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CITY OF SALEM, MASSACHUSETTS REPORTS ON FEDERAL AWARD PROGRAMS FISCAL YEAR ENDED JUNE 30, 2013 ---PAGE BREAK--- CITY OF SALEM, MASSACHUSETTS REPORTS ON FEDERAL AWARD PROGRAMS FISCAL YEAR ENDED JUNE 30, 2013 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 Government Auditing Standards 2 Report on compliance for each major federal program; report on internal control over compliance; and report on the schedule of expenditures of federal awards required by OMB Circular A-133 4 Schedule of expenditures of federal awards 7 Notes to schedule of expenditures of federal awards 10 Schedule of findings and questioned costs 11 ---PAGE BREAK--- 2 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 GOVERNMENT AUDITING STANDARDS Independent Auditor’s Report To the Honorable Mayor and Members of the City Council City of Salem, Massachusetts Compliance We have audited, 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, the financial statements of the governmental activities, the business- type activities, 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, 2013 (except for the Salem Contributory Retirement System which is as of and for the year ended December 31, 2012), and the related notes to the financial statements, which collectively comprise the City of Salem, Massachusetts’ basic financial statements, and have issued our report thereon dated November 12, 2013. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the City of Salem, Massachusetts' internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City of Salem, Massachusetts’ internal control. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control. A deficiency in internal control 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 and correct, misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identity all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. ---PAGE BREAK--- 3 Compliance and Other Matters As part of obtaining reasonable assurance about whether the City of Salem, Massachusetts’ financial statements are free from 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. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. November 12, 2013 ---PAGE BREAK--- 4 Report REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM; REPORT ON INTERNAL CONTROL OVER COMPLIANCE; AND REPORT ON THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS REQUIRED BY OMB CIRCULAR A-133 Independent Auditor’s Report To the Honorable Mayor and Members of the City Council City of Salem, Massachusetts Report on Compliance for Each Major Federal Program We have audited the City of Salem, Massachusetts’ compliance with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement that could have a direct and material effect on each of the City of Salem’s major federal programs for the fiscal year ended June 30, 2013. The City of Salem's major federal programs are identified in the summary of auditor’s results section of the accompanying schedule of findings and questioned costs. Management’s Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to its federal programs. Auditor’s Responsibility Our responsibility is to express an opinion on compliance for each of the City of Salem, Massachusetts’ major federal programs based on our audit of the types of compliance requirements referred to above. 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 on compliance for each major federal program. However, our audit does not provide a legal determination on the City of Salem's compliance. Opinion on Each Major Federal Program In our opinion, the City of Salem, Massachusetts, complied, in all material respects, with the requirements referred to above that could have a direct and material effect on each of its major federal programs for the fiscal year ended June 30, 2013. ---PAGE BREAK--- 5 Report on Internal Control Over Compliance Management of the City of Salem, Massachusetts is responsible for establishing and maintaining effective internal control over compliance with the types of requirements referred to above. In planning and performing our audit of compliance, we considered the City of Salem's internal control over compliance with the types of requirements that could have a direct and material effect on a major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with OMB Circular A- 133, 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 deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of the internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of OMB Circular A-133. Accordingly this report is not suitable for any other purpose. Report on Schedule of Expenditures of Federal Awards Required by OMB Circular A-133 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, 2013, and the related notes to the financial statements, which collectively comprise the City of Salem, Massachusetts’ basic financial statements. We issued our report thereon dated November 12, 2013, which contained unmodified opinions on those financial statements. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the 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 is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing ---PAGE BREAK--- 6 standards generally accepted in the United States of America. In our opinion, the schedule of expenditures of federal awards is fairly stated in all material respects in relation to the basic financial statements taken as a whole. November 12, 2013 ---PAGE BREAK--- Federal CFDA Federal Grantor/Program Title Number Expenditures U.S. DEPARTMENT OF AGRICULTURE: Passed through State Department of Elementary and Secondary Education: Non-Cash Assistance (Commodities): National School Lunch Program 10.555 $ 145,578 Cash Assistance: School Breakfast Program 10.553 271,236 National School Lunch Program 10.555 1,018,248 Fresh Fruit and Vegetable Program 10.582 90,655 TOTAL AGRICULTURE 1,525,717 U.S. DEPARTMENT OF DEFENSE: Direct Program: ROTC Language and Culture Training Grants 12.357 61,629 U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT: Direct Program: Community Development Block Grant/Entitlement Grants 14.218 1,216,503 Passed through North Shore Home Consortium: HOME Investment Partnerships Program 14.239 197,190 TOTAL HOUSING 1,413,693 U.S. DEPARTMENT OF THE INTERIOR: Passed through State Executive Office of Environmental Affairs: Clean Vessel Act 15.616 7,137 Historic Preservation Funds Grants In Aid 15.904 7,500 TOTAL INTERIOR 14,637 U.S. DEPARTMENT OF VETERAN AFFAIRS: Passed through the State Office of Disabilities and Community Services: Vocational Rehabilitation for Disabled Veterans 16.116 825 U.S. DEPARTMENT OF JUSTICE: Direct Program: Grants to Encourage Arrest Policies and Enforcement of Protection Orders 16.590 5,364 Local Law Enforcement Trust Funds Program 16.592 63,159 Passed through Executive Office of Public Safety: Public Safety Partnership and Community Policing Grants 16.710 12,216 Gang Resistance Education and Training 16.737 1,985 Edward Byrne Memorial Justice Assistance Grant Program 16.738 15,929 Congressionally Recommended Awards 16.753 33,627 TOTAL JUSTICE 132,280 (continued) SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE FISCAL YEAR ENDED JUNE 30, 2013 City of Salem, Massachusetts 7 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, 2013 U.S. DEPARTMENT OF LABOR: Direct Program: Workforce Investment Act - Pilots, Demonstrations, & Research Projects 17.261 20,194 Passed through Commonwealth Corporation: Program of Competitive Grants for Worker Training and Placement in High Growth and Emerging Industry Sectors 17.275 343,801 Passed through State Division of Career Services - Workforce Development: Employment Service/Wagner Peyser Funded Activities 17.207 114,870 Unemployment Insurance 17.225 127,543 Trace Adjustment Assistance 17.245 10,973 Workforce Investment Act - Adult Program 17.258 672,561 Workforce Investment Act - Youth Activities 17.259 749,870 Workforce Investment Act - Dislocated Worker Formula Grants 17.278 785,665 Disabled Veterans' Outreach Program (DVOP) 17.801 11,188 Local Veterans' Employment Representative Program 17.804 10,507 TOTAL LABOR 2,847,172 U.S. DEPARTMENT OF TRANSPORTATION: Passed through Executive Office of Public Safety: Highway Planning and Construction 20.205 1,900,685 National Highway Traffic Safety Administration Discretionary Safety Grants 20.614 4,994 Passed through State Department of Transportation: Job Access - Reverse Commute 20.516 185,216 New Freedom Program 20.521 180,106 TOTAL TRANSPORTATION 2,271,001 U.S. DEPARTMENT OF THE NATIONAL ENDOWMENT FOR THE ARTS: Direct Program: Promotion of the Arts - Grants to Organizations and Individuals 45.024 14,800 U.S. DEPARTMENT OF ENERGY: Direct Program: Energy Efficiency and Conservation Block Grant 81.128 1,800 U.S. DEPARTMENT OF EDUCATION: Passed through State Department of Elementary and Secondary Education: Adult Education Basic Grants to States 84.002 2,222 Title I Grants to Local Educational Agencies 84.010 1,317,790 Special Education Grants to States (IDEA, Part B) 84.027 1,279,941 Career and Technical Education- Basic Grants to States 84.048 60,738 Twenty-First Century Community Learning Centers 84.287 63,888 Charter Schools Assistance/Distributions 84.282 241,243 Education Technology State Grants 84.318 1,499 English Language Acquisition Grants 84.365 78,744 Improving Teacher Quality State Grants 84.367 404,082 ARRA - School Improvement Grant, Recovery Act 84.388 352,084 ARRA - State Fiscal Stabilization Fund - Race-to-the-Top Incentive Grants, Recovery Act 84.395 180,829 Passed through State Department of Early Education and Care: Special Education Preschool Grants 84.173 121,690 TOTAL EDUCATION 4,104,750 (continued) City of Salem, Massachusetts 8 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, 2013 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 14,706 Special Programs for the Aging Title III, Part C Nutrition Services 93.045 62,304 Passed through Executive Office of Health and Human Services: Strengthening Public Health Infrastructure 93.507 60,992 National Bioterrorism Hospital Preparedness 93.889 2,000 TOTAL HEALTH & HUMAN SERVICES 140,002 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 17,077 U.S. DEPARTMENT OF HOMELAND SECURITY: Passed through Mass Emergency Management Agency: Disaster Grants- Public Assistance (Presidentially Declared Disasters) 97.036 26,818 Passed through the State Seaport Advisory Group: Port Security Grant 97.056 52,538 Passed through the State Department of Fire Services: State Homeland Security Grant Program 97.067 496 TOTAL HOMELAND SECURITY 79,852 TOTAL $ 12,625,235 (concluded) See notes to schedule of expenditures of federal awards. City of Salem, Massachusetts 9 Report on Federal Award Programs ---PAGE BREAK--- Notes to Schedule of Expenditures of Federal Awards Fiscal Year Ended June 30, 2013 City of Salem, Massachusetts 10 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. Accordingly, expenditures are recognized when the liability is incurred. Cash Assistance - School Breakfast and National Lunch Program - Program expenditures represent federal reimbursement for meals provided during the fiscal year. Non-Cash Assistance (Commodities) - National School Lunch Program – Program expenditures represent the value of donated foods received during the fiscal 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 Employment Service Cluster Employment Service/Wagner Peyser Funded Activities 17.207 Disabled Veterans’ Outreach Program (DVOP) 17.801 Local Veterans’ Employment Representative Program 17.804 Workforce Investment Act (WIA) Cluster WIA Adult Program 17.258 WIA Youth Activities 17.259 WIA Dislocated Worker Formula Grants 17.278 Special Education Cluster (IDEA) Special Education - Grants to States (IDEA Part B) 84.027 Special Education - Preschool Grants 84.173 Aging Cluster Special Programs for the Aging – Title III, Part B – Grants for Supportive Services and Senior Centers 93.044 Special Programs for the Aging – Title III, Part C – Nutrition Services 93.045 ---PAGE BREAK--- Schedule of Findings and Questioned Costs Fiscal Year Ended June 30, 2013 City of Salem, Massachusetts 11 Reports on Federal Award Programs A. Summary of Auditors’ Results Schedule of findings and questioned costs 1. The auditors’ report expresses an unmodified opinion on the basic financial statements of the City of Salem, Massachusetts. 2. There were no significant deficiencies relating to the audit of the financial statements 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 for Each Major Federal Program; Report on Internal Control over Compliance; and Report on the Schedule of Expenditures of Federal Awards Required by OMB Circular A-133. 5. The auditors’ report on compliance for the major federal award programs for the City of Salem, Massachusetts, expresses an unmodified opinion. 6. There were no audit findings related to federal award programs. 7. The programs tested as major grants include: CFDA Program Title Number Community Development Block Grant 14.218 Highway Safety and Planning Grant 20.205 ARRA – School Improvement Grant, Recovery Act 84.388 ARRA – Race to the Top Incentive Grants, Recovery Act 84.395 8. The threshold for distinguishing Types A and B programs was $378,757. 9. The City of Salem, Massachusetts, was determined to be a low-risk auditee. 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 None ---PAGE BREAK--- Schedule of Findings and Questioned Costs Fiscal Year Ended June 30, 2013 City of Salem, Massachusetts 12 Reports on Federal Award Programs E. Prior Audit Findings and Questioned Costs – Major Federal Award Programs Audit UNITED STATES DEPARTMENT OF EDUCATION Special Education - Preschool Grants – CFDA No. 84.173 ARRA - Special Education - Preschool Grants, Recovery Act – CFDA No. 84.392 2012-001 Condition and Criteria: Form FR-1 (Final Financial Reports) for the Special Education Preschool Grant and Special Education Preschool Grant, Recovery Grant were originally due on October 31, 2011 and were not submitted until January 2012. There were no extensions filed to allow the final reporting on the grants to be late. Status: Resolved. The school has implemented procedures to ensure reports are submitted in a timely manner.