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1 COMPLIANCE SECTION

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3 CITY OF CHESAPEAKE, VIRGINIA Schedule T-1 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS For the Period Ended June 30, 2011 Federal Federal Granting Agency/Recipient State Agency/Grant Program Catalogue Number Expenditures Department of Agriculture Food and Nutrition Service Summer Food Service Program for Children $ 114,650 Virginia Department of Social Services SNAP (Formerly Food Stamp Program)- American Recovery and Reinvestment Act ,605 State Administrative Matching Grants for Food Stamp Program ,078,880 Virginia Department of Education School Breakfast Program ,460,131 National School Lunch Program ,672,956 Summer School Service Program For Children ,780 Virginia Department of Agriculture and Consumer Services: Food Distribution - commodities value - Schools' Food Services ,231 Food Distribution - commodities value - Detention Home ,695 Virginia Department of Forestry Department of Agriculture - Cooperative Forestry Assistance - Urban Forestry Grant ,250 Department of Agriculture - Cooperative Forestry Assistance - 10UCF ,548 Department of Agriculture - Chesapeake Tree Planting Teams & Celebration - 10UCF ,000 9,494,726 Department of Energy Energy Efficiency Conservation Block Grant - American Recovery and Reinvestment Act , ,302 U.S. Environmental Protection Agency Hampton Roads Clean Cities Corporation - American Recovery and Reinvestment Act , ,793 National Endowment for the Arts Virginia Arts Commission ,000 10,000 Department of Housing and Urban Development Homeless Prevention and Rapid Rehousing Program - American Recovery and Reinvestment Act ,865 Community Development Block Grant Program: Program Year ,325 Program Year ,745 Program Year ,061 Program Year ,686 Program Year ,350 Section 108 Loan Program Program ,317 Section 108 Loan Program Program ,036 CDBG Recovery Program ,945 Shelter Plus/Mckinney-Vento Grant ,741 HOME Investment Partnerships Program Program Year ,582 Program Year ,180 Program Year ,146 Program Year ,594 Program Year ,117 Program Year ,237 Program Year ,037 Virginia Department of Housing and Community Development Neighborhood Stabilization and Planning Grant ,961 Neighborhood Stabilization Program ,767 3,007,692 Virginia Department of Health Infant Mortality and Chronic Disease Prevention ,758 Health and Human Services Preparedness and Response Grant ,386 Department of Mental Health, Mental Retardation and Substance Abuse: Block Grants for Community Mental Health Services ,486 Block Grants for Prevention and Treatment of Substance Abuse ,092 Virginia Department of Social Services Promoting Safe and Stable Families ,890 Temporary Assistance for Needy Families ,796,101 Refugee and Entrant Assistance - State Administered Program ,515 Low Income Home Energy Assistance ,931 Payments to States for Child Care Assistance ,128,776 Child Care & Development Fund ,316,466 Chaffee Education and Training Vouchers Program (ETV) ,994 Child Welfare Services-State Grants ,865 Foster Care-Title IV-E ,684 Foster Care-Title IV-E - American Recovery and Reinvestment Act ,910 Adoption Assistance ,490 Adoption Assistance - American Recovery and Reinvestment Act ,136 Social Services Block Grant ,392 Independent Living ,650 State Children's Insurance Program ,145 Child Care and Development Block Grant - American Recovery and Reinvestment Act ,118 Medical Assistance Program (Medicaid: Title XIX) ,230,665 Virginia Department of Education Medical Assistance Program (Medicaid: Title XIX) ,240 9,444,690 (Continued) 245

4 CITY OF CHESAPEAKE, VIRGINIA SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS For the Period Ended June 30, 2011 Schedule T-1, Continued Federal Federal Granting Agency/Recipient State Agency/Grant Program Catalogue Number Expenditures Department of the Interior Payment in Lieu of Taxes ,386 U.S. Fish and Wildlife Service - Department of the Interior Back Bay Grants ,769 Refuge Revenue Sharing ,644 62,799 Department of Justice: Drug Control and System Improvement - Forfeited Asset Sharing Program - Drug Enforcement ,010 State Criminal Alien Assistance Program ,412 Edward Byrne Justice Assistance Program - American Recovery and Reinvestment Act Fiscal Year American Recovery and Reinvestment Act ,141 Office of Juvenile Justice and Delinquency Prevention - Gang Prevention Grant ,787 Virginia Association of Chiefs of Police Projects Safe Neighborhood Program ,691 Bureau of Justice Assistance: Victim Witness Program - American Recovery and Reinvestment Act ,619 Juvenile Account Incentive Block Grant Fiscal year ,810 Fiscal year ,892 Edward Byrne Grant Program Fiscal year ,577 Fiscal Year ,909 Fiscal Year , ,928 Social Security Administration Social Security-Work Incentives Planning and Assistance Program ,800 14,800 U.S. Department of Transportation: Virginia Department of Transportation Federal Highway Administration - American Recovery and Reinvestment Act Dismal Swamp Trail ,603 Resurfacing ,857,449 Citywide LED Conversion ,822 Bridge Surfacing Sealing ,055,740 Federal Highway Administration - Planning and Construction RR Crossing Safety Program ,871 Smart Traffic Center Phase ,783,248 Smart Traffic Center Phase ,418 Poindexter ,000 BattleField Visitor Center ,333 Johnstown and Waters Road ,785 Rt. 104 Steel Bridge ,013,714 Portsmouth Blvd Phase ,320 Hanbury/Battlefield Interchange ,880 Department of Motor Vehicles - Alcohol Traffic Safety and Drunk Driving Prevention Incentive Grants Fiscal year ,607 Fiscal year ,868 21,182,658 Department of Defense Navy Open Space Easement Purchase 12.XXX 271,482 Department of Defense - Impact Aid ,857 Department of Education Payments to States in Lieu of Real Estate Taxes ,700 1,032,039 (Continued) 246

5 CITY OF CHESAPEAKE, VIRGINIA SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS For the Period Ended June 30, 2011 Schedule T-1, Continued Federal Federal Granting Agency/Recipient State Agency/Grant Program Catalogue Number Expenditures Department of Education: Impact Aid ,787,914 Commonwealth of Virginia Department of Behavioral and Development 2010 Early Intervention Program - Part C - American Recovery and Reinvestment Act , Early Intervention Program - Part C - American Recovery and Reinvestment Act ,952 Virginia Department of Education Adult Education - State Grant Program ,770 Title I, Part D - Program for Neglected & Delinquent Children ,449 Title I Grants to Local Educational Agencies ,066,055 Special Education - Grants to States ,349,622 Special Education - Preschool Grants ,140 Title II, Part A - Improving Teacher Quality State Grants ,042,126 Vocational Education - Basic Grants to States ,508 Title IV, Part A - Safe and Drug-Free Schools and Communities ,914 Title III, Part A - English Language Acquisition Grant ,981 Title II, Part D - Enhancing Education Through Technology Program ,796 Part C Funds ,860 Educational Technology State Grants, Recovery Act ,083 Title I Grants to Local Educational Agencies, Recovery Act ,385,603 Special Education Grants to States, Recovery Act ,100,210 Special Education - Preschool Grants, Recovery Act ,567 State Fiscal Stabilization Fund (SFSF) Education State Grants, Recovery Act ,688,692 37,164,460 Department of Homeland Security: Assistance to Firefighters ,988 Virginia Department of Emergency Management: Interoperable Communications Grant ,763 Urban Area Security Iniative Grant ,984 Interoperability Emergency Grant ,067 Homeland Security Grant ,000 Homeland Security Grant ,433 Citizens Corp Grant ,042 Citizens Corp Grant ,671 Urban Area Security Iniative Grant ,547 Urban Area Security Iniative Grant ,579 Local Emergency Management Planning Grant Haz-Mat Team Equipment, Exercise and Training ,010 FEMA Reimbursement Nor'easter Storm , ,673 Department of Labor: Opportunity Incorporated Youth Employment Program - American Recovery and Reinvestment Act ,740 Virginia Department of Education: WIA - Adult Program ,498 WIA - Formula Youth ,122 WIA - Dislocated Workers , ,231 Corporation for National and Community Service: Virginia Department of Education Learn and Serve America - School and Community-Based Programs ,841 24,841 $ 83,584,

6 CITY OF CHESAPEAKE, VIRGINIA Schedule T-2 Notes to Schedule of Expenditures of Federal Awards Year ended June 30, 2011 (1) General The accompanying schedule of expenditures of federal awards presents the activity of all federally assisted programs of the City of Chesapeake, Virginia. The City of Chesapeake s reporting entity is defined in Note 1 to the City s basic financial statements. All federal awards received directly from federal agencies, as well as federal awards passed through other government agencies, are included on the schedule. (2) Basis of Accounting The accompanying schedule of expenditures of federal awards is presented using the modified accrual basis of accounting, which is described in Note 1 to the City s basic financial statements. (3) Relationship to Financial Statements Federal expenditures, revenues, and capital contributions are reported in the City s basic financial statements as follows: General Fund $ 224,053 Capital Projects Fund 21,197,485 Public Utilities Fund 652,822 Special Revenue Funds: Virginia Public Assistance Fund 10,264,039 Grants Fund 3,370,621 Community Development Fund 1,799,784 Community Services Fund 1,098,438 Open Space 271,482 Total primary government 38,878,724 Component unit - Public Schools: School Operating Fund 42,682,983 School Food Services Fund 7,224,098 Total component unit - Public Schools 49,907,081 Total federal expenditures from intergovernmental revenue 88,785,805 Other reconciling items (5,201,173) Total federal expenditures per the Schedule of Expenditures of Federal Awards $ 83,584,

7 CITY OF CHESAPEAKE, VIRGINIA Schedule T-2, Continued Notes to Schedule of Expenditures of Federal Awards Year ended June 30, 2011 (4) Subrecipients The Chesapeake Redevelopment and Housing Authority, Children s Harbor, Tidewater Builders Association and Our House Families are the subrecipients for the federal awards of $699,737 for the Community Development Block Grant Program, $620,892 for the HOME Investment Program received from the Department of Housing and Urban Development, and $778,767 for the Neighborhood Stabilization Program from the Virginia Department of Housing and Community Development. The Planning Council is the subrecipient of $1,147,251 related to the Child Care Assistance and Child Care Development Fund received from the Department of Social Services. 249

8 CITY OF CHESAPEAKE Schedule T-3 Schedule of Findings, Questioned Costs, Management s Response, and Prior Year Findings Year Ended June 30, 2011 I. Summary of Auditors Results Financial Statements Type of auditor s report issued on the basic financial statements UNQUALIFIED Internal Control over financial reporting: Material weakness identified: NO Significant deficiencies identified NONE REPORTED Noncompliance material to the financial statements noted? NO Federal Awards Type of auditor s report issued on compliance for major programs UNQUALIFIED Internal Control over major programs: Material weakness identified: NO Significant deficiencies identified : NONE REPORTED Any audit findings which are required to be reported in accordance with Section 510(a) of OMB Circular A-133? NO Identification of major federal programs: Name of Program CFDA # Department of Transportation: ARRA - Surface Transportation Department of Health and Human Services: Child Care Development Cluster / ARRA Child Care Development Cluster TANF Department of Education: Title I ARRA Title I ARRA State Fiscal Stabilization Fund Special Education Cluster / ARRA Special Education Cluster / Impact Aid Department of Agriculture Food Stamp Administration Cluster ARRA Food Stamp Administration Cluster (Continued)

9 CITY OF CHESAPEAKE Schedule T-3, Continued Schedule of Findings, Questioned Costs, Management s Response, and Prior Year Findings Year Ended June 30, 2011 I. Summary of Auditors Results, Continued Dollar threshold to distinguish between Types A and B Programs $2,507,539 The City of Chesapeake was determined to be a low risk auditee? YES II. Findings Financial Statement Audit NONE III. Findings and Questioned Costs Major Federal Awards NONE IV. Findings and Question Costs State Compliance NONE V. Resolution of Prior Year s Findings NONE 251

Independent Auditors 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

10 Independent Auditors 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 The Honorable Members of the City of Council City of Chesapeake, Virginia We have audited the basic financial statements of the City of Chesapeake, Virginia (the City ) as of and for the year ended June 30, 2011, and have issued our report thereon dated November 28, Our report was modified to include a reference to other auditors. We conducted our audit 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 the Specifications for Audits of Counties, Cities and Towns, issued by the Auditor of Public Accounts of the Commonwealth of Virginia. Other auditors audited the financial statements of the Chesapeake Airport Authority and Elizabeth River Properties of Chesapeake, Inc., as described in our report on the City of Chesapeake, Virginia s financial statements. This report does not include the results of the other auditors testing of internal control over financial reporting or compliance and other matters that are reported on separately by those auditors. The financial statements of Elizabeth River Properties of Chesapeake, Inc. were not audited in accordance with Government Auditing Standards. Internal Control Over Financial Reporting In planning and performing our audit, we considered the City s internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City s 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 internal control over financial reporting 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 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. 252

11 Compliance and Other Matters As part of obtaining reasonable assurance about whether the City s 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 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 discovered no instances of noncompliance and other matters that are required to be reported in accordance with the Government Auditing Standards. We identified certain other matters that we reported to management of the City in a separate letter dated November 28, This report is intended for the information of management, the City Council, others within the entity, 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. Virginia Beach, Virginia November 28,

Independent Auditors Report on Compliance with Requirements That Could Have a Direct and Material Effect on Each Major Federal Program and Internal Control over Compliance in Accordance with OMB

12 Independent Auditors Report on Compliance with Requirements That Could Have a Direct and Material Effect on Each Major Federal Program and Internal Control over Compliance in Accordance with OMB Circular A-133 The Honorable Members of the City Council City of Chesapeake, Virginia Compliance We have audited the compliance of the City of Chesapeake, Virginia (the City) 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 its major federal programs for the year ended June 30, The City 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 s management. Our responsibility is to express an opinion on the City 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 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 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 s compliance with those requirements. In our opinion, the City of Chesapeake complied, in all material respects, with the compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, Internal Control Over Compliance The management of the City of Chesapeake 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 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 the auditing procedures for the purpose of expressing our opinion on compliance, but not for the purpose of expressing an opinion on compliance 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 s internal control over compliance. 254

13 A deficiency in internal control 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 timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control, 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 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. The report is intended for the information of the Board of Supervisors, management, 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. Virginia Beach, Virginia November 28,

14 End of Comprehensive Annual Financial Report Of the City of Chesapeake, Virginia For the Fiscal Year Ended June 30, 2011

Government Auditing Standards Report

Government Auditing Standards Report 197 198 REPORT OF INDEPENDENT AUDITORS ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED