MINUTES OF THE MEETING
THE AUDIT COMMITTEE
A meeting of the Audit Committee was held via videoconference at the Authority’s offices at 123 Main Street, White Plains, New York at approximately 10:38 a.m.
The following Members of the Audit Committee were present:
Also in attendance were:
Michael J. Townsend Chairman
John S. Dyson Trustee
R. Wayne LeChase Trustee
Gil Quiniones President and Chief Executive Officer
Judith McCarthy Executive Vice President and General Counsel
Donald Russak Acting Chief Financial Officer
Edward Welz Acting Chief Operating Officer
Karen Delince Corporate Secretary
Brian McElroy Treasurer
Thomas Concadoro Vice President and Controller
Lesly Pardo Vice President – Internal Audit
Scott Scholten Vice President and Chief Risk Officer
Dennis Eccleston Chief Information Officer
Lorna Johnson Assistant Corporate Secretary
Sheila Baughman Senior Secretary, Corporate Secretary’s Office
Ken Deon Managing Partner, KPMG
Brendan Kennedy Senior Manager, KPMG
Chairman D. Patrick Curley welcomed committee members Trustees Foster and Nicandri and also Chairman Townsend and Trustees Dyson and LeChase, Ken Deon and Brendan Kennedy from KPMG and senior staff to the meeting.
1. Adoption of the Proposed Meeting Agenda
By motion made and seconded the agenda for the meeting was approved.
2. Approval of the Minutes of the Regular Meeting of November 15, 2011
The minutes of the Committee’s Regular Meeting of November 15, 2011 were adopted.
Mr. Thomas Concadoro provided highlights of the Authority’s financial statements for the year ended 2011 as follows:
Management’s Discussion and Analysis (MD&A):
· A comparison of operating results for the years 2011 and 2010 showed an increase in net income from $181 million (2010) to $235 million (2011). This was due mainly to a decrease in non-operating expenses attributable to lower voluntary contributions to New York State (decrease of $82 million to $65 million in 2011 from $147 million in 2010).
· Operating income for 2011 ($282 million) was slightly higher than 2010. Variations in fuel (+$34 million) and purchased power expenses (-$77 million) resulted primarily from the Astoria Energy II Plant (“AE II”) coming into service in July. Cost variations were substantially offset by customer revenues.
· Net generation of 28.1 million mwh’s in 2011 was 15% higher than 2010. This includes increases at the Niagara and St. Lawrence Plants due to higher water flows and at the fossil facilities due to the operation of the Astoria Energy II facility.
· Long-term debt decreased by $145 million in 2011 due to scheduled maturities and early retirements further improving the Authority’s debt/equity ratio. Also, of note, the Authority’s long-term debt is at its lowest level since 1975.
· Updates to voluntary contributions to the state, including $60 million paid in January 2012 and $65 million proposed for state fiscal year 2012/13 (included in the Governor’s proposed budget).
The following changes were highlighted:
· An increase in current assets ($173 million) reflects higher investment balances due to reinvestment of cash generated by operations.
· An increase in restricted funds of $51 million primarily due to appreciation of investments in the nuclear decommissioning trust fund. The increase is offset 100% by an increase in the related liability to Entergy.
· An increase in capital assets of $1.2 billion. This reflects the treatment of the Authority’s AE II agreement as a capital lease. Also, of note, all the output from AE II is utilized it to serve the Authority’s SENY customers.
· A new item, “Contributed Capital” represents the value of transmission assets related to wind farms that the Authority took title to at the end of the year.
Cash Flow Statement
· Debt reduction activity as a result of bond retirements shown in financing section. Also, $40 million contribution to OPEB trust fund made during the year.
· Net cash provided as a result of operating activities (+$400 million) slightly down from 2010.
· Accounting Policies – There were no significant changes in the accounting policies; no new GASB pronouncements and no significant changes in reporting requirements.
Commitments and Contingencies
· Nuclear Fuel settlement ($11 million) recorded in Other Income.
· RNY – details of the program and the end of Power for Jobs effective 6/30/12
· New York State Budget and Other Matters – Updated amounts and policy statement adopted by the Board regarding using a reference point of 2.0 for debt coverage
· Wind and Solar Initiatives – Updates for closing out of the GLOW Project; also indicates Board is expected to act on solar initiative in 2012. This will be updated as necessary before the financials are issued.
In response to a comment from Chairman Curley, Mr. Ken Deon said he understands his preference for the loans as opposed to contributions to the state. In response to further question from Chairman Curley, Mr. Deon said the Auditors reviewed the accounting for the Astoria Energy II Agreement in detail.
Mr. Ken Deon, KPMG’s audit engagement partner, presented an overview of the Authority’s 2011 audit results. He said that as of February 17, 2012, KPMG completed, substantially, all scheduled audit work for 2011 and outlined the audit results which were consistent with KPMG’s 2011 Audit Plan. Mr. Deon also said there were no proposed audit adjustments to the Financial Statements and no significant deficiencies or material weakness in the Authority’s internal controls. KPMG will be issuing an unqualified opinion of the Authority’s Financial Statements and will not be issuing a management letter for 2011. Mr. Deon said the 2011 audit went well and KPMG received full cooperation from all levels of the Authority’s management.
In response to a question form Trustee Nicandri, Mr. Deon said the Audit Committee and Board of Trustees are supportive of KPMG’s team; Mr. Brendan Kennedy concurred, adding that he received full cooperation and prompt responses to any requests from the staff.
Mr. Kennedy, KPMG’s Senior Manager for the Authority’s 2011 Audit reported on the key audit risks and issues and gave an overview of the Reports to be issued as a part of KPMG’s audit. He said that, based on the tests performed, KPMG found no issues during the audit.
On motion made and seconded KPMG’s report on the 2011 Annual Audit of the Authority’s Financial Statements were accepted.
On motion made and seconded the following resolution was unanimously adopted.
WHEREAS, the Executive Vice President and Chief Financial Officer and Vice President and Controller have prepared, reviewed and submitted for consideration of the Audit Committee the attached financial statements for the year ending 2011; and
WHEREAS, the Audit Committee has itself reviewed the attached financial statements;
NOW THEREFORE BE IT RESOLVED, That the Audit Committee recommend that the Authority’s Trustees approve the financial statements for the year ended December 31, 2011.
Mr. Lesly Pardo presented an overview of the 2012 Internal Audit Plan to the Committee. He said that the plan is based on the results of the risk assessment survey and discussions with management and provided the following highlights:
· 40 audits have been scheduled (30 financial/operational and 10 Information Technology) covering all Business Units
· 9 audits will be conducted at the operating facilities
· Key audits include Energy Services Operations; ReCharge New York Customer Revenues; ReCharge New York Program Management and operational audits at SENY and Blenheim-Gilboa
· Assistance to KPMG in their audit of NYPA’s Financial Statements
· Economic Development Job Commitments audits
· Outside Vendor Contract audits
· Support to the Ethics office
Mr. Pardo provided a summary of the planning process for the 2012 audit plan which includes a review of the Authority’s Strategic Plan, key business objectives and internal control systems. Mr. Pardo also provided an overview of the Authority’s internal audit risk assessment methodology as follows:
· Meetings and interviews with business owners were conducted to obtain feedback on critical business objectives and risks
· Risk assessment performed on all auditable entities
· Based on the risk assessment performed by Internal Audit, audits are ranked from high to low in terms of their relative risk
· Based on the results of the risk assessment and management input an Audit Plan is developed
· The proposed Audit Plan is presented to the Executive Management and the Audit Committee for discussion and feedback
Mr. Pardo provided background information on the Internal Audit staff. He said the staff totaled 12 employees who have vast experience in auditing; most of them are Certified Public Accountants or have other professional certifications. In response to a question from Trustee Nicandri, Mr. Pardo said that the majority of the staff has been employed at the Authority for more than 10 years; some up to 20 years.
In response to a question from Chairman Curley, Mr. Deon said that Mr. Pardo assisted KPMG’s auditors during their audits. Mr. Pardo added that KPMG receives a copy of all Internal Audit Reports.
In response to further question from Trustee Nicandri, Mr. Deon said that, if necessary, the KPMG Auditors would make recommendations regarding additional internal audit areas, however, no suggestions were made for the 2011 audit.
Mr. Lesly Pardo presented an overview of Internal Audit’s activity for the year 2011. He provided the following highlights:
· 36 audits had been completed as of December 31, 2010
· All audits in the revised Audit Plan have been completed
· 30 audit reports have been issued
· 61 recommendations were made to improve internal controls or promote operational efficiency
Mr. Pardo ended by stating that all of the recommendations in the audit reports had been accepted by management and the accepted recommendations are being actively tracked. The Internal Audit staff received full cooperation and support from management and was able to meet or exceed its performance goals for 2011.
7. Next Meeting
The next regular meeting of the Audit Committee will be held on Tuesday, July 31, 2012, to commence at approximately 9:30 a.m., at the Clarence D. Rappleyea Building, White Plains, New York.
On motion made and seconded, the meeting was adjourned at approximately 11:10 a.m.