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CITY OF SALEM, MASSACHUSETTS REPORTS ON FEDERAL AWARD PROGRAMS FISCAL YEAR ENDED JUNE 30, 2006 ---PAGE BREAK--- CITY OF SALEM, MASSACHUSETTS REPORTS ON FEDERAL AWARD PROGRAMS FISCAL YEAR ENDED JUNE 30, 2006 TABLE OF CONTENTS Page Independent auditors’ report on compliance and on internal control over financial reporting based on an audit of financial statements performed in accordance with Government Auditing Standards 1 Independent auditors’ report on compliance with requirements applicable to each major program and internal control over compliance in accordance with OMB Circular A-133 3 Independent auditors’ report on the schedule of expenditures of federal awards 5 Schedule of expenditures of federal awards 6 Notes to schedule of expenditures of federal awards 8 Summary of Auditors’ Results 9 Schedule of findings and questioned costs 9 ---PAGE BREAK--- 1 INDEPENDENT AUDITORS’ REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING 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 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, 2006, which collectively comprise the City of Salem, Massachusetts’ basic financial statements and have issued our report thereon dated September 29, 2006. 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. Compliance 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 grants, 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 that are required to be reported under Government Auditing Standards. 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 opinion on the basic financial statements and not to provide assurance on the internal control over financial reporting. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control over financial reporting that might be material weaknesses. 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 misstatements in amounts that would be material in relation to the basic 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. We noted no matters involving the internal control over financial reporting and its operation that we consider to be material weaknesses. However, we noted other matters involving the internal control over financial reporting that we have communicated to the management of the City of Salem, Massachusetts, in a separate letter dated September 29, 2006. ---PAGE BREAK--- 2 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. September 29, 2006 ---PAGE BREAK--- 3 INDEPENDENT AUDITORS’ 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, 2006. 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 to each of its major federal programs for the fiscal year ended June 30, 2006. 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 items 06-1 and 06-2. 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 and to test and report on internal control over compliance in accordance with OMB Circular A-133. ---PAGE BREAK--- 4 Our consideration of the internal control over compliance would not necessarily disclose all matters in the internal control that might be material weaknesses. 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. We noted no matters involving the internal control over compliance and its operation that we consider to be material weaknesses. 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. September 29, 2006 ---PAGE BREAK--- 5 INDEPENDENT AUDITORS’ REPORT ON SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 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, 2006, and have issued our report thereon dated September 29, 2006. Our audit was performed for the purpose of forming 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. September 29, 2006 ---PAGE BREAK--- Federal CFDA Federal Grantor/Program Title Number Expenditures U.S. DEPARTMENT OF AGRICULTURE: Passed through State Department of Education: Food Donation 10.550 $ 80,715 School Breakfast Program 10.553 202,226 National School Lunch Program 10.555 681,868 TOTAL AGRICULTURE 964,809 U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT: Direct Program: Community Development Block Grant/Entitlement Grants 14.218 1,649,807 Community Development Block Grants/Browning Economic Development Initiative 14.246 54,851 Passed through North Shore Home Consortium: HOME Investment Partnerships Program 14.239 252,711 TOTAL HOUSING 1,957,369 U.S. DEPARTMENT OF JUSTICE: Direct Program: Grants to Encourage Arrest Policies and Enforcement of Protection Orders 16.590 94,445 Local Law Enforcement Trust Funds Program 16.592 10,362 TOTAL JUSTICE 104,807 U.S. DEPARTMENT OF LABOR: Passed through State Commonwealth Corporation: Unemployment Insurance 17.225 15,719 Passed through State Division of Career Services: Employment Service 17.207 28,285 Unemployment Insurance 17.225 12,990 Workforce Investment Act - Adult Program 17.258 705,421 Workforce Investment Act - Youth Activities 17.259 659,555 Workforce Investment Act - Dislocated Worker 17.260 947,777 Work Incentive Grant 17.266 55,145 Passed through Community Transportation Association of America: Employment and Training Administration Pilots, Demonstrations, and Research Projects 17.261 23,975 TOTAL LABOR 2,448,867 U.S. ENVIRONMENTAL PROTECTION AGENCY: Direct Program: Brownfield Job Training Cooperative Agreements 66.815 16,747 (continued) SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE FISCAL YEAR ENDED JUNE 30, 2006 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, 2006 U.S. DEPARTMENT OF EDUCATION: Direct Program: Fund For the Improvement of Education 84.215 501,319 Foreign Language Assistance 84.293 28,427 Passed through State Department of Education: Adult Education State Grant Program 84.002 31,549 Title I Grants to Local Educational Agencies 84.010 1,217,922 Special Education Grants to States 84.027 1,523,762 Vocational Education Basic Grants to States 84.048 54,218 Special Education Preschool Grants 84.173 63,218 Safe and Drug Free Schools and Communities State Grants 84.186 128 State School Improvement Grants 84.218 125 Eisenhower Professional Development State Grants 84.281 97 Twenty-First Century Community Learning Centers 84.287 342,793 State Grants for Innovative Programs 84.298 18,187 Education Technology State Grants 84.318 60,260 Reading First State Grants 84.357 257,616 English Language Acquisition Grants 84.365 66,888 Improving Teacher Quality State Grants 84.367 282,001 Passed through Town of Rockport, Massachusetts: Education Technology State Grants 84.318 542 TOTAL EDUCATION 4,449,052 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 16,655 Special Programs for the Aging Title III, Part C Nutrition Services 93.045 58,154 Job Opportunities for Low-Income Individuals 93.593 2,733 TOTAL HEALTH & HUMAN SERVICES 77,542 U.S. DEPARTMENT OF HOMELAND SECURITY: Direct Program: State Domestic Preparedness Equipment Support Program 97.004 191,304 Assistance to Firefighters 97.044 6,300 Passed through Mass Emergency Management Agency: Public Assistance Grants 97.036 186,513 State and Local All Hazards Emergency Operations Planning 97.051 30,495 TOTAL HOMELAND SECURITY 414,612 TOTAL $ 10,433,805 (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, 2006 City of Salem, Massachusetts 8 Reports on Federal Award Programs NOTE 1 - Definition of Reporting Entity 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. School Lunch 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 Serve Program for Children 10.559 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, 2006 City of Salem, Massachusetts 9 Reports on Federal Award Programs A. Summary of Auditors’ Results 1. The auditors’ report expresses an unqualified opinion on the basic financial statements of the City of Salem, Massachusetts. 2. No reportable conditions relating to the audit of the financial statements are reported in the Report on Compliance and on Internal Control over Financial Reporting Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards. 3. No instances of noncompliance material to the financial statements of the City of Salem, Massachusetts, were disclosed during the audit. 4. No reportable conditions relating to the audit of the major federal award programs is 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 two 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 Title I Grants to Local Educational Agencies 84.010 Special Education Grants to States 84.027 Special Education Preschool Grants 84.173 Fund for the Improvement of Education 84.215 8. The threshold for distinguishing Types A and B programs was $300,000. 9. The City of Salem, Massachusetts, was determined to be a low-risk auditee. B. Findings-Financial Statements Audit None. ---PAGE BREAK--- ---PAGE BREAK---