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ELK RIVER MUNICIPAL UTILITIES <br />ELK RIVER, MINNESOTA <br />SCHEDULE OF FINDINGS AND RESPONSES -CONTINUED <br />DECEMBER 31, 2007 <br />Findine Description <br />2007-2 Material Audit Adjustments <br />Condition: During our audit, adjustments were needed to correct recording of accounts payable, <br /> accumulated depreciation, depreciation expense, and restricted cash. <br />Criteria: The financial statements are the responsibility of the Utilities' management. <br />Cause: The Utilities has, in the past, relied on the audit for specific adjustments. <br />Effect: This indicates that it would be likely that a misstatement may occur and not be <br /> detected by the Utilities' System of internal control. The audit firm can not serve as a <br /> compensating control over this deficiency. <br />Recommendation: We recommend that management review each journal entry, obtain an understanding <br /> of why the entry was necessary and modify current procedures to ensure that future <br /> corrections are not needed. <br />-3 7- <br />