PRESUPUESTO GENERAL

To the Board of Directors of

Phoenix House Foundation, Inc. and Affiliates: Report on compliance for each major federal program

We have audited the compliance of Phoenix House Foundation, Inc. and Affiliates (collectively, “PHF&A”)

with the types of compliance requirements described in the U.S. Office of Management and Budget’s OMB

Circular A-133 Compliance Supplement that could have a direct and material effect on each of PHF&A’s major federal programs, the State of Texas Uniform Grant Management Standards that could have a direct and material effect on each of PHF&A’s major State of Texas programs, and, Section 215.97, Florida Statutes and Chapter 10.650, Rules of the State of Florida Auditor General that could have a direct and material effect on each of PHF&A’s major State of Florida programs for the year ended June 30, 2014. PHF&A’s major federal, State of Texas and State of Florida programs are identified in the summary of auditors’ 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 PHF&A’s federal, State of Texas, and State of Florida programs.

Auditor’s responsibility

Our responsibility is to express an opinion on compliance for each of PHF&A’s major federal, State of Texas and State of Florida 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; OMB Circular A-133, Audits of States, Local

Governments, and Non-Profit Organizations; the State of Texas Uniform Grant Management Standards; and, Section 215.97, Florida Statutes and Chapter 10.650, Rules of the State of Florida Auditor General.

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Standards; and, Section 215.97, Florida Statutes and Chapter 10.650, Rules of the State of Florida Auditor General 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, State of Texas or State of Florida program occurred. An audit includes examining, on a test basis, evidence about PHF&A’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal, State of Texas and State of Florida program. However, our audit does not provide a legal determination of PHF&A’s compliance.

Opinion on each major federal program

In our opinion, PHF&A 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, State of Texas and State of Florida programs for the year ended June 30, 2014.

Report on internal control over compliance

Management of PHF&A is responsible for designing, implementing, 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 PHF&A’s internal control over compliance with the types of compliance requirements that could have a direct and material effect on each major federal, State of Texas and State of Florida program to design audit procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal, State of Texas and State of Florida program and to test and report on internal control over compliance in accordance with OMB Circular A-133, State of Texas Uniform Grant Management Standards; and, Section 215.97, Florida Statutes and Chapter 10.650, Rules of the State of Florida Auditor General, 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 PHF&A’s 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, State of Texas or State of Florida program on a timely basis. A material weakness in internal control over compliance is a deficiency, or a 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, State of Texas and State of Florida 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 material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in PHF&A’s internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.

findings and questioned costs as finding 2014-01, that we consider to be a significant deficiency in PHF&A’s internal control over compliance.

PHF&A’s response to our finding on internal control over compliance, which is described in the accompanying schedule of findings and questioned costs, was not subjected to the auditing procedures applied in the audit of compliance, and accordingly, we express no opinion on PHF&A’s response.

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, the State of Texas Uniform Grant Management Standards; and, Section 215.97, Florida Statutes and Chapter 10.650, Rules of the State of Florida Auditor General. Accordingly, this report is not suitable for any other purpose.

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SECTION I – SUMMARY OF AUDITORS’ RESULTS Consolidated Financial Statements:

Type of auditors’ report issued: Unmodified

Internal control over financial reporting:

Material weakness(es) identified? ___ yes X no

Significant deficiency(ies) identified that are not considered to be

material weakness(es)? ___ yes X none reported

Noncompliance material to consolidated financial statements noted? ___ yes X no

Federal, State of Texas and State of Florida Awards:

Internal control over the major programs:

Material weakness(es) identified? ___ yes X no

Significant deficiencies identified that are not considered to be

material weaknesses? X yes ___ none reported

Type of auditors’ report issued on compliance for major programs: Unmodified

Any audit findings disclosed that are required to be reported in accordance with Section 510(a) of OMB Circular A-133, State of Texas Uniform Grant

Management Standards or Section 215.97, Florida Statutes and Chapter 10.650,

Rules of the State of Florida Auditor General? X yes ___ no

Identification of major programs: Grantor/Program or Cluster Title

Federal CFDA or State Grant Number Federal:

Administration for Children and Families

Foster Care Title- IV-E

Centers for Medicare and Medicaid Services

93.658

Grantor/Program or Cluster Title

Federal CFDA or State Grant Number

U.S. Department of Justice:

Bureau of Justice Assistance

Residential Substance Abuse Treatment for State Prisoners

Recovery Act (ARRA) – Edward Byrne Memorial Justice Assistance Grant (JAG)

16.593 16.803

State of Texas:

Dallas County Community Supervision and Corrections Department Block Grants for Prevention and Treatment of Substance Abuse

N/A N/A

State of Florida:

State of Florida, Department of Corrections - Substance Abuse Services State of Florida ,Department of Children and Families – Substance Abuse Treatment and Aftercare Services for Children

C2626/ C2658/ C2669

CFBHN QA037

The dollar threshold used to distinguish between type A and type B programs was $775,449 for federal awards and $300,000 for State of Florida and State of Texas awards for the year ended June 30, 2014.

Auditee qualified as low-risk auditee? X yes no

SECTION II – FINANCIAL STATEMENT FINDINGS

None noted.

SECTION III – FEDERAL, STATE OF TEXAS AND STATE OF FLORIDA AWARD FINDINGS AND