CITY OF SPEARFISH

2021-002 FINDING: Financial Statement and Schedule of Expenditures of Federal Awards (SEFA) Preparation Federal Program Affected: Airport Improvement Program (Assistance Listing #20.106) Compliance Requirement: Reporting Questioned Costs: None Condition and Cause: We were requested to draft the audited financial statements, related footnote disclosures, and SEFA as part of our regular audit services. Auditing standards require auditors to communicate this situation to the City Council as an internal control deficiency. Ultimately, it is management?s responsibility to provide for the preparation of the City?s statements and footnotes, and the responsibility of the auditor to determine the fairness and presentation of those statements. From a practical standpoint, we do both for the City at the same time in connection with our audit. This is not unusual for municipalities of your size. Criteria and Effect: It is our responsibility to inform the City Council that this deficiency could result in a misstatement to the financial statements that would not have been prevented or detected by the City?s management. Recommendation: As in prior years, we have instructed management to review a draft of the auditor-prepared financials in detail for their accuracy; we have answered any questions they might have, and have encouraged research of any accounting guidance in connection with the adequacy and appropriateness of classification and disclosure in the City?s statements. We are satisfied that the appropriate steps have been taken to provide the City with the completed financial statements. It is the responsibility of management and those charged with governance to make the decision whether to accept the degree of risk associated with this condition because of cost or other considerations. Repeat Finding from Prior Year: Yes, but not for SEFA Preparation. Response/Corrective Action Plan: The City agrees with the above finding. See Corrective Action Plan.

Corrective Action Plan: The City has accepted the risk associated with Finding #2021-002 regarding the preparation of the financial statements and SEFA and will continue to have the independent auditor prepare the annual financial statements.