STATE OF CONNECTICUT

State of Connecticut seal
AUDITORS OF PUBLIC ACCOUNTS
KEVIN P. JOHNSTON 210 CAPITOL AVENUE
HARTFORD, CONNECTICUT 06106-1559
ROBERT G. JAEKLE

INDEPENDENT AUDITORS' REPORT
ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS

Governor M. Jodi Rell
Members of the General Assembly

We have audited the combined civil list financial statements of the State of Connecticut, as of and for the year ended June 30, 2005 and have issued our report thereon dated September 27, 2006. As stated in our report on the basic financial statements, we did not audit the financial statements of certain agencies, funds and component units. Those financial statements were audited by other auditors whose reports, including their reports on internal control over financial reporting and on compliance have been furnished to us, and our report on the basic financial statements and this report, insofar as it relates to the amounts included for those agencies, funds, and component units and their internal control over financial reporting and compliance, is based on the reports of the other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, except that the audits of certain component units of the State, as described in the aforementioned report on the combined civil list financial statements, were not conducted in accordance with Government Auditing Standards.

Internal Control Over Financial Reporting:

In planning and performing our audit, we considered the State of Connecticut's internal control over budgetary-basis financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the combined civil list financial statements and not to provide an opinion on the internal control over budgetary basis financial reporting. However, we noted certain matters involving internal control over financial reporting and its operation that we consider to be reportable conditions. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation of the internal control over financial reporting that, in our judgment, could adversely affect the State of Connecticut's ability to initiate, record, process, and report financial data consistent with the assertions of management in the financial statements. A list of the items considered reportable conditions follows:

1. As a result of problems in the implementation of the new Core-CT accounting system, the Office of State Comptroller could not prepare financial statements within statutory and regulatory deadlines, and within the reporting requirements for Federal financial assistance.
2. The Office of State Comptroller did not adequately administer the State's accounting and financial reporting functions to ensure that departments and agencies correctly enter transactions onto the Core-CT accounting system.
3. The Core-CT accounting system was not designed to provide an efficient means of producing needed financial reports to system users.
4. The Core-CT accounting system was not designed to provide the prompt and accurate reconciliation of cash activity.
5. The Core-CT accounting system did not have adequate internal controls to ensure that interagency transfers are properly recorded.
6. The Core-CT accounting system did not have adequate internal controls to ensure that account codes are properly recorded.
7. The Core-CT accounting system did not have adequate internal controls to ensure that transactions were correctly posted to both the commitment control and general ledgers.
8. The State Comptroller did not produce its budgetary basis financial statements in compliance with generally accepted accounting principles.

The reportable conditions noted above are further described in our Auditors' Report, State Comptroller - State Financial Operations, for the Fiscal Year Ended June 30, 2005.

A material weakness is a reportable condition in which the design or operations of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements caused by error or fraud in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration of the internal control over budgetary-basis financial reporting would not necessarily disclose all matters in the internal control over financial reporting that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses. However, of the reportable conditions described above, we consider items- 2, 4, 5, 6 and 8 to be material weaknesses.

We noted other matters involving the internal control over budgetary-basis financial reporting that we have reported, or will report, to the State's management in separately issued departmental audit reports covering the fiscal year ended June 30, 2005.

Compliance and Other Matters:

As part of obtaining reasonable assurance about whether the State of Connecticut's budgetary basis financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.

We have noted certain immaterial instances of noncompliance or other matters that we have reported, or will report, to the State's management in separately issued departmental audit reports covering the fiscal year ended June 30, 2005.

This report is intended solely for the information and use of the Governor, the State Comptroller, the Appropriations Committee of the General Assembly, and the Legislative Committee on Program Review and Investigations and is not intended to be and should not be used by anyone other than these specified parties. However, this report is a matter of public record and its distribution is not limited.

Kevin P. Johnston    Robert G. Jaekle
Auditor of Public Accounts    Auditor of Public Accounts

September 27, 2006
State Capitol
Hartford, Connecticut

INDEPENDENT AUDITORS' REPORT

Governor M. Jodi Rell
Members of the General Assembly

We have audited the accompanying combined civil list financial statements of the State of Connecticut as of and for the year ended June 30, 2005, as listed in the beginning of this report. These combined civil list financial statements are the responsibility of the State's management. Our responsibility is to express an opinion on these combined civil list financial statements based on our audit. We did not audit the financial statements of the Special Transportation Fund which represent 13 percent and 19 percent, respectively, of the assets and receipts of the Special Revenue Funds; we did not audit the financial statements of the Transportation Special Tax Obligations Fund, which represent 94 percent and 96 percent, respectively, of the assets and receipts of the Debt Service Funds; and we did not audit the financial statements of the Clean Water Fund-Federal Account, the Drinking Water Fund-Federal Account or that portion of the University Health Center Hospital Fund involving patient receivables, which represent 78 percent and 16 percent, respectively, of the assets and receipts of the Enterprise Funds. Those financial statements were audited by other auditors whose reports thereon have been furnished to us, and our opinion, insofar as it relates to the amounts included for the aforementioned funds and accounts, is based solely on the reports of other auditors. All of the aforementioned audits were conducted in accordance with auditing standards generally accepted in the United States of America. In addition, the audits of the Clean Water Fund-Federal Account and Drinking Water Fund-Federal Account were conducted in accordance with standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, except that the audits of certain civil list funds of the State, as described above, were not conducted in accordance with Government Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the general purpose financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the combined civil list financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall combined civil list financial statement presentation. We believe that our audit and the reports of other auditors provide a reasonable basis for our opinion.

As discussed in the note presented on the inside cover of this report, the State of Connecticut has prepared these financial statements using accounting practices prescribed by the State Comptroller, which practices differ from accounting principles generally accepted in the United States of America. The effects on the financial statements of the variances between these regulatory accounting practices and accounting principles generally accepted in the United States of America, although not reasonably determinable, are presumed to be material.

The financial statements referred to above present only the civil list funds of the State of Connecticut and are not intended to present fairly the financial position and results of operations of the State of Connecticut in conformity with accounting principles generally accepted in the United States of America. Management has not presented government-wide financial statements to display the financial position and changes in financial position of its governmental activities, business-type activities, and discretely prepared component units. Management also has not provided notes to the financial statements, a management discussion and analysis, and information on depreciation expense, disclosure of all types of debt and infrastructure assets on the financial statements. All of which has been determined as necessary by accounting principles generally accepted in the United States of America.

In our opinion, because of the effects of the matters discussed in the preceding paragraphs, the financial statements referred to above do not present fairly, in conformity with accounting principles generally accepted in the United States of America, the financial position of the State of Connecticut, as of June 30, 2005, or the changes in financial position, or where applicable its cash transactions for the year then ended.

In our opinion, based on our audit and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of the combined civil list funds as of June 30, 2005, and the cash transactions of such funds for the year then ended, in conformity with the basis of accounting described in the note presented on the inside cover of this report.

In accordance with Government Auditing Standards, we have also issued our report dated September 27 2006, on our consideration of the State of Connecticut's internal control over budgetary-basis financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grants. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit.

Our audit was performed for the purpose of forming an opinion on the combined civil list financial statements of the State of Connecticut taken as a whole. The combining and individual fund and account group financial statements and schedules, listed in the table of contents of the Annual Report of the State Comptroller, are presented for purposes of additional analysis and are not a required part of the combined civil list financial statements. Such information has been subjected to the auditing procedures applied in the audit of the combined civil list financial statements and, in our opinion, is fairly presented, in all material respects, in relation to the combined civil list financial statements taken as a whole.

We did not audit the data included in the sundry section of the Annual Report of the State Comptroller, and accordingly, express no opinion thereon.


Kevin P. Johnston    Robert G. Jaekle
Auditor of Public Accounts    Auditor of Public Accounts

September 27, 2006
State Capitol
Hartford, Connecticut