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City of Centerville June 3, 2009 Page 3 2008-2: Preparation of Financial Statements (f"inding since 2007) Condition: As in prior years, we were requested to draft the audited financial statements and related footnote disclosures as part of our regular audit services. Recent auditing standards require auditors to cormnunicate this situation to the Council as an internal control deficiency. Ultimately, it is management's responsibility to provide for the preparation of your statements and footnotes, and the responsibility of the auditor to determine the fairness of presentation of those statements. It is our responsibility to inform you that this deficiency could result in a material misstatement to the fmancial statements that could have been prevented or detected by your management. Essentially, the auditors can not be part of your internal control process. Criteria: Internal controls should be in place to provide reasonable assurance over financial reporting. Cause: From a practical standpoint we do both for you at the same time in connection with our audit. This is not unusual for us to do with an organization of your size. Effect: The effectiveness of the internal control system relies on enforcement by management. The effect of deficiencies in internal controls can result in undetected errors in financial reporting. Recommendation: It is your responsibility to make the ultimate decision to accept this degree of risk associated with this condition because of cost or other considerations. As in prior years, we have instructed management to review a draft of the auditor prepared financials in detail for their accuracy; we have answered any questions they might have, and have encouraged research of any accounting guidance in connection with the adequacy and appropriateness of classification of disclosure in your statements. We are satisfied that the appropriate steps have been taken to provide you with the completed financial statements. While the City is reviewing the fmancial statements we recormnend that a disclosure checklist be utilized to ensure all required disclosures are presented and the City should agree its financial software to the numbers reported in the financial statements. N~anagement Response: For now, the City's management accepts the degree of risk associated with this condition and thoroughly reviews a draft of the financial statements. 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 financial statements will not be prevented or detected by the City's internal control. We did not identify any deficiencies in internal control over fmancial reporting that we consider to be material weaknesses. As part of obtaining reasonable assurance about whether the fmancial statements are free of material misstatement, we performed tests of the City's compliance with certain provisions of Minnesota statutes. However, the objective of our tests was not to provide an opinion on compliance with such provisions. We noted no instances of noncompliance with Minnesota statutes. 952.835.9090 Fax 952.835.326t www:aemcpas.cosn