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MAY-28-2003 11005 CHS REGION THREE P . 20/21 Internal Control Over Compliance The management of CHS is responsible for establishing and maintaining effective internal control over compliance with requirements of laws, regulations, contracts, and grants applicable to federal programs and state projects. In planning and performing our audit, we considered CHS 's internal control over compliance with requirements that could have a direct and material effect on a major federal program or state project 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 and Chapter 10.650, Rules ofthe Auditor General. We noted certain matters involving CHS 's internal control over compliance 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 compliance that, in our judgment, could adversely affect CHS' s ability to administer a major fcderal program in accordance with applicable requirements of laws, regulations, contracts, and grants. Reportable conditions are described in the accompanying Schedule of Findings and Questioned Costs. A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that noncompliance with applicable requirements of laws, regulations, contracts, and grants that would be material in relation to a major federal program 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 compliance would not necessarily disclose all matters in the internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses. However, we believe the reportable condition described in the accompanying Schedule of Findings and Questioned Costs is not a material weakness. This report is intended solely for the information of the Hoard of Directors, management, the Auditor General, federal awarding agencies, and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. It April If , 2003 - 16 -