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CITY OF SALEM, MASSACHUSETTS REPORTS ON FEDERAL AWARD PROGRAMS FISCAL YEAR ENDED JUNE 30, 2012 ---PAGE BREAK--- CITY OF SALEM, MASSACHUSETTS REPORTS ON FEDERAL AWARD PROGRAMS FISCAL YEAR ENDED JUNE 30, 2012 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 with requirements that could have a direct and material effect on each major program and on internal control over compliance in accordance with OMB Circular A-133 4 Schedule of Expenditures of Federal Awards 6 Notes to schedule of expenditures of federal awards 9 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 To the Honorable Mayor and Members of the City Council City of Salem, Massachusetts Compliance 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, 2012, which collectively comprise the City of Salem, Massachusetts’ basic financial statements and have issued our report thereon dated December 10, 2012. 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 as a basis for designing our auditing procedures 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 over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control over financial reporting. 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. Our consideration of the internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identity all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. 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 out 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 10, 2012. ---PAGE BREAK--- 3 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. December 10, 2012 ---PAGE BREAK--- 4 REPORT ON COMPLIANCE WITH REQUIREMENTS THAT COULD HAVE A DIRECT AND MATERIAL EFFECT ON EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 Report on compliance with requirements that could have a direct and material effect on each major program and on 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 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, 2012. 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 could have a direct and material effect on each of its major federal programs for the fiscal year ended June 30, 2012. However, the results of our auditing procedures disclosed instances of noncompliance with those requirements, which are required to be reported in accordance with OMB Circular A- 133 and which are described in the accompanying schedule of findings and questioned costs as item 2012-1. The City's written response to the finding identified in our audit has not been subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on it. ---PAGE BREAK--- 5 Internal Control Over Compliance 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 the 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 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. 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 deficiencies, significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. 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, 2012, and have issued our report thereon dated December 10, 2012. 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. December 10, 2012 ---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 $ 94,321 Cash Assistance: School Breakfast Program 10.553 260,605 National School Lunch Program 10.555 1,019,337 ARRA - USDA Children Nutrition, Recovery Act 10.579 18,983 Fresh Fruit and Vegetable Program 10.582 98,753 TOTAL AGRICULTURE 1,491,999 U.S. DEPARTMENT OF DEFENSE: Direct Program: ROTC Language and Culture Training Grants 12.357 57,020 U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT: Direct Program: Community Development Block Grant/Entitlement Grants 14.218 1,261,761 Passed through North Shore Home Consortium: HOME Investment Partnerships Program 14.239 115,257 TOTAL HOUSING 1,377,018 U.S. DEPARTMENT OF THE INTERIOR: Passed through State Executive Office of Environmental Affairs: Clean Vessel Act 15.616 5,354 Historic Preservation Funds Grants In Aid 15.904 15,000 TOTAL INTERIOR 20,354 U.S. DEPARTMENT OF JUSTICE: Direct Program: Grants to Encourage Arrest Policies and Enforcement of Protection Orders 16.590 34,905 Local Law Enforcement Trust Funds Program 16.592 1,000 Passed through Executive Office of Public Safety: Public Safety Partnership and Community Policing Grants 16.710 27,985 Gang Resistance Education and Training 16.737 3,322 Edward Byrne Memorial Justice Assistance Grant Program 16.738 11,252 Regional Law Enforcemet Technology Services 16.753 109,723 Passed through the Commonwealth Corporation: ARRA - Edward Byrne Memorial Justice Grant (JAG) Program / Grants To Units Of Local Government 16.803 142,122 TOTAL JUSTICE 330,309 (continued) SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE FISCAL YEAR ENDED JUNE 30, 2012 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, 2012 U.S. DEPARTMENT OF LABOR: Direct Program: Workforce Investment Act - Pilots, Demonstrations, & Research Projects 17.261 141,683 Passed throughthe Essex County Community Organization (ECCO) E-Team: Workforce Investment Act - Pilots, Demonstrations, & Research Projects 17.261 5,715 Passed through Commonwealth Corporation: Program of Competitive Grants for Worker Training and Placement in High Growth and Emerging Industry Sectors 17.275 407,399 ARRA - Workforce Investment Act - Adult Program - Health Care Skills Gap 17.258 4,391 ARRA - Workforce Investment Act - Youth Activities - Health Care Skills Gap 17.259 10,831 ARRA - Workforce Investment Act - Dislocated Worker - Health Care Skills Gap 17.278 8,096 Passed through State Division of Career Services - Workforce Development: Employment Service/Wagner Peyser Funded Activities 17.207 106,438 Unemployment Insurance 17.225 70,130 Workforce Investment Act - Adult Program 17.258 648,476 ARRA - Workforce Investment Act - Adult Program 17.258 3,840 Workforce Investment Act - Youth Activities 17.259 838,427 ARRA - Workforce Investment Act - Youth Activities 17.259 21,291 Workforce Investment Act - Dislocated Worker Formula Grants 17.278 951,414 ARRA - Workforce Investment Act - Dislocated Worker Formula Grants 17.278 16,426 Disabled Veterans' Outreach Program (DVOP) 17.801 7,977 Local Veterans' Employment Representative Program 17.804 14,130 TOTAL LABOR 3,256,664 U.S. DEPARTMENT OF TRANSPORTATION: Passed through Executive Office of Public Safety: Federally Assisted Construction - Non-Interstate 20.205 98,215 National Highway Transportation Safety Administration Discretionary Safety Grants 20.614 7,161 Passed through State Department of Transportation: Job Access - Reverse Commute 20.516 82,464 New Freedom Program 20.521 113,992 TOTAL TRANSPORTATION 301,832 U.S. DEPARTMENT OF VETERAN AFFAIRS: Passed through the State Office of Disabilities and Community Services: Vocational Rehabilitation for Disabled Veterans 16.116 1,170 U.S. DEPARTMENT OF ENERGY: Direct Program: Energy Efficiency and Conservation Block Grant 81.128 18,137 (continued) 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, 2012 U.S. DEPARTMENT OF EDUCATION: Passed through State Department of Elementary and Secondary Education: Adult Education State Grant Program 84.002 26,970 Title I Grants to Local Educational Agencies 84.010 1,462,748 Special Education Grants to States (IDEA, Part B) 84.027 1,298,057 Special Education Grants to States (IDEA, Part B, 611) 84.027A 59,589 Vocational Education Basic Grants to States 84.048 54,629 Charter Schools Assistance/Distributions 84.282 207,029 Education Technology State Grants 84.318 46,095 English Language Acquisition Grants 84.365 89,449 Improving Teacher Quality State Grants 84.367 387,249 ARRA - Title 1 Grants to Local Educational Agencies, Recovery Act 84.389 104,092 ARRA - Special Education Grants for States, Recovery Act 84.391 76,296 ARRA - Special Education Preschool Grants, Recovery Act 84.392 4,938 ARRA - State Fiscal Stabilization Fund - Education State Grants, Recovery Act 84.394 38,742 ARRA - State Fiscal Stabilization Fund - Race-to-the-Top Incentive Grants, Recovery Act 84.395 142,972 Education Jobs Fund 84.410 8,149 Passed through State Department of Early Education and Care: Special Education Preschool Grants 84.173 118,752 TOTAL EDUCATION 4,125,756 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 22,085 Special Programs for the Aging Title III, Part C Nutrition Services 93.045 67,589 Passed through Executive Office of Health and Human Services: Strengthing Public Health Infrastructure 93.507 50 National Bioterrorism Hospital Preparedness 93.889 2,000 TOTAL HEALTH & HUMAN SERVICES 91,724 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 25,723 U.S. DEPARTMENT OF HOMELAND SECURITY: Passed through Mass Emergency Management Agency: Public Assistance Grants 97.036 16,855 Passed through the State Seaport Advisory Group: Port Security Grant 97.056 315,736 TOTAL HOMELAND SECURITY 332,591 TOTAL $ 11,430,297 (concluded) See notes to schedule of expenditures of federal awards. City of Salem, Massachusetts 8 Report on Federal Award Programs ---PAGE BREAK--- Notes to Schedule of Expenditures of Federal Awards Fiscal Year Ended June 30, 2012 City of Salem, Massachusetts 9 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 Summer Food Service Program for Children 10.559 JAG Program Cluster Edward Byrne Memorial Justice Assistance Grant Program 16.738 ARRA-Edward Byrne Memorial Justice Grant (JAG) Program /Grants to Units of Local Government 16.803 Workforce Investment Act (WIA) Cluster WIA Adult Program 17.258 ARRA - WIA Adult Program 17.258 WIA Youth Activities 17.259 ARRA - WIA Youth Activities 17.259 WIA Dislocated Worker Formula Grants 17.278 ARRA - WIA Dislocated Worker Formula Grants 17.278 Title 1, Part A Cluster Title I Grants to Local Educational Agencies 84.010 ARRA – Title 1 Grants to Local Educational Agencies, Recovery Act 84.389 Special Education Cluster (IDEA) Special Education - Grants to States (IDEA Part B) 84.027 Special Education - Grants to States (IDEA Part B, 611) 84.027A ---PAGE BREAK--- Notes to Schedule of Expenditures of Federal Awards Fiscal Year Ended June 30, 2012 City of Salem, Massachusetts 10 Reports on Federal Award Programs Special Education - Preschool Grants 84.173 ARRA – Special Education - Grants to States, Recovery Act 84.391 ARRA – Special Education - Preschool Grants, Recovery Act 84.392 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, 2012 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 unqualified 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 with Requirements That Could Have a Direct and Material Effect on Each Major Program and on 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 was one audit finding related to federal award programs. 7. The programs tested as major grants include: CFDA Program Title Number National School Lunch Program 10.555 School Breakfast Program 10.553 Program of Competitive Grants for Worker Training and Placement in High Growth and Emerging Industry Sectors 17.275 Workforce Investment Act – Adult Program 17.258 ARRA - Workforce Investment Act – Adult Program 17.258 Workforce Investment Act – Youth Activities 17.259 ARRA - Workforce Investment Act – Youth Activities 17.259 Workforce Investment Act – Dislocated Workers Formula Grants 17.278 ARRA - Workforce Investment Act – Dislocated Workers Formula Grants 17.278 Special Education Grants to States (IDEA Part B) 84.027 Special Education Grants to States (IDEA Part B, 611) 84.027A Special Education Preschool Grants 84.173 ARRA – Special Education Grants for States, Recovery Act 84.391 ARRA - Special Education Preschool Grants, Recovery Act 84.392 Port Security Grant 97.056 8. The threshold for distinguishing Types A and B programs was $342,909. 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, 2012 City of Salem, Massachusetts 12 Reports on Federal Award Programs B. Findings and Questioned Costs-Financial Statements Audit None C. 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 2012-1 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. Cause: Lack of procedures in place to file final reports timely. Effect: The City is not in compliance with grant requirements. Questioned Costs: None. Auditors’ Recommendation: We recommend the City implement procedures to insure compliance with all grant reporting requirements to ensure the timely filing of the final financial reports. Grantee’s Response: The Grants Office within the Salem School Business Office has created an “Action Calendar” that lists the necessary grant activities throughout the year which need to be performed in order to fulfill grant requirements. These activities include due dates for FR-1’s (Final Reports), grant submittal dates, drawdown dates, Time/Effort Certification due dates, quarterly fringe, recons and other critical actions. Specifically regarding the FR-1’s, these reports will be submitted towards the beginning of the 60-day filing period. If necessary, any requests for extensions will be filed prior to the grants expiration date in writing and a record will be kept on file. D. Prior Audit Findings and Questioned Costs – Financial Statement Audit None E. Prior Audit Findings and Questioned Costs – Major Federal Award Programs Audit UNITED STATES DEPARTMENT OF EDUCATION Title 1 Distribution – CFDA No: 84.010 Special Education Grants to States – CFDA No: 84.027 Special Education Preschool Grants – CFDA No. 84.173 Improving Teacher Quality State Grants – CFDA No: 84.367 2011-1 Condition and Criteria: Form FR-1 (Final Financial Reports) for the Title I, Special Education grants to States, Special Education Preschool Grants and Improving Teacher Quality Grants was originally due on October 31, 2010. The final financial reports for Special Education Preschool Grants and Improving Teacher Quality Grants were not submitted until November 2010, whereas the reports for Title I and Special Education Grants to States were not submitted until January 2011. All four programs had reports submitted after the deadline and no extensions were filed by the City to allow ---PAGE BREAK--- Schedule of Findings and Questioned Costs Fiscal Year Ended June 30, 2012 City of Salem, Massachusetts 13 Reports on Federal Award Programs them to be late. Status: Unresolved. See current year finding 2012-1 related to the Special Education preschool grants final reports being filed late. Special Education Grants to States (IDEA Part B) – CFDA No: 84.027 Special Education Preschool Grants – CFDA No. 84.173 ARRA – Special Education Grants for States, Recovery Act – CFDA No. 84.391 ARRA – Special Education Preschool Grants, Recovery Act – CFDA No. 84.392 Improving Teacher Quality State Grants – CFDA No: 84.367 2011-2 Condition and Criteria: OMB Circular A-87, “Cost Principles for State, Local and Indian Tribal Governments” requires grantees to maintain documentation of employee time and effort that has been charged to federal awards. If 100% of an employee’s salary is charged to a federal award, a grant recipient is required to maintain semi-annual certifications stating that 100% of the employee’s time was spent working on grant activities. If less than 100% of an employee’s salary is charged to a federal award, a grant recipient is required to maintain personnel activity reports documenting 100% of the employee’s time. For fiscal year 2011 the required semi-annual certifications were only completed for the beginning of the year for the Title IIA grant. The SPED grant certifications were fully completed for the beginning of the year but only partially completed for the second half of the year. Status: Resolved. Procedures were implemented within fiscal year 2012 involving the semi-annual certifications for employees paid out of federal grant funding.