Agenda Item #2H Page 1 of 9

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1 Page 1 of 9 August 2, 20 I 0 matson and Isom Founded in f 962 by Robert M. Matson and W Howard Isom Chico ]013 Ceres Avenue p.o. Box 1638 Chico, CA Phone (530) Fax (5]0) Redding 292 Hemsted Drive,Suite 100 P.O. Box Redding. CA Phone (530) F", (530) 1#4983 Colusa I 08 Seventh Street Colusa. CA Phone (530) Fax (530) The Commissioners El Dorado Local Agency Formation Commission 550 Main Street, Suite E Placerville, CA Dear Commissioners: A summary of our plan to audit the financial statements of EI Dorado Local Agency Formation Commission (LAFCo) as of and for the year ending June 30, 2010, follows. Objective Our audit of the financial statements will be made in accordance with auditing standards generally accepted in the United States of America. The objective of an audit performed in accordance with such standards is to express an opinion on the financial statements. In connection with our audit of LAFCo' s financial statements, we will also communicate any recommendations to improve LAFCo's internal controls. Our Responsibility Our responsibility under the aforementioned standards is to express an opinion on LAFCo's financial statements. An audit made in accordance with those standards is designed to provide reasonable, rather than absolute, assurance that the financial statements are free of material misstatement. Audit Scope and Materiality The scope of our audit of the financial statements is designed to provide reasonable assurance that LAFCo's financial statements are free of material misstatements resulting from error or fraud. Professional judgment is required to evaluate if a misstatement is material. Quantitative guidelines we use to establish materiality may range up to 10% of income and I % of revenues of LAFCo. For purposes of audit testing, we generally use procedures designed to detect misstatements (either individually or in the aggregate) in account balances that range from onethird to three-quarters of the amount considered material. When evaluating misstatements, we also consider qualitative factors. We encourage management to record adjustments for all misstatements other than those that are clearly inconsequential. Misstatements and fraud will be discussed with you as well as appropriate levels of management. Audit Approach Our audit approach is designed to audit the financial statements of LAFCo in a most costeffective manner. The nature, timing, and extent of our contemplated procedures for significant accounts are based on a risk assessment of the likelihood of material misstatements occurring in those accounts. Risk assessment considers the nature ofthe account and the kinds of accounting data processes (i.e., routine, non-routine and estimation) and related controls affecting it. We contemplate an audit strategy based on reliance on controls. We plan to execute audit procedures to substantiate account balances as of year-end. Engagement File Room ; Audit Planning Letter

2 El Dorado Local Agency Formation Commission August 2, 2010 Page 2 Agenda Item #2H Page 2 of 9 In conducting our audit, we maintain an awareness of the possibility that misstatements, fraud or illegal acts (as defined in authoritative professional literature) may have occurred that could have a material and direct effect on the financial statements. Effective internal controls are designed to prevent or detect misstatements, fraud or illegal acts; however, it is possible that they may nevertheless occur. Although audits made in accordance with auditing standards generally accepted in the United States of America cannot provide absolute assurance that such misstatements, fraud or illegal acts will be detected, we have planned our audit to search for any that would have a material and direct effect on the financial statements. We will report to management and to you any such situations that come to our attention even though they may not be material in relation to the financial statements taken as a whole. Areas of Audit Emphasis In addition to what would be considered our normal, customary procedures, we will focus our attention on: Changes in the control environment (e.g., new systems, standards, regulations, products, changes in personnel, etc.) and LAFCo's financial statement closing process. Accounts payable and cut off. Compensated Absences Internal Control Deficiencies Statement on Auditing Standards No. 112, Communicating Internal Control Related Matters Identified in an Audit (SAS 112), establishes standards and provides guidance on communicating matters related to an entity's internal control over financial reporting identified in an audit of financial statements. SAS 112 provides definitions of a control deficiency, a significant deficiency, and a material weakness. Those definitions follow: 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 deficiency in design exists when, (a), a control necessary to meet the control objective is missing; or, (b), an existing control is not properly designed so that even if the control operates as designed, the control objective is not always met. A deficiency in operation exists when a properly designed control does not operate as designed or when the person performing the control does not possess the necessary authority or qualifications to perform the control effectively. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the entity's ability to initiate, authorize, record, process, or report financial data reliably in accordance with generally accepted accounting principles (GAAP) such that there is more than a remote likelihood that a misstatement of the entity's financial statements that is more than inconsequential will not be prevented or detected. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected. Under SAS 112, deficiencies in the following areas ordinarily are at least significant deficiencies in internal control: Controls over the selection and application of GAAP Antifraud programs and controls Controls over nonroutine and nonsystematic transactions Controls over the period-end financial reporting process. Indicators of a control deficiency that should be regarded as at least a significant deficiency, and a strong indicator of a material weakness, in internal control include:

3 El Dorado Local Agency Fonnation Commission August 2,2010 Page 3 Agenda Item #2H Page 3 of 9 Ineffective oversight of the entity's financial reporting and internal control by those charged with governance. Restatement of previously issued financial statements to reflect the correction of a material misstatement. Identification by the auditor of a material misstatement in the financial statements for the period under audit that was not initially identified by the entity's internal control. Identification of fraud of any magnitude on the part of senior management. An ineffective control environment. Independence There are no relationships between any of our representatives and LAFCo that in our professional judgment may reasonably be thought to bear on independence. Timetable The timetable for our 2010 audit follows: Procedures: Mail confirmations, attorney letter, and bank and loan confirmations. Update documentation of internal controls. Read board minutes. Complete audit program and planning documentation including assessment of risk of fraud. Test internal controls. Execute substantive procedures of year end account balances. Closing conference. Present draft of financial statements for management review. Issue the auditors' report on the financial statements. Closing Conference Dates September, 2010 November 9 and 10, 2009 December 15,2010 December 29,2010 At the conclusion of our audit, we will discuss LAFCo's financial statements and our related auditor's report thereon. In addition, we will specifically report to you information about the following items. Significant accounting policies. The adoption of new accounting principles or changes in accounting principles. Significant sensitive accounting estimates. Significant audit adjustments. Disagreements with management about auditing, accounting, or disclosure matters. Consultations by management with other auditors. Difficulties in dealing with management relating to the performance of the audit. Material misstatements, fraud, and possible illegal acts. Significant deficiencies and material weaknesses in internal controls. Significant disclosures. Unadjusted audit differences considered by management to be immaterial. Our judgments about the quality of the Company's accounting principles. Methods of accounting for significant unusual transactions and for emerging issues. Other matters as considered appropriate.

4 EI Dorado Local Agency Fonnation Commission August 2, 2010 Page 4 Agenda Item #2H Page 4 of 9 Restricted Use This report is intended solely for your information and use and that of LAFCo' s management and is not intended to be and should not be used by anyone other than these specified parties. Very truly yours, MA TSON AND ISOM '1C1A~ ~if1-- MARILYN S. EVERETT, CPA meverett@matson-isom.com MSE:eib

5 Page 5 of 9 June 21, 2010 matson and Isom Founded in /962 by Robert M. Matson and W Howard 150m Chico 3013 Ceres Avenue p.o. Box 1638 Chico, CA Phone (530) Fax (530) Redding 292 Hemsted Drive, Suite 100 P.O. Box Redding, CA Phone (530) Fox (530) Colusa I 08 Seventh Street Colusa, CA Phone (530) Fox (530) Mr. Jose C. Henriquez, Executive Officer EI Dorado Local Agency Formation Commission 550 Main Street, Suite E Placerville, CA Dear Mr. Henriqnez: We are pleased to confirm our understanding of the services we are to provide EI Dorado County Local Agency Formation Commission (LAFCo) for the year ended June 30, 2010, pursuant to the First Amendment to the Professional Services Agreement for Audit Services adopted March 24, We will audit the financial statements oflafco as of and for the year ended June 30, Audit Objectives The objective of our audit is the expression of an opinion as to whether your financial statements are fairly presented, in all material respects, in conformity with U.S. generally accepted accounting principles. Our audit will be conducted in accordance with U.S. generally accepted auditing standards, the standards for financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, and will include tests of the accounting records of LAFCo and other procedures we consider necessary to enable us to express such an opinion. If our opinion on the financial statements is other than unqualified, we will fully discuss the reasons with you in advance. If, for any reason, we are unable to complete the audit or are unable to form or have not formed an opinion, we may decline to express an opinion or to issue a report as a result of this engagement. We will also provide a report (that does not include an opinion) on internal control related to the financial statements and compliance with laws, regulations, and the provisions of contract or grant agreements, noncompliance with which could have a material effect on the financial statements as required by Government Auditing Standards. The report on internal control and compliance will include a statement that the report is intended solely for the information and use of management, the individuals charged with governance, others within the entity, and specific legislative or regulatory bodies and is not intended to be and should not be used by anyone other than these specified parties. Management Responsibilities Management is responsible for the basic financial statements and all accompanying information as well as all representations contained therein. As part of the audit, we will assist with preparation of your financial statements and related notes. You are responsible for making all management decisions and performing all management functions relating to the financial statements and related notes and for accepting full responsibility for such decisions. You will be required to acknowledge in the management representation letter our assistance with preparation of the financial statements and that you have reviewed and approved the financial statements and related notes prior to their issuance and have accepted responsibility for them. Further, you are required to designate an individual with suitable skill, knowledge, or experience to oversee any nonaudit services we provide and for evaluating the adequacy and results of those services and accepting responsibility for them. Management is responsible for establishing and maintaining effective internal control including monitoring ongoing activities; to help ensure that appropriate goals and objectives are met; for the selection and application of accounting principles; and for the fair presentation in the financial statements of the financial position and of the changes in financial position and "asli't~a-s in conformity with U.S. generally accepted accounting principles. "'v ~\ JIll 30_ Engagement File Room t'\. ta~

6 Page 6 of 9 Mr. Jose C. Henriquez, Executive Officer EI Dorado County Local Agency Formation Commission June 21, 2010 Page 2 Management is responsible for making all financial records and related information available to us and for ensuring that management and financial information is reliable and properly recorded. Your responsibilities include adjusting the fmancial statements to correct material misstatements and for confirming to us in the representation letter that the effects of any uncorrected misstatements aggregated by us during the current engagement and pertaining to the latest period presented are immaterial, both individually and in the aggregate, to the financial statements taken as a whole. You are responsible for the design and implementation of programs and controls to prevent and detect fraud, and for informing us about all known or suspected fraud or illegal acts involving: (I) management, (2) employees who have significant roles in internal control, and (3) others where the fraud or illegal acts could have a material effect on the financial statements. Your responsibilities include informing us of your knowledge of any allegations of fraud or suspected fraud or illegal acts received in communications from employees, former employees, grantors, regulators, or others. In addition, you are responsible for identifying and ensuring that the entity complies with applicable laws and regulations and for taking timely and appropriate steps to remedy any fraud, illegal acts, violations of contracts or grant agreements, or abuse that we may report. Audit Proeedures----General An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; therefore, our audit will involve judgment about the number of transactions to be examined and the areas to be tested. We will plan and perform the audit to obtain reasonable rather than absolute assurance about whether the financial statements are free of material misstatement, whether from: (I) errors, (2) fraudulent financial reporting, (3) misappropriation of assets, or (4) violations oflaws or governmental regulations that are attributable to the entity or to acts by management or employees acting on behalf of the entity. Because the determination of abuse is subjective, Government Auditing Standards do not expect auditors to provide reasonable assurance of detecting abuse. Because an audit is designed to provide reasonable, but not absolute, assurance and because we will not perform a detailed examination of all transactions, there is a risk that material misstatements may exist and not be detected by us. In addition, an audit is not designed to detect immaterial misstatements or violations of laws or regulations that do not have a direct and material effect on the fmancial statements. However, we will inform you of any material errors that come to our attention, and we will inform you of any fraudulent financial reporting or misappropriation of assets that comes to our attention. We will also inform you of any violations of laws or regulations that come to our attention, unless clearly inconsequential. Our responsibility as auditors is limited to the period covered by our audit and does not extend to matters that might arise during any later periods for which we are not engaged as auditors. Our procedures will include tests of documentary evidence supporting the transactions recorded in the accounts and may include direct confmnation by correspondence with selected individuals, creditors, and financial institutions. We may request written representations from your attorneys as part of the engagement, and they may bill you for responding to this inquiry. At the conclusion of our audit, we will also require certain written representations from you about the financial statements and related matters. Audit Proeedures--Internal Controls Our audit will include obtaining an understanding of the entity and its environment, including internal control, sufficient to assess the risks of material misstatement of the fmancial statements and to design the nature, timing, and extent of further procedures. Tests of controls may be performed to test the effectiveness of certain controls that we consider relevant to preventing and detecting errors and fraud that are material to the financial statements and to preventing and detecting misstatements resulting from illegal acts and other noncompliance matters that have a direct and material effect on the financial statements.

7 Page 7 of 9 Mr. Jose C. Henriquez, Executive Officer EI Dorado County Local Agency Formation Commission June 21,2010 Page 3 Our tests, if performed, will be less in scope than would be necessary to render an opinion on internal control and, accordingly, no opinion will be expressed in our report on internal control issued pursuant to Government Auditing Standards.An audit is not designed to provide assurance on internal control or to identify significant deficiencies. However, during the audit we will communicate to management and those charged with governance internal control related matters that are required to be communicated under AICP A professional standards and Government Auditing Standards. Audit Procedures-CompIiance As part of obtaining reasonable assurance about whether the fmancial statements are free of material misstatement, we will perform tests of LAFCo's compliance with applicable laws and regulations and the provisions of contracts and agreements. However, the objective of our audit will not be to provide an opinion on overall compliance, and we will not express such an opinion in our report on compliance issued pursuant to Government Auditing Standards. Audit Administration, Fees, and Other We understand that you or a designated individual will prepare all cash or other confirmations we request and will locate any documents selected by us for testing. The audit documentation for this engagement is the property of Matson and Isom and constitutes confidential information. However, pursuant to authority given by law or regulation, we may be requested to make certain audit documentation available to a governrnental agency. We will notify you of any such request. If requested, access to such audit documentation will be provided under the supervision of Matson and Isom personnel. Furthermore, upon request, we may provide copies of selected audit documentation to the aforementioned parties. These parties may intend, or decide, to distribute the copies or information contained therein to others, including other governrnental agencies. We expect to begin our audit on a mutually agreeable date and to issue our reports no later than December 31, Marilyn S. Everett is the engagement partner and is responsible for supervising the engagement and signing the reports. Our fee for the audit will not exceed $7,000 plus travel costs. Our fee does not include time that will be required if management elects to include Management's Discussion and Analysis (MD&A) as required supplemental information of GASB 34. If you elect to include the MD&A, then we are required to read it and make sure all of the required elements are present and the information is not misleading. We will negotiate the cost of our review of the MD&A separately. Our invoices for the audit will be rendered each month as work progresses and are payable on presentation. A late payment fee of 1.5% per month will be added to all balances over 30 days. In accordance with our firm policies, work may be suspended if your account becomes 30 days or more overdue and may not be resumed until your account is paid in full. If we elect to terminate our services for nonpayment, our engagement will be deemed to have been completed upon written notification of termination, even if we have not completed our report. You will be obligated to compensate us for all time expended and to reimburse us for all out-of-pocket costs through the date of termination. The above fee is based on anticipated cooperation from your personnel and the assumption that unexpected circumstances will not be encountered during the audit. If significant additional time is necessary, we will discuss it with you and arrive at a new fee estimate before we incur the additional costs. Government Auditing Standards require that we provide you with a copy of our most recent external peer review report and any letter of comment as well as any subsequent peer review reports and letters of comment received during the period of the contract. Our 2009 peer review report accompanies this letter.

8 Page 8 of 9 Mr. Jose C. Henriquez, Executive Officer EI Dorado County Local Agency Formation Commission June 21, 2010 Page 4 We appreciate the opportunity to be of service to EI Dorado County Local Agency Formation Commission and believe this letter accurately summarizes the significant terms of our engagement. If you have any questions, please let us know. If you agree with the terms of our engagement as described in this letter, please sign the enclosed copy and return it to us. Very truly yours, MATSON AND ISOM ~#- RETT,CPA meverett@matson-isom.com MSE:jnp Enclosures Response: This letter correctly sets forth the understanding ofei Dorado County Local Agency Formation Commission. e-. _.~;?"'cz=,,~ 5 ~-.-r,.-"", ~,C~ :7' -~~- SignaturelTitie --.I... ~,; Date /f;.2ap i /~"QORADO.11130_ ~

9 ~ POWELL & SPAFFORD, LLP CERTIFIED PUBLIC ACCOUNTANTS Agenda Item #2H Page 9 of 9 Jessie C. Powell, CPA Patrick D. Spofford, CPA LU"Sld 1'1 Ii" C:ll;r(.Tr\i~ [:',(.-,rj rf...\«(li"b"ui \ [,'rll,,, J"l11rr-'[3fl 1",lil"l,,f C,_,ld;( ~ [:"lli{...\((c.unbnl, System Review Report To the Members of Matson and Isom and the Peer Review Committee of the State of California We have reviewed the system of quality control for the accounting and auditing practice of Matson and Isom (the finn) in effect for the year ended March 31, Our review was conducted in accordance with standards for Perfonning and Reporting on Peer Reviews established by the Peer Review Board of the American Institute of Certified Public Accountants. The finn is responsible for designing a system of quality control and complying with it to provide the finn with reasonable assurance of perfonning and reporting in confonnity with applicable professional standards in all material respects. Our responsibility is to express an opinion on the design of the system of quality control and the finn's compliance therewith based on our review. The nature, objectives, scope, limitations of, and the procedures perfonned in a System Review are described in the standards at As required by the standards, engagements selected for review included engagements perfonned under Government Auditing Standards and audits of employee benefit plans. In our opinion, the system of quality control for the accounting and auditing practice of Matson and Isom in effect for the year ended March 31, 2009, has been suitably designed and complied with to provide the finn with reasonable assurance of perfonning and reporting in confonnity with applicable professional standards in all material respects. Finns can receive a rating of pass, pass with deficiency (ies) or fail. Matson and Isom has received a peer review rating of pass. August 27,2009 ~~~/.r~ QORAo(j", ~'v \ 664 W Bicch Cone! Son Bernardino, CA P.O. Box 8847 Redlonds, CA ~ Telephone Fox