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To t 6.1. B. - Page 215 and Menlbers of City Council of the City of Pedwood City Redwood City, California Page 2 Internal Control over Comvliance Management of the City is responsible for establishing and maintaining effective internal control over compliance with the requirements of laws, regulations, contracts, and grants applicable to federal programs. In planning and perfornzing our audit, we considered the City's internal control over compliance with the requirements that could 11ave a direct and material effect on a major federal program u1 order to deternune our auditing procedures for the purpose of e�ressing our opulion 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 opuzion on the effectiveness of internal control over compliance. Accordulgly, we do not express an opinion on the effectiveness of the City's internal control over compliance. A deficiency in internc�l control oz�er complir�nce exists when t11e design or operation of a control over conlpliailce does not allow managenlent or enlployees, in the normal course of perfornuilg their assigned functions, to prevent, or detect and correct, nonconlpliance with a type of conlpliance requirenlent of a federal progranl on a timely basis. A material u�enkness in internrzl control oz�er complic�nce is a deficiency, or conlbulatioil of deficiencies, u1 internal control over conlpliailce, such that there is a reasonable possibility that material nonconlpliance with a type of conlpliance requirenlent of a federal progranl will not be prevented, or detected and corrected, on a tinlely basis. Our consideration of ulterilal control over compliance was for t11e limited purpose described in the first paragraph of this section and was not desigiled to identify all deficiencies in internal control over conlpliailce that nlight be deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over compliailce t11at we consider to be material wealalesses, as defined above. However, we identified one deficiency in ultenlal control over compliance that we consider to be a significant deficiency as described u1 the acconlpanyulg schedule of findings aild questioned costs as item FS 2011-01. A significant deficieilcy in internal control over compliance is a deficiency, or a conlbination of deficiencies, in internal control over compliance with a type of conlpliance requirement of a federal program that is less severe thail a nlaterial weakness u1 ultenlal coiltrol over conlpliance, yet important enougll to merit attention by those cllarged with govenlance. Schedule of Exnenditures of Federal Awards We have audited tlle finailcial statenlents of the governmental activities, t11e business-type activities, each nlajor fund, and the aggregate remaining fund infornlation of the City, as of and for the year ended June 30, 2011, and have issued our report thereon dated December 7, 2011, which contained unqualified opinions on those financial statenlents. Our audit was perfornled for the purpose of fornlulg opulions oi1 the financial statements as a whole. The schedule of expenditures of federal awards is presented for the purposes of additional analysis as required by U.S. Office of Managenlent and Budget Circular A-133, Audits of Stc�tes, Locr�l Goz�ernments, and Non-Pro{it Orgnnizations, and is ilot a required part of the financial statenlents. Such ulformation is t11e responsibility of nlanagenlent and was derived fronl and relates directly to the underlyulg accowltulg and other records used to prepare the financial statements. The infornlation has been subjected to t11e auditulg procedures applied u1 the audit of the financial statenlents and certauz additional procedures, includulg comparulg and reconciling such ulformation directly to tlle underlying accowlting and other records used to prepare the fulancial statenlents or to the finailcial statements tllemselves, and otller additional procedures in accordance with auditulg standards generally accepted in tlle United States of America. In our opinioil, tlle infornlation is fairly stated in all nlaterial respects in relation to the financial statenlents as a whole. �