MINUTES OF THE MEETING
OF
THE
AUDIT COMMITTEE
July 27, 2010
A meeting of the Audit Committee was
held via videoconference at SUNY-Jefferson
Community College, 1220 Coffeen St., Watertown, New York, the St. Lawrence-FDR Power Project,
830 Barnhart Island Rd., Massena, New York; and 123 Main St., White Plains, New York at approximately 10:00 a.m.
The following Members of the Audit Committee were present:
Trustee D. Patrick Curley, Chairperson
Trustee Eugene L. Nicandri
Vice Chairman Jonathan Foster
was excused from attending.
Also
in attendance were:
Gil Quiniones Chief Operating Officer
Terryl Brown Executive Vice President and General Counsel
Elizabeth McCarthy Executive Vice President and Chief Financial Officer
Thomas Davis Vice President – Energy Risk and Assessment
Lesly Pardo Vice President – Internal Audit
Karen Delince Corporate Secretary
Denise D’Ambrosio Principal Attorney I
Brian McElroy Treasurer
Angela Graves Deputy Corporate Secretary
Thomas Concadoro Director – Accounting
Michael Saltzman Director – Media Relations
Dennis Eccleston Chief Information Officer
Mary Jean Frank Associate Corporate Secretary
Lorna Johnson Assistant Corporate Secretary
Sheila Baughman Senior Secretary, Corporate Secretary’s Office
Ken Deon Managing
Partner, KPMG
Chris Halstead Manager, KPMG
1. Approval of the Minutes of the Regular Meeting of February 23, 2010
and the
Special Meeting of March 23, 2010
The minutes of the Committee’s Regular Meeting of February
23, 2010 (with a spelling correction noted by Trustee Curley) and Special Meeting
of March 23, 2010 were adopted.
2. KPMG Management Letter
Mr. Thomas Concadoro provided an overview of the KPMG
Management Letter prepared in connection with its audit of the Authority’s 2009
Financial Statements. The Management
Letter made the following recommendations:
· The Authority should
require a formal response from each business unit regarding the appropriateness
of SAP user access and implement a formal annual review process for Ceridian
user access. Management response: IT will request a formal acknowledgement from
each business unit as to the adequacy of SAP access, whether or not any changes
are required. IT will also request in
writing an annual review of Ceridian user accounts. The request will be made to the payroll
manager to acknowledge in writing that Ceridian access is appropriate as
required by work assignment.
· The Authority should
evaluate the potential benefit of implementing an automated system to review
segregation of duties within SAP.
Management response: The
Authority will initiate an effort (to be completed by September 30, 2010) to
review and redesign SAP security roles by function. Once complete, the Authority will evaluate
the cost vs. benefit of using an automated tool to review segregation of duties
within SAP.
· The Authority should
continue with its current initiative to revisit its ERM policies and procedures
and make the required updates and improvements using leading industry
practices. Management response: This year, the Authority will initiate and
complete an updated and more comprehensive ERM Policy that will embody elements
of leading energy risk management practices.
The initiative will also supplement the ERM Policy by updating and
enhancing the detailed and supplemental information provided by the Authority’s
existing risk management procedures. The
ERM Policy will reference or incorporate the procedure documents.
· The Authority should
implement a formal review of its service organizations’ SAS 70 reports to
verify that it can rely on the controls of the third party and document the
mapping of the service organizations’ users consideration controls outlined in
each SAS 70 report. Management
response: The Authority will implement a
formal review of the SAS 70 reports in 2010.
In
response to a question from Committee Chairman Curley, Mr. Ken Deon explained
that KPMG looked at the Authority’s internal controls in designing audit procedures
for the financial statements, but that it did not express an opinion on the
effectiveness of the Authority’s internal controls. He explained that such an opinion is only required
for a public company that is subject to Securities and Exchange Commission
oversight. Responding to a question from
Ms. Elizabeth McCarthy, Mr. Deon said that KPMG is required to communicate
material weakness and significant deficiencies in the Authority’s internal
controls to management and the Audit Committee and they had found none during
their audit.
3. Interim
Results for the Six Months Ended June 30, 2010
Mr.
Thomas Concadoro presented the highlights of the Authority’s financial
statements for the first six months of the year:
-
Net income through June 30 was $81 million, $13 million less
than at June 30, 2009. The Poletti
shutdown in January, as well as lower water flows at the hydro plants,
accounted for much of the decrease in the Authority’s operating revenues. This was offset by lower purchased-power and
fuel costs, primarily due to lower prices.
Non-operating expenses had a significant impact on the bottom line due
to higher voluntary contributions to New York State.
In response to a question
from Committee Chairman Curley, Mr. Concadoro said that all of the money
transferred to the State Treasury in 2010 has been in the form of direct
contributions and not loans.
The
interim financial statements need to be filed by September 30 with banking and
rating agencies, but will probably be filed even sooner than that. Highlights from the footnotes to the
financial statements included:
-
The Authority uses financial derivative instruments to
manage the impact of interest rate, energy price and fuel cost changes on its
earnings and cash flows. In June 2008,
GASB issued GAS No. 53, Accounting and Financial Reporting for Derivative
Instruments, which establishes accounting and reporting requirements for
derivative instruments and which is effective for the Authority’s 2010 calendar
year. The adoption of GAS No. 53 did not
have a significant impact on the Authority’s financial results.
-
The Power for Jobs and Energy Cost Savings Benefits Programs
were scheduled to expire on May 15, 2010; they were extended to June 2, 2010,
when they expired. There are several
legislative proposals to replace the programs, none of which have been enacted
into law. The Authority made a voluntary
contribution of $12.5 million to the State Treasury in March 2010 to support
the Power for Jobs Program, bringing the total of such voluntary contributions
to $461.5 million.
-
By legislation signed into law on May 25, 2010, the
Authority, as deemed feasible and advisable by its Trustees, was authorized to
make a voluntary contribution to the State for State Fiscal Year 2010-11 in the
amount of $65 million. In June 2010, the
Authority’s Trustees approved the payment of a voluntary contribution of $40
million to the State. As of June 30,
2010, the payment had not yet been made and thus is not reflected as a
contribution to the State in the statement of revenues, expenses and changes in
net assets as of June 30, 2010. The
Authority’s Trustees have not yet acted on the remaining $25 million voluntary
contribution.
-
Temporary retirement incentive legislation was enacted into
law in June. Part A of the incentive targets
employees who are at least 50 years old with a minimum of 10 years of service
to receive an additional month of pension credit (not to exceed 36 months) for
each year of eligible service, while Part B enables public employees to retire
without penalty at 55 years of age with a minimum of 25 years of service. The footnotes will be updated for the
Trustees’ authorization at a Special Meeting on July 22 for the Authority to
participate in Part B for all eligible Authority employees and Part A for
certain employees at the Charles Poletti Power Project.
-
As of June 30, 2010, no further action had been taken to
increase the rates for certain Authority hydropower customers; the Authority’s
Trustees had deferred an increase scheduled to take place on May 1, 2009 at
their March 2009 meeting.