CITY OF EASTON, MINNESOTALocal Government

2021-001. Preparation of financial statements and related footnotes Condition: The City does not have an internal control system designed to provide for the preparation of the financial statements being audited. City personnel do prepare periodic financial statements and other financial information for internal use that meets the needs of management and the City Council. However, the City does not have the internal resources to prepare full-disclosure financial statements required by GAAP for external reporting. As auditors, we were requested to draft the financial statements and accompanying footnotes. Criteria: Internal controls over financial reporting include those related to the actual preparation and review of the audited financial statements. In order to prepare a complete set of financial statements in conformity with GAAP, the preparer must have the necessary expertise. Cause: The City does not have the resources to compile their own financial statements. Effect: This control deficiency could result in a misstatement to the financial statements that would not be prevented or detected. Recommendation: This control deficiency is not unusual in a small city. However, it is the responsibility of management and the City Council to decide whether to accept the degree of risk associated with this condition based on the cost of correction and other considerations. Response: The City will consider putting new procedures in place to ensure that all balances are properly adjusted at year-end. The City will review all adjusting entries posted at year-end and decide if they are appropriate and complete.