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<br /> <br />City of Centerville <br />May 3, 2007 <br />Page Four <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 $13,979 from 2005. <br />The fund balance of$I,563,335 is 72 percent of the 2007 budgeted expenditures. The total General fund budget is <br />$2,176,700 for 2007. We recommend the fund balance be maintained at a level sufficient to fund operations until the major <br />revenue sources are received in June. We feel a reserve of approximately 40 to 50 percent of planned expenditures and <br />transfers out is adequate to meet working capital and small emergency needs. At the current level, the fund balance is above <br />the range of what is generally recommended as a minimum. <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 of fund balance and tax levels. <br /> <br />952.835.9090 . Fax 952.835.3261 <br /> <br />www.aemcpas.com <br />