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CITY OF SALEM, MASSACHUSETTS REPORTS ON FEDERAL AWARD PROGRAMS FISCAL YEAR ENDED JUNE 30, 2009 ---PAGE BREAK--- CITY OF SALEM, MASSACHUSETTS REPORTS ON FEDERAL AWARD PROGRAMS FISCAL YEAR ENDED JUNE 30, 2009 TABLE OF CONTENTS Page Report on internal control over financial reporting and on compliance and other matters based on an audit of financial statements performed in accordance with Governmental Auditing 1 Report on compliance with requirements applicable to each major program and internal control over compliance in accordance with OMB Circular A-133 3 Schedule of Expenditures of Federal Awards 5 Notes to schedule of expenditures of federal 8 Schedule of findings and questioned costs 9 ---PAGE BREAK--- 1 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 Report on internal control over financial reporting and on compliance and other matters based on an audit of financial statements performed in accordance with Governmental Auditing Standards To the Honorable Mayor and Members of the City Council City of Salem, Massachusetts We have audited the financial statements of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Salem, Massachusetts, as of and for the fiscal year ended June 30, 2009, which collectively comprise the City of Salem, Massachusetts’ basic financial statements and have issued our report thereon dated December 14, 2009. 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. Internal Control Over Financial Reporting In planning and performing our audit, we considered the City of Salem, Massachusetts' internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinions on the basic financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City of Salem, Massachusetts’ internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the City of Salem, Massachusetts’ internal control over financial reporting. 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 significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the City of Salem, Massachusetts’ ability to initiate, authorize, record, process, or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the City of Salem, Massachusetts’ financial statement that is more than inconsequential will not be prevented or detected by the City of Salem, Massachusetts’ internal control. 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 by the City of Salem, Massachusetts’ internal control. Our consideration of the internal control over financial reporting was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be significant deficiencies or material weaknesses, as defined above. We did not identify any deficiencies in internal control over financial reporting that we consider to be a material weakness, as defined above. ---PAGE BREAK--- 2 Compliance and Other Matters As part of obtaining reasonable assurance about whether the City of Salem, Massachusetts’ basic 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 basic 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 also noted certain other matters that we reported to management of the City of Salem, Massachusetts in a separate letter dated December 14, 2009. This report is intended solely for the information and use of management of the City of Salem, Massachusetts, and 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. Wakefield, Massachusetts December 14, 2009 ---PAGE BREAK--- 3 REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 Report on compliance with requirements applicable to each major program and internal control over compliance in accordance with OMB Circular A-133 To the Honorable Mayor and Members of the City Council City of Salem, Massachusetts Compliance We have audited the compliance of the City of Salem, Massachusetts, with the types of compliance requirements described in the U.S. Office of Management and Budget (OMB) Circular A-133 Compliance Supplement that are applicable to each of its major federal programs for the fiscal year ended June 30, 2009. The City of Salem's major federal programs are identified in the summary of auditors’ results section of the accompanying schedule of findings 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 of Salem's management. Our responsibility is to express an opinion on the City of Salem's 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 of Salem'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 on the City of Salem's compliance with those requirements. In our opinion, the City of Salem, Massachusetts, complied, in all material respects, with the requirements referred to above that are applicable its major federal programs for the fiscal year ended June 30, 2009. Internal Control Over Compliance The management of the City of Salem, Massachusetts, 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 of Salem'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, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the City of Salem’s internal control over compliance. A control deficiency in an entity’s internal control over compliance 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 noncompliance with a type of compliance requirement of a federal program on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the ---PAGE BREAK--- 4 entity’s ability to administer a federal program such that there is more than a remote likelihood that noncompliance with a type of compliance requirement of a federal program that is more than inconsequential will not be prevented or detected by the entity’s internal control. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that material noncompliance with a type of compliance requirement of a federal program will not be prevented or detected by the entity’s internal control. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. Our consideration of the internal control over compliance was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be significant deficiencies or material weaknesses. Schedule of Expenditures of Federal Awards We have audited the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of City of Salem, Massachusetts, as of and for the fiscal year ended June 30, 2009, and have issued our report thereon dated December 14, 2009. Our audit was performed for the purpose of forming our opinions on the financial statements that collectively comprise the City of Salem, Massachusetts’ basic financial statements. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by OMB Circular A-133 and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. This report is intended solely for the information and use of management of the City of Salem, Massachusetts, and 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. Wakefield, Massachusetts December 14, 2009 ---PAGE BREAK--- Federal CFDA Federal Grantor/Program Title Number Expenditures U.S. DEPARTMENT OF AGRICULTURE: Passed through State Department of Elementary and Secondary Education: Food Donation 10.550 $ 148,715 School Breakfast Program 10.553 244,326 National School Lunch Program 10.555 842,257 Summer Food Service Program 10.559 28,884 State Administrative Matching Grants for the Supplemental Nutrition Assistance Program 10.561 3,409 Fresh Fruit and Vegetable Program 10.582 33,336 TOTAL AGRICULTURE 1,300,927 U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT: Direct Program: Community Development Block Grant/Entitlement Grants 14.218 1,563,527 Passed through North Shore Home Consortium: HOME Investment Partnerships Program 14.239 181,423 TOTAL HOUSING 1,744,950 U.S. DEPARTMENT OF THE INTERIOR: Passed through State Executive Office of Environmental Affairs: Clean Vessel Act 15.616 47,150 Historic Preservation Funds Grants In Aid 15.904 18,000 TOTAL INTERIOR 65,150 U.S. DEPARTMENT OF JUSTICE: Direct Program: Edward Byrne Memorial Formula Grant Program 16.579 1,516 Grants to Encourage Arrest Policies and Enforcement of Protection Orders 16.590 36,902 Passed through Executive Office of Public Safety: Public Safety Partnership and Community Policing Grants 16.710 173,761 Gang Resistance Education and Training 16.737 32,525 Edward Byrne Memorial Justice Assistance Grant Program 16.738 76,112 TOTAL JUSTICE 320,816 U.S. DEPARTMENT OF LABOR: Passed through Commonwealth Corporation: WIA Incentive Grants Section 503 Grants to States 17.267 31,551 (continued) SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE FISCAL YEAR ENDED JUNE 30, 2009 City of Salem, Massachusetts 5 Report on Federal Award Programs ---PAGE BREAK--- Federal CFDA Federal Grantor/Program Title Number Expenditures SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE FISCAL YEAR ENDED JUNE 30, 2009 Passed through State Division of Career Services - Workforce Development: Employment Service/Wagner Peyser Funded Activities 17.207 59,578 Unemployment Insurance 17.225 16,390 Workforce Investment Act - Adult Program 17.258 869,997 ARRA - Workforce Investment Act - Adult Program 17.258 1,503 Workforce Investment Act - Youth Activities 17.259 1,008,722 ARRA - Workforce Investment Act - Youth Activities 17.259 54,099 Workforce Investment Act - Dislocated Worker 17.260 973,631 ARRA - Workforce Investment Act - Dislocated Worker 17.260 44,255 Work Incentive Grant 17.266 56,226 Disabled Veterans' Outreach Program (DVOP) 17.801 6,765 Local Veterans' Employment Representative Program 17.804 1,553 TOTAL LABOR 3,124,270 U.S. DEPARTMENT OF TRANSPORTATION: Passed through Executive Office of Public Safety: Recreational Trails Program 20.219 2,279 Public Transportation Research 20.514 65,235 Job Access - Reverse Commute 20.516 312 New Freedom Program 20.521 1,332 National Highway Transportation Safety Administration Discretionary Safety Grants 20.614 8,521 TOTAL TRANSPORTATION 77,679 U.S. DEPARTMENT OF VETERAN AFFAIRS Passed through the State Office of Disabilities and Community Services: Vocational Rehabiliation for Disabled Veterans 16.116 375 U.S. ENVIRONMENTAL PROTECTION AGENCY: Direct Program: Brownfield Job Training Cooperative Agreements 66.811 160,913 U.S. DEPARTMENT OF EDUCATION: Passed through State Department of Elementary and Secondary Education: Adult Education State Grant Program 84.002 46,995 Title I Grants to Local Educational Agencies 84.010 1,324,076 Special Education Grants to States 84.027 1,245,409 Vocational Education Basic Grants to States 84.048 25,155 Twenty-First Century Community Learning Centers 84.287 247,510 State Grants for Innovative Programs 84.298 140 Education Technology State Grants 84.318 16,064 Reading First State Grants 84.357 45,055 English Language Acquisition Grants 84.365 122,092 Improving Teacher Quality State Grants 84.367 210,138 ARRA - State Fiscal Stabilization Fund - Education State Grants, Recovery Act 84.394 1,511,335 Passed through State Department of Early Education and Care: Special Education Preschool Grants 84.173 39,531 TOTAL EDUCATION 4,833,500 (continued) City of Salem, Massachusetts 6 Report on Federal Award Programs ---PAGE BREAK--- Federal CFDA Federal Grantor/Program Title Number Expenditures SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE FISCAL YEAR ENDED JUNE 30, 2009 U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES: Passed through North Shore Elder Services, Inc.: Special Programs for the Aging Title III, Part B Grants for Supportive Services and Senior Centers 93.044 19,421 Special Programs for the Aging Title III, Part C Nutrition Services 93.045 61,661 Medicaid Infrastructure Grants to Support the Competitive Employment of People With Disabilities 93.768 10,334 Passed through Executive Office of Health and Human Services: National Bioterrorism Hospital Preparedness 93.889 3,690 TOTAL HEALTH & HUMAN SERVICES 95,106 CORPORATION FOR NATIONAL AND COMMUNITY SERVICE: Passed through State Department of Elementary and Secondary Education: Learn and Serve America School and Community Based Programs 94.004 7,287 U.S. DEPARTMENT OF HOMELAND SECURITY: Direct Program: Assistance to Firefighters 97.044 66,750 Passed through Mass Emergency Management Agency: Public Assistance Grants 97.036 13,125 State and Local All Hazards Emergency Operations Planning 97.051 335 TOTAL HOMELAND SECURITY 80,210 TOTAL $ 11,811,183 (concluded) See notes to schedule of expenditures of federal awards. City of Salem, Massachusetts 7 Report on Federal Award Programs ---PAGE BREAK--- Notes to Schedule of Expenditures of Federal Awards Fiscal Year Ended June 30, 2009 City of Salem, Massachusetts 8 Reports on Federal Award Programs NOTE 1 – Definition of Reporting Entity Notes to schedule of expenditures of federal awards The accompanying Schedule of Expenditures of Federal Awards presents the activity of all federal financial assistance programs of the City of Salem, Massachusetts. All federal financial assistance received directly from federal agencies as well as federal financial assistance passed through other governmental agencies is included on the schedule. NOTE 2 – Significant Accounting Policies The accounting and reporting policies of the City of Salem, Massachusetts are set forth below: Basis of Presentation - The accompanying Schedule of Expenditures of Federal Awards is presented on the modified accrual basis of accounting. National School Lunch Program and School Breakfast Program - Program expenditures represent federal reimbursement for meals provided during the year. NOTE 3 – Program Clusters In accordance with Subpart A §_.105 of OMB Circular No. A-133, Audits of States, Local Governments and Non Profit Organizations, certain programs have been clustered in determining major programs. The following represents the clustered programs: CFDA Name of Cluster/Program Number Child Nutrition Cluster School Breakfast Program 10.553 National School Lunch Program 10.555 Summer Food Service Program for Children 10.559 CDBG - Entitlement and (HUD-Administered) Small Cities Cluster Community Development Block Grants/ Entitlement Grants 14.218 Community Development Block Grants/ Small Cities Program 14.219 WIA Cluster WIA Adult Program 17.258 WIA Youth Activities 17.259 WIA Dislocated Workers 17.260 Special Education Cluster Special Education Grants to States 84.027 Special Education Preschool Grants 84.173 ---PAGE BREAK--- Schedule of Findings and Questioned Costs Fiscal Year Ended June 30, 2009 City of Salem, Massachusetts 9 Reports on Federal Award Programs A. Summary of Auditors’ Results Schedule of findings and questioned costs 1. The auditors’ report expresses an unqualified opinion on the basic financial statements of the City of Salem, Massachusetts. 2. No significant deficiencies relating to the audit of the financial statements are reported in the 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. 3. No instances of noncompliance material to the basic financial statements of the City of Salem, Massachusetts, were disclosed during the audit. 4. No significant deficiencies relating to the audit of the major federal award programs are reported in the Report on Compliance with Requirements Applicable to Each Major Program and Internal Control Over Compliance in Accordance with OMB Circular A-133. 5. The auditors’ report on compliance for the major federal award programs for the City of Salem, Massachusetts, expresses an unqualified opinion. 6. There were no audit findings related to federal award programs. 7. The programs tested as major grants include: CFDA Program Title Number School Breakfast Program 10.553 National School Lunch Program 10.555 Summer Food Service Program for Children 10.559 Workforce Investment Act – Adult Program 17.258 Workforce Investment Act – Youth Activities 17.259 Workforce Investment Act – Dislocated Workers 17.260 Title 1 Grants to Local Educational Agencies 84.010 State Fiscal Stabilization Fund 84.394 8. The threshold for distinguishing Types A and B programs was $300,000. 9. The City of Salem, Massachusetts, was not determined to be a low-risk auditee. ---PAGE BREAK--- Schedule of Findings and Questioned Costs Fiscal Year Ended June 30, 2009 City of Salem, Massachusetts 10 Reports on Federal Award Programs B. Findings and Questioned Costs-Financial Statements Audit None C. Findings and Questioned Costs-Major Federal Award Programs Audit None D. Prior Audit Findings and Questioned Costs – Financial Statement Audit Finding 2008-1 Internal Control Over Procurement Condition and Criteria: The City entered into a contract with North Shore Medical Center to provide Special Education services for the contract period of July 1, 2008 through June 30, 2011. The contract did not follow any purchasing or bidding procedures, as required by the City’s internal procurement policies. The contract included $500,000 of administrative fees allocated over the three year contract. The administrative fees were determined to be a prior year balance owed to North Shore Medical Center. Status – Resolved. The City has implemented procedures to ensure compliance with the internal purchasing procedures when procuring future contractual services. E. Prior Audit Findings and Questioned Costs – Major Federal Award Programs Audit Finding 2008-2 National School Lunch Program and School Breakfast Program – CFDA No. 10.555 Condition and Criteria: The City did not perform the sampling and verification of free and reduced price applications as required by federal regulations. Consequently, the required changes to eligibility status based on documentation and other information obtained through the verification process could not be made. Status – Resolved. The City has made changes in the administration of the school lunch program. The new administrator has implemented policies and procedures from the Department of Elementary and Secondary Education’s Eligibility Manual which was completed as of the end of November 2008. The new process began in October of 2008, and was completed by November 2008, in compliance with the requirements.