CITY OF NORTH ADAMS, MASSACHUSETTS

SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS AND INDEPENDENT AUDITORS' REPORTS REQUIRED UNDER THE SINGLE AUDIT ACT AMENDMENTS OF 1996

FOR THE YEAR ENDED JUNE 30, 2010

CITY OF NORTH ADAMS, MASSACHUSETTS SINGLE AUDIT

TABLE OF CONTENTS

PAGE

Independent Auditor's 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 1-2

Schedule of Expenditures of Federal Awards 3-5

Notes to the Schedule of Expenditures of Federal Awards 6

Independent Auditor's 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 7-8

Schedule of Findings and Questioned Costs 9-10

Summary Schedule of Current Audit Findings 11-15

Summary Schedule of Prior Audit Findings 16

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CERTIFIED PUBLIC ACCOUNTANTS

SCANLON & ASSOCIATES, LLC, 8 Tina Drive, S, Deerfield, MA 01373 413,665.4001 (t) 413,6650593 (f) www.scanlonhaynes.com

INDEPENDENT AUDITOR'S 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

City of North Adams, Massachusetts

We have audited the financial statements of the governmental activities, each major fund, and the aggregate remaining information of the City of North Adams, Massachusetts, as of and for the fiscal year ended June 30, 2010, which collectively comprise the City of North Adams, Massachusetts' basic financial statements and have issued our report thereon dated January 31, 2011. The report on the City of North Adams, Massachusetts' basic financial statements was qualified because the financial statements of the North Adams Contributory Retirement System, a blended component unit, were not audited. Except as discussed in the preceding sentence, 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 the 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 North Adams, 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 North Adams, Massachusetts' internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the City of North Adams, Massachusetts' 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

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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 North Adams, Massachusetts' 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 disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.

We noted certain matters that we reported to management of the City of North Adams, Massachusetts in a separate letter dated January 31, 2011.

This report is intended solely for the information and use of management, the Mayor, others within the entity, 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.

&c......J2~ oJ A~SbC:'~ uz, Scanlon & Associates, LLC

January 31, 2011

Page 2

CITY OF NORTH ADAMS, MASSACHUSETTS SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED JUNE 30, 2010

Federal Grantor/Pass-Through Grantorl Program Title

Statel Pass-Through Identification Number

U. S. Department of Agriculture

Passed Through Commonwealth of Massachusetts Department of Elementary and Secondary Education:

School Breakfast Program National School Lunch Program ARRA - Equipment Assistance After School Snacks

Summer Food Service Program for Children Fresh Fruit and Vegetable Program

Food Donation - School Lunch Commodities Total U. S. Department of Agriculture

U. S. Department of Housing and Urban Development Passed Through Commonwealth of Massachusetts Department of Housing and Community Development:

Community Development Block Grants:

Mini-Entitlement Program - 2008 Mini-Entitlement Program - 2009 Program Income

ARRA - CDBG-R Program Other Income:

Section 108 Program Income

Total U. S. Department of Housing and Urban Development

ME-2008-00009 ME-2009-00012

CDFI-R-2008-00002

U. S. Department of Justice

Direct Programs:

ARRA - Cops in Schools - Grant No. 2009-5B-B9-1432

ARRA - Cops Hiring Recovery Program - Grant No. 2009RKWX0393 Berkshire Task Force

BJA Local

BJA Reimbursable

Governors Alliance Against Drugs Total U. S. Department of Justice

U. S. Department of Labor

Passed Through Berkshire Training Program:

WIA youth Activities

Passed Through Berkshire Community Action Council, Inc.:

ARRA - Summer Youth Work Program Total U. S. Department of Labor

U. S. Department of Transportation Direct Program:

Federal Aviation Administration - Airport Improvement Program Project No. 3-25-0036-17 _ Runway Phase I

Project No. 3-25-0036-18 - Runway Phase II

Project No. 3-25-0036-19 - Runway Safe Area

Project No. 3-25-0036-20 - Runway Design

Project No. 3-25-0036-21 - Runway Reconstruction Total U. S. Department of Transportation

Environmental Protection Agency Direct Program:

Brownfields Cooperative Agreement No. BF-97196501-0 Total Environmental Protection Agency

TOTAL PAGE 1 OF 3

The Notes to the Schedule of Expenditures of Federal Awards are an integral part of this Schedule.

Page 3

Federal CFDA Number

PAGE 1 OF 3

Federal Awards Expended

10.553 $ 106,496
10.555 298,926
10.555 10,637
10.558 19,256
10.559 24,679
10.582 28,407
10.565 43,679
532,080 14.228 14.228 14.228 14.255

14.248

16.710 16.710 16.738 16.738 16.738 16.738

17.259

17.259

20.106 20.106 20.106 20.106 20.106

66.818

340,333 384,411 7,188 48,009

352,609

1,132,550

16,940 49,017 16,687 19,285

8,815 1,488

112,232

9,548

2,413

11,961

32,439 288,150 426,106 311,044 402,599

1,460,338

9,827

9,827

$

3,258,988

PAGE 2 OF 3

CITY OF NORTH ADAMS, MASSACHUSETTS SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED JUNE 30,2010

Federa I Grantor/Pass- Th roug h Grantor/ Program Title

Stater Pass-Through Identification Number

Federal Federal

CFDA Awards

Number Expended

U. S. Department of Education

Passed Through Commonwealth of Massachusetts Department of Elemental)' and Secondary Education:

Title I - 2009 Title I - 2009 Title 1- 2010

Special Education PL 94-142 Allocation - 2009 Special Education PL 94-142 Allocation - 2010 Special Education Program Improvement - 2009 Allocation - New Technology - 2009

Allocation - Other - 2010

Drug Free Schools - 2009

Drug Free Schools - 2010

21st Century Community Learning Center - 2009 21 st Century Community Learning Center - 2009 21st Century Community Learning Center - 2010 21st Century Community Learning Center - 2010 21 st Century Community Learning Center - 2010 Enhanced Education Through Technology - 2009 Enhanced Education Through Technology - 2010 Technology Enhancement - Options - 2010

Rural Education Achievement Program - 2009 Rural Education Achievement Program - 2010 Teacher Quality - 2009

Teacher Quality - 2010

ARRA - Title II-D - 2010

ARRA - Title I - 2010

ARRA -IDEA - 2010

Passed Through Cornmonwealth of Massachusetts Department of Early Education and Care:

Special Education Early Childhood Allocation - 2009 Special Education Early Childhood Allocation - 2010 ARRA - Special Education Early Childhood - 2010

Total U. S. Department of Education

305-005-9-0209-J 84.010 $ 199,265
305-351-9-0209-J 84.010 187
305-019-0-0209-K 84.010 645,079
240-121-9-0209-J 84.027 93,493
240-267-0-0209-K 84.027 425,925
274-145-9-0209-J 84.027 250
409-006-9-0209-J 84.048 1,031
409-003-0-0209-K 84.048 12,931
331-011-9-0209-J 84.186 731
331-011-0-0209-K 84.186 12,881
647 -048-9-0209-J 84.287 44,240
647 -065-9-0209-J 84.287 24,509
647-011-0-0209-K 84.287 136,650
647 -034-0-0209-K 84.287 149,390
647-105-Q-0209-K 84.287 140
160-015-9-0209-J 84.318 2,165
160-169-0-0209-K 84.318 3,520
170-017 -9-0209-J 84.318 11,249
690-001-9-0209-J 84.358 15,910
690-001-0-0209-K 84.358 16,191
140-039-9-0209-J 84.367 20,421
140-108-0-0209-K 84.367 134,574
776-016-0-0209-K 84.386 31,057
770-070-0-0209-K 84.389 214,607
760-213-0-0209-K 84.391 216,223
84.173 7,271
84.173 25,789
84.392 8,850
2,454,529
$ 2,454,529 TOTAL PAGE 2 OF 3

The Notes to the Schedule of Expenditures of Federal Awards are an integral part of this Schedule.

Page 4

PAGE 3 OF 3

CITY OF NORTH ADAMS, MASSACHUSETIS SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED JUNE 30,2010

Federal Grantor/Pass-Through Grantorl Program Title

Statel Pass-Through Identification Number

Federal CFDA Number

Federal Awards Expended

U. S. Department of Health and Human Services Passed Through Commonwealth of Massachusetts Department of Public Health:

Public Health and Social Services Emergency Fund Mass Decontamination Unit

Public Health Emergency Response

Total U. S. Department of Health and Human Services

93.003 93.069

$ 2,832

166

2,998

Corporation for National and Community Service Passed Through Commonwealth of Massachusetts Department of Elementary and Secondary Education:

Learn & Served School Based - 2009 Learn & Served School Based - 2009 Learn & Served School Based - 2009 Learn & Served School Based - 2010 Community Service Learning - 2009 Community Service Learning - 2010

Total Corporation for National and Community Service

354-007 -9-0209-J 94.004 1,678
354-036-9-0209-J 94.004 647
354-050-9-0209-J 94.004 3,482
354-013-0-0209-K 94.004 3,350
355-009-9-0209-J 94.0Q4 1,581
355-003-0-0209-K 94.004 12,679
23,417 U. S. Department of Homeland Security Federal Emergency Management Agency

Direct Programs:

Assistance to Firefighters - Grant No. EMW-2008-FO-01786 Assistance to Firefighters - Grant No. EMW-2009-FR-OD052 Assistance to Firefighters - Grant No. EMW-2009-FO-01673

Staffing for Adequate Fire and Emergency Repsonse - Grant No. EMW-2008-FF-00971 Passed Through Commonwealth of Massachusetts

Executive Office of Public Safety and Homeland Security:

Emergency Management Preparedness Grant Western Massachusetts Homeland Security

Total U. S. Department of Homeland Security

97.044 30,397
97.044 143,100
97.044 3,372
97.083 120,255
97.004 2,500
97.004 5,817
305,441
331,856
2,454,529
3,258,988
$ 6,045,373 TOTAL PAGE:3 OF 3 TOTAL PAGE 2 OF 3 TOTAL PAGE 1 OF 2

TOTAL FEDERAL AWARDS EXPENDED

The Notes to the Schedule of Expenditures of Federal Awards are an integral part of this Schedule.

Page 5

CITY OF NORTH ADAMS, MASSACHUSETTS

NOTES TO THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS JUNE 30, 2010

NOTE A - BASIS OF PRESENTATION

The accompanying Schedule of Expenditures of Federal Awards includes the federal grant activity of the City of North Adams, Massachusetts and is presented on the accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of, the basic financial statements.

NOTE B - SUBRECIPIENTS

The City of North Adams, Massachusetts provided federal awards to subrecipients as follows:

Program Title

Federal Amount

CFDA Number Provided

Community Development Block Grants! State's Program, Recovery Act Funded

14.255 48,009

$ 48,009

NOTE C - FOOD DISTRIBUTION

Nonmonetary assistance is reported in the schedule at the fair market value of the commodities received and disbursed.

NOTE D - GUARANTEED LOANS

The City of North Adams, Massachusetts has guaranteed loans outstanding under the Community Development Block Grant Section 108 Loan Guarantees program. The City has $2,724,000 outstanding as of June 30, 2010. During fiscal year 2010, the City paid $210,000 principal and $142,608.60 interest on the loans. The loan costs are reimbursed to the City from the Massachusetts Museum of Contemporary Art, Inc. through a loan receivable.

Page 6

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CERTIFIED PUBLIC ACCOUNTANTS

SCANLON & ASSOCIATES, LLC, 8 Tina Drive, S. Deerfield, MA Oi373 413.665.4001 (t) 413.665.0593 (f) www.scanlonhaynes.com

INDEPENDENT AUDITOR'S 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

City of North Adams, Massachusetts

Compliance

We have audited the City of North Adams, Massachusetts' compliance 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 North Adams, Massachusetts' major federal programs for the year ended June 30, 2010. The City of North Adams, Massachusetts' major federal programs are identified in the summary of auditor's 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 North Adams, Massachusetts' management. Our responsibility is to express an opinion on the City of North Adams, Massachusetts' 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 North Adams, Massachusetts' 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 North Adams, Massachusetts' compliance with those requirements.

As described in items 2010-1, 2010-2, 2010-3, and 2010-4 in the accompanying schedule of findings and questioned costs, the City of North Adams, Massachusetts did not comply with requirements regarding Special Tests and Provisions,Allowable Costs/Cost Principles, and Procurement that are applicable to its National School Lunch Program, Community Development Block GrantfState's Program, Title I Grants to Local Educational Agencies, and Special Education Grants to States. Compliance with such requirements is necessary, in our opinion, for the City of North Adams, Massachusetts to comply with the requirements applicable to those programs.

In our opinion, except for the noncompliance described in the preceding paragraph, the City of North Adams, Massachusetts 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, 2010.

Internal Control Over Compliance

The management of the City of North Adams, 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 North Adams, Massachusetts' internal control over compliance with requirements that could have a direct and material effect on a major federal program to determine the auditing procedures for the

Page 7

purpose of expressing our 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 of North Adams, Massachusetts' 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 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. However, we identified a certain deficiency in internal control over compliance that we consider to be a significant deficiency as described in the accompanying schedule of findings and questioned costs as item 2010-5. 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.

Schedule of Expenditures of Federal Awards

We have audited the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of the City of North Adams, Massachusetts, as of and for the fiscal year ended June 30, 2010, and have issued our report thereon dated January 31, 2011, which contained qualified opinions on those financial statements because the financial statements of the North Adams Contributory Retirement System, a blended component unit, were not audited. Our audit was performed for the purpose of forming our opinions on the financial statements as a whole. The schedule of expenditures of federal awards is presented for purposes of additional analysis as required by U. S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, and is not a required part of the 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 financial statement. 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 financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, except for the effect on the supplementary information of the North Adams Contributory Retirement System as referenced above, the information is fairly stated in all material respects in relation to the financial statements taken as a whole.

The City of North Adams, Massachusetts' responses to the findings identified in our audit are described in the accompanying schedule of findings and questioned costs. We did not audit the City of North Adams, Massachusetts' responses and, accordingly, we express no opinion on the responses.

This report is intended solely for the information and use of management, the Mayor, 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.

~"'-..d. A~Sa~,L~C Scanlon & Associates, LLC

January 31, 2011

Page 8

CITY OF NORTH ADAMS, MASSACHUSETTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, 201()

Section 1- Suml11arv of Auditor's Results

Financial Statements

Type of auditor's report issued:

Qualified

Internal control over financial reporting; Material weakness identified?

Significant deficiency identified not considered to be a material weakness?

No

None Reported

Noncompliance material to financial statements noted?

No

Federal Awards

Internal control over major programs; Material weakness identified?

Significant deficiency identified not considered to be a material weakness?

No Yes

Type of auditor's report issued on compliance for major programs:

Qualified

Any audit findings disclosed that are required to be reported in accordance with Circular A-133, Section ,510(a)?

Yes

Identification of major programs:

CFDA Number

Name of Federal Program

20.106

U. S. Department of Transportation - Airport Improvement Program

Child Nutrition Cluster:

10.553 U. S. Department of Agriculture - School Breakfast Program

10.555 U. S. Department of Agriculture - National School Lunch Program

10.558 U. S. Department of Agriculture - Child and Adult Care Food Program

10.559 U. S. Department of Agriculture - Summer Food Service for Children

CDBG - State-Administered Small Cities Program Cluster:

14.228 U. S. Department of Housing and Urban Development-

Community Development Block Grants/State's Program

14.255 U. S. Department of Housing and Urban Development-

Community Development Block Grants/State's Program, Recovery Act

Title I, Part A Cluster:

84.010 U. S. Department of Education - Title I Grants to Local Educational Agencies

84.389 U. S. Department of Education - Title t Grans to Local Educational Agencies, Recovery Act

Special Education Cluster (IDEA):

84.027 U. S. Department of Education - Special Education Grants to States

84.173 U. S. Department of Education - Special Education Preschool Grants

84.391 U. S. Department of Education - Special Education Grants to State, Recovery Act

84.392 U. S. Department of Education - Special Education Preschool Grants, Recovery Act

Dollar threshold used to distinguish between Type A and Type B programs:

$300,000

Auditee qualified as a low-risk auditee?

No

Page 9

CITY OF NORTH ADAMS, MASSACHUSETTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, 2010

Section II - Financial Statement Findings

There are no financial statement findings noted.

Section 111- Federal Award Findings and Questioned Costs

A significant deficiency in internal control over compliance is noted as finding 2010-5 on page 15. Noncompliance with Allowable Costs/Cost Principles is noted as finding 2010-1 on page 11.

Noncompliance with Allowable Costs/Cost Principles and questioned costs is noted as finding 2010-3 on page 13. Noncompliance with Procurement Requirements is noted as finding 2010-4 on page 14.

Noncompliance with Special Tests and Provisions is noted as finding 2010-2 on page 12.

Section IV - Prior Year Findings

There were no prior year federal findings reported.

Page 10

CITY OF NORTH ADAMS, MASSACHUSETTS SUMMARY SCHEDULE OF CURRENT AUDIT FINDINGS FOR THE YEAR ENDED JUNE 30, 2010

Finding 2010-1

Noncompliance with Allowable Costs/Cost Principles - U. S. Department of Education Grants

Criteria:

OMB Circular A-8? Attachment B, paragraph 8.h.(3) states, "Where employees are expected to work solely on a single Federal award or cost objective, charges for their salaries and wages will be supported by periodic certifications that the employees worked solely on that program for the period covered by the certification. These certifications will be prepared at least semi-annually and will be signed by the employee or supervisory official having first hand knowledge of the work performed by the employee."

OMB Circular A-8? Attachment B, paragraph 8.h.(4) states, "When employees work on multiple activities or cost objectives, a distribution of their salaries or wages will be supported by personnel activity reports or equivalent documentation ... " The personnel activity reports must reflect an after-the-fact distribution of the actual activity of each employee, must account for the total activity for which each employee is compensated, must be prepared at least monthly, must coincide with one or more pay periods, and must be signed by the employee and countersigned by an administrator or supervisor.

Condition:

The North Adams School Department did not obtain such certifications from employees whose salaries are paid from Federal grants, either in whole or in part.

Effect:

Some employees' salaries may be inappropriately charged to Federal programs.

Recommendation:

The administrators in the North Adams School Department should become familiar with the requirements for time and effort documentation. The School Department should immediately implement semi-annual or monthly certifications for all employees paid from all Federal grant programs.

Management's Response:

The administration concurs with the auditors' comments. This has been completed for the Title 1 grant and has been implemented for all Federal grants.

Page 11

CITY OF NORTH ADAMS, MASSACHUSETTS SUMMARY SCHEDULE OF CURRENT AUDIT FINDINGS FOR THE YEAR ENDED JUNE 30, 2010

Finding 2010-2

Noncompliance with Special Tests and Provisions for Awards with American Recovery and Reinvestment Act (ARRA) Funding

National School Lunch Program - CFDA No.1 0.555

Community Development Block Grants/State's Program - CFDA No. 14.255

Criteria:

The American Recovery and Reinvestment Act CARRA) requires that, for projects funded from ARRA funds, the recipient's financial management system must permit the preparation of required reports and tracing funds adequate to establish that funds were used for authorized purposes and allowable costs. The recipient's accounting records must identify adequately the source and application of ARRA awards.

Condition:

The City received several awards of ARRA funds. The City's general ledger did not separately identify ARRA funds for the School Lunch Program Equipment Assistance Grant and the Community Development Block Grant Program CDBG-R Grant. The funds for these projects were commingled on the City's general ledger with the nonARRA funds for the School Lunch Program and the Community Development Block Grants, respectively.

It should be noted that ARRA awards are under tighter scrutiny than other Federal grants due to the transparency and accountability requirements for the awards.

Effect:

Expenditures of ARRA funds may not be adequately identified for reporting purposes and may be spent for purposes not authorized under the ARRA funding awards.

Recommendation:

The City should set up separate general ledger accounts for all ARRA awards.

Management's Response:

The administration concurs with the auditors' comments. Separate accounts had been set up for all other ARRA grants unfortunately the School Lunch Program one was missed. The information was reported on the quarterly ARRA reports.

Page 12

CITY OF NORTH ADAMS, MASSACHUSETTS SUMMARY SCHEDULE OF CURRENT AUDIT FINDINGS FOR THE YEAR ENDED JUNE 30,2010

Finding 2010-3

Noncompliance/Questioned Costs - Title I Grants to Local Educational Agencies, Recovery Act - CFDA No. 84.389

Criteria:

OMS Circular A-8?, Attachment A, paragraph C.1. requires that for costs to be allowable under a Federal award, the costs must be necessary and reasonable for proper and efficient performance and administration of the Federal award.

Condition:

The North Adams School Department was awarded Title I Recovery Act funds to supplement its Title I program. The School Department purchased doors for two offices for the School Department's After School Program and charged the purchases to the Title I Recovery Act award.

Questioned Costs:

The amount of $1,250.81, the invoice charged to the Title I Recovery Act award for this purchase, is questioned.

Recommendation:

All purchases charged to Federal awards should be for the purpose of the award. Expenditures related to the After School Program should not be charged to Title I funds.

Management's Response:

The administration concurs with the auditors' comments and will implement procedures for this not to occur in the future.

Page 13

CITY OF NORTH ADAMS, MASSACHUSETTS SUMMARY SCHEDULEOF CURRENT AUDIT FINDINGS FOR THE YEAR ENDED JUNE 30, 2010

Finding 2010-4

Noncompliance with Procurement Requirements - Special Education Grants to States, Recovery Act - CFDA No. 84.391

Criteria:

States, and governmental subrecipients of states, shall use the same State policies and procedures used for procurements from non-Federal funds. Section 4(a) of Chapter 30B of the Massachusetts General Laws requires that no fewer than three quotations be obtained for procurement of goods in the amount of $5,000 or greater but less than $25,000. The procurement officer shall record the names and addresses of all persons from whom quotations were sought, the names of the persons submitting quotations and the date and amount of each quotation. Section 5 of Chapter 30B of the Massachusetts General Laws requires that procurement of contracts in the amount of $25,000 or more shall conform to competitive sealed bidding procedures.

Condition:

The North Adams School Department purchased two vans for the special education program through a lease and charged the first year's lease payment to the Individuals with Disabilities Education Act (IDEA) Recovery Act award. The School Department did not produce any documentation that it had procured these vans under Chapter 30B of the Massachusetts General Laws.

Questioned Costs:

The amount of $24,634.55, which is the amount of the first lease payment charged to the IDEA Recovery Act award, is questioned.

Recommendation:

The School Department should properly follow Massachusetts General Laws to procure all goods purchased from Federal award funds and should document that the procurement requirements were followed.

Management's Response:

The administration concurs with the audit findings and will strengthen existing procedures to ensure compliance with Chapter 30B.

Page 14

CITY OF NORTH ADAMS, MASSACHUSETTS SUMMARY SCHEDULE OF CURRENT AUDIT FINDINGS FOR THE YEAR ENDED JUNE 30,2010

Finding 2010-5

Significant Deficiency in Internal Control Over Compliance - Program Income - U. S. Department of Housing and Urban Development - Community Development Block Grants/State's Program - CFDA No. 14,228

Criteria:

Proper controls should be implemented to account for all program income earned from Federal programs.

Condition:

The City has two revolving loan funds, for economic development loans and for housing rehabilitation loans, which originated from Community Development Block Grant Funds. The principal amounts due to the City are not recorded on the general ledger of the City.

Also, the City does not have any procedures to approve write-offs of uncollectible amounts of the loans.

Effect:

The City Auditor does not maintain a detail control to check the activity of the unpaid loan balances reports maintained by the Community Development Department.

Lack of an approval process for uncollectible loans could cause loans to be written off and not be detected. Also, uncollectible loans could exist that will not be collected but are shown as a collectible receivable to the City.

Recommendation:

The City should establish receivable accounts on the City's general ledger for the economic development loans and the housing rehabilitation loans. The City Auditor should periodically reconcile the balance from the general ledger to the balances maintained by the Community Development Department.

The City should establish written procedures to approve write-offs of uncollectible loans.

Management's Response:

The City Auditor will establish receivables on the general ledger and will obtain amortization schedules as well as contracts regarding the loans in question. Furthermore, the City Auditor will periodically reconcile the balances with the Community Development Department and, as a component of creating an accounting policies manual, will establish procedures for write offs and uncollectible loans.

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CITY OF NORTH ADAMS, MASSACHUSETTS SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS FOR THE YEAR ENDED JUNE 30, 2010

The prior year audit report for the City of North Adams, Massachusetts, for the year ended June 30, 2009, did not identify any findings or questioned costs relative to Federal programs.

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