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Peat Ma rwick Certified Public Accountants Peat Marwick Main 8t Co. 1300 One Capitol Square Telephone 512 478 7476 Telecopier 512 320 5390 300 West 15th Street Telex 9102404235 Austin. TX 78701 December 9,1988 The Honorable Mayor and City Council City of San Marcos, Texas: We have examined the general purpose financial statements of the City of San Marcos, Texas (the City) for the year ended September 30, 1988, and have is- sued our report thereon dated December 9, 1988. As part of our examination, we made a study and evaluation of the City's system of internal accounting control to the extent we considered necessary to evaluate the system as re- quired by generally ..lccepted auditing standards. The purpose of our study and evaluation was to determine the nature, timing, and extent of the audi t- ing procedures necessary for expressing an opinion on the City's general purpose financial statements. Our study and evaluation was more limited than would be necessary to express an opinion on the system of internal accounting control taken as a whole. The management of the City is responsible for establishing and maintaining a system of internal accounting control. In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of control procedures. The objectives of a system are to provide management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition, and that transactions are executed in accordance with management's authorization and recorded properly to permit the preparation of financial statements in accordance with generally accepted accounting principles. Because of inherent limitations in any system of internal accounting control, errors or irregularities may nevertheless occur and not be detected. Also, projection of any evaluation of the system to future periods is subject to the risk that procedures may become inadequate because of changes in condi- tions or that the degree of compliance with the procedures may deteriorate. Our study and evaluation made for the limited purpose described in the first paragraph would not necessarily disclose all weaknesses in the system because it was based on selective tests of accounting records and related data. Ac- cordingly, we do not express an opinion on the system of internal accounting control of the City. However, our study and evaluation disclosed no condi- tion that we believed to be a material weakness. 1 Member Firm of Klynve'd Peat Marwick Goerde!er