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City of Centerville <br />May 19, 2010 <br />Page 4 <br />2009-2: Preparation of Financial Statements (finding since 2007) <br />Condition: <br />As in prior years, we were requested to draft the audited financial statements and related <br />footnote disclosures as part of our regular audit services.Recent auditing standards require <br />auditors to communicate this situation to the Council as an internal control deficiency. <br />Ultimately, it is management’s responsibility to provide for the preparation of your statements <br />and footnotes, and the responsibility of the auditor to determine the fairness of presentation of <br />those statements.It is our responsibility to inform you that this deficiency could result in a <br />material misstatement to the financial statements that could have been prevented or detected <br />by your management.Essentially, the auditors can not be part of your internal control process. <br />Criteria <br />:Internal controls should be in place to provide reasonable assurance over financial reporting. <br />Cause <br />:From a practical standpoint we do both for you at the same time in connection with our audit. <br />This is not unusual for us to do with an organization of your size. <br />Effect <br />:The effectiveness of the internal control system relies on enforcement by management.The <br />effect of deficiencies in internal controls can result in undetected errors in financial reporting. <br />Recommendation <br />:It is your responsibility to make the ultimate decision to accept this degree of risk associated <br />with this condition because of cost or other considerations.As in prior years, we have <br />instructed management to review a draft of the auditor prepared financials in detail for their <br />accuracy; we have answered any questions they might have, and have encouraged research of <br />any accounting guidance in connection with the adequacy and appropriateness of classification <br />of disclosure in your statements.We are satisfied that the appropriate steps have been taken to <br />provide you with the completed financial statements.While the City is reviewing the financial <br />statements we recommend that a disclosure checklist be utilized to ensure all required <br />disclosures are presented and the City should agree its financial software to the numbers <br />reported in the financial statements. <br />Management Response <br />:For now, the City’s management accepts the degree of risk associated with this condition and <br />thoroughly reviews a draft of the financial statements. <br />