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page 2 Fairgrounds Committee June 6,1991 With the first option, Mr. Anderson said we would include in the lease a provision that the City or designated representative would have full access to records, all records necessary to conduct an audit, and what the City would do is hire a CPA firm to conduct an audit and report back to the City, passing the cost on to the Fair Association. With the second option, Mr. Anderson said it would allow the Fair Association to hire an outside auditor to have an audit done, and furnish the City a copy of that audit. Mr. Anderson advised the Committee that in order to have an understanding of what the Fair Association is doing, the audit would need to be prepared on either an accrual basis or a cash basis of accounting, the accrual would be the best because you can tell more about their conditions, but it would also be the most expensive method. Mr. Anderson said if you have an audit done on a cash basis, it would tell the City a lot. Councilman Bell said that he and Councilman Burnett both agreed that some of the problem with the Fair Association's Financial Statements is their statements, they were not standardized, there was a number of questions in them, they were not clearly defined as to what some gross receipts were, and what we were asking for was that the lease define some of those things, also Councilman Bell felt that what we were asking for is for the lease with the Fair Association to prescribe a format in which documents will be submitted to the City. Councilman Bell also stated that he would like to see the records open for review. City Attorney asked if our purpose was to find out if the Fair Association is being straight with the City on the gross income that they are suppose to being investing in the property, or do we wanting to look beyond that to see what their financial conditions is? The committee felt that it was the responsibility of the Council to insure both of those conditions. Mr. Anderson told the Committee that there was two thing that the City could do that a Certified Public Accountant does that is less than an audit, one is something similar to what you have seen, a compulation. Mr. Anderson said a compulation can be done on an accrual or cash basis, and generally accepted accounting principal specify the format. Mr. Anderson said there is a step between that and an audit called a review report which is a representation of management, but the CPA goes one step further in making inquires into personnel, they do not review internal control, but they asked how thing are done, and analytical procedures on the financial data to see if it is reasonable and realistic, they would also do sampling. City Attorney Haynes addressed the question of gross receipts, stating there was no dispute of gross receipt, that it was the top figure before anything has been deducted, and City Attorney Haynes read the law regarding gross receipts.