2coW N of MEETING DATE: 4/1/2013
ITEM NO:
lF
Loos TOWN COUNCIL AGENDA REPORT
DATE: March 27, 2013
TO: MAYOR AND TOWN COUNCIL
FROM: GREG LARSON, TOWN MANAGER
SUBJECT: ACCEPT FY 2011/12 COMPREHENSIVE ANNUAL FINANCIAL REPORT
(CAFR)
RECOMMENDATION:
Accept the FY 2011/12 Comprehensive Annual Financial Report (CAFR).
BACKGROUND:
The attached FY 2011/12 CAFR presents the Town of Los Gatos's financial, operational, and
current economic conditions for the fiscal year ending June 30, 2012. The CAFR received an
unqualified opinion from Chavan & Associates, LLP, the Town's external auditors. An
unqualified opinion indicates the financial data of the Town is fairly presented according to
general accounting principles. New auditing standards require that any "significant deficiency"
or "material weaknesses" discovered in the audit be communicated in writing to management. A
material weakness is a significant deficiency which could lead to a material misstatement of the
financial statements. The auditor's report found the Town's internal control structure to have no
reportable material weaknesses.
DISCUSSION:
Chavan & Associates, LLP, the Town's auditors, conducted an audit in accordance with
Generally Accepted Auditing Standards (GRAS) and the standards for financial audits contained
in the Government Audit Standards (1994 Revision), issued by the Comptroller General of the
United States. These standards require that they plan and perform the audits to obtain reasonable
assurance as to whether the financial statements are free of material misstatement.
Staff and Town's auditors, Chavan & Associates, LLP; met with the Council Finance Committee
on Tuesday, March 26, 2013 for an in -depth review of this year's reports to the Finance
Committee. The Committee a wised by staff that the audited statements for the year ended
PREPARED BY: Step, ay, Administrative Services and Finance Director
NAFINANCE \CAFR\FY 2011- 12 \CAFR_Staff Report final.doe
Reviewed by Assistant Town'Manager Town Attorney ,Finance
PAGE 2
MAYOR AND TOWN COUNCIL
SUBJECT: ACCEPT THE FY 2011/12 COMPREHENSIVE ANNUAL FINANCIAL
REPORT (CAFR)
March 27, 2013
June 30, 2013 received an unqualified or, "cle4p" opinion for the year, meaning the financial
statements are fairly presented and contain no material misstatements.
The CAFR reported that the Town has positive net assets of $132.7 million at the fiscal year end
compared to $116.2 million the prior year. Of the $132.7 million, $90.3 million represent the
Town's investment in its capital assets and infrastructure. The remaining $42.4 million reflects a
comprehensive accounting of working capital and restricted funds; which ensure responsible
fiscal management, and funds designated for specific purposes.
Also, in accordance with AB 1x26, the Town of Los Gatos Redevelopment Agency (RDA)
dissolved and ceased to operate,as a legal entity on February 1, 2012. Prior to February 1, 2012,
the final seven months of activity of the Redevelopment Agency continued to be reported in the
governmental funds of the Town. After February 1, 2012, the assets and activities of the
dissolved Redevelopment Agency are reported in a fiduciary fund (RDA Successor Agency
private- purpose trust fund) in the financial statements of the Town.
CONCLUSION:
As noted in the auditor's opinion, the CAFR fairly presents the fiscal year ending June 30, 2012
financial activity for the Town of Los: Gatos,,. .
ENVIRONMENTAL ASSESSMENT:
The recommended action is not a project defined under CEQA, and no further action is required.
Attachments:
Attachment 1 Management Representation Letter
Attachment -_ Council_ Auditor Communications Letter dated February 20, 2013
Attachment 3 Town of Los Gatos Management Letter dated February 20, 2013
Attaclunent 4 Town of Los Gatos & Redevelopment Agency California Comprehensive Annual
Financial Report for the Fiscal Year Ended June 30, 2012
January 22, 2013
TOWN OF Los GATOS
Chavan & Associates LLP
1475 Saratoga Ave
Suite 180, San ,lose, CA 95129
FINANCE DEPARTMENT
P.O, Box 697
Los GATOS CA 95031
This representation letter is provided in connection with your audit of the financial statements of
Town of Los Gatos, which comprise the statement of financial position as of June 30, 2012, and
the related statements of operations and cash flows for the year then ended, and the related notes
to the financial statements, for the purpose of expressing an opinion on whether the financial
statements of the various opinion units are presented fairly, in all material respects, in accordance
with accounting principles generally accepted in the United States of America (U.S. GAAP).
Certain representations in this letter are described as being limited to matters that are material.
Items are considered material., regardless of size, if they involve an omission or misstatement of
accounting information that, in the light of surrounding circumstances, makes it probable that the
judgment of a reasonable person relying on the information would be changed or influenced by
the omission or misstatement,
We confirm that, to the best of our knowledge and belief, having made such inquiries as we
considered necessary for the purpose of appropriately informing ourselves as of January 22,
2013:
Financial Statements
1.
We have fulfilled our responsibilities, as set out in the terms of the audit engagement, for the
preparation and fair presentation of the financial statements of the various opinion units
referred to above in accordance with U.S. GAAP.
2,
We acknowledge our responsibility'for the design, implementation, and maintenance of
internal control relevant to the preparation and fair presentation of financial statements that
are free from material misstatement, whether due to fraud or error.
We.ac nowledge our.res- onsibilj!y for the _desi.gn�inlplemcntation,,aDd maintenaii ce of
internal control to prevent and detect fraud.
4.
Significant assuunptions used by us in malting accounting estimates are reasonable.
5.
Related party relationships and transactions have been appropriately accounted for and
disclosed in accordance with the requirements of U.S, GAAP, as applicable.
6.
All events subsequent to the date of the financial statements and for which U.S. GAAP
requires adjustnient or disclosure have been adjusted or disclosed,
7,
The effects of all known actual or possible litigation and claims have been accounted for and
disclosed in accordance with U.S. GAAP.
ATTACHMENT 1
8. With regard to items reported at fair value:
a. The underlying assumptions are reasonable and they appropriately reflect management's
intent and ability to carry out its stated courses of action.
b. The measurement methods and related - assumptions used in determining fair value are
appropriate in the circumstances and have been consistently applied.
c. The disclosures related to fair values are complete, adequate, and in conformity with U.S,
GAAP.
d. There are no subsequent events that require adjustments to the fair value measurements
and disclosures included in the financial stateme
e. nts.
9. All component units, as well as joint ventures with an equity interest, are included and other
joint ventures and related organizations are properly disclosed, as applicable.
10. All funds and activities are properly classified.
d.
11. All funds . t rat meet the ql antitative' criteria in GASB Statement No, 34, Basic Financial
StatenMnts —and Management 'S` Discussion andAnalysis for State and Local Governments,
and GASB Statement No, 37; Basic
12, Financial Statements- °erne Md;�agement.'s Discussion and Analysis � for State and Local
Governrrierits: Omnibus, for presentation as major are identified and presented as such and all
other funds that are presented as major are considered important to financial statement users,
13. All net assets components and fund balance classifications have been properly reported.
14. All revenues within the statement-Of activities have been properly classif{ed'as program
revenues, general revenues, contributions to term or permanent endowments, or contributions
to permanent fund principal.
15. All expenses have been properly classified in or allocated to functions and programs m the
statement of activities, and allocations, if any, have been made on a reasonable basis.
16. All interfund and intra- entity transactions and balances have been properly classified and
reported.
17. Special items and extraordinary items have been properly classified and reported'.
18. Deposit and investment risks have been properly and fii:lly disclosed.
19. Capital assets, including infrastructure assets, are properly capitalized, reported, and if
applicable, depreciated.
20. All required supplementary information is measured and presented within the prescribed
guidelines
Information Provided
21. We have provided you with:
a. Access to all infornlatiorl, of which we are aware that is relevant to the preparation and
_fa z 12rgserj tation of,tl e nano ial staternei�ts of t t6! _various o rnton riots refi red to above,
such as records, documentation, meeting minutes;$ and c�tlrelr'matters;
b. Additional 'ffifdiiiation that you have requested 1%111'us for the purpose of the audit; and
G. Unrestricted access to persons within the entity 601h whom yogi determined it necessary
to obtain audit evidence.
22. All transactions have been recorded in the accounting records and are reflected in the
financial statements.
23. We have no knowledge of any fraud ors• uspected fraud that affects the entity and involves:
a, Management;
b. Employees who have significant roles in internal control; or
c. Others where the fraud could have & material effect on the financial statements,
24. We have no knowledge of any allegations of fraud, or suspected fraud, affecting the entity's
financial statements communicated by employees, former employees, vendors, regulators, or
others.
25. We have disclosed to you all known actual or possible litigation and claims whose effects
should be considered when preparing the financial statements.
26. We have disclosed to you the identity of the entity's related parties and all the related party
relationships and transactions of which we are awe, as applicable,
27. There have been no communications from regulatory agencies concerning noncompliance
with or deficiencies in accounting, internal control, or financial reporting practices.
28. The Town of Los Gatos has no plans or intentions that may materially affect the carrying
value or classification of assets and liabilities.
29. We have disclosed to you all guarantees, whether written or oral, under which Town of Los
Gatos is contingently liable, as applicable.
30. We have identified and disclosed to you the laws, regulations, and provisions of contracts
and grant agreements that could have a direct and material effect on financial statement
amounts, including legal and contractual provisions for reporting specific activities in
separate funds, as applicable.
31. There are no:
a, Violations or possible violations of laws or regulations, or provisions of contracts or grant
agreements whose effects should be considered for disclosure in the financial statements
or as a basis for recording aloss contingency, including applicable budget laws and
regulations.
b. Unasserted claims or assessments that our lawyer has advised are probable of assertion
and inust be disclosed in accordance with GASB -62, Codification of Accounting and
Financial Re or°ting Guidance Contained in Pre- November 30, 1989 FASB and AICPA
Pronouncements.
c, Other liabilities or gain or loss contingencies that are required to be accrued or disclosed
by GASB -62.
32, The Town of Los Gatos has satisfactory title to all owned assets, and there are no liens or
encumbrances on such assets nor,has any asset or future revenue been pledged as collateral,
except as disclosed to you.
33. We have complied with all aspects of grant agreements and other contractual agreements that
would have a material effect on the financial statements in the event of noncompliance.
34, We have disclosed to you all significant estimates and material concentrations known to
,.. _ _ _ ...... ...._ management-that-amiNl_red to be disclosed in accordance with GASB =62. Significant ....._ _ _
estimates are estimates at the balance sheet date that could change materially within the next
year. Concentrations refer to volumes of business, revenues, available sources of supply, or
markets or geographic areas for which events could occur that would significantly disrupt
normal finances within the next year.
Supplementary Information in Relaiion to the Financial Statements as a Whole
With respect to the supplementary information accompanying the financial statements:
34. We acknowledge our responsibility for the presentation of the supplementary
information in accordance with accounting principles generally accepted in-the United States
of America and GASB 34,
35. We believe the supplementary information, including its form and content, is fairly
presented in accordance with accounting principles generally accepted in the United States of
America and GASB 34
36. 1 The methods of measurement or presentation have not changed from those used in the
prior period.
Required Supplementary' Information
With respect to the required supplementary information accompanying the financial statements:
37. We acknowledge our responsibility for the presentation of the required supplementary
information in accordance with U.S. GAAP and GASB.
38. We believe the required srtpplemcntary information, including its form and content, is
measured and fairly presented in accordance with U.S, GAAP and GASB.
39. The methods of measurement or presentation have not changed from those used in the
prior period.
OMB Circular A -133
40. With respect to federal awards, we represent the following to you:
a. We are responsible for understanding and complying with and have complied with the
I requirements of Circular A -133.
b. We are responsible for the preparation and presentation of the schedule of expenditures
of federal awards in accordance with Circular A -133.
c. We believe the schedule of expenditures of federal awards, including its form and
content, is fairly presented in accordance with Circular A -133.
d. The methods of measuremenf or presentation have not changed from those used in the
prior period.
e. We are responsible for including the auditor's report on the schedule of expenditures oC
federal awards in any document that contains the schedule and that indicates that the
auditor has reported bn "such information.
£ ._ Nlen_the acbpLi& 6f_e p d'tres off. eralavids:is not ,presented with;tlie audited
-financial statements, management will 'make the'Wdited finari' ial -statements readily
available to the intended users of the schedule of expenditures of federal awards no later
tlian the date of issuance by the entity of the schedule of expenditures of federal awards
and the auditor's report thereon.
g. We have, in accordance with Circular A -133, identified in the schedule of expenditures
of federal awards, expenditures made during the audit period for all awards provided by
federal agencies in the form of grants, federal cost - reimbursement contracts, loans, loan
guarantees, property (including donated surplus property), cooperative agreements,
interest subsidies, food commodities, direct appropriations, and other assistance,
h. We are responsible for complying with the requirements of laws, regulations, and the
provisions of contracts and grant agreements related to each of our federal programs and
have identified and disclosed to you the requirements of laws, regulations, and the
provisions of contracts and gr4fit agreements that are considered to have a direct and
material effect on each major federal program; and we have complied, in all material
respects, With these requirements.
i. We have provided to you our interpretations of any compliance requirements that have
varying interpretations.
j, We are responsible for establishing and maintaining effective internal control over
compliance requirements applicable to federal programs that provide reasonable
assurance that we are managing our federal awards in compliance with laws, regulations,
and the provisions of contracts'and grant agreements that could have a material effect on
our federal programs, Also, no changes have been made in the internal control system to
the date of this letter that might significantly affect internal control, including any
corrective action taken with regard to significant deficiencies, including material
weaknesses, repotted in the schedule of findings and questioned costs,
k. We have made available to you all contracts and grant agreements and any other
correspondence with federal agencies or pass - through entities relating to federal
programs.
1. We have received no requests from a federal agency to audit one or more specific
programs as a major program.
m. We have identified and disclosed to, you all amounts questioned and any known
noncompliance with the requit�erncnts of federal awards, including the results of other
audits or program reviews. We also know of no instances of noncompliance occurring
subsequent to the end of the period audited.
n. We have charged costs to federal awards in accordance with applicable cost principles,
including amounts claimed or used for matching determined in accordance with relevant
guidelines in the U.S. Office of Management and Budget Circular A -87, Cost Principles
for State, Local, and Tribal Governments, and the U.S. OfFice of Management and
Budget's, Uniform Administrative Requirements for Grants and Cooperative Agreements
to State and Local Governments.
o. We- have -made available to you -all documentation related to the compliance
requirements, including information related to federal program financial reports and
claims for advances and reimbursements.
p. Federal program financial reports and claims for advances and reimbursements are
supported by the books and records from which the basic financial statements have been
prcpar_ect.(and are_prep.arcd a.n_.a l�asis�onsisienttith_the_ schttl�. cif e �pcneiiture5..o.f .._ ....
federal awards).
q. Tlie copies of federal program financial reports provided to you are true copies of the
i reports submitted, or electronically transmitted, to the respective federal agency or pass -
through entity, as applicable.
r. As applicable, we, are responalX le for and have accurately prepared the summary schedule
of prior audit findings to include -all findings required to be included by Circular A -133,
and we have provided you with all information on the status of the follow -up on prior
audit findings by federal awarding agencies and pass - through entities, including all
management decisions.
s. If applicable, we have disclosed to you the findings receiv &a and related corrective
actions taken for previous audits, attestation engagements, and internal or external
monitoring that directly relate to the objectives of the compliance audit, including
findings received and corrective actions taken from the end of the period covered by the
compliance audit to the date of the auditor's report.
t. We are responsible for the accurate completion of the appropriate sections of the Data
Collection Form as required by Circular A -133, and we are responsible for preparing and
implementing a correction action plan for each audit finding, if applicable.
u. We have disclosed all contracts or other agreements with service organizations and
disclosed to you all communications from these service organizations relating to
noncompliance at the organizations, as applicable,
V. We have reviewed, approved, and taken tesponsibility for the financial statements and
related notes and an acknowledgment of the auditor's role in the preparation of this
information.
w. We have reviewed, approved, and taken responsibility for accrual adjustments and an
acknowledgment of the auditor's role in the preparation of the adjustments, as applicable.
x. We have disclosed to you the nature of any subsequent events that provide additional
evidence with respect to conditions that existed at the end of the reporting period that
affect noncompliance during the reporting period.
Stephen ConViay, Finai& Administrative Services Director
a
A Certified Public Accountants
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Town Council
The Town of Los Gatos
Los Gatos, California
We have audited the basic financial statements of the Town of Los Gatos as of and for the year ended
June 30, 2012, and have issued our report thereon dated January 22, 2013. Professional standards
require that we advise you of the following matters relating to our audit.
Our Responsibility under Generally Accepted Auditing Standards
As communicated in our engagement letter, our responsibility, as described by professional standards,
is to form and express an opinion about whether the financial statements that have been prepared by
management with your oversight are presented fairly, in all material respects, in conformity with
accounting principles generally accepted in the United States of America (and when applicable,
Government Auditing Standards). Our audit of the financial statements does not relieve you or
management of your respective responsibilities.
Our responsibility, as prescribed by professional standards, is to plan and perform our audit to obtain
reasonable, rather than absolute, assurance about whether the financial statements are free of material
misstatement. An audit of financial statements includes consideration of internal control over
financial reporting as a basis for designing audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control
over financial reporting. Accordingly, as part of our audit, we considered the internal control of the
Town of Los Gatos solely for the purpose of determining our audit procedures and not to provide any
assurance concerning such internal control.
We are also responsible for communicating significant matters related to the audit that are, in our
professional judgment, relevant to your responsibilities in overseeing the financial reporting process.
However, we are not required to design procedures for the purpose of identifying other matters to
communicate to you.
Other Information in Documents Containing Audited Financial Statements
Pursuant to professional standards, our responsibility as auditors for other information in documents
containing the Town of Los Gatos's audited financial statements does not extend beyond the financial
information identified in the audit report, and we are not required to perform any procedures to
corroborate such other information.
Our responsibility also includes communicating to you any information which we believe is a
material misstatement of fact. Nothing came to our attention that caused us to believe that such
information, or its manner of presentation, is materially inconsistent with the information, or manner
of its presentation, appearing in the financial statements.
Planned Scope and Timing of the Audit
We conducted our audit consistent with the planned scope and timing we previously communicated to
you.
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Page 11 1475 Saratoga Ave, Suite 180, San Jose, CA 95129
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sheldon @cnallp.com • www.cnallp.com
ATTACHMENT 2
Certified Public Accountants
Qualitative Aspects of the Entity's Significant Accounting Practices
Significant Accounting Policies
Management has the responsibility to select and use appropriate accounting policies. A summary of
the significant accounting policies adopted by the Town of Los Gatos is included in Note 1 to the
financial statements. There have been no initial selection of accounting policies and no changes in
significant accounting policies or their application during 2012. No matters have come to our
attention that would require us, under professional standards, to inform you about (1) the methods
used to account for significant unusual transactions and (2) the effect of significant accounting
policies in controversial or emerging areas for which there is a lack of authoritative guidance or
consensus.
Significant Accounting Estimates
Accounting estimates are an integral part of the financial statements prepared by management and are
based on management's current judgments. Those judgments are normally based on knowledge and
experience about past and current events and assumptions about future events. Certain accounting
estimates are particularly sensitive because of their significance to the financial statements and
because of the possibility that future events affecting them may differ markedly from management's
current judgments.
The most sensitive accounting estimates affecting the financial statements are accumulated
depreciation on capital assets and unfunded liabilities and expenses based on assumptions in actuarial
studies performed on defined benefit pension plans.
Management's estimates are based on generally accepted accounting principles using a rational basis
for allocation and presentation. We evaluated the key factors and assumptions used to develop these
estimates and determined that they are reasonable in relation to the basic financial statements taken as
a whole.
Financial Statement Disclosures
Certain financial statement disclosures involve significant judgment and are particularly sensitive
because of their significance to financial statement users. The most sensitive disclosures affecting the
Town of Los Gatos's financial statements relate to: cash and investments, capital assets, long -term
obligations and the dissolution of the Redevelopment Agency.
Significant Difficulties Encountered during the Audit
We encountered no significant difficulties in dealing with management relating to the performance of
the audit.
Uncorrected and Corrected Misstatements
For purposes of this communication, professional standards require us to accumulate all known and
likely misstatements identified during the audit, other than those that we believe are trivial, and
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igofir' z n � H tc 4'. _h tl.r R - i � �'t•
Certified Public AccOuntants
-- ._.-----
_ - -- -- - - -- - - -_ - -- - — -- - - -- - - - - - -_ -- - - -- - --
communicate them to the appropriate level of management. There were no known and likely
misstatements identified during the audit.
In addition, professional standards require us to communicate to you all material, corrected
misstatements that were brought to the attention of management as a result of our audit procedures.
There were no material, corrected misstatements resulting from the audit procedures performed.
Disagreements with Management
For purposes of this letter, professional standards define a disagreement with management as a
matter, whether or not resolved to our satisfaction, concerning a financial accounting, reporting, or
auditing matter, which could be significant to the Town of Los Gatos's financial statements or the
auditor's report. No such disagreements arose during the course of the audit.
Representations Requested from Management
We have requested certain written representations from management, which are included in the
attached letter dated January 22, 2013.
Management's Consultations with Other Accountants
In some cases, management may decide to consult with other accountants about auditing and
accounting matters. Management informed us that, and to our knowledge, there were no consultations
with other accountants regarding auditing and accounting matters.
Other Significant Findings or Issues
In the normal course of our professional association with the Town of Los Gatos, we generally
discuss a variety of matters, including the application of accounting principles and auditing standards,
operating and regulatory conditions affecting the Town of Los Gatos, and operational plans and
strategies that may affect the risks of material misstatement. None of the matters discussed resulted in
a condition to our retention as the entity's auditors.
This report is intended solely for the information and use of the Council, authorized committees and
management of the Town of Los Gatos and is not intended to be and should not be used by anyone
other than these specified parties.
c�f 'A alp
San Jose, CA
February 20, 2013
Page 13 1475 Saratoga Ave, Suite 180, San Jose, CA 95129
Tek 408 - 217 -8749 a r, Fax: 480- 247 -9523
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Certified Public Accountants
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Town of Los Gatos
110 E Main St
Los Gatos, CA 95030
In planning and performing our audit of the financial statements of Town of Los Gatos as of and for
the year ended June 30, 2012, in accordance with auditing standards generally accepted in the United
States of America, we considered Town of Los Gatos's internal control over financial reporting
(internal control) as a basis for designing our auditing procedures for the purpose of expressing our
opinions on the financial statements, but not for the purpose of expressing an opinion on the
effectiveness of the entity's internal control. Accordingly, we do not express an opinion on the
effectiveness of Town of Los Gatos's internal control over financial reporting.
A deficiency in internal control 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 and correct misstatements on a timely basis. A material weakness is a deficiency, or a
combination of deficiencies, in internal control, such that there is a reasonable possibility that a
material misstatement of the entity's financial statements will not be prevented, or detected and
corrected, on a timely basis.
Our consideration of internal control was for the limited purpose described in the first paragraph and
was not designed to identify all deficiencies in internal control that might be deficiencies, significant
deficiencies, or material weaknesses. We did not identify any deficiencies in internal control that we
consider to be material weaknesses, as defined above.
This communication is intended solely for the information and use of management, the Council,
others within the organization and is not intended to be and should not be used by anyone other than
these specified parties.
C � �4 a/p
San Jose, CA
February 20, 2013
Page II
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ATTACHMENT 3
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