VIRGINIA COMMUNITY ACTION RE-ENTRY SYSTEM, INC. FINANCIAL STATEMENTS

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1 FINANCIAL STATEMENTS For the Years Ended June 30, 2015 and 2014

2 Low Income Representatives Benjamin Lomax Curtis Thompson Stephen Musselwhite Rosana Anderson Linda Moyer Private Representatives Bobby Russell Bobby Vassar Richard Foster Rita Joyce John Bergen Vice-Chairman Parliamentarian Elected Officials Ted Edlich Tim Allen Sherman Lea, Jr. James Politis Sam Rasoul Chairman Secretary/Treasurer

3 CONTENTS INDEPENDENT AUDITOR'S REPORT...4 FINANCIAL STATEMENTS Statements of Financial Position...6 Statements of Activities...7 Statements of Cash Flows...8 Statements of Functional Expenses...9 Notes to Financial Statements...11 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS...17 SCHEDULE OF FINDINGS AND QUESTIONED COSTS...19 SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS...20 SCHEDULE OF REVENUES AND EXPENSES BY PROGRAM...21 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 Compliance for Each Major Program and on Internal Control over Compliance Required by OMB Circular A

4 INDEPENDENT AUDITOR'S REPORT To the Board of Directors Virginia Community Action Re-Entry System, Inc. Roanoke, Virginia Report on the Financial Statements We have audited the accompanying financial statements of Virginia Community Action Re Entry System, Inc., which comprise the statements of financial position as of June 30, 2015 and 2014 and the related statements of activities, cash flows and functional expenses for the years then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits 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. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 4

5 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Virginia Community Action Re-Entry System, Inc. as of June 30, 2015 and 2014, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Our audit was conducted for the purpose of forming an opinion on the financial statements taken as a whole. The accompanying Schedule of Revenues and Expenses by Program is presented for purposes of additional analysis and is not a required part of the financial statements. The accompanying Schedule of Expenditures of Federal Awards is presented for purposes of additional analysis as required by the 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. These schedules are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the financial statements. Such information has been subjected to the auditing procedures applied in the audits 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, the information is fairly stated, in all material respects, in relation to the financial statements taken as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated January 20, 2016 on our consideration of Virginia Community Action Re-Entry System, Inc.'s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements, and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Virginia Community Action Re-Entry System, Inc.'s internal control over financial reporting and compliance. Roanoke, Virginia January 20,

6 Statements of Financial Position June 30, 2015 and 2014 ASSETS Current Assets Cash and cash equivalents $ 102,461 $ 76,780 Accounts receivable 54, ,717 Prepaid expenses 25,085 - Total assets $ 182,069 $ 230,497 LIABILITIES and NET ASSETS Current Liabilities Accounts payable $ 161,628 $ 217,747 Accrued expenses 19,569 14,739 Total current liabilities 181, ,486 Net Assets Unrestricted (30,185) (30,176) Temporarily restricted 31,057 28,187 Total net assets 872 (1,989) Total liabilities and net assets $ 182,069 $ 230,497 The accompanying notes are an integral part of these financial statements and should be read in connection therewith. 6

7 Statements of Activities For the Years Ended June 30, 2015 and UNRESTRICTED NET ASSETS Revenues and Support Grants $1,268,538 $1,431,790 Contributions Interest Other 20,711 20,730 Net assets released from restrictions Total revenues and support 1,289,660 1,452,950 Expenses Program services 1,221,723 1,397,529 Management and general 47,412 52,254 Fundraising 20,534 15,178 Total expenses 1,289,669 1,464,961 Change in unrestricted net assets (9) (12,011) TEMPORARILY RESTRICTED NET ASSETS Contributions 3,000 3,000 Released from restrictions (130) - Change in temporarily restricted net assets 2,870 3,000 Change in Net Assets 2,861 (9,011) NET ASSETS Beginning (1,989) 7,022 Ending $ 872 $ (1,989) The accompanying notes are an integral part of these financial statements and should be read in connection therewith. 7

8 Statements of Cash Flows For the Years Ended June 30, 2015 and OPERATING ACTIVITIES Change in net assets $ 2,861 $ (9,011) Adjustments to reconcile change in net assets to net cash provided by operating activities: Change in current assets and liabilities: (Increase) decrease in: Accounts receivable 99,194 (6,776) Prepaid expenses (25,085) - Increase (decrease) in: Accounts payable (56,119) 19,281 Accrued expenses 4,830 1,915 Net cash provided by operating activities 25,681 5,409 CASH AND CASH EQUIVALENTS Beginning 76,780 71,371 Ending $ 102,461 $ 76,780 The accompanying notes are an integral part of these financial statements and should be read in connection therewith. 8

9 Statement of Functional Expenses For the Year Ended June 30, 2015 Management Program and General Fundraising Total Salaries and Wages $ 310,310 $ 30,289 $ 7,552 $ 348,151 Fringe Benefits 30,986 1, ,372 Payroll Taxes 22,239 2, ,031 Retirement 12,631 2, ,469 Subcontractor Expenses 595, ,517 Subcontractor Client Services 34, ,604 Rent 38, ,312 Travel 34,167 3, ,963 Network Maintenance 11, ,219 Insurance 17, ,305 Professional Services 7,868 7,868 10,425 26,161 Materials and Supplies 18, ,497 Telephone 8, ,702 Small equipment 8, ,574 Other Costs 70, ,792 Total expenses $ 1,221,723 $ 47,412 $ 20,534 $ 1,289,669 The accompanying notes are an integral part of these financial statements and should be read in connection therewith. 9

10 Statement of Functional Expenses For the Year Ended June 30, 2014 Management Program and General Fundraising Total Salaries and Wages $ 328,195 $ 32,227 $ 8,188 $ 368,610 Fringe Benefits 18, ,844 Payroll Taxes 24,626 2, ,710 Retirement 15,584 2, ,615 Subcontractor Expenses 658, ,698 Subcontractor Client Services 36, ,945 Rent 38, ,608 Travel 69,882 6,862 1,743 78,487 Network Maintenance 7, ,717 Insurance 15, ,348 Professional Services 7,858 7,857 3,875 19,590 Materials and Supplies 20, ,513 Telephone 11, ,543 Small equipment 36, ,135 Other Costs 107, ,598 Total expenses $ 1,397,529 $ 52,254 $ 15,178 $ 1,464,961 The accompanying notes are an integral part of these financial statements and should be read in connection therewith. 10

11 Notes to Financial Statements June 30, 2015 and 2014 Note 1. Nature of Operations and Significant Accounting Policies Virginia Community Action Re-Entry System, Inc. (VA CARES) was organized in 1979 to create a network of communities throughout Virginia which provide pre-release and post-release services to those incarcerated within the state in order to provide support and assistance during their transition from institution to society. VA CARES maintains an administrative office in Roanoke, Virginia. Service delivery offices are maintained by subcontractors in Abingdon, Alexandria, Christiansburg, Clifton Forge, Covington, Danville, Fredericksburg, Lynchburg, Martinsville, Newport News, Powhatan, Roanoke, and Rocky Mount. Basis of Accounting: The financial statements of VA CARES have been prepared on the accrual basis. Financial Statement Presentation: The accompanying financial statements present information regarding VA CARES' financial position and activities according to two classes of net assets: unrestricted and temporarily restricted. The two classes are differentiated based on the existence or absence of donor or grant-imposed restrictions, as described below: Unrestricted net assets are free of donor or grant-imposed restrictions. Unrestricted net assets may be designated for specific purposes by action of the Board of Directors or may otherwise be limited by contractual agreements with outside parties. Revenues, gains, and losses that are not temporarily or permanently restricted by donors are included in this classification. Expenses are reported as decreases in this classification. Temporarily restricted net assets are limited in use by donor or grant-imposed stipulations that expire either by the passage of time or that can be fulfilled by action of VA CARES pursuant to those stipulations. Cash and Cash Equivalents: Cash equivalents consist of highly liquid investments with an initial maturity of three months or less. All cash accounts are held at one bank. The balance in these accounts may, at times, exceed federally insured limits; however, VA CARES does not believe it is subject to any significant credit risk as a result of these deposits. 11

12 Notes to Financial Statements June 30, 2015 and 2014 Note 1. Nature of Operations and Significant Accounting Policies (Continued) Property and Equipment: It is the policy of VA CARES to capitalize property and equipment in excess of $2,500. Acquisitions are to be recorded at cost if purchased and at fair market value if donated. As of June 30, 2015, VA CARES had not purchased any equipment with a unit cost exceeding $2,500. Contributions: Contributions, including unconditional promises to give or contributions receivable, are recognized as unrestricted or temporarily restricted, depending on the existence or nature of any restrictions. Contributions received with restrictions that are met in the same year as received are reported as revenues of the unrestricted net asset class. Income Taxes: VA CARES is exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Code and did not conduct unrelated business activities. In addition, VA CARES has been determined by the IRS not to be a private foundation within the meaning of Section 509(a) of the Internal Revenue Code. The federal tax related filings of VA CARES are subject to examination by the IRS, generally for three years after they are filed. Functional Allocation of Expenses: The costs of providing the various programs and other activities are summarized on a functional basis in the statement of activities. Accordingly, certain costs have been allocated among the programs and supporting services benefited. Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. 12

13 Notes to Financial Statements June 30, 2015 and 2014 Note 1. Nature of Operations and Significant Accounting Policies (Continued) Subsequent Events: Management has evaluated subsequent events through January 20, 2016, the date which the financial statements were available for issue. Note 2. Accounts Receivable A summary of accounts receivable is as follows: VA DSS - Community Services Block Grant $ 52,204 $ 69,887 DOJ - BJA - SCA - Mentoring Grant - 82,471 Other 2,319 1,359 $ 54,523 $ 153,717 Note 3. Accounts Payable and Accrued Expenses A summary of accounts payable is as follows: Prisoner Re-entry Program $ 143,123 $ 172,620 Professional services 13,600 13,600 Database maintenance - 15,075 Other 4,905 16,452 $ 161,628 $ 217,747 Accrued expenses include annual leave accumulated and payable to VA CARES' employees. Effective August 1, 2012 a change in policy allowed employees to cash out accrued annual leave on a quarterly basis. Annual leave payable at June 30, 2015 and 2014 totaled $19,569 and $14,739, respectively. 13

14 Notes to Financial Statements June 30, 2015 and 2014 Note 4. Line of Credit VA CARES maintains an unsecured line of credit with BB&T. Interest is due monthly at the greater of the bank s prime rate plus 1% or 5.25%, with the balance of all principal and interest due March 19, The maximum amount available under this line of credit was $50,000 with no outstanding balance as of June 30, 2015 and Note 5. Restrictions on Net Assets Temporary restrictions on net assets at June 30, 2015 and 2014 relate primarily to funds set aside in accordance with grantor requirements to cover severance payments for employees in the event that federal funds for VA CARES' programs become unavailable. Allocations to the severance fund totaled $3,000 for the years ending June 30, 2015 and 2014, respectively. Amounts restricted to the severance fund totaled $30,964 and $27,964 at June 30, 2015 and 2014, respectively. A small amount of funds is also restricted to the payment of employee medical expenses. Amounts in this fund totaled $93 and $223 at June 30, 2015 and 2014, respectively. A total of $130 satisfied the restrictions and payment from the fund was authorized to cover employee medical expenses incurred during the organization s transition to a new health plan. The total amounts of net assets restricted as of June 30, 2015 and 2014 were $31,057 and $28,187, respectively. Note 6. Retirement Plan VA CARES has a defined contribution plan under Section 403(b) of the Internal Revenue Code. Employees become eligible to make elective deferrals after 30 days of employment and are eligible to have employer discretionary contributions credited to their account after two years of service. VA CARES currently contributes 7.5% of gross salaries paid to all eligible participating employees; this amount totaled $15,469 and $18,615 for the years ended June 30, 2015 and 2014, respectively. Note 7. Description of Leasing Arrangements VA CARES rents office space for central management under a month-to-month arrangement. Rental payments of $3,141 are due monthly. Total rent expense under this arrangement was $37,696 for each of the years ending June 30, 2015 and 2014, respectively. 14

15 Notes to Financial Statements June 30, 2015 and 2014 Note 8. Subcontractor Agreements VA CARES has agreements with numerous community action agencies throughout the state of Virginia to act as subcontractors in order to achieve the objectives of the organization and to support the activities of the pre and post-release (PAPIS) prisoner re-entry program. Payments are made monthly or as funding becomes available. A summary of subcontractor expenses reimbursed for the years ending June 30, 2015 and 2014 are as follows: 2015 Contract Client Services Services Total Alexandria DCHS $ 48,037 $ 2,100 $ 50,137 Lynchburg Community Action Program 76,642 5,151 81,793 New River Community Action Agency, Inc. 84,705 2,364 87,069 Office of Human Affairs, Newport News 42,750 4,781 47,531 People, Inc. of Southwest Virginia, Abingdon 76,362 3,781 80,143 Pittsylvania County Community Action 42,757 1,530 44,287 Capital Area Partnership Uplifting People, Petersburg 83, ,500 Support to Eliminate Poverty 35, ,469 TAP 104,611 11, ,649 People, Inc. of Southwest Virginia, Fredericksburg - 2,543 2, $ 595,517 $ 34,604 $ 630, Contract Client Services Services Total Alexandria DCHS $ 48,037 $ 1,747 $ 49,784 Lynchburg Community Action Program 79,190 7,092 86,282 New River Community Action Agency, Inc. 84,982 2,364 87,346 Office of Human Affairs, Newport News 49,750 4,503 54,253 People, Inc. of Southwest Virginia, Abingdon 74,760 2,128 76,888 Pittsylvania County Community Action 42,757 2,364 45,121 Capital Area Partnership Uplifting People, Powhatan 83,899 1,349 85,248 Support to Eliminate Poverty 74,592 3,313 77,905 TAP 104,611 8, ,582 VA CARES, Fredericksburg - 3,114 3,114 $ 642,578 $ 36,945 $ 679,523

16 Notes to Financial Statements June 30, 2015 and 2014 Note 9. Subsequent Events Subsequent to the date of the financial statements, VA CARES reorganized service locations to provide more consistent service throughout the state of Virginia. Several subcontractor offices were closed or consolidated as a result of the reorganization. The Board also has a committee working on development of new program curriculum with a projected implementation date of July 1,

17 Schedule of Expenditures of Federal Awards For the Year Ended June 30, 2015 Federal CFDA Number Expenditures U. S. Department of Justice: Direct programs: BJA - Second Chance Act - Mentoring of Adult Offenders $ 94,509 Pass-through programs from: Virginia Department of Criminal Justice Services: General Assembly General Funds - Virginia Prisoner Re-entry Program (PAPIS) ,022,128 Total U. S. Department of Justice 1,116,637 U. S. Department of Health & Human Services Pass-through Program from: Virginia Department of Social Services: Community Services Block Grant ,901 Total Expenditures of Federal Awards $ 1,268,538 See accompanying notes to schedule of expenditures of federal awards. 17

18 Notes to Schedule of Expenditures of Federal Awards For the Year Ended June 30, 2015 Note A Basis of Presentation The accompanying schedule of expenditures of federal awards (the Schedule) includes the federal grant activity of VA CARES under programs of the federal government for the year ended June 30, 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. Because the Schedule presents only a selected portion of the operations of the VA CARES organization, it is not intended to and does not present the financial position, changes in net assets, or cash flows of VA CARES. Note B Summary of Significant Accounting Policies Expenditures reported on the Schedule are reported on the accrual basis of accounting. Such expenditures are recognized following the cost principles contained in OMB Circular A-122, Principles for Non-Profit Organizations, wherein certain types of expenditures are not allowable or are limited as to reimbursements. 18

19 Schedule of Findings and Questioned Costs For the Year Ended June 30, 2015 A. SUMMARY OF AUDITOR'S RESULTS 1. The auditor's report expresses an unmodified opinion on the financial statements. 2. No significant deficiencies or material weaknesses in internal control relating to the audit of the financial statements were reported in the 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 were disclosed during the audit. 4. No significant deficiencies or material weaknesses in internal control relating to the audit of the major federal award programs were reported in the Independent Auditor's Report on Compliance for Each Major Program and on Internal Control over Compliance required by OMB Circular A The auditor's report on compliance for the major federal award programs expresses an unmodified opinion on all major federal programs. 6. The audit disclosed no audit findings required to be reported in accordance with Section 510(a) of OMB Circular A-133 relative to the major programs. 7. The program tested as a major federal program is: U. S. Department of Justice - VA Prisoner Re-entry Program 8. The threshold for distinguishing Types A and B programs was $300, Virginia Community Action Re-Entry System, Inc. was determined to be a low-risk auditee. B. FINDINGS - FINANCIAL STATEMENT AUDIT None. C. FINDINGS AND QUESTIONED COSTS - MAJOR FEDERAL AWARD PROGRAM AUDIT None. 19

20 Summary Schedule of Prior Audit Findings For the Year Ended June 30, 2015 There were no audit findings for the year ended June 30,

21 Schedule of Revenues and Expenses by Program Year Ended June 30, 2015 DCJS- SCA PAPIS CSBG Mentoring Agency Total REVENUES Grants $ 1,022,128 $ 151,901 $ 94,509 $ - $ 1,268,538 Contributions Interest Other ,841 20,841 Total Revenues 1,022, ,901 94,509 21,122 1,289,660 EXPENSES Salaries and wages 227,673 51,703 68, ,151 Fringe benefits 18,452 8,000 6,920-33,372 Payroll taxes 16,096 3,955 4,980-25,031 Retirement 15, ,469 Subcontractor expenses 518,069 77, ,517 Subcontractor client services 34, ,604 Rent 37, ,312 Travel 21,346 8,321 8,296-37,963 Network maintenance 11, ,219 Insurance 16, ,305 Professional services 26, ,161 Materials and supplies 15,982-2,515-18,497 Telephone 6,687-2,015-8,702 Small equipment 8, ,574 Other costs 47,587 2, ,131 70,792 Total Expenses 1,022, ,901 94,509 21,131 1,289,669 Change in Unrestricted Assets $ - $ - $ - $ (9) $ (9) 21

22 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 Board of Directors Virginia Community Action Re-Entry System, Inc. Roanoke, Virginia We have audited, in accordance with the 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 Virginia Community Action Re-Entry System, Inc. (hereinafter referred to as VA CARES) which comprise the statement of financial position as of June 30, 2015, and the related statements of activities, cash flows and functional expenses for the year then ended, and the related notes to the financial statements, and have issued our report thereon dated January 20, Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered VA CARES' internal control over financial reporting to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of VA CARES' internal control. Accordingly, we do not express an opinion on the effectiveness of VA CARES' 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 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 that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. 22

23 Compliance and Other Matters As part of obtaining reasonable assurance about whether VA CARES' 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. 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 organization'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 organization s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Roanoke, Virginia January 20,

24 INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY OMB CIRCULAR A-133 To the Board of Directors Virginia Community Action Re-Entry System, Inc. Roanoke, Virginia Report on Compliance for Each Major Federal Program We have audited Virginia Community Action Re-Entry System, Inc.'s (hereinafter referred to as VA CARES) compliance with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement that could have a direct and material effect on each of its major federal programs for the year ended June 30, VA CARES' 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 VA CARES' 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 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 VA CARES' 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 VA CARES' compliance. Opinion on Each Major Federal Program In our opinion, VA CARES 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,

25 Report on Internal Control over Compliance Management of VA CARES 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 VA CARES' 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 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 VA CARES' 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 deficiencies. 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 of internal control over compliance and the results of that testing based on the requirements of OMB Circular A-133. Accordingly, this report is not suitable for any other purpose. Roanoke, Virginia January 20,