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Elk River Municipal Utilities <br />Apri19, 2009 <br />Page 2 <br />A material weakness is a significant deficiency, or combination of significant deficiencies, that result in more than a remote <br />likelihood that a material misstatement of the financial statements will not be prevented or detected by the entity's internal <br />control. We believe the following deficiency constitutes a material weakness. <br />2008-1 Control over Year-End Processing <br />Condition: Atypical e!cpectation for year-processing is that all general ledger accounts are <br /> reconciled and in agreement with supporting schedules. During our audit, <br /> adjustments were needed to correct coding and reclassify amounts in accounts <br /> receivable, accounts payable and debt. <br />Criteria: The Utilities should have internal control procedures that ensure all balance sheet <br /> accounts are reconciled and agreed to the general ledger. <br />Cause: It appears that detail schedules were prepared but not agreed to the general ledger. <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 cannot serve as a <br /> compensating control over this deficiency. <br />Recommendation: We recommend that management implement control procedures over the month end <br /> and year end closing process. This requires that all general ledger accounts are <br /> reconciled and agreed to the general ledger. <br />Management Response: Management agrees with the finding and believes that adequate corrections were <br />implemented immediately a8er notice of the finding. There will be more frequent <br />reconciliation of all general ledger amounts and a more complete tie out of all <br />balance sheet accounts at year end. <br />952.835.9090 Fax 952.835.3261 <br />www.aemcpas.com <br />