MINUTES OF THE REGULAR MEETING

OF THE

AUDIT COMMITTEE

 

September 24, 2013

 

 

Table of Contents

 

               

                Subject                                                                                                                                  Page No.               Exhibit

 

    Introduction                                                                                                                                2

1.       Adoption of Proposed Meeting Agenda                                                                                 2                                                                                                                                                                                                                              

2.       Consent Agenda:                                                                                                                       2

 

a.    Approval of the Minutes of the Regular Meeting                                                        2

            of July 23, 2013      

 

Discussion Agenda:                                                                                                                   2

 

3.       Presentation of Mid-year 2013 Financial Statements                                                         2      

4.       Internal Audit Activity Report – August 31, 2013                                                               4                       4-A

5.       Presentation of 2013 Audit Plan                                                                                             5                       5-A

6.       Enterprise Risk Report                                                                                                               6                       6-A        

7.       Motion to Conduct an Executive Session                                                                             8

8.       Motion to Resume Meeting in Open Session                                                                        8

9.       Next Meeting                                                                                                                               8

Closing                                                                                                                                          9                      

 

                                                                                                                                                                                               


Minutes of the regular meeting of the New York Power Authority’s Audit Committee held at the Niagara Power Project in Lewiston, New York, at approximately 10:00 a.m.

 

                The following Members of the Audit Committee were present:

 

Trustee Terrance P. Flynn, Chairperson

Trustee Eugene L. Nicandri

Trustee R. Wayne LeChase

 

Also in attendance were:

 

                John Koelmel                                       Chairman, New York Power Authority          

                Jonathan Foster                                   Trustee, New York Power Authority

                R. Wayne LeChase                             Trustee, New York Power Authority

                J. Mahoney                                           Trustee, New York Power Authority

                Gil Quiniones                                        President and Chief Executive Officer

                Edward Welz                                        Chief Operating Officer

                Judith McCarthy                                 Executive Vice President and General Counsel

                Donald Russak                                    Executive Vice President and Chief Financial Officer

                Karen Delince                                       Corporate Secretary

                Thomas Concadoro                            Vice President and Controller

                Dennis Eccleston                                 Vice President – Information Technology/Chief Information Officer    

                Lesly Pardo                                           Vice President – Internal Audit

                Frank Deaton                                       Director – Enterprise Risk Management

                Gary Schmid                                        Manager – Network Services           

                Lorna Johnson                                     Associate Corporate Secretary

                Sheila Baughman                                                Assistant Corporate Secretary

                Kenneth Deon                                      Engagement Partner, KPMG (via teleconference)

                Scott Heiser                                          Senior Manager, KPMG

                Nicholas DiVirgilio                               Manager, KPMG                

 

 

Chairman Terrance P. Flynn presided over the meeting.  Corporate Secretary Delince kept the Minutes.


Introduction

 

Chairman Flynn welcomed committee members Trustees Nicandri and LeChase, the Authority’s Chairman and senior staff to the meeting.  He said the meeting had 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.                   Consent Agenda:

 

a.       Approval of the Minutes 

 

                Upon motion made and seconded, the Minutes of the Committee’s Regular Meeting of July 23, 2012 were approved.

 

 

 

Discussion Agenda:

 

3.                   Mid-year 2013 Financial Statements

The Vice President and Controller 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, 2013 under generally accepted accounting principles.  The statements (Exhibit ‘3-A’) are prepared by staff and are not required to be audited by the Authority’s independent accountants. 

The results reported in this report are consistent with the financial reports presented at the July 2013 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, 2012 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 on the attached draft report to facilitate the Audit Committee’s review of the report.”

Mr. Thomas Concadoro presented highlights of the mid-year financial statements to the Committee.  He said the June 30, 2013 Financial Statements are required to be filed with banking institutions by September 30.  The Statements are also posted on the electronic system maintained by the Municipal Securities Rulemaking Board and are consistent with the results presented in the Chief Financial Officer’s report at the July Board meeting.  Footnotes focus on key updates and incorporate the annual report by reference similar to an SEC filing.

Balance Sheet

 

Mr. Concadoro said the increase in current assets of $80 million reflected in the investment and receivable balances is primarily due to positive results of the Authority’s operations.  The increase in Accounts payable and deferred charges was primarily due to recognition of the Authority’s obligation to pay interconnection costs related to the transmission capacity purchase agreement with Hudson Transmission Partners (“HTP”) ($115 million).  Debt remains stable; the Authority had no major bond issues or retirements during the period.

Income Statement

 

Mr. Concadoro indicated that net income as of June 30, 2013 was $103 million, which was $25 million higher than last year.  He also reported that, at the request of the New York State Division of Budget, the State contribution payment of $25 million was deferred until September.  He said purchased power costs were higher ($116 million) primarily due to higher energy and capacity prices (impacted by the closing of the Danskammer plant) and fuel costs were $88 million higher reflecting higher natural gas prices this year (Gas prices were extraordinarily low during the 1st half of 2012).  Large line item variances in purchased power and fuel costs did not have a significant effect on net income since they are offset by higher revenues reflecting the recovery of such costs from customers.   Investment income reflects an unrealized loss in 2013 (higher market interest rates reduced market value of fixed rate investments.)  

Cash Flows

 

·         Significant cash produced by operating activities for periods ending June 2013 and 2012.

 

Footnotes

 

                Mr. Concadoro provided the following highlights:

Authority entered into new transactions to lock in revenues related to high capacity prices through swaps.

 

4.                   Internal Audit Activity Report – August 31, 2013

The Vice President of Internal Audit submitted the following report:

SUMMARY

 

The Internal Audit Activity Report covers the performance of the Internal Audit Department for the period of January 1 through August 31, 2013.  The report provides the status of the 2013 Audit Plan as of August 31, 2013, including a summary of completed audits, audits in progress and reports issued (see Exhibit ‘4-A’).

 

BACKGROUND

 

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 shall provide oversight of the Office of Internal Audit (‘OIA’) and the OIA’s resources and activities to facilitate the OIA’s improvement of internal controls.  In addition, the Committee shall meet at least three times a year with the head of the 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 2013 Internal Audit Plan, which was reviewed by the Committee at its meeting in March.”

 

Mr. Lesly Pardo provided highlights of the Internal Audit Activity report to the Committee.  In response to a question from Authority Chairman Koelmel, Mr. Pardo said the Internal Audit department will participate in an external quality assessment in the fourth quarter and plans to engage in a bench-marking activity in order to implement a report rating system, which will be implemented in the 2014 Audit Plan.  Responding to further questioning from Authority Chairman Koelmel, Mr. Pardo said based on the Audits completed as of August 31,  no material deficiencies in the Authority’s internal control system were identified; however, recommendations were made to improve or strengthen the internal controls.

In response to a question form Chairman Flynn, Mr. Pardo said the results of the Recharge NY customer audits will be provided to the Marketing Department which will determine the extent of compliance by Recharge New York Power Program customers.  These customers have to file their compliance reports with the Marketing Department by August 31, 2013.  Since all of the customer audits have not been completed, Internal Audit cannot provide the percentage of compliance at this time.  However, based on audits of other economic development programs, historically there is usually more than 90% compliance by customers.

In response to a question from Trustee Nicandri, Mr. Pardo said by the end of the fourth quarter all sixty (60) audits should be completed and Internal Audit will provide a summary of the results of the audits to the Committee.

 

 

5.                   Presentation of 2013 Audit Plan

                Mr. Kenneth Deon, KPMG’s Engagement Partner for the Authority’s Audit, introduced Mr. Scott Heiser, Senior Manager on the Audit, and Mr. Nicholas DiVirgilio, Manager, and asked Mr. Heiser to brief the Committee on KPMG’s Audit Plan. 

                Mr. Scott Heiser presented an overview of the 2013 Audit Plan (Exhibit “5-A”).  He gave a summary of the Authority management’s responsibilities and the Audit Committee’s responsibilities with respect to the financial statements and the audit.  He outlined the objectives of the audit and methodology, a summary of the approach and process and how they tailor it to the Authority’s business and activities.   He also outlined the KPMG engagement team’s responsibilities in conducting the audit which include applying government auditing standards and opining on the fair presentation of the financial statements  in accordance with generally accepted accounting principles.

                Mr. Heiser discussed audit risks and how they relate to key financial statement accounts and balances, and how the accounting for Recharge New York and other programs is included in the audit.  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, the audit team uses their professional judgment and a risk assessment in designing their audit procedures.  Mr. Heiser then outlined KPMG’s timetable and said that the internal control testing should be completed by mid-November and the year-end testing in February 2014. 

                Responding to a question from Authority Chairman Koelmel, Mr. Heiser indicated that risks considered by the auditors include, but are not limited to, liquidity, counterparty credit risk and revenue recognition.

               

6.                   Enterprise Risk Report

                Mr. Frank Deaton provided an update on the Authority’s risk management activities.  He said the goal of Enterprise Risk Management is to identify potential risk events that may affect the Authority and to provide a risk-informed view of the organization to assist management and the Trustees in the decision-making processes based on known or potential future risks. 

            He then provided the Committee with the results of the 2013 Risk Assessment which was conducted to enhance the quality of the Authority's risk inventory. He said over the summer, the Enterprise Risk team conducted 18 Risk Workshops across the organization, using two different approaches, top-down and bottom up assessment, in order to ensure consistency both in terms of framework and definition of Authority risks. He said this initial assessment identified a clear view of what represents enterprise risks for the Authority and how risks are being managed. The results also provided a baseline for action plans and mechanisms as to how the Authority can monitor the individual risk and the performance of those action plans.

            He also provided a summary of the nine enterprise risks that were the results of the Enterprise Risk team’s correlation of more than 185 risks into categories, the purpose of which is to give the executive management and the trustees a purview of the interrelationships between individual risks and how they represent the significant concerns and considerations to the Authority’s mission and objectives.

In response to a question from Chairman Flynn, President Quiniones said the “Organizational Fatigue” risk category is related to the culture of the Authority.  The Authority wants to make sure that the principles and day-to-day practices that it lives by are consistent and motivates employees.  The Authority endeavors to create an environment where individual employees feel they can be developed, productive and excited about their work.  In response to further questioning from Chairman Flynn, President Quiniones said this risk is not unique; it's not different in the private sector; the public sector has other responsibilities and duties as an authority of the state.

In response to a question from Trustee Foster, President Quiniones said compensation is a component of Organizational Fatigue, but there are other factors in the workplace, e.g. motivation and the feeling of being able to realize one's potential,  training, continuing education, more flexible work assignments, et al., all of which add up to organizational culture. Therefore, the Authority has to address both compensation-related and other issues in forming a workforce that will be inspired to perform at their highest level.  Responding to further questioning from Trustee Foster, President Quiniones said although the Human Resources Department will have the primary role in regards to this risk, Corporate Support Services and the Executive management team will also have a role to play.

                In response to a question and comment from Trustee LeChase, President Quiniones agreed that career paths are very important in terms of employee morale and compensation is certainly a part of it, making it a substantial risk, especially in the Authority’s case where 30% of its employees are going to be eligible for retirement over the next five years. And, at the lower end of the spectrum, approximately 30% of its employees are with the Authority from 0 to 5 years.  Therefore, since the Authority would like to retain its employees, especially those coming up the chain, it is important that the Authority provide cross-training opportunities and appropriate career paths.

Mr. Russak added that some of the failures associated with the risk of attracting and retaining personnel can be considered in terms of communication; the ability of the employee to see and be a part of the broader goals/mission of the Authority; not to have the sightline from that employee level to the ends of the Authority’s mission, will manifest themselves in this “organizational fatigue.”  Any factors that may contribute to low morale or low productivity are of concern to the Authority and that is what staff is trying to address with this risk of “organizational fatigue.” He said, over the years, the Authority has prided itself on being a high-performing organization and it is important for it to continue that trend. 

Responding to a question from Chairman Koelmel, Mr. Russak said although organizational fatigue is included in the top risk, it does not mean the Authority is performing poorly in communication; however, it is a concern for the Authority because it was raised in a number of dialogues within the organization. This risk is actually about communicating the goals and mission to employees throughout the organization, ultimately to allow them understand and be part of what those goals are.

President Quiniones added that the Authority, and the utility industry, is expecting a number of changes, some of which will be discussed in the strategic planning process; therefore, it is important that each of the Authority’s employee understand its mission and goals and that they feel they have ownership and part of those goals.  Organizational Fatigue is included in the list of Enterprise risks, not because the Authority feels we are deficient on it, but because the Authority believes that it is something it needs to step-up in light of all the changes that we are anticipating not just within the Authority but in the utility industry.

In response to a question from Trustee Nicandri, President Quiniones said the Authority provides some guidance to employees who get promoted to managerial jobs.  Employee training is also handled through the performance review process.  There is a “Development Plan” section on the Performance Review form within which in-house training courses are offered for both “hard” and “soft” skills.

Chairman Flynn said he would ask that the Enterprise Risk team, as well as the executive management team, keep this risk in the forefront.  Going forward, he would like to have more information on this risk to put it in perspective and learn more about it, since it is so high on the list.

 

 

7.                   Motion to Conduct an Executive Session

Mr. Chairman, I move that the Authority conduct an executive session to consult with counsel.   Upon motion made and seconded, an executive session was held.

 

8.                   Motion to Resume Meeting in Open Session

Mr. Chairman, I move to resume the meeting in Open Session.  Upon motion made and seconded, the meeting resumed in Open Session.

 

9.                   Next Meeting

Chairman Flynn said that the next regular meeting of the Audit Committee will be held on Tuesday, December 17, at the Clarence D. Rappleyea Building in White Plains, New York.

 


Closing

                On motion made and seconded, the meeting was adjourned by the Chairman at approximately 11:30 a.m.

 

 

 

Description: Delince Signature

 

Karen Delince

Corporate Secretary