fund balance available at the end of 2006 was 21 sufficient to meet the City's policy for minimum fund balances. She commented the City has a 22 minimum fund balance policy of 30 — 35% for minimum fund balances. 23 24 Ms. Moeller discussed the Water and Sewer Enterprise Fund stating this is the operating revenue 25 and expenses for the past three years. She pointed out the 2006 operating expenses exceeded the 26 operating revenues; however, the City increased water rates effective January 1, 2007. 27 28 Ms. Moeller reported the Sewer Fund operational revenues exceeded operating expenses for the 29 past three years. She stated no changes to sewer rates were made in 2006 or 2007. 30 31 Ms. Moeller reported the Liquor Fund 2006 net income before transfers was $406,477. She 32 explained the analysis of the 2006 activity. She summarized the operating expenses for the past 33 three years were lower than state averages. 34 35 Ms. Moeller reported the HRA Fund balance as of December 31, 2007 was $4,002,192. She 36 pointed out that three HRA funds are inactive and recommend the account balances be 37 transferred into the IIRA general fund. 38 39 Ms. Moeller explained professional standards require audit firms to provide specific information 40 to the audit committee at the conclusion of the audit. She stated these items are part of the 41 Management Letter. 42 43 Ms. Moeller stated the new 2007 auditing standards (SAS 104-111) would be implemented for 44 the next audit. She commented the major change would be in how an audit is conducted. She 45 explained auditors would be required to assess risk and then develop procedures designed around