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<br />m <br />r'l' <br />flL~ <br /> <br />City of Arden Hi]]s . <br />April 14, 2006 <br />Page Six <br /> <br />Disagreements with Management <br /> <br />For purposes of this Jetter, professional standards define a disagreement with management as a matter, whether or not resolved to <br />our satisfaction, concerning a financial accounting, reporting or auditing matter that could be significant to the financial <br />statements or the auditor's report. We are pleased to report that no such disagreements arose during the course of our audit. <br /> <br />Consultations with Other Independent Accountants <br /> <br />In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to <br />obtaining a ....second opinion" on certain situations. If a consultation involves application of an accounting principle to the City's <br />financial statements or a determination of the type of auditor's opinion that may be expressed on those statements, our <br />professIonal standards require the consulting accountant to check with us to detennine that the consultant has all the relevant <br />facts. To our knowledge, there were no such consultations with other accountants. <br /> <br />Issues Discussed Prior to Retention of Independent Auditors <br /> <br />We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with <br />management each year prior to retention as the City's auditors. However, these discussions occurred in the nonnal course of our <br />professional relationship and our responses were not a condition to our retention. <br /> <br />Difficulties Encountered in Performing the Audit <br /> <br />We encountered no significant difficulties in dealing with management in perfonning our audit. <br /> <br />. <br /> <br />Other Matters <br /> <br />The following are areas that came to our attention during the audit that we feel should be reviewed: <br /> <br />Financial Position and Results of Operations <br /> <br />General Fund <br /> <br />The General fund is used to account for resources traditionally associated with government, which are not required legally or <br />by sound principal management to be accounted for in another fund. The General fund balance decreased $44,149 tram <br />2004, The fund balance of $1,270,780 is 40 percent oftbe 2006 budgeted expenditures, We recommend the fund balance be <br />maintained at a level sufficient to fund operations until the major revenue sources are recejved in June. We feel a reserve of <br />approximately 40 to 50 percent of planned expenditures and transfers out is adequate to meet working capital and small <br />emergency needs. <br /> <br />The Minnesota Office of the State Auditor has classified cities' unreserved fund balance levels relative to expenditures as <br />follows: <br /> <br />Extremely low <br />Low <br />Acceptable <br />Moderately bigh <br />High <br />Very high <br />Extremely bigh <br /> <br />Under 20% <br />21 - 34 <br />35 - 50 <br />51 - 64 <br />65 - 100 <br />101 - 150 <br />Above 150 <br /> <br />The State Auditor does group all General and special revenue funds of the City when making this calculation where Qur <br />calculation is based only on the General fund. Although there is no legislation regulating fund balance, it is a good policy to <br />designate intended use of fund balance. This helps address citizen concerns as to the use of fund balance and tax levels. <br /> <br />. <br /> <br />952.835.9090 .. Fa);. 952.835.3261 <br /> <br />www.aelllcpa.;.n)JJl <br />