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<br />I <br /> <br />City of Centerville <br />May 4, 2006 <br />Page Thirteen <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 normal 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 performing our audit <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 increased $233,253 from <br />2004. The fund balance of$I,549,356 is 77 percent of the 2006 budgeted expenditures. We recommend the fund balance be <br />maintained at a level sufficient to fund operations until the major revenue sources are received 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. At the current level, the fund balance is above the range of what is generaIly recommended as a miniT1\1111l. <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 high <br />High <br />Very high <br />Extremely high <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 our <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 offund balance and tax levels. <br /> <br />952.835.9090 . Fax 952.835.3261 <br />www.aemcpas.com <br />