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Schedule of Findings and Questioned Costs (continued) <br />Year Ended December 31, 2012 <br />B. FINDINGS — FINANCIAL STATEMENT AUDIT <br />None. <br />C. FINDINGS AND QUESTIONED COSTS — MAJOR FEDERAL AWARD PROGRAMS <br />AUDIT <br />None. <br />D. FINDINGS — MINNESOTA LEGAL COMPLIANCE AUDIT <br />2012 -1 ALLOWABLE INVESTMENTS <br />Criteria — Minnesota Statute § 118A.05, Subd. 4 and 118A.04. <br />Condition — If a city invests in mutual funds, it must invest in shares of an investment company <br />that is rated in one of the two highest rating categories for mutual funds by at least one nationally <br />recognized statistical ratings organization. Also, if the city invests in general obligations of a <br />state or local government with taxing powers, the investment must be rated "A" or better by a <br />national bond rating service. One mutual fund and one general obligation investment held during <br />fiscal 2012 did not meet these requirements, as the mutual fund was not rated and the general <br />obligation investment was rated lower than category "A ". <br />Context — This is a current year finding. <br />CITY OF RAMSEY <br />Cause — This was an oversight by city personnel and a result of a downgrade in rating after initial <br />purchase of the general obligation investment. <br />Effect — The City of Ramsey, Minnesota's (the City) investments could be at risk greater than <br />what is allowed under Minnesota Statute. <br />Recommendation — We recommend that the City evaluate its continued investment in this <br />mutual fund and general obligation, and consider selling the noncompliant investments if doing <br />so is not financially prohibitive. <br />Management Response — There is no disagreement with the audit finding. The City has already <br />switched to a rated mutual fund and is in the process of determining whether or not to sell the <br />general obligation. The City will also review its procedures for investment ratings to ensure <br />future compliance with this statute. <br />D. SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS — MAJOR FEDERAL AWARD <br />PROGRAMS AUDIT <br />None. <br />-10- <br />