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. . . Certified Puhlic Accoumants & ComulUmLs April 14,2006 Grand~.jew Square 5201 Eden AVt::IlIlP. Suite 370 Edina, MN .55436 Honorable Mayor and Council City of Arden HiIls, Minnesota We have audited the financial statements the governmental activities, the business-type activities, each major fund and the aggregate remaining fund information of the City of Arden Hills, Minnesota (the City), for the year ended December 31,2005 and have issued our report thereon dated April 14,2006. Professional standards require that we provide you with the following information related to our audit. OUf Responsibility Under Auditing Standards Generally Accepted in the United States of America As stated in our engagement letter, OUf responsibility, as deSlTIbed 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 of America. Because an audit is designed to provide reasonable, but not absolute, assurance and because we did not perform a detailed examination ofal! transactions, there is a risk that material errors, fraud or illegal acts may exist and not be detected by us. In planning and performing our audit of the financial statements ofthe City, for the year ended December 31,2005, we considered its internal controlin 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. However, we noted certain matters involving the internal control and its operation that we consider to be reportable conditions lll1der standards established by the American Institute of Certified Public Accountants. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation ofintemal control that, in our judgment, could advt.'Tsely affect the City's ability to record, process, summarize, and report financial data consistent with the assertions of man agement in the fi.nancial statements. We noted the following reportable condition: Segregation of Duties Our study and evaluation disclosed that because of the limited size of your office staff, the City had limited segregation of duties for a portion of2005. Goodintemal control contemplates an adequate segregation of duties so that no one individual handles a transaction from inception to completion. \Vith the prosecution of a fanner City employee for misappropriation of assets and reorganization of job responsibilities, we believe that this issue has been remedied as of year end. ^ material weakness is a reportable condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that errors or fraud in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course ofperforrning thelr assigned functions. Our consideration of internal control would not necessarily disclose all matters in internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses as defined above. However, the reportable condition described above is not believed to be a material weakness. 952.835.9090 ~ Fax %2.835.3261 www.aelllepas.com