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r Peat Marwick Certified Public Accountants Peat Marwick Main &. Co. I 1300 One Capitol Square Telephone 512 478 7476 Telecopier 512 320 5390 . 300 West 15th Street Telex 9102404235 Austin, TX 78701 Independent Auditors' Report The Honorable Mayor and Members of City Council City of San Marcos, Texas: We have audited the general purpose financial statements of the City of San Marcos, Texas for the year ended September 30, 1988, and have issued our report thereon dated December 9, 1988. These general purpose financial statements are the responsibility of the management of the City of San Marcos, Texas. Our responsibility is to express an opinion on these general purpose financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards; the standards for financial and compliance audits contained in I the Standards for Audit of Governmental Or~anizations, Pro~rams. Activities, ! and Functions, issued by the U. S. General Accounting Office; the Single Audit Act of 1984; and the provisions of OMS Circular A-128, Audits of State and Local Governments. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements, whether management has complied with laws and regulations, and whether management has established and maintained a system of internal accounting and administrative controls. An audit in accordance with those standards includes examining, on a test basis, evi- dence supporting the amounts and disclosures in the general purpose finan- cial statements and compliance with laws and regulations. An audit also includes assessing the accounting principles used and 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 opinions. The management of the City of San Marcos, Texas, is responsible for estab- lishing and maintaining internal control systems. In fulfilling that respon- sibili ty, estimates and judgments by management are required to assess the expected benefits and related costs of control procedures. The objectives of internal control systems are to provide management with reasonable, but not absolute, assurance that resource use is consistent with laws, regu- lations, and policies; resources are safeguarded against waste, loss, and misuse; that transactions are executed in accordance with management's au- thorization; and that data are obtained, recorded, and maintained properly to permit the preparation of financial statements in accordance with general- ly accepted accounting principles and the preparation of federal reports in . accordance with federal requirements. Because of inherent limitations in ! any system of internal accounting and administrative controls, errors or I irregularities may nevertheless occur and not be detected. Also, projection of any evaluation of the systems to future periods is subject to the risk that procedures may become inadequate because of changes in conditions or that the degree of compliance with procedures may deteriorate. 12 Member Fir'" of Klynveld Pea1 Marw!ck Gcarde'er