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City of Centerville April 1, 1999 Page Two As part of obtaining reasonable assurance about whether the financial statements are free of material misstatement, we performed tests of 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 noncompliance with certain provisions of laws, regulations, contract and grants. Accounting Estimates Accounting estimates are an integral part of the combined 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 thew significance to the general purpose financial statements and because of the possibility that future events affecting them may differ significantly from those expected. The most sensitive estimates affecting the financial statements was depreciation on fixed assets. Management's estimate of depreciation is based on estimated useful lives of the assets. We evaluated the key factors and assumptions used to develop this estimate in determining that it is reasonable in relation to the financial statements taken as a whole. Significant Audit Adjustments For purposes of this letter, professional standards define a significant audit adjustment as a proposed correction of the general purpose financial statements that, in our judgment, may not have been detected except through our auditing procedures. We proposed no material audit adjustments. Disagreements with Management For purposes of this letter, professional standards define a disagreement with management as a matter, whether or not resolved to our satisfaction, concerning a financial accounting, reporting or auditing matter that could be significant to the general purpose financial statements or the auditor's report. We are pleased to report that no such disagreements arose during the course of our audit. Issues Discussed Prior to Retention of Independent Auditors We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to retention as the City's auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention. Difficulties Encountered in Performing the Audit We encountered no significant difficulties in dealing with management in performing our audit. Other Matters The following are areas that came to our attention during the audit that we feel should be reviewed: Financial Position and Results of Operations General Fund Overall, the fund balance increased $283,946 during 1998. The total fund balance is $905,692 and this is approximately 94.05% of current year expenditures and transfers out. We recommend fund balance be maintained at a minimum of 40% of planned expenditures and transfers out, so the current fund balance is adequate to meet working capital needs. Front discussions with management it appears there are plans for the fund balance in excess of the recommended working capital minimum of 40%. This excess could be designated to a purpose by council resolution. This would give clear indication of intended use. Fund balance should be maintained for the following reasons: