**EAST OTTER TAIL SOIL AND WATER**

**CONSERVATION DISTRICT**

**FINANCIAL STATEMENTS**

# December 31, 2006

**TABLE OF CONTENTS**

**FINANCIAL SECTION Page**

> Independent Auditor's Report 1-2
>
> Management's Discussion and Analysis 3-5

## BASIC FINANCIAL STATEMENTS

Statement of Net Assets and Governmental Fund Balance Sheet 6

Statement of Activities and Governmental Fund Revenues, Expenditures

And Changes In Fund Balance 7

Budgetary Comparision Statement, Budget and Actual, General Fund 8

Notes to Financial Statements 9-13

**ADDITIONAL REPORTS**

Report on Legal Complance 14

Report on Internal Control Over Financial Reporting and on Compliance
and

other matters based on an Audit of Financial Statements Performed

in accordance with *Government Auditing Standards* 15

**JAMES MAISER**

**CERTIFIED PUBLIC ACCOUNTANT & CONSULTANT**

44 West First Street, Waconia, MN 55387 Office: 952-442-4807 Fax:
952-442-6888

# 

# 

# 

# INDEPENDENT AUDITOR'S REPORT

Board of Supervisors

East Otter Tail Soil and Water Conservation District

Perham, Minnesota

I have audited the accompanying financial statements of the governmental
activities and the General fund of the East Otter Tail Soil and Water
Conservation District, Perham, Minnesota as of and for the year ended
December 31, 2006 which collectively comprise the District's basic
financial statements as listed in the table of contents. These financial
statements are the responsibility of District management. My
responsibility is to express opinions on these financial statements
based on the audit.

I conducted the audit in accordance with auditing standards generally
accepted in the United States of America and the standards applicable to
financial audits contained in *Government Auditing Standards*, issued by
the Comptroller General of the United States. Those standards require
that I plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. I believe that my audit provides a
reasonable basis for my opinions.

In my opinion, the financial statements referred to above present
fairly, in all material respects, the respective financial position of
the governmental activities and the General fund of the East Otter Tail
Soil and Water Conservation District, Perham, Minnesota as of December
31, 2006, and the results of operations and the respective budgetary
comparison for the General fund for the year then ended in conformity
with accounting principles generally accepted in the United States of
America.

The management's discussion and analysis information is not a required
part of the basic financial statements but it is supplementary
information required by accounting principles generally accepted in the
United States of America. I have applied certain limited procedures,
which consisted principally of inquiries of management regarding the
methods of measurement and presentation of the required supplementary
information. However, I did not audit the information and express no
opinion on it.

In accordance with *Government Auditing Standards*, I have also issued a
report dated July 30, 2007 on my consideration of the District's
internal control over financial reporting and on my tests of its
compliance with certain provisions of laws, regulations, contracts and
grant agreements and other matters. The purpose of that report is to
describe the

scope of my testing of internal control over financial reporting and
compliance and the results of that testing, and not to provide an
opinion on the internal control over financial reporting or on
compliance. That report is an integral part of an audit performed in
accordance with *Governmental Auditing Standards* and should be read in
conjunction with this report in considering the results of my audit.

JAMES MAISER July 31, 2007

Certified Public Accountant and Consultant Waconia, Minnesota

**EAST OTTER TAIL SOIL AND WATER CONSERVATION DISTRICT**

**2006 Management's Discussion and Analysis**

Management's Discussion and Analysis of Results of Operations and
Financial Condition

**[Overview]{.underline}**

The East Otter Tail Soil and Water Conservation District is a political
sub-division of state government and operates under Minnesota Statutes
103.331 C. When legislation was established to form Soil and Water
Conservation Districts there was no taxing authority or stable funding
mechanism established to support them. As a result, Districts have had
to piece together funds to support their programs. The East Otter Tail
Soil and Water Conservation District earns money to support its
operation by selling, planting, and weed matting trees for conservation
projects, renting out no-till equipment, selling native grass and forbs
seed, renting seeding equipment, and through the acquisition of funds
from other local units of governments and from grants.

Since organizing in 1958, The East Otter Tail Soil and Water
Conservation District provides local leadership in the conservation of
soil, water, and related natural resources through programs with
individuals, businesses, organizations and government. The Districts
conservation programs and services vary from year to year and are
influenced by the needs of our customers and their ability to provide
funding for the District's programs and services.

The District's combined net assets from the previous year were virtually
unchanged. Our analysis focuses on the net assets and changes in net
assets of the District's governmental activities.

#### Conservation District as Whole

######## Net Assets

#  Governmental Activities

> [2006]{.underline} [2005]{.underline}

Current Assets \$628,095 \$542,949

##  Capital Assets, net of depreciation 73,810 90,852

Current Liabilities 173,094 197,331

Long term liabilities 9,846 6,423

Total Net Assets \$518,965 430,047

Net assets of the District governmental activities increased, by
\$88,918. Unrestricted net assets, the part of net assets that can be
used to finance day-to-day operations without constraints established by
debt covenants, enabling legislation, or other legal requirements
changed from \$339,195 at December 31, 2005 to \$445,155 at the end of
this year.

The following is a summary of all revenues, by category.

[2006]{.underline} [2005]{.underline}

County Revenue \$ 51,160 \$ 48,363

State Revenue 193,039 226,337

Federal Revenue 57,059 0

Charges for Services 176,683 198,611

Miscellaneous, Other Income [35,327]{.underline} [34,440]{.underline}

Total Revenue \$ 513,268 \$ 507,751

Conservation Expense \$ 424,350 \$ 452,179

The East Otter Tail Soil and Water Conservation District provided 40% of
the total revenue with the State of Minnesota providing 38%, Otter Tail
County supplied 10% and Federal supplied 12%.

In 2006, there was an increased need for technical assistance and fee
for services from individuals participating in local, state and federal
programs, and an increase in technical assistance funds from government
partners for promoting and marketing conservation programs.

**[Analysis of 2006 Revenues]{.underline}**

There was no change in the East Otter Tail Soil and Water Conservation
District's original and final budget for the year 2006. There were
however significant increases and decreases in certain revenues and
expenditures. The following summarizes each line item with significant
variances.

**[Revenues]{.underline}**

**Fees from Other Governments**

The increase was a result of the Contribution Agreement between the East
Otter Tail SWCD and the United States Department of Agriculture Natural
Resources Conservation Service for technical services for Irrigation
Water Management and Designs for establishment of Windbreaks and Native
Grass plantings.

**State Grants**

For the past few years the East Otter Tail Soil and Water Conservation
District has participated with a number of state partners to promote
conservation programs. This year as in the past, the East Otter Tail
Soil and Water Conservation District was awarded the Feedlot Water
Quality Grant protecting groundwater and surface water in the County.

**Charges for Services**

In 2006 the East Otter Tail Soil and Water Conservation District had a
significant positive variance in its fee for service programs. This
increase corresponds directly to an increase in individual participation
in local, state and federal programs. Significant increases in services
were seen in the District's tree sales, tree fabric installation, and
native seed programs.

**[Expenditures]{.underline}**

Variances in the East Otter Tail Soil and Water Conservation Districts
2006 expenditures were limited to Capital Outlay, District Expenses and
State Project Expenses.

**Capital Outlay**

The East Otter Tail Soil and Water Conservation District budgeted for a
new vehicle in 2006; this purchase was delayed until 2007.

**District Expenses**

In 2006 the District had a negative variance in District expenses. These
expenses were the result of the increased customer purchases of
conservation materials, (trees, tree fabric and native seed). It is
important to emphasize that this negative variance was not the result of
an increase in material cost, rather a result of increased demand for
the District's services by its customers.

**State**

In 2006 the District had a positive variance in the State Project
category. This variance was the result of increased participation in the
District's State Cost-Share program. This increased participation
essentially resulted in the District spending approximately two years of
State Cost-Share funds in one year.

**[Overall Analysis]{.underline}**

Without a stable funding mechanism in place it is difficult for the
District to develop, with great accuracy, an annual budget.

There are many uncontrollable factors that come into play each year,
which may have an impact on the District's budget. Some of these factors
include:

-   The changing needs of our customers,

-   The changing emphasis from agriculture to water quality concerns,

-   The availability of programs,

-   The financial state of the state and county,

-   Climatic variability, and

-   Available grant opportunities.

In summary 2006 brought about an increased need for technical assistance
and fee for services from individuals participating in local, state and
federal programs, and an increase in technical assistance funds from
government partners for promoting and marketing conservation programs.
The cumulative effect resulted in a positive increase in the Districts
fund balance.

**CONTACTING THE DISTRICT'S FINANCIAL MANAGEMENT**

This financial report is designed to provide our citizens, customers and
creditors with a general overview of the District's finances and to show
the District's accountability for the money it receives. If you have
questions about this report or need additional financial information,
contact the East Otter Tail Soil and Water Conservation District, 801
Jenny Ave SW, Perham, MN 56573.

  --------------------------------- ----------- --- ------------- --- -----------
  EAST OTTER TAIL SOIL AND WATER                                      
  CONSERVATION DISTRICT                                               

  PERHAM, MINNESOTA                                                   

                                                                       

  STATEMENT OF NET ASSETS AND                                         

  GOVERNMENTAL FUND BALANCE SHEET                                     

  DECEMBER 31, 2006                                                   

                                                                       

                                    General         Adjustments       Statement
                                                                      of

                                    Fund                              Net Assets

  **[Assets]{.underline}**                                            

  Cash and investments              \$ 611,257      \$ -              \$ 611,257

  Accounts Receivable               2,424           \-                2,424

  Accrued Interest Receivable       7,037           \-                7,037

  Prepaids                          425             \-                425

  Inventory, Weed Mats              6,952           \-                6,952

  Capital Assets:                                                     

  Equipment (net of accumulated     \-              73,810            73,810
  depreciation)                                                       

  Total Assets                      \$ 628,095      \$ 73,810         \$ 701,905

                                                                      

  **[Liabilities]{.underline}**                                       

  Current liabilities:                                                

  Accounts payable                  \$ 9            \$ -              \$ 9

  Deferred Revenue                  142,659         \-                142,659

  Deposits on Sales                 30,426          \-                30,426

  Long-term liabilities:                                              

  Due within one year               \-              \-                \-

  Due after one year                \-              9,846             9,846

  Total Liabilities                 \$ 173,094      \$ 9,846          \$ 182,940

                                                                      

  **[Fund Balance/Net                                                 
  Assets]{.underline}**                                               

  Fund Balance/Net Assets                                             

  Unreserved                                                          

  Undesignated                      455,001         (455,001)         \-

  Total Fund Balance                \$ 455,001      \$ (455,001)      \$ -

                                                                      

  Net Assets                                                          

  Invested in capital assets                        \$ 73,810         \$ 73,810

  Unrestricted                                      445,155           445,155

  Total Net Assets                                  \$ 518,965        \$ 518,965

                                                                      
  --------------------------------- ----------- --- ------------- --- -----------

  --------------------------- ---------- -- ------------- -- ------------ ----- -----
  EAST OTTER TAIL SOIL AND                                                      
  WATER CONSERVATION DISTRICT                                                   

  PERHAM, MINNESOTA                                                             

                                                                                

  STATEMENT OF ACTIVITIES AND                                                   

  GOVERNMENTAL FUND REVENUES,                                                   
  EXPENDITURES AND CHANGES IN                                                   
  FUND BALANCE                                                                  

  FOR THE YEAR ENDED DECEMBER                                                   
  31, 2006                                                                      

                                                                                

                              General       Adjustments      Statement of       

                              Fund                           Activities         

  **Revenues**                                                                  

  Intergovernmental           \$ 301,258    \$ -             \$ 301,258         

  Charges for services        176,683       \-               176,683            

  Investment earnings         26,304        \-               26,304             

  Miscellaneous               9,023         \-               9,023              

  Total Revenues              \$ 513,268    \$ -             \$ 513,268         

                                                                                

  **Expenditures/Expenses**                                                     

  Conservation                                                                  

  Current                     \$ 403,885    \$ 20,465        \$ 424,350         

  Capital outlay              \-            \-               \-                 

  Total Expenditures/Expenses \$ 403,885    \$ 20,465        \$ 424,350         

                                                                                

  Excess of Revenues Over                                                       
  (Under)                                                                       

  Expenditures/Expenses       \$ 109,383    \$ (20,465)      \$ 88,918          

                                                                                

  Fund Balance/Net Assets     \$ 345,618    \$ 84,429        \$ 430,047         
  January 1                                                                     

                                                                                

  Fund Balance/Net Assets     \$ 455,001    \$ 63,964        \$ 518,965         
  December 31                                                                   

                                                                                

                                                                                

                                                                                
  --------------------------- ---------- -- ------------- -- ------------ ----- -----

  ---------------------------- -- -- ---------------------- -- ---------------------- -- --------------------
  EAST OTTER TAIL SOIL AND                                                               
  WATER CONSERVATION DISTRICT                                                            

  PERHAM, MINNESOTA                                                                      

                                                                                         

  BUDGETARY COMPARISON                                                                   
  STATEMENT                                                                              

  BUDGET AND ACTUAL                                                                      

  GENERAL FUND                                                                           

  YEAR ENDED DECEMBER 31, 2006                                                           

                                                                                         Variance with

                                     Original/Final                                      Final Budget

                                     [Budget]{.underline}      [Actual]{.underline}      [Positive
                                                                                         (Neg)]{.underline}

  **Revenues**                                                                           

  Intergovernmental                                                                      

  County                             \$ 69,500                 \$ 51,160                 \$ (18,340)

  State Grant                        194,060                   193,039                   (1,021)

  Federal Grant                      23,000                    57,059                    34,059

  Total intergovernmental            \$ 286,560                \$ 301,258                \$ 14,698

                                     ** **                     ** **                     ** **

  Charges for services               \$ 137,500                \$ 176,683                \$ 39,183

                                                                                         

  Miscellaneous                                                                          

  Interest earnings                  \$ 4,000                  \$ 26,304                 \$ 22,304

  Other                              7,050                     9,023                     1,973

  Total miscellaneous                \$ 11,050                 \$ 35,327                 \$ 24,277

                                                                                         

  Total Revenues                     \$ 435,110                \$ 513,268                \$ 78,158

                                                                                         

  **Expenditures**                                                                       

  District operations                                                                    

  Personnel services                 \$ 162,260                \$ 155,011                \$ 7,249

  Other services and charges         40,700                    30,846                    9,854

  Supplies                           2,500                     7,755                     (5,255)

  Capital outlay                     19,000                    \-                        19,000

  Total district operations          \$ 224,460                \$ 193,612                \$ 30,848

                                                                                         

  Project expenditures                                                                   

  District                           \$ 77,000                 \$ 92,504                 \$ (15,504)

  State                              133,650                   117,769                   15,881

  Total project expenditures         \$ 210,650                \$ 210,273                \$ 377

                                                                                          

  Total Expenditures                 \$ 435,110                \$ 403,885                \$ 31,225

                                                                                         

  Excess of Revenues Over                                                                
  (Under)                                                                                

  Expenditures                       \$ -                      \$ 109,383                \$ 109,383

                                                                                         

  Fund Balance - January 1           \$ 345,618                \$ 345,618                \$ -

                                                                                         

  Fund Balance - December 31         \$ 345,618                \$ 455,001                \$ 109,383

                                                                                         

                                                                                         

  Notes are an integral part                                                             
  of the basic financial                                                                 
  statements.                                                                            

                                                                                         

                                                                                         

                                                                                         

                                                                                         

                                                                                         

                                                                                         

                                                                                         

                                                                                         

                                                                                         

                                                                                         

                                                                                         

                                                                                         

                                                                                         

                                                                                         
  ---------------------------- -- -- ---------------------- -- ---------------------- -- --------------------

**[Note 1 - Summary of Significant Accounting Policies]{.underline}**

### Financial Reporting Entity

The East Otter Tail Soil and Water Conservation District is organized
under the provisions of Minnesota Statutes Chapter 103C. The District is
governed by a Board of Supervisors composed of five members nominated by
voters of the District and elected to four-year terms by the voters of
the County.

The purpose of the District is to assist land occupiers in applying
practices for the conservation of soil and water resources. These
practices are intended to control wind and water erosion, pollution of
lakes and streams, and damage to wetlands and wildlife habitats.

The East Otter Tail Soil and Water Conservation District, in cooperation
with the U.S. Department of Agriculture Natural Resources Conservation
Service and other agencies, provides technical and financial assistance
to individuals, groups, organizations, and governments in reducing
costly waste of soil and water resulting from soil erosion,
sedimentation, pollution and improper land use.

Each fiscal year the District develops a work plan which is used as a
guide in using resources effectively to provide maximum conservation of
all lands within its boundaries. The work plan includes guidelines for
employees and technicians to follow in order to achieve the District\'s
objectives.

The District is not considered a part of East Otter Tail County because,
even though the County provides a significant amount of the District\'s
revenues in the form of an appropriation, it does not retain any control
over the operations of the district.

Generally accepted accounting principles require that the financial
reporting entity include the primary government and component units for
which the primary government is financially accountable. Under these
principles the District does not have any component units.

[Government-Wide Financial Statements]{.underline}

The government-wide financial statements (ie., the Statement of Net
Assets and The Statement of Activities) report information on all of the
nonfiduciary activities of the District.

The Statement of Activities demonstrates the degree to which the direct
expenses of a given function or segment are offset by program revenues.
Direct expenses are those that are clearly identifiable with a specific
function.

The government-wide financial statements are reported using the economic
resources measurement focus and the accrual basis of accounting.
Revenues are recorded when earned and expenses are recorded when a
liability is incurred, regardless of the timing of cash flows. Grants
and similar items are recognized as revenues as soon as all eligibility
requirements imposed by the provider have been met.

##### Fund Financial Statements

The government reports the general fund as its only major governmental
fund. The general fund accounts for all financial resources of the
government.

The District\'s financial statements (general fund) are presented on the
modified accrual basis of accounting. Under the modified accrual basis
of accounting, revenues are recognized when they become susceptible to
accrual, that is, both measurable and available. Available means
collectible within the current period or soon enough thereafter to be
used to pay liabilities of the current period. Revenue sources
susceptible to accrual include intergovernmental revenues, charges, and
interest. Expenditures are recorded when the corresponding liabilities
are incurred.

Intergovernmental revenues are reported in conformity with the legal and
contractual requirements of the individual programs. Generally, grant
revenues is recognized when the corresponding expenditures are

incurred. The District also receives an annual appropriation from the
County, which is recognized as revenue when received, unless it is
received prior to the period to which its applies. In that case, revenue
recognition is then deferred until the appropriate period.

Investment earnings and revenue from sale of trees are recognized when
earned. Agricultural conservation fees and other revenue are recognized
when they are received in cash because they usually are not measurable
until then.

Project expenditures represent costs that are funded from federal,
state, or district revenues. State project expenditures consist of
grants to participants of the Cost-Share Program and other state
programs. District project expenditures are costs of materials and
supplies in District projects.

In accordance with Governmental Accounting Standards Board Statement No.
33, *Accounting and* *Financial Reporting for Nonexchange Transactions*,
revenues for nonexchange transactions are recognized based on the
principal characteristics of the revenue. Exchange transactions are
recognized as revenue when the exchange occurs.

[Budget Information]{.underline}

The District adopts an estimated revenue and expenditure budget for the
General Fund. Comparisons of estimated revenues and budgeted
expenditures to actual are presented in the financial statements in
accordance with generally accepted accounting principles. Amendments to
the original budget require board approval. Appropriations lapse at
year-end. The District does not use encumbrance accounting.

[Use of Estimates]{.underline}

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and reported amounts of revenues and expenditures
during the reporting period. Actual results could differ from those
estimates.

[Assets, Liabilities and Fund Equity Accounts]{.underline}

> [Assets]{.underline}

Investments are stated at fair value, except for non-negotiable
certificates of deposits, which are on a cost basis, and short-term
money market investments, which are stated at amortized cost.

> Capital assets are reported on a net (depreciated) basis. General
> capital assets are still valued at historical or estimated historical
> cost.
>
> [Liabilities]{.underline}
>
> Long-term liabilities, such as compensated absences, are accounted for
> as an adjustment to Net Assets.

##### Equity 

Reserved fund balance indicates the portion of fund equity, which has
been legally segregated for specific purposes or is not appropriable for
spending.

Unreserved, designated account indicates the portion of fund equity that
the District has set aside for planned future expenditures.

> Unreserved, undesignated fund balance account indicates the portion of
> fund balance that is available for budgeting and spending in future
> periods.

[Vacation and Sick Leave]{.underline}

Under the District\'s personnel policies, employees are granted vacation
leave in varying amounts based on their length of service. Vacation
leave accrual varies from 3.3 to 13.33 hours per month. Sick leave
accrual is 12 days per year. The limit on the accumulation of annual
leave is 160 hours and the limit on sick leave is 160 hours. Upon
termination of employment from the district, employees are paid
accumulated annual leave.

[Risk Management]{.underline}

The District is exposed to various risks of loss related to tort; theft
of, damage to, and destruction of assets; errors and omissions; injuries
to employees; worker's compensation claims; and natural disasters.
Property and casualty liabilities and workers' compensation are insured
through Minnesota Counties Insurance Trust. The District retains risk
for the deductible portion of the insurance. The amounts of these
deductibles are considered immaterial to the financial statements.

The Minnesota Counties Insurance Trust is a public entity risk pool
currently operated as a common risk management and insurance program for
its members. The District pays an annual premium based on its

annual payroll. There were no significant increases or reductions in
insurance from the previous year or settlements in excess of insurance
coverage for any of the past three fiscal years.

**[Note 2 -- Detailed Notes on All Funds and Account
Groups]{.underline}**

[Capital Assets]{.underline}

Changes in Capital Assets, Asset Capitalization and Depreciation.

> Beginning Addition Deletion Ending
>
> Equipment \$181,248 \$ 0 \$ 0 \$181,248
>
> Less: Accumulated Depreciation [90,396]{.underline} 17,042 0
> [107,438]{.underline}
>
> Capital Assets \$90,852 \$73,810

The cost of property, plant and equipment is depreciated over the
estimated useful lives of the related assets. Leasehold improvements are
depreciated over the lesser of the term of the related lease or the
estimated useful lives of the assets. Depreciation is computed on the
straight-line method. The useful

lives of property, plant and equipment for the purpose of computing
depreciation are Machinery and equipment 5 to 10 years. Current year
depreciation is \$17,042.

[Deferred Revenue]{.underline}

Deferred revenue represents unearned advances from the Minnesota Board
of Water and Soil Resources (BWSR) for administrative service grants and
for the cost-share program. Revenues will be recognized when the related
program expenditures are recorded. Deferred revenue for the year ended
December 31, 2006, consists of the following: BWSR Service Grant,
\$14,776; BWSR Regular Cost Share Programs, \$41,392; County Water Plan,
\$9,969; Feedlot Water Quality Grant, \$65,455; Farm Bill Grant,
\$13,067; Total, \$142,659.

[Long-Term Liabilities - Compensated Absences Payable]{.underline}

Changes in long-term liabilities for the period ended December 31, 2006
are:

> Balance January 1, 2006 \$6,423
>
> Net Change in Compensated Absences [3,423]{.underline}
>
> Balance December 31, 2006 \$9,846

[Deposits]{.underline}

Minn. Statutes 118A.02 and 118A.04 authorize the District to designate a
depository for public funds and to invest in certificates of deposit.
Minnesota Statute 118A.03 requires that all district deposits be

protected by insurance, surety bond, or collateral. The market value of
collateral pledged shall be at least ten percent more than the amount on
deposit plus accrued interest at the close of the financial
institution's banking day, not covered by insurance or bonds.

Authorized collateral includes treasury bills, notes and bonds; issues
of U.S. government agencies; general obligations rated "A" or better,
revenue obligations rated "AA" or better; irrevocable standard letters
of credit issued by the Federal Home Loan Bank; and certificates of
deposit. Minnesota Statutes require that securities pledged as
collateral be held in safekeeping in a restricted account at the Federal
Reserve Bank or in an account at a trust department of a commercial bank
or other financial institution that is not owned or controlled by the
financial institution furnishing the collateral.

[Custodial Credit Risk Deposits]{.underline}

At December 31, 2006, the District's deposits totaled \$611,257, of
which \$124,121 were cash deposits and \$487,136 was invested in bank
certificate of deposits. Custodial credit risk is the risk that in the
event of a financial institution failure, the District's deposits may
not be returned to it. The District does not have a deposit policy for
custodial credit risk. As of December 31, 2006, the District's deposits
were not exposed to custodial credit risk.

## [Note 3 - Defined Benefit Pension Plans -- Statewide]{.underline}

[Plan Description - Public Employees Retirement Association]{.underline}

The district contributes to a cost-sharing multiple-employer defined
pension plan administered by the Public Employee Retirement Association
of Minnesota (PERA). The PERA provides retirement benefits as well as
disability to members, and benefits to survivors upon death of eligible
members. The plan and its benefits are established and administered in
accordance with Minn. Statute Chapters 353 and 356. PERA issues a
publicly available financial report that includes financial statements
and required

supplementary information. That report may be obtained by writing to the
Public Employees Retirement Association, 60 Empire Drive, Suite 200, St.
Paul, Minnesota, 55103-1855.

[Funding Policy]{.underline}

Minnesota Statutes Chapter 353 sets the rates for employer and employee
contributions. These statutes are established and amended by the state
legislature. The District makes annual contributions to the

pension plans equal to the amount required by state statutes. PERF Basic
Plan members and Coordinated Plan members were required to contribute
9.10% and 5.5%, respectively, of their annual covered salary. The
District is required to contribute the following percentages of annual
covered payroll: 11.78% for Basic Plan PERF members and 6.0% for
Coordinated Plan PERF members. The District's contributions to the
Public Employees Retirement Fund for the years ending December 31, 2006,
2005 and 2004 were \$6,109, \$4,664 and \$3,698 respectively. The
District's contributions were equal to the contractually required
contributions for each year as set by Minnesota statute.

# Note 4 -- Operating Leases

The District leases office space on a yearly basis. Under the current
agreement, total costs for 2006 were \$8,280.

# Note 5 -- Reconciliation of Fund Balance to Net Assets

Governmental Fund Balance, January 1 \$345,618

Plus: Excess of Revenue Over Expenditures [109,383]{.underline}

Governmental Fund Balance, December 31 [\$455,001]{.underline}

Adjustments from Fund Balance to Net Assets:

Add: Capital Assets, net of depreciation \$73,810

Less: Long Term Liabilities [(\$9,846)]{.underline}

Net Assets \$518,965

## 

## [Note 6 -- Reconciliation of Change in Fund Balance to Change in Net Assets]{.underline}

Change in fund balance \$109,383

The cost of capital assets are allocated over the capital

asset's useful lives at the government-wide level. (17,072)

In the statement of activities certain operating expenses

including compensated absences are measured by [(3,423)]{.underline}

the amounts earned.

Net change in net assets \$ 88,918

## [Note 7 -- Subsequent Events]{.underline} 

In March 2007 the District closed on the purchase of their office
building. Purchase price was \$331,000 with \$231,000 being financed
through a local bank. This district is using only a portion of the
building the balance of the building is leased to other tenants.

![](media/image1.wmf){width="5.999305555555556in"
height="8.984027777777778in"}

**JAMES MAISER**

**CERTIFIED PUBLIC ACCOUNTANT & CONSULTANT**

44 West First Street, Waconia, MN 55387 Office: 952-442-4807 Fax:
952-442-6888

**REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE
AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN
ACCORDANCE WITH *GOVERNMENT* *AUDITING STANDARDS***

Board of Supervisors

East Otter Tail Soil and Water Conservation District

Perham, Minnesota

In planning and performing my audit of the financial statements of the
governmental activities, and the General fund of the East Otter Tail
Soil and Water Conservation District, Perham, Minnesota as of and for
the year ended December 31, 2006, in accordance with auditing standards
generally accepted in the United States of America, I considered the
District's internal control over financial reporting (internal control)
as a basis for designing my auditing procedures for the purpose of
expressing my opinion on the financial statements, but not for the
purpose of expressing an opinion on the effectiveness of the District's
internal control. Accordingly, I do not express an opinion on the
effectiveness of the District's internal control.

# Internal Control 

A control deficiency exists when the design or operation of a control
does not allow management or employees, in the normal course of
performing their assigned functions, to prevent or detect misstatements
on a timely basis. A significant deficiency is a control deficiency, or
combination of control deficiencies, that adversely affects the entity's
ability to initiate, authorize, record, process, or report financial
data reliably in accordance with generally accepted accounting
principles such that there is more than a remote likelihood that a
misstatement of the entity's financial statements that is more than
inconsequential will not be prevented or detected by the entity's
internal control.

A material weakness is a significant deficiency, or combination of
significant deficiencies, that results in more than a remote likelihood
that a material misstatement of the financial statements will not be
prevented or detected by the entity's internal control.

My consideration of internal control was for the limited purpose
described in the first paragraph and would not necessarily identify all
deficiencies in internal control that might be significant deficiencies
or material weaknesses. I did not identify any deficiencies in internal
control that I consider to be material weaknesses, as defined above.

# 

# Compliance and Other Matters

As part of obtaining reasonable assurance about whether East Otter Tail
Soil and Water Conservation District's financial statements are free of
material misstatement, I performed tests of its compliance with certain
provisions of laws, regulations, contracts and grant agreements,
noncompliance with which could have a direct and material effect on the
determination of financial statement amounts. However, providing an
opinion on compliance with those provisions was not an objective of my
audit and, accordingly, I do not express such an opinion. The results of
my tests disclosed no instances of noncompliance or other matters that
are required to be reported under *Government Auditing Standards*.

This communication is intended solely for the information and use of
management and others within the organization and the Board of
Supervisors, and is not intended to be and should not be used by anyone
other than these specified parties.

JAMES MAISER July 31, 2007

Certified Public Accountant and Consultant Waconia, Minnesota