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SOUTHWEST ALLEN PARISH WATER DISTRICT NO. 2

A COMPONENT UNIT OF THE ALLEN PARISH POLICE JURY Kinder, Louisiana

ANNUAL FINANCIAL STATEMENTS WITH SUPPLEMENTAL INFORMATION SCHEDULES

For the Year Ended December 31, 2008

Under provisions of state law. this report is a pubin document Acopy ofthe report has been submitted to the entity and other appropriate publtc officials The report is available for public inspection at the Baton Rouge office of the LegislativeAuditor and, where appropnate, attheofficeoftheparish cierk of coufl

Release Date lUm

CONTENTS

Page

INDEPENDENT AUDITOR'S REPORT 2

FINANCIAL STATEMENTS:

Statement of Net Assets 5

Statement of Revenues Expenses and Changes in Net Assets 6

Statement of Cash Flows 7

Notes to Financial Slatements 9

SUPPLEMENTAL INFORMATION SCHEDULES:

Schedule of Compensation Paid to Commissioners 17

INDEPENDENT AUDITOR'S REPORT SECTION:

Report on Intemal Control over Financial Reporting And on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Govemment Auditing Standards 19

Schedule of Findings and Responses 21

Status of Prior Audit Findings 22

Stutzman & Gates, LLC Certified Public Accountants U»mb*fs:

AmtricMti InrnttMo of C9fHfl9d Public Accountant* SocMy Of Louisiana CtOftmd Public Accountants

INDEPENDENT AUDITOR'S REPORT

Board of Commissioners Southwest Allen Parish Water District No. 2 Kinder, Louisiana

We have audited the accompanying fmancial statements ofthe business-type activities of Southwest Allen Parish Water District No. 2, a component unit ofthe Allen Parish Police Jury, as of and for the year ended December 31, 2008, which collectively comprise the District's basic financial statements, as listed in the table of contents. These financial statements are the responsibility of Southwest Allen Parish Water District No. 2's management. Our responsibility is to express an opinion on these fmancial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Govemment Auditing Standards, issued by the Comptroller General ofthe United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are fi'ce 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 the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position ofthe business-type activities ofthe Southwest Allen Parish Water District No. 2, as of December 31, 2008, and the respective changes in financial position and cash flows, where applicable, thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America.

In accordance with Government Auditing Standards^ we have also issued our report dated June 23,2009, on our consideration ofthe Southwest Allen Parish Water District No. 2's intemal control over financial reporting and on our 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 our testing of intemal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the intemal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Govemment Auditing Standards and should be considered in assessing the results of our audit.

Southwest Allen Parish Water District No. 2 has not presented management's discussion and analysis that the Govemmental Accounting Standards Board has determined is necessary to supplement, although not required to be a part of, the basic financial statements.

p. 0. Box 1238 Su!phur, Louisiana 70664-1238 • (337) S33-1700 521 N. ff" Street • Kinder. Louisiana 70648 • (337) 738-2101

Board of Commissioners Page 2

Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively comprise the Southwest Allen Parish Water District No. 2's basic financial statements. The other supplemental schedule as listed in the table of contents is presented for purposes of additional analysis and is not a required part ofthe basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic fmancial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.

H>^ '"; ^ 4 ^ Stutzmbri & Gates, LLC June 23, 2009

FINANCIAL STATEMENTS

SOUTHWEST ALLEN PARISH WATER DISTRICT NO. 2 A COMPONENT UNIT OF THE ALLEN PARISH POLICE JURY STATEMENT OF NET ASSETS December 31,2008

ASSETS Current assets:

Cash Cash - restricted Investments Receivables - net Prepaid assets

Total current assets Non-current assets:

Capital assets - net of accumulated depreciation Total non-current assets

524,607 18,502

111,972 116,945

6,207

TOTAL ASSETS

778,233

2,087,064

2,087,064

2,865,297

LIABILITIES AND NET ASSETS Current liabilities:

Accounts payable Accmed liabilities Current portion of notes payable Payable fi"om restricted assets:

Customer deposits Total current liabilities

17,666

9,400

5,152

15,350

47,568

TOTAL LIABILITIES 47,568

Net assets; Investment in capital assets - net of related debt Unrestricted

2,081,912 735,817

TOTAL NET ASSETS $ 2,817,729

The accompanying notes are an integral part of this statement.

SOUTHWEST ALLEN PARISH WATER DISTRICT NO. 2 A COMPONENT UNIT OF ALLEN PARISH POLICE JURY STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS For the Year Ended December 31, 2008

OPERATING REVENUES: Charges for services Miscellaneous

TOTAL OPERATING REVENUES

OPERATING EXPENSES: Advertising Computer service Contract labor Depreciation Dues Insurance - general Insurance - health Miscellaneous Office Per diem Professional fees Repairs and maintenance Retirement Salaries Supplies Taxes and licenses Transportation Utilities Water administration fees

TOTAL OPERATING EXPENSES

OPERATING INCOME

NON-OPERATING REVENUES (EXPENSES): Interest income Interest expense

TOTAL NON-OPERATING INCOME (EXPENSES)

INCOME (LOSS) BEFORE CONTRIBUTIONS

CAPITAL CONTRIBUTIONS

CHANGE IN NET ASSETS

NET ASSETS - BEGINNING NET ASSETS - ENDING

$ 865.850 4,002

869,852

3,407 3.707

35,030 102,389

846 39.S55 44,199 3,368 16.897 2,400 8,414

83,531 23,414

241,237 80,124 7,936

30,541 135,770 5,440

868,505

1,347

6.903 (496) 6.407

7.754

22.800

30,554

2,787,175 $ 2,817,729

The accompanying notes are an integral part of this statement.

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SOUTHWEST ALLEN PARISH WATER DISTRICT NO. 2 A COMPONENT UNIT OF THE ALLEN PARISH POLICE JURY STATEMENT OF CASH FLOWS For the Year Ended December 31, 2008

Cash Flows from Operating Activities; Received from customers and users $ 876,395 Payments for supplies and services (516,999) Payments to employees (241,237)

Net Cash Provided by Operating Activities 118,159

Cash Flows from Capital and Related Financing Activities: Purchases of capital assets (14,458) Contributions from customers 22,800 Payment on long-tenn debt (5,628) Interest expense (496)

Net Cash Provided (Used) from (for) Capital and Related Financing Activities 2,218

Cash Flows from Investing Activities: Increase in investments (2,638) Interest received 6,903

Net Cash Provided (Used) from (for) Investmg Activities 4,265

Net Increase (Decrease) in Cash and Equivalents 124,642

Cash and Cash Equivalents at Beginning of Year 418,467 Cash and Cash Equivalents at End of Year

Reconciliation of Operating Income to Net Cash Provided by Operating Activities; Operating income Depreciation

(Increase) decrease in: Receivables - trade Prepaid expenses

Increase (decrease) in: Accoimts payable Accrued Uabilities Rent deposits

Net Cash Provided by Operating Activities

Reconciliation of Total Cash:

Current assets-cash

Restricted assets-cash

Total Cash

$

$

$

$

543,109

1,347 102,389

6,543 (182)

3,393 2,419 2.250

118,159

524,607

18,502

543,109

The accompanying notes are an integral part of this statement.

- 7 -

NOTES TO FINANCIAL STATEMENTS

SOUTHWEST ALLEN PARISH WATER DISTRICT NO. 2 A COMPONENT UNIT OF THE ALLEN PARISH POLICE JURY NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended December 31, 2008

INTRODUCTION

The Southwest Allen Parish Water District No. 2 is a political subdivision ofthe State ofLouisiana. It was created under the provisions ofLouisiana Revised Statute 33:3811, for the purpose of providing water to the rural area of Southwest Allen Parish. The District is govemed by a board of commissioners composed of five compensated members appointed by the Allen Parish Police Jury. The District primarily provides water to residential customers but does provide water to the Town of Kinder, the Casino area and a Federal prison.

GASB Statement No. 14, The Reporting Entity, established criteria for determinmg the govemmental reporting enfity and component units that should be included within the reporting entity. Under provisions of this Statement, the Southwest Allen Parish Water District No. 2 is considered a component unit ofthe Allen Parish Police Jury. As a component unit, the accompanying financial statements are included within the reporting ofthe primary govemment, either blended into those financial statements or separately reported as a discrete component unit.

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. Basis of Presentation

The accompanying financial statements of the Southwest Allen Parish Water District No. 2 have been prepared in conformity with govemmental accounting principles generally accepted in the United States of America. The Govemmental Accounting Standards Board (GASB) is the accepted standard setting body for establishing govemmental accounting and financial reporting principles. The accompanying financial statements have been prepared in conformity with GASB Statement 34, "Basic Fmancial Statements and Management's Discussion and Analysis - for State and Local Govemments", issued in June 1999.

The financial statements ofthe District are prepared on the accrual basis of accounting, whereby revenues are recognized when eamed and expenses are recognized when incurred. Under Govemmental Accounting Standards Board Statement No. 20, the District has elected to apply Financial Accounting Standards Board provisions issued after November 30, 1989 unless those pronouncements conflict with or contradict GASB pronouncements.

Proprietary fimds distinguish operating revenues and expenses from non-operating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in cormection with a proprietary fund's principal ongoing operations. The operadng revenues of the District come from metered sales to residential and commercial customers as well as service connection charges and penalties from late payment of bills. Operating expenses for enterprise fiinds include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this defmition are reported as nonoperating revenues and expenses.

SOUTHWEST ALLEN PARISH WATER DISTRICTT NO. 2 A COMPONENT UNTT OF THE ALLEN PARISH POLICE JURY NOTES TO FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

When both restricted and unrestricted resources are available for use, it is the District's policy to use restricted resources first, then unrestricted resources as they are needed.

B. Deposits and Investments

The District's cash and cash equivalents are considered to be cash on hand, demand deposits, and short-term investments with original maturities of three months or less from the date of acquisition. State law and the Southwest Allen Parish Water District No. 2's investment policy allow the District to invest in collateralized certificates of deposits, govemment back securities, commercial paper, the state sponsored investment pool, and mutual fimds consisting solely of govemment backed securities.

C. Prepaid Items

The District records as prepaid expenses amounts paid in the current year that benefit future periods.

D. Accounts Receivable

An allowance for doubtfiil accounts is computed under the allowance mediod, based upon historical data and management's estimates of uncollectible accounts. The provision for doubtfiil accounts at December 31, 2008, was $2362.

Receivables at December 31,2008 consist ofthe following:

Customers, net $ 116,470 Interest 475

Total $ 116,945

There appears to be concentration of credit risk with regard to general accounts receivable and more specifically accounts receivable for water user fees. The District's ability to collect the amounts due from the users ofthe District water system and others (as reflected on the fmancial slatements) may be affected by significant economic fluctuations, natural disaster or other calamity in this one concentrated geographic location.

E. Capital Assets

Capital assets, which include property, plant, equipment, and infrastructure assets (e.g., roads, bridges, sidewalks, and similar items), are reported in the applicable govemmental or business-type activities colunm in the govermnent-wide financial statements. Capital assets are capitalized at historical cost or estimated cost if historical cost is not available. Asof December 31,2008, all assets are capitalized at historical cost. Donated assets are recorded as capital assets at their estimated fair market value at the date of donation. The Southwest Allen Parish Water District No. 2 maintains a threshold level of $5,000 or more for capitalizing capital assets.

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SOUTHWEST ALLEN PARISH WATER DISTRICT NO. 2 A COMPONENT UNTF OF THE ALLEN PARISH POLICE JURY NOTES TO FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

E. Capital Assets

The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend asset lives are not capitalized.

Major outlays for capital assets and improvements are capitalized as projects are constmcted.

Depreciation of each class of depreciable property is computed using the straight-Hne method. Estimated usefiil lives are as follows:

Building 27 years Distribution system 20-50 years Fumiture & fixtures 5-7 years Equipment 5-10 years

F. Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America require management to make estimates and assumptions that affect the reported amounts of assets and tiabilities and disclosure of contingent assets and liabilities at the date ofthe fmancial statements and the reported amounts of revenues, expenditures, and expenses during the reporting period. Actual results could differ from the estimates.

G. Compensated Absences

The District's leave policy does not provide for the accumulation and vesting of leave.

H. Statement of Cash Flows

For purposes of the statement of cash flows, the District considers all highly liquid debt instruments purchased with a maturity of three months or less when purchased to be cash equivalents.

SOUTHWEST ALLEN PARISH WATER DISTRICT NO. 2 A COMPONENT UNIT OF THE ALLEN PARISH POLICE JURY NOTES TO FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICAIVT ACCOUNTING POLICIES

I. Net Assets

In the financial statements,equity is classified as net assets and displayed in three components:

a. Invested in capital assets, net of related debt - Consists of capital assets including restricted capital assets, net of accumulated depreciation and reduced by the outstanding balances of any bonds, mortgages, notes, or other borrowings that are attributable to the acquisition, constmction, or improvement of those assets.

b. Restricted net assets - Consists of net assets with constraints placed on the use either by (1) extemal groups such as creditors, grantors, contributors, or laws or regulations of other govemments; or (2) law through constitutional provisions or enabling legislation.

c. Unrestricted net assets - All other net assets that do not meet the definition of **restricted" or "invested in capital assets, net of related debt".

NOTE 2- CASH AND CASH EQUIVALENTS

Custodial credit risk - deposits. Custodial credit risk is the risk that in the event of a bank failure, the govemment's deposits may not be returned to it.

In accordance with a fiscal agency agreement that is approved by the Board of Commissioners, the District maintains demand and time deposits through local depository banks that are members ofthe Federal Reserve System.

Interest rate risk. The District does not have a formal investment policy that Umits investment maturities asameans of managing its exposure to fair value losses arising from increasing interest rates.

Concentration of credit risk. The District places no limit on the amount the District may invest in any one issuer.

At December 31,2008, the District has cash and cash equivalents (book balances) totaling as follows: Interest-bearing demand deposits $ 329,253 Time deposits 213,456 Other 400

Total $ 543.109

These deposits are stated at cost, which approximates market. Under state law, these deposits (or the resulting bank balances) must be secured by federal deposit insurance or the pledge of securities owned by the fiscal agent bank. The market value ofthe pledged securities plus the federal deposit insurance must at all times equal the amount on deposit with the fiscal agent. These securities are held inthenameof thepledging fiscal agent bank in a holding orcustodial bank that ismutuallyacceptable to both parties. At December 31,2008, the District has $546,665 in deposits (collected bank balances). These deposits are secured from risk by $341,939 of federal deposit insurance and $204,726 of pledged securities held by the custodial bank in the name ofthe fiscal agent bank (GASB Category 3).

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SOUTHWEST ALLEN PARISH WATER DISTRICT NO. 2 A COMPONENT UNIT OF THE ALLEN PARISH POLICE JURY NOTES TO FINANCIAL STATEMENTS

NOTE 2- CASH AND CASH EQUIVALENTS

Even though the pledged securities are considered uncollateralized (Category 3) under the provisions of GASB Statement No. 3, R. S. 39:1229 imposes a statutory requirement on the custodial bank to advertise and sell the pledged securities within 10 days of being notified by the District that the fiscal agent has failed to pay deposited funds upon demand.

NOTE 3- INVESTMENTS

Deposits held by LAMP at December 31, 2008, consist of $111,972 in the Louisiana Asset Management Pool, Inc. (LAMP), a local govemment investment pool (see Summary of Signicant Accounting Policies). In accordance with GASB Statement No. 3, the investment in LAMP is not categorized in the three risk categories provided by GASB Statement No. 3 because the investment is in the pool of funds and therefore not evidenced by securities that exist in physical or book entry form.

LAMP is administrated by LAMP, Inc., a non-profit corporation organized xmder the laws ofthe state ofLouisiana, which was formed by an initiative ofthe State Treasurer in 1993. The corporation is govemed by a board of directors comprising the State Treasurer, representatives from various organizations of local govemment, the Govemment Finance Officers Association ofLouisiana, and the Society ofLouisiana CPA's. Only local govemments having contracted to participate in LAMP have an investment interest in its pool of assets. The primary objective of LAMP is to provide a safe environment for the placement of pubhc funds in short-term high-quaUty investments. The LAMP portfolio includes only securities and other obligations in which local govemments in Louisiana are authorized to invest. Accordingly, LAMP investments are restricted to securities issued, guaranteed, or backed by the U.S. Treasury, the U.S. Govemment, or one of its agencies, enterprises, or instrumentalities, as well as repurchase agreements collateralized by those securities. The dollar-weighted-average portfolio maturity of LAMP assets is restricted to not more than 90 days, and consists of no securities with a maturity in excess of 397 days. LAMP is designed to be highly liquid to give its participants immediate access to their account balances. The investments in LAMP are stated at fair value based on quoted market rates. The fair value is detemiined on a weekly basis by LAMP and the fair value ofthe position in the extemal investment pool is the same as the value ofthe pool shares. LAMP is subject to the regulatory oversight offce state treasurer and the board of directors. LAMP is not registered v^th the SEC as an investment company.

At December 31, 2008, the weighted-average yield on the deposits at LAMP was 2.42% and the weighted-average maturity was less than 60 days. LAMP is rated AAAm with Standard & Poors.

NOTE 4- FIXED ASSETS

A summary of fixed assets at December 31,2008 follows: Beginning of Net Additions

Year (Deletions) End of Year Building $ Distribution system Fumiture, fixtures, & equipment Land

Accumulated depreciation Totals $

103,449 3,454,424

196,456 56,243

3,810,572

(1,635,577) 2,174,995

$ $

14,458 103,449

3,468,882 196,456 56,243

14,458 3,825,030 (1,737,966)

$ 2,087,064

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SOUTHWEST ALLEN PARISH WATER DISTRICT NO. 2 A COMPONENT UNIT OF THE ALLEN PARISH POLICE JURY NOTES TO FINANCIAL STATEMENTS

NOTE 4 - nXED ASSETS

Depreciation expense was $102,389 for the year ended December 31,2008.

NOTE 5- LONG-TERM LIABILITIES

A. The following is a summary of long-term liability transactions during the year:

TOTAL

Long-term liability payable at January 1,2008 $ 10,780

Additions

Deductions (5,628)

Long-term liability payable at December 31,2008 $ 5,152

The following is a summary of the current (due in one year or less) and the long-term (due m more than one year) portions of long-term Habihties as of December 31, 2008.

TOTAL Current portion $ 5,152 Long-term portion -Total $ 5,152

All liabihties outstandmg at December 31,2008, for $5,152 are payable to Capital One Bank for a 2006 Chevrolet Colorado with a book value of $8,485. The note is payable for 48 months at $510 per month which includes interest at 7.09%.

B. Debt Service Requfrements to Maturity:

The payments are due as follows:

T. ^ ̂ Interest Payments Total Payments i_

2009 5,152 233_ 5,385 Totals_$ 5,152 _$ 233_ _$ 5,385

NOTE 6- COMPONENTS OF RESTRICTED ASSETS

The customer deposit account had a balance of $18,502 at December 31, 2008. The account is restricted to refundmg the deposits as needed. The balance owed from this account was $15,350 at December 31,2008.

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SOUTHWEST ALLEN PARISH WATER DISTRICT NO. 2 A COMPONENT UNIT OF THE ALLEN PARISH POLICE JURY NOTES TO FINANCIAL STATEMENTS

NOTE 7 - RETIREMENT COMMITMENTS

The District established a SEP IRA for its employees in 1999. The IRA's are under the custody of Oppenheimer Funds Services and a separate account is administered for each participating employee.

The District contributes 10% of each participating employee's monthly gross salary. Total payroll for the District was $241,237 and total payroll for participating employees was $233,034. The District's contribution for the year ended December 31,2008 was $23,414. All full time employees are eligible to participate.

NOTE 8 - RISK MANAGEMENT

The District is exposed to various risks of loss related to torts; theft of, damage to and destmction of assets; errors and omissions; injuries to employees; and natural disasters. The District maintains commercial insurance coverage covering each of those risks of loss. Management believes such coverage is sufficient to preclude any significant uninsured losses to the District. Settled claims have not exceeded this commercial coverage in any ofthe past three fiscal years.

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SUPPLEMENTAL INFORMATION SCHEDULES

SOUTHWEST ALLEN PARISH WATER DISTRICT NO. 2 A COMPONENT UNIT OF THE ALLEN PARISH POLICE JURY SUPPLEMENTAL EMFORMATION SCHEDULE

Schedule of Compensation Paid to Commissioners:

A schedule of compensation paid board members is presented in compliance with House Concurrent Resolution No. 54 ofthe 1979 Session ofthe Louisiana Legislature. LA. Rev. Stat. 33:3819 allows for each commissioner to be paid up to $60 for each meeting attended. Commissioners are paid $40 for each meeting attended except for the President whose per diem is $60 for each meeting attended.

Per diem paid commissioners for the year ended December 31,2008, were as follows:

Per Diem

Lee White $ 720 JohnSneve 480 Johrmy Wallace 480 Doug Holman 360 Rodney Morehead 360

$ 2.40Q

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INDEPENDENT AUDITOR'S REPORT SECTION

stutzman & Gates, LLC Certified Public Accountants hhmbart:

American InatStuta of Cartlffed Public Accountants Soctaty of Louisiana Cartitfud Public AccountantM

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 Commissioners Southwest Allen Parish Water District No. 2 Kinder, Louisiana

We have audited the financial statements ofthe business-like activities of Southwest Allen Parish Water District No. 2, as of and for the year ended December 31, 2008, which collectively comprise the Southwest Allen Parish Water District No. 2's basic financial statements and have issued our report thereon dated June 23, 2009. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards apphcable to financial audits contained in Govemment Auditing Standards, issued by the Comptroller General ofthe United States.

Intemal Control Over Financial Reporting

In planning and performing our audit, we considered Southwest Allen Parish Water District No. 2's internal control over financial reporting 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 ofthe Southwest Allen Parish Water District No. 2's intemal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness ofthe Southwest Allen Parish Water District No. 2's intemal control over financial reporting.

Our consideration of intemal control over financial reporting was for the limited purpose described in the preceding paragraph and would not necessarily identify all deficiencies in intemal control over financial reporting that might be significant deficiencies or material weaknesses. However, as discussed below, we identified certain deficiencies in intemal control over fmancial reporting that we consider to be significant deficiencies.

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 Southwest Allen Parish Water District No. 2's ability to initiate, authorize, record, process, or report financial data reliably in accordance with generally accepted accoimting principles such that there is more than a remote likelihood that a misstatement ofthe Southwest Allen Parish Water District No. 2's financial statements that is more than inconsequential will not be prevented or detected by the Southwest Allen Parish Water District No. 2's intemal control. We consider the deficiencies described in the accompanying schedule of findings and responses to be significant deficiencies in intemal control over financial reporting. Significant deficiencies are described in the accompanying schedule of findings and responses as items 2008-1 and 2008-2.

p. 0. Bojc 1238 Sulphur, Louisiana 70664-1238 * (337} 533-1700 521 N. 9* Street • Kinder, Louisiana 70648 • (337) 738-2101

Board of Commissioners Page 2

A materia] weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote Ukelihood that a material misstatement ofthe financial statements wi 11 not be prevented or detected by the Southwest Allen Parish Water District No. 2's intemal control.

Our consideration ofthe intemal control over financial reportmg was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in the intemal control that might be significant deficiencies and, accordingly, would not necessarily disclose all significant deficiencies that are also considered to be material weaknesses. However, ofthe significant deficiencies described above, we consider items 2008-1 and 2008-2 to be material weaknesses.

Compliance and Other Matters

As part of obtainmg reasonable assurance about whether Southwest Allen Parish Water District No, 2's financial statements are free of material misstatement, we 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 our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.

Southwest Allen Parish Water District No. 2's response to the findings identified in our audit is described in the accompanying schedule of findings and responses. We did not audit Southwest Allen Parish Water District No. 2's response and, accordingly, we express no opinion on it.

This report is intended solely for the information and use of management, the Board of Commissioners, the Allen Parish Police Jury, and the Legislative Auditor and is not intended to be and should not be used by anyone other than these specified parties. Under Louisiana Revised Statute 24:513, this report is distributed by the Legislative Auditor as a pubhc document.

StutzmairS: Gates, LLC June 23, 2009

Southwest Allen Parish Water District No. 2 Schedule of Findings and Responses

For the Year Ended December 31,2008

2008-1 Segregation of Duties

Condition: Because ofthe entity's size and the limited number of accounting personnel, it is not feasible to maintain a complete segregation of duties to achieve effective intemal control.

Criteria:

Effect:

Recommendation:

Response:

Effective intemal control requires adequate segregation of duties among client personnel.

Without proper segregation of duties, errors within the financial records or fi^ud could go undetected.

To the extent cost effective, duties should be segregated and management should attempt to mitigate this weakness by supervision and review procedures.

We concur with this recommendation. Management has implemented supervision and review procedures to the extent possible.

2008-2 Controls over Financial Reporting

Condition:

Criteria:

Effect:

Recommendation:

Response:

In our judgment, the District's accounting personnel and those charged with govemance, in the course of their assigned duties, lack the capable skills to prepare the financial statements and related footnotes in accordance with generally accepted accounting principles and to detect and correct a material misstatement, if present.

The Auditing Standards Board recently issued guidance to auditors related to entity's intemal controls over financial reporting. Many small organizations rely on thefr auditor to generate the annual financial statements including footnotes. SAS No. 112 emphasizes that the auditor carmot be part of your system of intemal control over financial reporting.

Material misstatements in financial statements could go undetected.

In our judgment, due to the lack of resources available to management to correct this material weakness in financial reporting, we recommend management mitigate this weakness by having a heightened awareness of all transactions being reported.

We concur with this recommendation. Management has implemented supervision and review procedures to the extent possible.

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Southwest Allen Parish Water District No. 2 Status of Prior Audit Findings

For the Year Ended December 31, 2008

2007-1 (Ongoing flnding) Segregation of duties:

Corrective action taken - Due to lack of sufficient financial resources, this finding cannot be resolved. See 2008-1.

2007-2 (Ongoing finding) Controls Over Financial Reporting:

Corrective action taken - Due to lack of sufficient financial resources, this finding cannot be resolved. See 2008-2.

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