MINUTES OF THE REGULAR MEETING
Table of Contents
Subject Page No. Exhibit
1. Adoption of Proposed Meeting Agenda 3
2. Approval of the Minutes of the Regular Meeting 4
of July 31, 2012
3. June 30, 2012 Financial Statements 5 “3-A”
4. Presentation of 2012 Audit Plan 6 “4-A”
5. Enterprise Risk Management 8 “5-A”
6. Internal Audit Activity Report – August 31, 2012 9 “6-A” – “6-C”
7. Next Meeting 12
8. Closing 13
Minutes of the regular meeting of the New York Power Authority’s Audit Committee held at the Authority’s offices at 123 Main Street, White Plains, New York at approximately 9:10 a.m.
The following Members of the Audit Committee were present:
Also in attendance were:
John Koelmel Chairman
Gil Quiniones President and Chief Executive Officer
Judith McCarthy Executive Vice President and General Counsel
Donald Russak Executive Vice President and Chief Financial Officer
Karen Delince Corporate Secretary
William Nadeau Senior Vice President and Chief Risk Officer
Thomas Concadoro Vice President and Controller
Lesly Pardo Vice President – Internal Audit
Dennis Eccleston Chief Information Officer
Gary Schmid Manager – Network Services
Lorna Johnson Assistant Corporate Secretary
Sheila Baughman Senior Secretary, Corporate Secretary’s Office
Ken Deon Engagement Partner, KPMG
Brendan Kennedy Senior Manager, KPMG
Chairman Terrance P. Flynn presided over the meeting. Corporate Secretary Delince kept the Minutes.
Chairman Terrance Flynn welcomed committee members Trustees Nicandri and LeChase, and also Authority senior staff to the meeting. He said the meeting has been duly noticed as required by the Open Meetings Law and called the meeting to order pursuant to section B(4) of the Audit Committee Charter.
1. Adoption of the Proposed Meeting Agenda
By motion made and seconded the agenda for the meeting was adopted.
2. Approval of the Minutes
By motion made and seconded, the Minutes of the Committee’s Regular Meeting of July 31, 2012 were approved.
3. June 30, 2012 Financial Statements
Mr. Thomas Concadoro submitted the following report:
“The Authority is required to file mid-year financial statements with certain banking institutions and other interested parties within 90 days of the end of the period. In the interest of continuing disclosure, the Authority also files these statements with the Electronic Municipal Market Access (‘EMMA’) system maintained by the Municipal Securities Rulemaking Board. The mid-year financial statements present the financial position and results of operations of the Authority as of June 30, 2012 under generally accepted accounting principles. The statements are prepared by staff and are not required to be audited by the Authority’s independent accountants.
BACKGROUND and DISCUSSION
“The results reported in the attached Report (Exhibit ‘3-A’) are consistent with the financial reports presented at the July 2012 Board meeting. The cover page of the Report indicates that this report should be read in conjunction with the statements and notes contained in the Authority’s December 31, 2011 Annual Report. Consistent with past practice, the footnotes to these financial statements are abbreviated when compared to the Authority’s annual financial statements.
“Changes of particular significance in amounts and in footnote disclosures have been highlighted to facilitate the Audit Committee’s review of the Report.”
Mr. Thomas Concadoro presented highlights of the June 30, 2012 financial statements to the Committee. Mr. Concadoro indicated that net income through June 30, 2012 was $78 million, which was $6 million higher than last year. He also reported that the Astoria plant went into operation in mid-2011 and variances in depreciation, interest expense and operations and maintenance expenses were primarily attributable to its operation in 2012. Mr. Concadoro indicated that current assets increased since year-end primarily due to positive results of operations and that long-term liabilities remain stable since there were no major bond issues or retirements.
4. Presentation of 2012 Audit Plan
Mr. Ken Deon, KPMG’s Audit Engagement Partner, presented an overview of the Authority’s 2012 Audit Plan (Exhibit “4-A”). He introduced Mr. Brendan Kennedy, the Senior Manager on the Audit, and outlined the core engagement audit team assigned to the Authority. Mr. Deon then outlined the objectives of the Audit team and gave a summary of the Authority’s management and Audit Committee’s responsibilities as well as KPMG’s responsibilities in conducting the audit which includes applying government auditing standards and opining on the fair presentation of the financial statements to ensure that they conform to generally accepted accounting principles.
Mr. Brendan Kennedy discussed audit risks and issues. He outlined some of the entity-wide controls such as policies and procedures to mitigate risks that would be examined as part of the overall audit approach. He also said that, as part of KPMG’s audit planning and risk assessment, the audit team looks at areas of risks deemed to be susceptible to financial misstatements. In response to a question from Authority Chairman, John Koelmel, Mr. Kennedy said the auditors examine the highest risk areas which involve management judgment and the application of accounting estimates and which could be complicated or subjective in nature. In response to further question from Authority Chairman Koelmel, Mr. Kennedy said the auditors focus on items that are new and unique and have some level of subjectivity; and that the focus this year will be on revenues and derivatives.
In response to a question from Trustee Nicandri, Mr. Kennedy said the auditors work proactively with management on how they will approach transactions related to new projects. Responding to a question from Trustee LeChase Mr. Kennedy said, as part of the audit, the auditors focus on key classes of transactions which includes procurements and related policies. They review key Authority internal controls and processes and apply sampling to test the related transactions. In response to a question from Chairman Flynn, Mr. Kennedy said the auditors apply a statistically-based sampling approach and the number of items that would be examined is based on the overall risk and the effectiveness of the Authority’s internal controls.In response to a question from Trustee Nicandri, Mr. Kennedy said that transactions are audited based on the impact they have on the financial statements.
Mr. Kennedy then outlined KPMG’s timetable and said that the internal control testing should be completed by mid-November and the year-end testing in January 2013. In response to a question from Trustee Nicandri, Mr. Russak said the timetable as laid out by KPMG is consistent with the Authority’s statutory filing requirements.
5. Enterprise Risk Management
Mr. William Nadeau submitted the following report:
“The Trustees authorized the Enterprise Risk Management (‘ERM’) program in May 2009 to establish a formal and robust process to identify and monitor risks consistently across the Authority.
BACKGROUND and DISCUSSION
“This presentation (Exhibit ‘5-A’) is to inform the Audit Committee of the nature of the program design, its current state and the forward vision of ERM at the Authority.”
Mr. William Nadeau provided highlights of the program to the Committee. In response to a question from Chairman Koelmel, Mr. Nadeau said that he is the Facilitator for the Executive Risk Management Committee. As Senior Vice President and Chief Risk Officer, he reports to the Executive Risk Management Committee and adheres to their guidance, policies and procedures. He said they are in the process of developing a policy with respect to Corporate Risk Management and will be asking the Audit Committee in March 2013 to review that policy and recommend its approval by the Board of Trustees. Mr. Russak added that, in addition to energy commodity risks, the Authority is focusing on enterprise risks, is in the process of assessing those risks and will require the Committee’s approval of recommendations for policy changes and the overall governing policy for the enterprise risk based on the assessments.
6. Internal Audit Activity Report – August 2012
Mr. Lesly Pardo submitted the following report:
“The Internal Audit Activity Report covers the performance of the Internal Audit Department for the period of January 1 through August 31, 2012. The Report provides the status of the 2012 Audit Plan as of August 31, 2012, including a summary of completed audits, audits in progress and reports issued since the last Audit Committee meeting in July.
“The Internal Audit Department is an independent, objective and consulting function designed to add value by improving the Authority’s internal control structure and operations. It helps the organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate, test and improve the effectiveness of internal controls, risk management and governance processes.
“The Audit Committee Charter states that the Committee is to provide direct oversight of the internal audit function and shall meet at least three times a year with the head of the Office of Internal Audit (‘OIA’) for the purpose of reviewing audit activities, audit findings, management’s responses, remedial action plans, and providing the OIA with an opportunity to discuss items and topics of relevance to the Audit Committee.
“The purpose of this report is to provide the Audit Committee the status of the 2012 Internal Audit Plan, which was reviewed by the Committee at its meeting in March.
1. Highlights as of August 31, 2012
“During the first eight months of 2012, Internal Audit accomplished the following:
· Completed 21 audits and one special project including 16 financial/operational and five (5) information technology audits.
· Four (4) audits were in progress.
· Fifteen (15) audits remaining based on 2012 Internal Audit Plan.
· Issued 19 audit reports containing 47 recommendations to improve internal controls/operational efficiency. Three reports are currently under review.
· All issues and recommendations are being appropriately addressed by management and have either been implemented or are scheduled for implementation.
· No restrictions have been placed on Internal Audit’s work. Full cooperation is being received at all levels.
· No matters that need the Committee’s attention.
2. Audits Completed/In-Progress
A. Exhibit ‘6-A’ lists all audits in the 2012 Audit Plan and their current status. As of August 31, 2012, approximately 63% of the audits in the Audit Plan have been completed or in progress. The following reports were issued since the last Audit Committee Meeting in July:
Report Title Report Date
Enterprise Risk Management 05/17/12
NYISO Energy Settlements – LSE 06/30/12
Navigant Consulting Contracts 07/12/12
Information Security – SAP 07/19/12
White Plains Office Data Center 07/26/12
Fleet Operations 07/27/12
Flynn Outage Management 08/09/12
IT Disaster Recovery Plan 08/31/12
Exhibit ‘6-B’ provides a summary of audit reports issued, including audit objectives and findings and/or recommendations.
B. Reports under Review with Management:
Astoria Energy II Project Agreement
On Call Engineering Contracts
C. Audits in Progress:
SAP General Ledger
3. Internal Audit Plan – Audits Scheduled September - December
There are 15 audits remaining in the 2012 Audit Plan including 12 Financial/Operational and three (3) Information Technology audits and these audits are scheduled over the next four months of 2012. Exhibit ‘6-C’ lists the audits and audit scope.
4. Audit Plan Changes
SAP Billing System (ReCharge NY)
Electronic Record Management System”
Mr. Lesly Pardo provided highlights of the report to the Committee. Responding to a question from Chairman Flynn, Mr. Pardo said the audits are selected based on the result of the risk assessment conducted. He said available resources and recommendations from senior management and the Audit Committee are also considered. He added that the annual planning process of selecting audits for the 2013 Audit Plan will start in November and he will provide a copy of the draft Audit Plan to the Committee in December.
In response to a question from Trustee LeChase, Mr. Russak said that new initiatives such as implementation of the Recharge New York, energy highway and energy efficiency market acceleration programs will be included in the risk assessment that will be conducted for the coming year. Mr. Pardo added that Internal Audit has the expertise internally to conduct the audits on these projects which will also be coordinated with KPMG.
7. Next Meeting
The next Regular Meeting of the Audit Committee will be determined.
On motion made and seconded, the meeting was adjourned by the Chairman at approximately 10:00 a.m.