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CITY OF GEM LAKE Schedule of Findings and Responses (continued) Year Ended December 31, 2025 A. FINDINGS — MATERIAL WEAKNESSES IN INTERNAL CONTROL OVER FINANCIAL REPORTING (CONTINUED) 2025-002 MATERIAL AUDIT ADJUSTMENTS Criteria — Management is responsible for establishing and maintaining effective internal controls, which includes maintaining adequate internal financial records to facilitate the accurate preparation of the City's annual financial statements. Timely and accurate completion of journal entries is one element of internal controls for the preparation of annual financial statements prepped in accordance with accounting principles generally accepted in the United States of America to comply with state regulatory reporting requirements. Condition — During the audit of the year ended December 31, 2025, the auditor completed a journal entry in the following areas to keep the financial statements from being misstated by material amounts; accounts payable and utility expense. Auditing standards consider the identification of a material misstatement that was not initially identified by the City to be a material weakness in the related internal control. Questioned Costs —Not applicable. Context — The auditor completed a journal entry to keep the financial statements from being materially misstated. Repeat Finding — This is a current year finding. Cause — This was the result of an oversight by city personnel. Effect — The liabilities and expenses were inaccurately reported prior to making this adjustment. Recommendation — We recommend that the City review its internal control policies and procedures to ensure the proper preparation of journal entries for the preparation of the annual financial statements in the future. Management Response — There is no disagreement with the audit finding. The City will review internal control procedures to ensure the proper journal entry for accounts payable is prepared in the future. -3 7-