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For the purpose of this report, we have classified the significant internal ' control structure policies and procedures in the following categories: cash receipts/revenue, cash disbursements/expenditures, payroll, and external finan- cial reporting. Our consideration of the internal control structure included all of the control categories listed above. The purpose of our consideration of the internal control structure was to determine the nature, timing, and extent of the auditing procedures necessary for expressing an opinion on the general purpose financial statements. We noted certain matters involving the internal control structure and its opera- tion that we consider to be reportable conditions under standards established by the American Institute of Certified Public Accountants. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation of the internal control structure that, in our judge- ment, could adversely affect the entity's ability to record, process, summarize, and report financial data consistent with the assertions of management in the general purpose financial statements. Because of the limited size of your office staff , your organization has limited segregation of duties. A good system of internal accounting control con- templates an adequate segregation of duties so that no one individual handles a transaction from inception to completion. While we recognize that your organi- zation is not large enough to permit an adequate segregation of duties in all respects, it is important that you be aware of this condition. A material weakness is a reportable condition in which the design or operation of the specific internal control structure elements does not reduce to a relatively low level the risk that errors or irregularities in amounts that ' would be material in relation to the general purpose financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. ' Our consideration of the internal control structure would not necessarily disclose all matters in the internal control structure that might be reportable conditions and, accordingly, would not necessarily disclose all reportable con- I ditions that are also considered to be material weaknesses as defined above. We believe that the reportable condition described above is a material weakness. ' In our letter to the City Council, issued in connection with our audit of the City's general purpose financial statements, we have separately communicated our observations and recommendations regarding other matters. This report is intended solely for the use of the City Council and management of the City of Ramsey, the cognizant audit agency, and other federal agencies and should not be used for any other purpose. This restriction is not intended to limit the distribution of this report which, upon acceptance by the City Council, is a matter of public record. ~. ~,~.~ July 2, 1990 ' -91-