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COMPLIANCE SECTION

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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 10.559 $ 114,650 Virginia Department of Social Services SNAP (Formerly Food Stamp Program)- American Recovery and Reinvestment Act 10.561 56,605 State Administrative Matching Grants for Food Stamp Program 10.561 2,078,880 Virginia Department of Education School Breakfast Program 10.553 1,460,131 National School Lunch Program 10.555 4,672,956 Summer School Service Program For Children 10.559 254,780 Virginia Department of Agriculture and Consumer Services: Food Distribution - commodities value - Schools' Food Services 10.555 836,231 Food Distribution - commodities value - Detention Home 10.555 10,695 Virginia Department of Forestry Department of Agriculture - Cooperative Forestry Assistance - Urban Forestry Grant 10.664 2,250 Department of Agriculture - Cooperative Forestry Assistance - 10UCF29 10.664 3,548 Department of Agriculture - Chesapeake Tree Planting Teams & Celebration - 10UCF01 10.664 4,000 9,494,726 Department of Energy Energy Efficiency Conservation Block Grant - American Recovery and Reinvestment Act 81.128 656,302 656,302 U.S. Environmental Protection Agency Hampton Roads Clean Cities Corporation - American Recovery and Reinvestment Act 66.039 231,793 231,793 National Endowment for the Arts Virginia Arts Commission 45.025 10,000 10,000 Department of Housing and Urban Development Homeless Prevention and Rapid Rehousing Program - American Recovery and Reinvestment Act 14.257 255,865 Community Development Block Grant Program: Program Year 2007 14.218 61,325 Program Year 2008 14.218 121,745 Program Year 2009 14.218 40,061 Program Year 2010 14.218 115,686 Program Year 2011 14.218 595,350 Section 108 Loan Program - 2010 Program 14.248 165,317 Section 108 Loan Program - 2011 Program 14.248 204,036 CDBG Recovery Program 14.253 24,945 Shelter Plus/Mckinney-Vento Grant 14.238 9,741 HOME Investment Partnerships Program Program Year 2005 14.239 75,582 Program Year 2006 14.239 55,180 Program Year 2007 14.239 121,146 Program Year 2008 14.239 56,594 Program Year 2009 14.239 18,117 Program Year 2010 14.239 74,237 Program Year 2011 14.239 220,037 Virginia Department of Housing and Community Development Neighborhood Stabilization and Planning Grant 14.228 3,961 Neighborhood Stabilization Program 14.228 788,767 3,007,692 Virginia Department of Health Infant Mortality and Chronic Disease Prevention 93.945 51,758 Health and Human Services Preparedness and Response Grant 93.889 6,386 Department of Mental Health, Mental Retardation and Substance Abuse: Block Grants for Community Mental Health Services 93.958 122,486 Block Grants for Prevention and Treatment of Substance Abuse 93.959 763,092 Virginia Department of Social Services Promoting Safe and Stable Families 93.556 56,890 Temporary Assistance for Needy Families 93.558 1,796,101 Refugee and Entrant Assistance - State Administered Program 93.566 4,515 Low Income Home Energy Assistance 93.568 82,931 Payments to States for Child Care Assistance 93.575 1,128,776 Child Care & Development Fund 93.596 1,316,466 Chaffee Education and Training Vouchers Program (ETV) 93.599 3,994 Child Welfare Services-State Grants 93.645 6,865 Foster Care-Title IV-E 93.658 950,684 Foster Care-Title IV-E - American Recovery and Reinvestment Act 93.658 25,910 Adoption Assistance 93.659 527,490 Adoption Assistance - American Recovery and Reinvestment Act 93.659 35,136 Social Services Block Grant 93.667 958,392 Independent Living 93.674 22,650 State Children's Insurance Program 93.767 60,145 Child Care and Development Block Grant - American Recovery and Reinvestment Act 93.713 139,118 Medical Assistance Program (Medicaid: Title XIX) 93.778 1,230,665 Virginia Department of Education Medical Assistance Program (Medicaid: Title XIX) 93.778 154,240 9,444,690 (Continued) 245

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 15.226 7,386 U.S. Fish and Wildlife Service - Department of the Interior Back Bay Grants - 2011 15.614 28,769 Refuge Revenue Sharing 15.226 26,644 62,799 Department of Justice: Drug Control and System Improvement - Forfeited Asset Sharing Program - Drug Enforcement 16.579 188,010 State Criminal Alien Assistance Program 16.606 31,412 Edward Byrne Justice Assistance Program - American Recovery and Reinvestment Act Fiscal Year 2009 - American Recovery and Reinvestment Act 16.804 54,141 Office of Juvenile Justice and Delinquency Prevention - Gang Prevention Grant 16.541 24,787 Virginia Association of Chiefs of Police Projects Safe Neighborhood Program 16.710 6,691 Bureau of Justice Assistance: Victim Witness Program - American Recovery and Reinvestment Act 16.801 27,619 Juvenile Account Incentive Block Grant Fiscal year 2010 16.523 43,810 Fiscal year 2011 16.523 9,892 Edward Byrne Grant Program Fiscal year 2007 16.738 202,577 Fiscal Year 2009 16.738 62,909 Fiscal Year 2010 16.738 38,080 689,928 Social Security Administration Social Security-Work Incentives Planning and Assistance Program 96.008 14,800 14,800 U.S. Department of Transportation: Virginia Department of Transportation Federal Highway Administration - American Recovery and Reinvestment Act Dismal Swamp Trail 20.205 44,603 Resurfacing 20.932 3,857,449 Citywide LED Conversion 20.932 305,822 Bridge Surfacing Sealing 20.932 1,055,740 Federal Highway Administration - Planning and Construction RR Crossing Safety Program 20.205 14,871 Smart Traffic Center Phase 2 20.205 2,783,248 Smart Traffic Center Phase 3 20.205 949,418 Poindexter 20.205 1,000 BattleField Visitor Center 20.205 454,333 Johnstown and Waters Road 20.205 12,785 Rt. 104 Steel Bridge 20.205 11,013,714 Portsmouth Blvd Phase 4 20.205 29,320 Hanbury/Battlefield Interchange 20.205 641,880 Department of Motor Vehicles - Alcohol Traffic Safety and Drunk Driving Prevention Incentive Grants Fiscal year 2009 20.607 6,607 Fiscal year 2010 20.607 11,868 21,182,658 Department of Defense Navy Open Space Easement Purchase 12.XXX 271,482 Department of Defense - Impact Aid 12.558 757,857 Department of Education Payments to States in Lieu of Real Estate Taxes 12.112 2,700 1,032,039 (Continued) 246

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 84.041 3,787,914 Commonwealth of Virginia Department of Behavioral and Development 2010 Early Intervention Program - Part C - American Recovery and Reinvestment Act 84.393 71,218 2011 Early Intervention Program - Part C - American Recovery and Reinvestment Act 84.393 81,952 Virginia Department of Education Adult Education - State Grant Program 84.002 204,770 Title I, Part D - Program for Neglected & Delinquent Children 84.013 13,449 Title I Grants to Local Educational Agencies 84.010 5,066,055 Special Education - Grants to States 84.027 9,349,622 Special Education - Preschool Grants 84.173 214,140 Title II, Part A - Improving Teacher Quality State Grants 84.367 1,042,126 Vocational Education - Basic Grants to States 84.048 500,508 Title IV, Part A - Safe and Drug-Free Schools and Communities 84.186 3,914 Title III, Part A - English Language Acquisition Grant 84.365 64,981 Title II, Part D - Enhancing Education Through Technology Program 84.318 54,796 Part C Funds 84.181 212,860 Educational Technology State Grants, Recovery Act 84.386 96,083 Title I Grants to Local Educational Agencies, Recovery Act 84.389 1,385,603 Special Education Grants to States, Recovery Act 84.391 4,100,210 Special Education - Preschool Grants, Recovery Act 84.392 225,567 State Fiscal Stabilization Fund (SFSF) Education State Grants, Recovery Act 84.394 10,688,692 37,164,460 Department of Homeland Security: Assistance to Firefighters 97.044 14,988 Virginia Department of Emergency Management: Interoperable Communications Grant 97.078 42,763 Urban Area Security Iniative Grant 97.073 72,984 Interoperability Emergency Grant 97.001 10,067 Homeland Security Grant - 2010 97.073 42,000 Homeland Security Grant - 2011 97.073 16,433 Citizens Corp Grant - 2009 97.073 12,042 Citizens Corp Grant - 2007 97.053 2,671 Urban Area Security Iniative Grant-2009 97.073 24,547 Urban Area Security Iniative Grant-2009 97.008 52,579 Local Emergency Management Planning Grant - 2008 97.073 535 Haz-Mat Team Equipment, Exercise and Training 97.073 7,010 FEMA Reimbursement - 2009 Nor'easter Storm 97.036 131,054 429,673 Department of Labor: Opportunity Incorporated Youth Employment Program - American Recovery and Reinvestment Act 17.259 50,740 Virginia Department of Education: WIA - Adult Program 17.258 24,498 WIA - Formula Youth 17.259 27,122 WIA - Dislocated Workers 17.260 35,871 138,231 Corporation for National and Community Service: Virginia Department of Education Learn and Serve America - School and Community-Based Programs 94.004 24,841 24,841 $ 83,584,632 247

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 $ 83,584,632 248

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

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 20.932 Department of Health and Human Services: Child Care Development Cluster 93.575/93.596 ARRA Child Care Development Cluster 93.713 TANF 93.558 Department of Education: Title I 84.010 ARRA Title I 84.389 ARRA State Fiscal Stabilization Fund 84.394 Special Education Cluster 84.027/84.173 ARRA Special Education Cluster 84.391/84.392 Impact Aid 84.041 Department of Agriculture Food Stamp Administration Cluster 10.561 ARRA Food Stamp Administration Cluster 10.561 250 (Continued)

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 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, 2011. 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

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, 2011. 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, 2011 253

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, 2011. 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, 2011. 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

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, 2011 255

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