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<br /> <br />Elk River Fire Department Relief Association <br />March 17, 2006 <br />Page Two <br /> <br />As part of obtaining reasonable assurance about whether the financial statements are free of material misstatement, we <br />performed tests of compliance with certain provisions oflaws, regulations, contracts and grants. However, the objective of <br />our tests was not to provide an opinion on compliance with such provisions. We noted one instance of non-compliance with <br />Minnesota statutes. It is described below: <br /> <br />Collateral Coverage <br /> <br />In accordance with Minnesota statute, section 118A.03, the Association is required to have pledged collateral equal to <br />110 percent of the deposits not covered with insurance. At December 31,2005, the Association was required to have <br />$66,853 pledged, of which the association had no collateral pledged. <br /> <br />Management Response <br /> <br />Management agrees that bank deposits need to be insured. They will more closely monitor the bank balance and <br />collateral coverage in 2006. <br /> <br />Significant Accounting Policies <br /> <br />Management has the responsibility for selection and use of appropriate accounting policies. In accordance with the terms of <br />our engagement letter, we will advise management about the appropriateness of accounting policies and their application. <br />The significant accounting policies used by the Association are described in Note 1 to the financial statements. The <br />Association implemented the requirements of GASB Statement No. 40 - Deposit and Investment Risk Disclosures - an <br />amendment ofGASB Statement No.3 during 2005. We noted no transactions entered into by the Association during the year <br />that were both significant and unusual, and of which, under professional standards, we are required to inform you, or <br />transactions for which there is a lack of authoritative guidance or consensus. <br /> <br />Accounting Estimates <br /> <br />Accounting estimates are an integral part of the combined financial statements prepared by management and are based on <br />management's knowledge and experience about past and current events and assumptions about future events. Certain <br />accounting estimates are particularly sensitive because of their significance to the financial statements and because of the <br />possibility that future events affecting them may differ significantly from those expected. <br /> <br />Audit Adjustments <br /> <br />For purposes of this letter, professional standards define an audit adjustment as a proposed correction of the combined <br />fmancial statements that, in our judgment, may not have been detected except through our auditing procedures. An audit <br />adjustment mayor may not indicate matters that could have a significant effect on the Association's fmancial reporting <br />process (that is, cause future fmancial statements to be materially misstated). We noted no uncorrected misstatements. <br /> <br />Disagreements with Management <br /> <br />For purposes of this letter, professional standards defme a disagreement with management as a matter, whether or not <br />resolved to our satisfaction, concerning a financial accounting, reporting or auditing matter that could be significant to the <br />fmancial statements or the auditor's report. We are pleased to report that no such disagreements arose during the course of <br />our audit. <br /> <br />952.835.9090 . Fax 952.835.3261 <br /> <br />www.aemcpas.com <br />