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McClanahan and Holmes, LLP CERTIFIED PUBLIC ACCOUNTANTS R. E. BOSTWICK, CPA STEVEN W. MOHUNDRO, CPA GEORGE H. STRUVE, CPA ANDREW B. REICH, CPA RUSSELL P. WOOD, CPA DEBRA J. WIIDER, CPA 228 SIXTH STREET S.E. PARIS, TEXAS 75460 903-784-4316 FAX 903-784-4310 304 WEST CHESTNUT DENISON, TEXAS 75020 903-465-6070 FAX 903-465-6093 14a0 WEST RUSSELL BONHAM, TEXAS 75418 903-583-5574 Independent Auditor's Report on Compliance with Requirements That FAX 903-583-9453 Could Have a Direct and Material Effect on Each Major Program and on Internal Control Over Compliance in Accordance with OMB Circular A-133 Honorable Mayor and City Council City of Paris, Texas Compliance We have audited the compliance of the City of Paris (the City), Texas, with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement that could have a direct and material effect on each of the City of Paris' major federal programs for the year ended September 30, 2012. The City's major federal programs are identified in the summary of auditors' results section of the accompanying schedule of fmdings and questioned costs. Compliance with the requirements of laws, regulations, contracts, and grants applicable to each of its major federal programs is the responsibility of the City's management. Our responsibility is to express an opinion on the City of Paris' compliance based on our audit. � We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non- Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the City's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination of the City's compliance with those requirements. In our opinion, the City of Paris, Texas, complied, in all material respects, with the compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended September 30, 2012. However, the results of our auditing procedures disclosed instances of noncompliance with those requirements, which are required to be reported in accordance with OMB Circular A-133 and which are described in the accompanying schedule of findings and questioned costs as item 2012-1, 2012-2 and 2012-3. Internal Control Over Compliance Management of the City of Paris, Texas, is responsible for establishing and maintaining effective internal control over compliance with requirements of laws, regulations, contracts, and grants applicable to federal programs. In planning and performing our audit, we considered the City's internal control over compliance with requirements that could have a direct and material effect on a major federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of intemal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the City of Paris, Texas', internal control over compliance. 117 AMERICAN INSTITUTE OF CERTIFiED PUBLIC ACCOUNTANTS