8/6/2019 Nypa Audit

1/14

O f f i c e O f t h e N e w Y O r k S t a t e c O m p t r O l l e r

thomas p. DiNapoli

DiviSiONOf State GOverNmeNt accOuNtabilitY

New York Power Authority

Selected Management and Operating Practices

Report 2010-S-57

8/6/2019 Nypa Audit

2/14

Tis page is let intentionally blank.

8/6/2019 Nypa Audit

3/14

Division of State Government Accountability 3

Table of Contents

Page

Authority Letter ......................................................................................................................... 5

Executive Summary ................................................................................................................... 7

Introduction ............................................................................................................................... 9

Background .......................................................................................................................... 9

Audit Scope and Methodology ........................................................................................... 9

Authority.. ........................................................................................................................... 10

Reporting Requirements.....................................................................................................10

Contributors to the Report .............................................................................................. 10

Audit Findings and Recommendation .................................................................................. 11

Discretionary Spending .................................................................................................... 11

Recommendation ............................................................................................................... 12

Contracts ............................................................................................................................ 12

Cost of Debt ........................................................................................................................ 12

Authority Comment ............................................................................................................... 13

8/6/2019 Nypa Audit

4/14

Tis page is let intentionally blank.

8/6/2019 Nypa Audit

5/14

Division of State Government Accountability 5

Division of State Government Accountability

State of New York

Ofce of the State Comptroller

July 28, 2011

Michael J. ownsendChairman

New York Power Authority123 Main StreetWhite Plains, NY 10601-3170

Dear Chairman ownsend:

Te ollowing is a report o our audit o controls over Selected Management and OperatingPractices o the New York Power Authority. Tis audit was perormed pursuant to the StateComptrollers authority under Article X, Section V o the State Constitution and Chapter 469o the Laws o 1989.

Our audit covered the period January 1, 2009 through June 21, 2011 and included an examinationo expenditures related to personal service contracts, discretionary spending and the cost odebt issuance. In general, we ound these expenditures were appropriate, although we notedcertain areas where practices can be improved to provide better accountability.

Tis audits results and recommendation are resources or you to use in eectively managingyour operations and in meeting the expectations o taxpayers. I you have any questions aboutthis report, please eel ree to contact us.

Respectully submitted,

Ofce o the State Comptroller

Division o State Government Accountability

Authority Letter

8/6/2019 Nypa Audit

6/14

Tis page is let intentionally blank.

8/6/2019 Nypa Audit

7/14

Division of State Government Accountability 7

State of New York

Ofce of the State Comptroller

EXECUTIVE SUMMARY

Audit Objective

Our audit objective was to determine whether the New York Power Authoritys (Authority)management and operating practices resulted in reasonable and business-related expenditures,including personal service contracts, discretionary spending and the cost o debt issuance.

Audit Results - Summary

We ound the Authoritys management and operating practices generally resulted in appropriateexpenditures in all areas examined, including consulting and service contracts, discretionaryspending and the cost o debt. Expenditures were business-related and generally reasonableand necessary. Te Authority also monitored costs to ensure it was obtaining services anditems at a reasonable price.

Although discretionary spending generally appeared reasonable and proper, we did identiycertain expenditures totaling approximately $340,000 over the two-year audit period where wequestion i the purpose and/or the amount o such expense represents the best use o publicunds particularly during what are dicult scal times or New York State. Tese expensesincluded amounts the Authority paid to host annual parties and picnics or employees, retireesand their children; or empathetic fowers and other gits; and or other socially-orientedevents. Te Authority also spent a signicant amount on employee recognition awards andceremonies. We brought these issues to the attention o Authority ocials, who agreed to takesteps to minimize these costs in the uture.

Te Authority reviews its portolio o consultant and service contracts on a quarterly basisto determine whether each one is still necessary and reasonable. Te Authority also preparesquarterly and annual contract reports that are reviewed by its Board o rustees. We reviewed

a sample o 20 contracts and ound each o them to be necessary and reasonable.

Te Authoritys cost o debt is consistent with industry standards. o minimize its costs and limitits exposure, the Authority continually monitors its debt and conducts various cost analyses.Moreover, the Authority routinely issues Requests For Proposals (RFPs) to identiy additionalunderwriters or its bond issuances and commercial paper series. Te Board recently approvedthe selection o new underwriters.

Executive Summary

8/6/2019 Nypa Audit

8/14

8

Ofce of the New York State Comptroller

Our report contains one recommendation or improving selected management and operatingpractices. Authority ocials generally agreed with our recommendation, and stated that theyhave taken steps to reduce these costs.

Tis report, dated July 28, 2011, is available on our website at: http://www.osc.state.ny.us.

Add or update your mailing list address by contacting us at: (518) 474-3271 orOce o the State ComptrollerDivision o State Government Accountability110 State Street, 11th FloorAlbany, NY 12236

8/6/2019 Nypa Audit

9/14

Division of State Government Accountability 9

Introduction

Te New York Power Authority (Authority) is Americas largest state-

operated public power organization, with 17 generating acilities andmore than 1,400 circuit-miles o transmission lines. Created in 1931,the Authority is headquartered in White Plains and governed by aBoard o rustees. Te Authority sells power to government agencies,community-owned electric systems and rural electric cooperatives,private companies, private utilities or resale and neighboring states. TeAuthoritys mission is to provide clean, low-cost and reliable energy topromote economic and job development, energy eciency, renewablesand innovation or the benet o both its customers and all residents oNew York State. In 2010, the Authority reported a net income o $181million.

As o December 31, 2010, the Authority had 2,172 open contracts totalingmore than $5.3 billion, o which over $3.9 billion had been expended.Contracts or non-personal service or equipment purchases, contractsin excess o $3 million, and personal service contracts in excess o $1million, are reviewed and approved by the rustees, as stipulated inthe Authoritys policies. For the two years ended December 31, 2010,the Authoritys expenditures included almost $3.2 billion to pay vendorinvoices, $10 million or procurement card purchases, and almost $3million or travel expenses.

Te Authority nances construction o new projects rom internallygenerated cash and /or through sales o bonds and notes to investors,and pays related debt service with revenues rom the generation andtransmission o electricity. Te Authoritys Board approves all bondissuances and commercial paper series. otal debt outstanding as oDecember 31, 2010 was $1.94 billion o which $1.62 billion is long-termdebt and $320 million is short-term debt (commercial paper).

Our audit scope covered the period January 1, 2009 to June 21, 2011and included an examination o expenditures related to personal

service contracts, discretionary spending and the cost o debt issuance.During our audit, Authority ocials inormed us that the Oce o theState Inspector General was conducting a concurrent investigation othe Authoritys expenditures in the areas o grants, contributions andlegal services contracts. Ater discussions with the Inspector Generalsrepresentatives, we decided to narrow the scope o our audit. oaccomplish our audit objectives, we reviewed source documentationor invoices and procurement card purchases; reviewed contracts;

Background

Audit Scope and

Methodology

Introduction

8/6/2019 Nypa Audit

10/14

10

Ofce of the New York State Comptroller

met with Authority employees; and reviewed Authority and New YorkState policies, procedures, guidelines, and other applicable laws andregulations.

We conducted our perormance audit in accordance with generally

accepted government auditing standards. Tose standards require thatwe plan and perorm the audit to obtain sucient, appropriate evidenceto provide a reasonable basis or our ndings and conclusions based onour audit objectives. We believe that the evidence obtained during ouraudit provides a reasonable basis or our ndings and conclusions basedon our audit objectives.

In addition to being the State Auditor, the Comptroller perorms certainother constitutionally and statutorily mandated duties as the chie scalocer o New York State. Tese include operating the States accountingsystem; preparing the States nancial statements; and approving State

contracts, reunds, and other payments. In addition, the Comptrollerappoints members to certain boards, commissions and publicauthorities, some o whom have minority voting rights. Tese dutiesmay be considered management unctions or purposes o evaluatingorganizational independence under generally accepted governmentauditing standards. In our opinion, these unctions do not aect ourability to conduct independent audits o program perormance.

Te audit was perormed pursuant to the State Comptrollers authority asset orth in Article X, Section V o the State Constitution. Additionally,Chapter 469 o the Laws o 1989 requires the State Comptroller toconduct an audit o the Authoritys management practices at least onceevery ve years.

A drat copy o this report was provided to Authority ocials or theirreview and comment. Teir comments were considered in preparing thisreport, and are included at the end o the report.

Within 90 days o the nal release o this report, as required by Section170 o the Executive Law, the Chairman o the Authority shall report tothe Governor, the State Comptroller, and the leaders o the Legislature

and scal committees, advising what steps were taken to implement therecommendations contained herein, and where recommendations werenot implemented, the reasons thereor.

Major contributors to the report were John Buyce, Walter Irving, JoelBiederman, Rick Podagrosi, Don Cosgrove, W Sage Hopmeier, NatalieSherman, Andre Spar, Arnold Blanck, Anthony Calabrese and racySamuel.

Authority

Reporting

Requirements

Contributors to

the Report

8/6/2019 Nypa Audit

11/14

Division of State Government Accountability 11

Audit Findings and Recommendation

o determine whether the Authoritys discretionary spending was

necessary and reasonable, we judgmentally selected initial samples o39 invoices, 58 procurement card and 15 travel transactions or reviewbased on expense descriptions that presented what we considered higherrisks o impropriety (e.g., ood, gits, fowers and entertainment). Ateridentiying certain potentially inappropriate or questionable expenses,we expanded our samples to include 177 procurement card and 52invoice transactions to determine the total costs associated with thesehigher-risk expenses. For 2009 and 2010, we identied about $340,000 oquestionable discretionary expenditures, including the ollowing:

$160,000 spent on a total o 21 holiday parties and picnics or

employees, retirees, and guests. For example, the White Plains Ocehad its annual holiday party in-house, but spent between $9,100 and$9,500 each year on the ood or this party;

$46,000 and $39,000, respectively, on gits or employee service andrecognition. In addition, the Authority spent at least $57,000 onservice award or recognition ceremony expenses, mostly ood andbeverages;

$21,000 or complimentary AARP memberships or all retiredemployees;

$10,000 spent or empathetic gits, such as fowers, to employeesand relatives; and

$7,000 in entrance ees and other expenses related to having staparticipate in the Corporate Challenge road race.

Authority ocials deended their spending practices, stating that theexpenses we cited were minor in scope and helped to boost employeemorale. However, they stated the Authority, as a result o this audit,will discontinue paying or empathetic gits and AARP membershipsnot covered by contractual commitments. In addition, they stated the

Authority will continue to cut back on expenses related to service andrecognition awards and ceremonies, picnics and holiday parties.

We also reviewed a sample o 15 employee travel events ocusing onoverseas fights and ound each to be necessary and reasonably priced.Te Authority has a travel unit that books all fights and hotels. Unitsta look or the most economical route, using government rates whenavailable and negotiating rates whenever possible.

Discretionary

Spending

Audit Findings and Recommendation

8/6/2019 Nypa Audit

12/14

12

Ofce of the New York State Comptroller

1. Limit or eliminate spending on nonessential items such as parties,ceremonies, gits and memberships.

We also ound all 20 personal and miscellaneous service contracts wereviewed were necessary and reasonable. o determine whether thecontracts were necessary, we analyzed whether the services providedwere essential to the Authoritys mission and goals. o evaluate thereasonableness o the contracts, we reviewed the award process (e.g.,competitive bid, justied sole or single source) and i the Authorityconsidered the easibility o alternatives, such as using in-house sta,or these services. We also determined the Authority has a process toperiodically review existing contracts to re-assess whether they are stillnecessary and appropriate.

Employees in the Authoritys procurement unit are each responsible ora portolio o contracts. Every quarter they review their portolio. I aproject is nearing the end o the contract period or there are indicationsthe project is complete, they contact the Authority employee who hasresponsibilities or overseeing the work perormed under the contract.Te procurement unit employee determines whether the contract can beclosed, needs to be rebid, or needs an extension in accordance with theAuthoritys Procurement Guidelines. Te Authority prepares quarterlyand annual contract reports, which are reviewed by the Board.

We ound the Authoritys debt costs and the practices it applies tomanaging debt are reasonable. o select underwriters or issuing debt, theAuthority uses a Request For Proposal (RFP) process to initially identiycompanies to unction as Senior Manager, Co-Managers and sellinggroups. Te most recent RFP was issued in 2010. Te Board approvedthe selection o additional companies, bringing the Authoritys total tosix Senior Managers, ve Co-Managers and 11 selling groups.

Te Authority does not have a ormal written debt management strategy.However, it continually monitors interest rates and other actors. It alsoconducts analyses to determine whether renancing would be benecialto limit its exposure.

We reviewed the Authoritys expenses related to its cost o debt, includingmanagement o principal, interest, counsel costs and other ees. Weidentied the rates associated with these costs and ees, obtained andreviewed bank liquidity and remarketing agents agreements, andexamined interest rate swap policies and procedures. Our reviewindicated the Authoritys costs, rates, policies and procedures, are allconsistent with industry standards.

Recommendation

Contracts

Cost of Debt

8/6/2019 Nypa Audit

13/14

Division of State Government Accountability 13

Authority Comment

Authority Comment

8/6/2019 Nypa Audit

14/14

14

Ofce of the New York State Comptroller