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LarsonAllen" CPAs, Consultants & Advisors www.larsonallen.com September 30,2004 Sandy Peine Finance Director City of Pequot Lakes City Clerk Pequot Lakes,MN 56472 Dear Sandy: I am very excited about the opportunity to provide the City of Pequot Lakes a proposal for professional auditing services for the year ended December 31, 2004. My firm will provide timely audit services and a "big picture" report to the council, reviewing operations and audit conclusions, under either of the following two options: Option I Cash basis financial statements in accordance with the requirements of the Minnesota State Auditor for cities under 2,500 population. We have verified with Tom Karlson, CPA and Dave Kazeck (authorities on this topic at the State Auditors office) that it would be acceptable for the City to switch from its current accrual basis reporting to the cash basis. This option would save the City some fees for the next several years (until the City's population exceeds 2,500) and would allow extra time to plan for, and implement,the infrastructure reporting requirements of GASB 34. Option II GASB 34, accrual basis financial statements. While there is more work for the City's staff and more audit time/fees, the accrual basis financial statements do provide a lot more information about the City's financial position and activities at the city-wide and fund level. We have provided fee information under each option at Appendix D-1 and 13=2. Our vision is to be a leading contributor to the public sector,providing top quality audit services. We hope you will select Larson, Allen, Weishair & Co., LLP to provide professional auditing services to the City of Pequot Lakes for the following reasons: Commitment and Experience— ♦ Our experience includes auditing approximately 40 cities, 20 electric utilities, numerous fire relief associations, and more than 200 local government units in total. (Appendix A-1 and A-2) ♦ Our GASB Statement No. 34 experience includes implementations for more than 75 government units (cities, counties, school districts,and special districts). City of Pequot Lakes,Minnesota Page 1 PO Box 648, Brainerd,MN 56401-0648, 218/828-0100, Fax 218/828-9503 14275 Golf course Drive, suite 300, Baxter, MN 56425