MINUTES OF THE SPECIAL MEETING
OF
THE AUDIT COMMITTEE
March 14, 2011

A meeting of the Audit Committee was held via videoconference at the Authority’s offices at 501 Seventh Avenue, New York, New York, 123 Main Street, White Plains, New York and 95 Perry Street, Buffalo, New York at approximately 4:00 p.m.  

 The following Members of the Audit Committee were present:


Trustee D. Patrick Curley, Chairperson

Vice Chairman Jonathan Foster

Trustee Eugene L. Nicandri

Trustee Mark O’Luck

 

Also in attendance were:

                Gil Quiniones                                       Chief Operating Officer
Judith McCarthy                                 Acting General Counsel
Elizabeth McCarthy                           Executive Vice President and Chief Financial Officer
Donald Russak                                     Senior Vice President – Corporate Planning and Finance
Joan Tursi                                             Senior Vice President – Corporate Support Services
Joseph Gryzlo                                      Vice President – Labor Relations & Chief Ethics & Compliance Officer
Patricia Leto                                        Vice President – Procurement
Lesly Pardo                                          Vice President – Internal Audit
Karen Pasquale                                   Vice President Enterprise Shared Services
Karen Delince                                      Corporate Secretary
Brian McElroy                                     Treasurer
Thomas Concadoro                            Vice President & Controller
Rod Mullin                                           Director – Fuel Planning and Operations
Michael Saltzman                                               Director – Media Relations
Dennis Eccleston                                 Chief Information Officer
Shannon Sramek                                 Senior Investment Analyst
Louise Nestler                                      Assistant Ethics Officer
Lorna Johnson                                     Assistant Corporate Secretary
Sheila Baughman                                                Senior Secretary, Corporate Secretary’s Office
Ken Deon                                              Managing Partner, KPMG
Jamie Cote                                            Senior Manager, KPMG


Introduction

                On behalf of the Committee, Chairman D. Patrick Curley welcomed Ms. Judith McCarthy, Acting General Counsel, to the meeting.


 

Mr. Lesly Pardo presented an overview of the 2011 Internal Audit Plan to the Board.   He said that the plan is based on the results of the risk assessment survey and management input and provided the following highlights:

 

Mr. Pardo also provided an overview of the Authority’s internal audit risk assessment methodology as follows:

 

In response to a question from Vice Chairman Jonathan Foster, Mr. Pardo said that the draft Audit Plan was submitted to the Audit Committee for review and comment.  In response to further question from Vice Chairman Foster, Mr. Pardo said that the Audits are very comprehensive; however, the Internal Audit staff was able to complete 91% of the 2010 Audit Plan.  The Internal Audit division uses a team approach for the audits and believes this method to be an effective use of the division’s resources.

In response to a question from Chairman Patrick Curley, Mr. Pardo said that the Energy Hedging audit focuses on the review of the Authority’s Hedging Policies and procedures; assessment of the hedging transactions for compliance with the governing policies and monitoring the internal control of the policy and procedures.  The Customer Load Forecasting audit focuses on the review of the accuracy of the Authority’s load forecasting, for example, customer load profiling and customer load that the Authority submits to the ISO.  The SENY Revenues audit focuses on the accuracy of the Authority’s billing processes.  In response to further question from Chairman Curley, Mr. Pardo said that, with respect to SENY revenues, if the Auditors detect significant billing errors, they would make a recommendation to correct the error and staff would make the necessary adjustment; if in the load forecasting, the Auditors would make a recommendation on how the process could be improved.

In response to a question from Trustee Nicandri, Mr. Pardo said that his suggestion regarding the Law Department’s expenditures has been included in the 2011 Audit Plan.

 

 


 

Mr. Lesly Pardo presented an overview of Internal Audit’s activity for the year 2010.  He provided the following highlights:

 

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 2010.


The minutes of the Committee’s Regular Meeting of October 26, 2010 were adopted.


Mr. Thomas Concadoro presented highlights of the Authority’s financial statements for the year ended 2010 as follows:

 

 

In response to a question from Vice Chairman Foster, Mr. Concadoro said that staff is in the process of evaluating a rate increase, which was postponed through the end of 2010, and would get back to the Board with a recommendation.  In response to further question from Vice Chairman Foster, Ms. Elizabeth McCarthy said that the lower rate remains in effect; however, staff will be providing a recommendation in this regard to the Board at a future date.

 

                                   
In response to a question from Chairman Curley, Mr. Concadoro said that the 2010 and 2011 payments are contributions, subject to the Board’s approval, as opposed to a long-term loan.

In response to a comment by Trustee Nicandri, Ms. Elizabeth McCarthy said that the funds transferred to the state, as referenced in the MOU between the State and the Authority, are scheduled to be returned to the Authority in 2014 and 2017 and are reported on the Authority’s Balance Sheet as Long-Term Receivables.

In response to a suggestion from Vice Chairman Foster, Mr. Concadoro said that staff would make the following change to the financial statements:

        Page 29, second paragraph, replace the word “ensure” with the word “encourage.”

 

The financial statement footnotes include reformatted and expanded disclosures regarding risk management and derivative activities in accordance with Government Accounting Standards Board Statement No. 53 (“GASB 53”), the accounting and financial reporting for derivative instruments.
Fair values reflect an increase in unrealized losses ($ 112 million) primarily in medium term hedging positions taken to support NYC Government customers (recoverable from customers through rates)

                In response to a question from Vice Chairman Foster, Mr. Concadoro said that the 2010 – 2011 contribution to the Employees Retirement System has been set at 16% of payroll.  In response to a question from Trustee Nicandri, Ms. McCarthy said that, based on the most recent information she had, the retirement system was fully funded.

                In response to a question from Vice Chairman Foster, Ms. McCarthy said that, the following adjustment will be made to the “Notes” section on page 70, titled “Wind and Solar initiatives,” as follows:

First paragraph, delete last sentence and add the sentence “Evaluation of responses is currently ongoing.”  

Second paragraph, delete wording in last sentence referencing anticipated recommendation to the Trustees in first quarter 2011 and add the sentence “Evaluation of responses is currently ongoing.” 

The Committee members agreed to the changes.

               
On motion made and seconded the following resolution, subject to the aforementioned changes, was unanimously adopted.

            WHEREAS, the Executive Vice President and Chief Financial Officer and Controller have prepared, reviewed and submitted for consideration of the Audit Committee the attached financial statements for the year ending 2010; 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, 2010.

 


 

                Mr. Ken Deon, Managing Partner at KPMG, presented an overview of the 2010 Audit results.  He said that as of February 18, 2011, KPMG completed all scheduled Authority audits for 2010 and outlined the Audit results which were consistent with KPMG’s 2010 Audit Plan.  Mr. Deon also gave a summary of KPMG’s responsibilities in conducting the audit in accordance with the generally accepted auditing standards.

                 Mr. Jamie Cote, Senior Partner at KPMG, discussed the significant accounting policies of the Authority as disclosed in the financial statements; significant judgments and estimates used by management in the preparation of the financial statements;  key audit risks and issues; involvement of specialists and  consideration of  fraud risks.  Mr. Cote ended by stating that KPMG would not be issuing a management letter for the year 2010 since they had no recommendations.

                In response to a question from Trustee Eugene Nicandri, Mr. Deon said that the Audit report is for the year 2010 and that the Audit period is from January 1, 2010 through December 31, 2010.  In response to a further question from Trustee Nicandri, Mr. Deon said that there were no matters arising from the 2010 Audit that require the Audit Committee to take any action; the Committee should continue its monitoring of the Authority’s accounting activities.

                In response to a question from Chairman Patrick Curley, Mr. Deon said that KPMG maintained a professional relationship with the Authority’s senior management throughout the Audit.  The auditors maintained their objectivity and focused on making sure that there were no conflicts of interests or independence issues in performing the Audit.  He continued that, throughout the Audit, the auditors provided senior management with suggestions and observations.  Also, as part of the audit process, the auditors suggested changes to the financial statements.  He ended by saying that during the 2010 Audit, the Authority’s staff coordinated closely with KPMG’s auditors in the implementation of Government Accounting Standards Board Statement No. 53 (“GASB 53”), the accounting and financial reporting for derivative instruments.

                In response to further question from Trustee Nicandri, Mr. Deon said that the auditors had meetings with staff from the Information Technology (“IT”) department responsible for the implementation of the suggestions based on the auditors’ prior year’s management letter.  The Auditors reviewed documentation provided by the IT staff, and, after discussions between staff and the Auditors, the Auditors concluded that the Authority had addressed their recommendations.  


Mr. Chairman, I move that the Authority conduct an executive session pursuant to the Public Officers Law of the State of New York section §105 to discuss matters leading to the appointment, employment, promotion, demotion, discipline, suspension, dismissal or removal of a particular person or corporation.   On motion made and seconded, an Executive Session was held.


7.             Motion to Resume Meeting in Open Session

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


8.             Next Meeting

The next regular meeting of the Audit Committee will be determined. 

On motion made and seconded, the meeting was adjourned at approximately 5:30 p.m.