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Nantucket Single Audit 16 TOWN OF NANTUCKET, MASSACHUSETTS SINGLE AUDIT REPORTS PURSUANT TO UNIFORM GUIDANCE JUNE 30, 2016 TOWN OF NANTUCKET, MASSACHUSETTS TABLE OF CONTENTS JUNE 30, 2016 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 Independent Auditor’s Report on Compliance for Each Major Program and on Internal Control Over Compliance Required by Uniform Guidance .................................. 3-5 Schedule of Expenditures of Federal Awards .......................................................................... 6-7 Notes to Schedule of Expenditures of Federal Awards .............................................................. 8 Schedules of Findings and Questioned Costs .......................................................................... 9-12 Corrective Action Plans .......................................................................................................... 13 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 Board of Selectmen Town of Nantucket, Massachusetts We have audited, 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, the financial statements of the governmental activities, the business-type activities, the discretely presented component units, each major fund, and the aggregate remaining fund information of the Town of Nantucket, Massachusetts, as of and for the year ended June 30, 2016, and the related notes to the financial statements, which collectively comprise the Town of Nantucket, Massachusetts’s basic financial statements and have issued our report thereon dated October 4, 2016. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the Town’s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances 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 Town’s internal control. Accordingly, we do not express an opinion on the effectiveness of the Town’s internal control. 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 a 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. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that were not identified. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. We did identify certain deficiencies in internal control, described in the accompanying schedule of findings and questioned costs as findings 2016-001 and 2016-002 that we consider to be significant deficiencies Town of Nantucket, Massachusetts 1 of 13 Uniform Guidance Single Audit Report Town of Nantucket, Massachusetts Page Two Compliance and Other Matters As part of obtaining reasonable assurance about whether the Town’s financial statements are free from 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 other matters that we reported to management of the Town in a separate letter dated October 4, 2016. Response to Findings The Town’s response to the findings identified in our audit is described in the accompanying schedule of findings and questioned costs. The Town’s response was not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on it. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Roselli, Clark and Associates Certified Public Accountants Woburn, Massachusetts October 4, 2016 Town of Nantucket, Massachusetts 2 of 13 Uniform Guidance Single Audit Report INDEPENDENT AUDITOR’S REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE To the Honorable Board of Selectmen Town of Nantucket, Massachusetts Report on Compliance for Each Major Federal Program We have audited the Town of Nantucket, Massachusetts’ compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of the Town of Nantucket, Massachusetts’ major federal programs for the year ended June 30, 2016. The Town of Nantucket, Massachusetts’ major federal programs are identified in the summary of auditor’s results section of the accompanying schedule of findings and questioned costs. Management’s Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to its federal programs. Auditor’s Responsibility Our responsibility is to express an opinion on compliance for each of the Town of Nantucket, Massachusetts’ major federal programs based on our audit of the types of compliance requirements referred to above. 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 the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance 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 Town of Nantucket, 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 on compliance for each major federal program. However, our audit does not provide a legal determination of the Town of Nantucket, Massachusetts’ compliance. Opinion on Each Major Federal Programs In our opinion, the Town of Nantucket, Massachusetts complied, in all material respects, with the types of 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, 2016. Town of Nantucket, Massachusetts 3 of 13 Uniform Guidance Single Audit Report Town of Nantucket, Massachusetts Page Two Report on Internal Control Over Compliance Management of the Town of Nantucket, Massachusetts is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the Town of Nantucket, Massachusetts’ internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, 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 Town of Nantucket, 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. 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. 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 material weaknesses or significant efficiencies and therefore, material weaknesses or significant deficiencies may exist that were not identified. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing internal control over compliance and the results of that testing based on the requirements of Uniform Guidance. Accordingly, this report is not suitable for any other purpose. Report on Schedule of Expenditures of Federal Awards Required by the Uniform Guidance We have audited the financial statements of the governmental activities, the business-type activities, the discretely presented component units, each major fund, and the aggregate remaining fund information of the Town of Nantucket, Massachusetts, as of and for the year ended June 30, 2016, and the related notes to the financial statements, which collectively compromise the Town of Nantucket, Massachusetts’s basic financial statements. We have issued our report thereon dated October 4, 2016, which contained unmodified opinions on those financial statements. Our audit was conducted for the purpose of forming our opinions on the financial statements that collectively comprise the basic financial statements. Town of Nantucket, Massachusetts 4 of 13 Uniform Guidance Single Audit Report Town of Nantucket, Massachusetts Page Three The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by Uniform Guidance, and is not a required part of the basic 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 basic financial statements. 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 basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the schedule of expenditures of federal awards is fairly stated in all material respects in relation to the basic financial statements as a whole. Roselli, Clark & Associates Certified Public Accountants Woburn, Massachusetts October 4, 2016 Town of Nantucket, Massachusetts 5 of 13 Uniform Guidance Single Audit Report TOWN OF NANTUCKET, MASSACHUSETTS SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2016 See notes to Schedule of Expenditures of Federal Awards Federal Grantor /Passed Pass-Through Agency /CFDA Pass-Through Through to Federal Program Title Number Number Subrecipients Expenditures U.S. Department of Agriculture Child Nutrition Cluster Passed through the Commonwealth of Massachusetts - Department of Elementary and Secondary Education School Breakfast Program 10.553 10-197 -$ 5,958$ National School Lunch Program:10.555 10-197 Cash Assistance - 146,172 Non-Cash Assistance (Commodities)- 35,212 Total Child Nutrition Cluster - 187,342 U.S. Department of Justice Direct Award Public Safety Partnership and Community Policing Grants 16.710 - 1,716 Total U.S. Department of Justice - 1,716 U.S. Department of Transportation Passed through the Commonwealth of Massachusetts - Department of Transportation/Division of Aeronautics Airport Improvement Program 20.106 AIP 3-25-0033-063-2015 - 88,629 Airport Improvement Program 20.106 AIP 3-25-0033-062-2015 - 1,857,180 Airport Improvement Program 20.106 130015ACKMAINV1 - 45,396 Airport Improvement Program 20.106 AIP 3-25-0033-060-2014 - 66,202 Airport Improvement Program 20.106 AIP 3-25-0033-057-2013 - 84,990 Highway Planning and Construction Cluster Passed through the Commonwealth of Massachusetts - Department of Transportation/Division of Highways Highway Planning and Construction * 20.205 INTF00X02010H0059646 - 234,195 Total Highway Planning and Construction Cluster - 234,195 Total U.S. Department of Transportation - 2,376,592 U.S. Department of Education Special Education Cluster (IDEA) Passed through the Commonwealth of Massachusetts - Department of Elementary and Secondary Education Special Education - Grants to States 84.027 240-030-6-0197-Q - 221,693 Special Education - Grants to States 84.027 240-039-5-0197-P - 63,253 Special Education - Grants to States 84.027 274-021-6-0197-Q - 12,726 Special Education - Preschool Grants 84.173 298-690-6-0197-Q - 1,750 (Continued) Town of Nantucket, Massachusetts 6 of 13 Uniform Guidance Single Audit Report TOWN OF NANTUCKET, MASSACHUSETTS SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2016 (Continued) See notes to Schedule of Expenditures of Federal Awards Federal Grantor/Passed Pass-Through Agency /CFDA Pass-Through Through to Total Program Title Number Number Subrecipients Expenditures Passed through the Commonwealth of Massachusetts - Department of Early Education and Care Special Education - Preschool Grants 84.173 26216Nantucket - 8,575 Total Special Education Cluster (IDEA)- 307,997 Passed through the Commonwealth of Massachusetts - Department of Elementary and Secondary Education Title I Grants to Local Educational Agencies 84.010 305-072386-2016-0197 - 109,168 Title I Grants to Local Educational Agencies 84.010 305-061121-2015-0197 - 48,831 English Language Acquisition Grants 84.365 180-082-6-0197-Q - 24,130 English Language Acquisition Grants 84.365 180-069-5-0197-P - 11,791 English Language Acquisition Grants 84.365 184-031-6-0197-Q - 675 Improving Teacher Quality State Grants 84.367 140-075291-2016-0197 - 19,485 Improving Teacher Quality State Grants 84.367 140-066111-2015-0197 - 1,693 Improving Teacher Quality State Grants 84.367 140-032747-2014-0197 - 205 Race to the Top 84.395 133-048-5-0197-P - 244 Total U.S. Department of Education - 524,219 U.S. Department of Health & Human Services Passed Through the Commonwealth of Massachusetts - Executive Office of Health and Human Services/ Department of Public Health National Bioterrorism Hospital Preparedness Program 93.889 INTF6207P01W21916410 - 18,764 Total U.S. Department of Health & Human Services - 18,764 U.S. Department of Homeland Security Direct Award Law Enforcement Officer Reimbursement Agreement Program 97.090 - 133,570 Passed through the Commonwealth of Massachusetts- Massachusetts Emergency Management Agency Disaster Grants - Public Assistance (Presidentially Declared) * 97.036 CTFEMA4214NANTU00397 - 819,251 Disaster Grants - Public Assistance (Presidentially Declared) * 97.036 CTFEMA4214NANTU00316 - 17,054 Disaster Grants - Public Assistance (Presidentially Declared) * 97.036 CTFEMA4214NANTU00474 - 7,500 Emergency Management Performance Grants 97.042 FY16EMPG1500000NANTU - 2,534 Emergency Management Performance Grants 97.042 FY15EMPG1314000NANTU - 5,955 Total U.S. Department of Homeland Security - 985,864 Total Federal Financial Assistance Expenditures -$ 4,094,497$ * Denotes Major Program (Concluded) Town of Nantucket, Massachusetts 7 of 13 Uniform Guidance Single Audit Report TOWN OF NANTUCKET, MASSACHUSETTS NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2016 A. Basis of Presentation The accompanying schedule of expenditures of federal awards (the Schedule) includes the federal award activity of the Town of Nantucket, Massachusetts (the Town) under programs of the federal government for the year ended June 30, 2016. The information in this Schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Because the Schedule presents only a selected portion of the operations of the Town, it is not intended to and does not present the financial position, changes in net position, or cash flows of the Town. B. Summary of Significant Accounting Policies Accounting policies and financial reporting practices permitted for municipalities in Massachusetts are prescribed by the Uniform Municipal Accounting System (UMAS) promulgated by the Commonwealth of Massachusetts Department of Revenue. The accompanying Schedule includes the federal grant transactions of the Town, although some of these programs may be supplemented with state and other revenue, only federal activity is shown. Expenditures reported on the Schedule are reported on the modified accrual basis of accounting. Such expenditures are recognized following the cost principles contained in the Uniform Guidance. C. Non-Cash Commodities The Town receives non-cash commodities from the U.S. Department of Agriculture as a part of the School Lunch program. In fiscal year 2016, $35,212 was received; however, this amount is not included in the financial statements. D. Teacher Pension On-Behalf Payments With regards to specific education grants awarded to the Town, the Massachusetts Department of Elementary and Secondary Education and Department of Early Education and Care withhold from the total grant awards 7.2% and 9.0% of the amounts shown on applicable wage budget lines. The Commonwealth utilizes those funds as direct payments to the Massachusetts Teachers Retirement Board made on-behalf of the Town. The amount of these payments from federal grants in fiscal year 2016 was $10,514. Town of Nantucket, Massachusetts 8 of 13 Uniform Guidance Single Audit Report TOWN OF NANTUCKET, MASSACHUSETTS SCHEDULES OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2016 A. Summary of Audit Results 1. The auditor’s report expresses an unmodified opinion on the financial statements of the Town of Nantucket. 2. Two significant deficiencies disclosed during the audit of the financial statements are reported in the 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. 3. No instances of noncompliance material to the financial statements of the Town of Nantucket which would be required to be reported in accordance with Government Auditing Standards were disclosed during the audit. 4. No reportable conditions relating to the audit of the major federal award programs are reported in the Independent Auditor’s Report on Compliance for Each Major Program and on Internal Control Over Compliance Required By the Uniform Guidance. 5. The auditor’s report on compliance for the major federal award programs for the Town of Nantucket expresses an unmodified opinion. 6. There are no audit findings that are required to be reported in accordance with 2 CFR section 200.516(a) in this Schedule. 7. The programs tested as major programs include the Highway Planning and Construction Cluster (CFDA #20.205) and Disaster Grants – Presidentially Declared (CFDA #’s 97.036) grant programs. 8. The threshold for distinguishing Types A and B programs was $750,000. 9. The Town of Nantucket did qualify as a low risk auditee. Town of Nantucket, Massachusetts 9 of 13 Uniform Guidance Single Audit Report TOWN OF NANTUCKET, MASSACHUSETTS SCHEDULES OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2016 (Continued) B. Schedule of Findings – Financial Statements Audit Finding Questioned Costs 2016-001. Financial Statements Audit: Significant Deficiency – Closing Process Criteria: The internal controls related to the general ledger closing process should be designed to effectively identify and correct errors in a timely manner. Statement of Condition: Despite the Finance Director implementing a quarterly close process during fiscal year 2016, the following errors still occurred at year-end: (1) The Siasconset Water Enterprise Fund and the Sewer Enterprise Fund receivables were overstated by $614,000; (2) a $250,000 transfer to the General Fund from sale of real estate was recorded to the Capital Projects Fund in error; (3) indirect cost transfers in the amount of $376,869 from the various enterprise funds were not made to the General Fund at year-end; (4) a $1.2 million bond offering was instead recorded as a State grant in the Capital Project Fund; (5) numerous other minor errors not individually significant. Cause and Effect: By not completing a timely and accurate general ledger close, errors were not identified and corrected in a timely manner. The cumulative impact of (2) and (3) above would have been to understate free cash by over $600,000 had these errors not been corrected. Recommendation: The Town should review the current closing process and make the changes necessary to promote more efficiency and accuracy to the overall process including the possibility of reassigning some of the tasks to gain more efficiency and in-turn more accuracy. Town of Nantucket, Massachusetts 10 of 13 Uniform Guidance Single Audit Report TOWN OF NANTUCKET, MASSACHUSETTS SCHEDULES OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2016 (Continued) B. Schedule of Findings – Financial Statements Audit Finding Questioned Costs 2016-002. Financial Statements Audit: Significant Deficiency – Federal Withholding Process Criteria: The internal controls related to the Federal withholding process should be designed to process transactions timely and accurately. Statement of Condition: Due to the amount of the Town’s weekly payroll, the required payment of the Town’s withholdings due to the Internal Revenue Service (IRS) is within 1 day of the processing of the payroll. During the majority of fiscal year 2016 the payments required to be made to the IRS were not made within this required timeframe. Cause and Effect: In the past it was the Town’s practice to make payments immediately upon the processing of the payroll so the Town would be in compliance with the regulations. This practice was revised at the end of fiscal 2015 by the payroll office without permission from the Finance Office. This resulted in the assessment of significant penalties which were subsequently abated by the IRS. Recommendation: The Town should implement procedures to process Federal withholdings within the appropriate time period. C. Schedule of Findings and Questioned Costs – Major Federal Award Programs Audit None Town of Nantucket, Massachusetts 11 of 13 Uniform Guidance Single Audit Report TOWN OF NANTUCKET, MASSACHUSETTS SCHEDULES OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2016 (Continued) D. Summary Schedule of Prior Year Audit Findings Finding 2015-001 – Significant Deficiency in Internal Control Over Compliance – Child Nutrition Cluster Status: The School Department implemented procedures to monitor the timely filing of claims for reimbursements. This finding is deemed to be closed. Town of Nantucket, Massachusetts 12 of 13 Uniform Guidance Single Audit Report TOWN OF NANTUCKET, MASSACHUSETTS CORRECTIVE ACTION PLANS YEAR ENDED JUNE 30, 2016 Findings – Financial Statements Audit 2016-001. Financial Statements Audit: Significant Deficiency – Closing Process Recommendation: The Town should review the current closing process and make the changes necessary to promote more efficiency and accuracy to the overall process including the possibility of reassigning some of the tasks to gain more efficiency and in-turn more accuracy. Corrective Action Planned: The close process has been reviewed and additional changes have been implemented including reassigning duties and the hiring of additional staff. The review is done on a quarterly basis, however on a weekly basis the trial balance, revenue and expenditure reports are reviewed by the Director of Municipal Finance for anomalies. All journal entries must now be signed off on by the Director of Municipal Finance. The reviews, in conjunction with the reconfiguration of the job duties of some employees should allow the town to complete the close in a more efficient and accurate manner. Anticipated Completion Date: Fiscal year 2017 Contact: Brian E. Turbitt, Director of Municipal Finance 2016-002. Financial Statements Audit: Significant Deficiency – Federal Withholding Process Recommendation: The Town should implement procedures to process Federal withholdings within the appropriate time period. Corrective Action Planned: The Director of Municipal Finance upon learning of the payroll tax deposit issue with the Internal Revenue Service (IRS) immediately implemented the following process. Deposits are to be made immediately after the payroll has been transmitted and funded, this must happen by the Wednesday before the Thursday check date. Upon submission of the tax deposit, a printout of the confirmation number is to be printed and attached to the deposit documentation. By the Tuesday of the following week, the payroll administrator or the treasurer must contact the IRS and confirm that the deposit was received by the Friday deadline. Since this process was implemented there have been no further issues as they relate to this finding. Anticipated Completion Date: Fiscal year 2017 Contact: Brian E. Turbitt, Director of Municipal Finance Town of Nantucket, Massachusetts 13 of 13 Uniform Guidance Single Audit Report