Summary Financial Information from the Auditor for Fiscal Year 2011 (ending June 30, 2011)

S B & C O M P A N Y,

LLC

TOWN OF CENTREVILLE

COMMUNICATIONS WITH THOSE CHARGED

WITH GOVERNANCE

FOR THE YEAR ENDED JUNE 30, 2011

APRIL 19, 2012

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XPERIENCE

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UALITY

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LIENT SERVICE

Summary

EXPERIENCE QUALITY CLIENT SERVICE

Scope of Services  Audit of June 30, 2011 financial statements  OMB-Circular A-133 Single Audit and Data Collection Form  Assistance in preparation of financial statements  Review of the Uniform Financial Report  Available for year-round consultation Results  Issued an unqualified opinion on financial statements and A-133 Audit  No significant deficiencies or material weaknesses noted  We did not discover any instances of fraud

 Received full cooperation of management Items for discussion  Industry Update  SBC Risk-Based Audit Approach  Assessment of Control Environment  Evaluation of Key Processes  Summary Financials  Single Audit Results  Required Communications  Fraud Assessment  Engagement Team 1 Industry Update

EXPERIENCE QUALITY CLIENT SERVICE

 Standard and Poor’s Municipal Bond Downgrades;

 Municipal and County bankruptcies and potential impact on debt market;

 Management and the Town should be aware that because of the present economic times and slow down in our economy, there will be greater financial pressures on the Town’s employees and potential customers, which increases the Town’s risk of fraud from its employees and customers;

 Risk management concerns related to employees have become an issue among local governments. Governments should be proactive in initiating risk management policies to minimize liability exposure;

 Potential loss of tax exempt debt issuances if benefit plans not adequately funded;

 Pension and OPEB liability recognition on the statements of net assets (entity wide);

 State of Maryland shifting costs to counties and municipalities;

 Increased needs for fiscal transparency; and  Potential industry movement to zero-based budgeting.

2 SBC Risk-Based Audit Approach

EXPERIENCE QUALITY CLIENT SERVICE

Focus During this Stage

- Identify internal, external and

financial statements risks

- Develop audit plans

- Evaluate your controls and

processes -Test your key controls

- Evaluate your processes to

report correct amounts

- Evaluate reporting policies

- Review financial statement for

misstatements

- Verify selected account balances

- Obtain third party verification

- Professional standards

requirements

- Obtain representation

- Evaluate results of audit

procedures

- Communicate results and

prepare reports to issue 3 Assessment of Control Environment

EXPERIENCE QUALITY CLIENT SERVICE

Our Area Points to Consider Assessment  Key executive integrity, ethics, and behavior  Control consciousness and operating style  Commitment to competence Control  Council’s participation in governance and oversight Effective Environment  Organizational structure and assignment of authority and responsibility  HR policies and procedures  Mechanisms to anticipate, identify, and react to Risk significant events

Effective Assessment  Processes and procedures to identify changes in GAAP, business practices and internal control  Adequate performance reports produced from information systems  Information systems are connected with the business strategy Information &  Commitment of HR and finance to develop, test and Effective Communication monitor IT systems and programs  Business continuity/disaster plan for IT

 Established communication channels for employees to fulfill responsibilities  Adequate communication across organization  Existence of necessary policies and procedures  Clear financial objectives with active monitoring  Logical segregation of duties Control  Periodic comparisons of book to actual and physical Effective Activities count to books  Adequate safeguards of documents, records and assets

 Access controls in place  Periodic evaluations of internal controls Monitoring Effective  Implementation of improvement recommendations 4 Evaluation of Key Processes

EXPERIENCE QUALITY CLIENT SERVICE

Process Function Design Operation  Cash Management Effective Effective Treasury  Investment Accounting  Methodology Effective Effective Estimation  Calculation  Accounting Principles and Disclosure Effective Effective  Closing the Books Financial  General Ledger and Journal Entry Reporting Processing  Verification and Review of Results  Purchasing Effective Effective Expenditures  Receiving

 Accounts Payable/Cash Disbursement  Hiring Effective Effective  Attendance Reporting Payroll  Payroll Accounting and Processing  Payroll Disbursements  Separation  Billing Effective Effective Revenue  Cash Receipts  Physical Custody Effective Effective Fixed Assets  Asset Accounting  Assess Internal and External Risk Effective Effective  Regulatory Compliance Compliance  Monitor Compliance

 Grant Compliance  Program Integrity and Change Effective Effective Management  Information Security and Transaction Information Authorization Technology  Segregation of Duties and Management Oversight  Computer Operations 5 Summary Financials

EXPERIENCE QUALITY CLIENT SERVICE

Caption 2011 2010 2009 Net assets $ 3 6,950,000 $ 36,598,000 $ 36,803,000 Capital assets 33,648,000 3 1,657,000 3 1,054,000 Total assets 51,666,000 4 7,474,000 4 8,015,000 General fund balance 5,370,000 5,152,000 5,314,000 Budgeted general fund revenue 3,985,000 4,168,000 3,480,000 Actual general fund revenue 3,536,000 3,715,000 3,377,000 Budgeted general fund expenditures 5,187,000 5,125,000 5,874,000

Actual general fund expenditures 3,826,000 3,741,000 3,055,000 Debt 11,236,000 8,957,000 9,449,000 Enterprise fund revenue 1,515,000 1,349,000 1,966,000 Debt as a % of capital assets 33% 28% 30% Debt per capita 2,622 2,090 2,732 6 Single Audit Results

EXPERIENCE QUALITY CLIENT SERVICE

Federal CFDA Federal Major Federal Award Program Description Number Expenditures Capitalization Grants for Clean Water State Revolving Funds - Rt. 213 and 304 Sanitary Sewer Upgrade (ARRA) 66.458 $ 1,034,115 Total Expenditures of Federal Awards $ 1,251,355 Major Program Coverage 83% Results:

Area Opinion Financial reporting controls and compliance Unqualified Major programs compliance Unqualified 7 Required Communications

EXPERIENCE QUALITY CLIENT SERVICE

1. Auditor’s Responsibilities Under Generally Accepted Auditing Standards

(GAAS)

The financial statements are the responsibility of management. Our audit was designed in accordance with auditing standards generally accepted in the United States of America, and provide for reasonable, rather than absolute, assurance that the financial statements are free of material misstatement.

2. Significant Accounting Policies

Management has the responsibility for selection and use of appropriate accounting policies. In accordance with the terms of our engagement letter, we will advise management about the appropriateness of accounting policies and their application. The significant accounting policies used by management are described in the notes to the financial statements.

3. Auditor’s Judgments About the Quality of Accounting Principles

We discuss our judgments about the quality, not just the acceptability, of accounting principles selected by management, the consistency of their application, and the clarity and completeness of the financial statements, which include related disclosures.

We have reviewed the significant accounting policies adopted by the Town and have determined that these policies are acceptable accounting policies.

8 Required Communications EXPERIENCE QUALITY CLIENT SERVICE (continued)

4. Audit Adjustments

We are required to inform the Town Council about adjustments arising from the audit (whether recorded or not) that could in our judgment either individually or in the aggregate have a significant effect on the entity’s financial reporting process. We also are required to inform the Town Council about unadjusted audit differences that were determined by management to be individually and in the aggregate, immaterial.

We provided assistance with cash-to-accrual adjustments.

5. Fraud and Illegal Acts

We are required to report to the Town Council any fraud and illegal acts involving senior management and fraud and illegal acts (whether caused by senior management or other employees) that cause a material misstatement of the financial statements.

Our procedures identified no instances of fraud or illegal acts.

6. Material Weaknesses in Internal Control

We are required to communicate all significant deficiencies in the Town’s systems of internal controls, whether or not they are also material weaknesses.

There were no significant deficiencies or material weaknesses noted during the audit.

9 Required Communications EXPERIENCE QUALITY CLIENT SERVICE (continued)

7. Other Information in Documents Containing Audited Financial Statements

None.

8. Disagreements with Management on Financial Accounting and Reporting

Matters None.

9. Serious Difficulties Encountered in Performing the Audit

None.

10. Major Issues Discussed with Management Prior to Acceptance

None.

11. Management Representations

We will receive certain written representations from management as part of the completion of the audit.

12. Consultation with Other Accountants

To our knowledge, there were no consultations with other accountants since our appointment as the Town’s independent public accountants.

13. Independence

As part of our client acceptance process, we go through a process to ensure we are independent of the Town. We are independent of the Town.

10 Required Communications EXPERIENCE QUALITY CLIENT SERVICE (continued)

14. Our Responsibility Related to Fraud

• Plan and perform the audit to obtain reasonable assurance that there is no

material misstatement caused by error or fraud;

• Comply with GAAS SAS No. 99 “Consideration of Fraud in a Financial

Statement Audit”;

• Approach all audits with an understanding that fraud could occur in any

entity, at any time, by anyone; and

• Perform mandatory procedures required by GAAS and our firm policies.

Examples of Procedures Performed

• Discuss thoughts and ideas on where the financial statements might be

susceptible to material misstatement due to fraud;

• Understand pressures on the financial statement results;

• Understand the tone and culture of the organization;

• Look for unusual or unexpected transactions, relationships, or procedures;

• Discuss with individuals outside of finance;

• Evaluate key processes and controls; and

• Consider information gathered throughout the audit.

11 Fraud Assessment

EXPERIENCE QUALITY CLIENT SERVICE

O

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Opportunity

• Generally provided through weaknesses in internal control

• Tone at the top is important

• We assess controls and tone at the top

Pressure

• Pressure can be imposed due to economic troubles,

personal vices, and unrealistic deadlines and performance goals

• There are increased pressures due to economy and

minimal salary increases Rationalization

• Individuals develop a justification for their fraudulent

activities

• Increased rationalization due to minimal salary increases

and less personnel 12 Engagement Team

EXPERIENCE QUALITY CLIENT SERVICE

13

EXPERIENCE QUALITY CLIENT SERVICE

Headquarters:

200 International Circle  Suite 5500  Hunt Valley  Maryland 21030

(P) 410-584-0060  (F) 410-584-0061