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SMITH+SCHAFER & ASSOCIATES, LTD. Certified Public Accountants and Consultants June 14, 2017 Honorable Mayor and Members of the City Council City of Hugo, Minnesota Members of American Institute of CPAs, Private Companies Practice Section, Minnesota Society of CPAs We have audited the financial statements of the governmental activities, the business -type activities, each major fund, and the aggregate remaining fund information of the City of Hugo for the year ended December 31, 2016, and have issued our report thereon dated June 14, 2017. Professional standards require that we provide you with the following information about our responsibilities under generally accepted auditing standards as well as certain information related to the planned scope and timing of our audit. We have communicated such information in our engagement letter to you dated December 27, 2016. Professional standards also require that we communicate to you the following information related to our audit. Significant Audit Findings Qualitative Aspects of Accounting Practices Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by the City of Hugo are described in Note 1 to the financial statements. As described in Note 5 to the financial statements, the City adopted the provisions of GASB Statement No. 72, Fair Value Measurement and Application; GASB Statement No. 76, Hierarchy of Generally Accepted Accounting Principles of the State and Local Governments; GASB Statement No. 77, Tax Abatement Disclosures; and GASB Statement No. 82, Pension Issues — an Amendment of GASB Statements No. 67, No. 68, No. 73. Adoption of these statements does not affect net position or fund balance as of December 31, 2016. We noted no transactions entered into by the City during the year for which there is a lack of authoritative accounting guidance or consensus. All significant transactions have been recognized in the financial statements in the proper period. Accounting estimates are an integral part of the financial statements prepared by management and are based on management's knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ significantly from those expected. The most sensitive estimates affecting the financial statements were: Depreciation of Capital Assets Management's estimate of the useful life of purchased, constructed or contributed capital assets is based on the estimated productive life of these assets. We evaluated the estimated useful lives assigned to capital assets and determined that these lives were reasonable in relation to the financial statements taken as a whole. The financial statement disclosures are neutral, consistent, and clear. Difficulties Encountered in Performing the Audit We encountered no significant difficulties in dealing with management in performing and completing our audit. Twin Cities Office • 7500 Highway 55 • Suite 350 • Minneapolis, MN 55427 • PH (952) 920-1455 • FAX (952) 920-6603 Offices in: Red Wing and Rochester • www.smithschafer.com "; PrimeGlobal Member of PrimeGlobal, A Global Association of Independent Accounting Firms