2006-12-31 Management Letter - Laserfiche WebLink

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City of Centerville May 3, 2007 Page Two A material weakness is a significant deficiency, or combination of significant deficiencies, that result in more than a remote likelihood that a material misstatement of the fmancial statements will not be prevented or detected by the City's internal control. The finding reported is not considered a material weakness. We identified the following deficiency in internal control that we consider to be a material weakness. Maintenance of the Accounting System During our audit, adjustments were needed to correct coding and reclassify amounts to correct funds. This indicates that it would be likely that a misstatement may occur and not be detected by the City's internal control. The audit firm can not serve as a compensating control over this condition. This condition is common in smaller governments and is mainly due to a lack of training and education in the technical issues of governmental accounting. We recommend that the City participate in industry association training provided by the Minnesota Clerks and Finance Officers Association, Minnesota Government Finance Officers Association or any other accounting focused training. We also recommend that the Clerk review each journal entry we made and become proficient at creating the support that was necessary to make the entry. As part of obtaining reasonable assurance about whether the financial statements are free of material misstatement, we performed tests of the City's compliance with certain provisions of laws, regulations, contracts and grants. However, the objective of our tests was not to provide an opinion on compliance with such provisions. We noted no instances of noncompliance. Significant Accounting Policies Management has the responsibility for selection and use of appropriate accounting policies. In accordance with the terms of our engagement letter, we will advise management about the appropriateness of accounting policies and their application. The significant accounting policies used by the City are described in Note 1 to the financial statements. No new accounting policies were adopted and the application of existing policies was not changed during the year ended December 3 1,2006. We noted no transactions entered into by the City during the year that were both significant and unusual, and of which, under professional standards, we are required to inform you, or transactions for which there is a lack of authoritative guidance or consensus. Accounting Estimates 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 fmancial statements and because of the possibility that future events affecting them may differ significantly from those expected. The most significant estimate affecting the financial statements were capital asset basis and depreciation on capital assets. Management's estimate of depreciation is based on estimated useful lives of the assets. Management's estimated historical cost is based on current replacement cost deflated to the year acquired. We evaluated the key factors and assumptions used to develop this estimate in determining that it is reasonable in relation to the fmancial statements taken as a whole. 952.835.9090 . Fax 952.835.3261 www.aemcpas.com ~