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June 1, 2009

DiNapoli Releases Baseline Audit of LIPA’s Fiscal Operations

Recommends Improvements on Internal Controls, Pledges Further Scrutiny of LIPA

New York State Comptroller Thomas P. DiNapoli today released his baseline audit of the Long Island Power Authority (LIPA), which determined that although LIPA has many appropriate internal controls in place for its core fiscal operations, it needs to ensure best management practices to use ratepayer dollars efficiently. DiNapoli also announced plans for further audits, including a review of LIPA’s contracts with National Grid.

“Long Islanders already pay among the highest electricity rates in the country,” DiNapoli said. “LIPA has to be more careful with customer dollars. This is a baseline audit. It’s given our auditors clear guidance on where to look next. We’re going to continue auditing LIPA to ensure it operates with the appropriate levels of transparency, efficiency, and accountability.

“Our next audit will focus on LIPA’s oversight of its contracts with National Grid and contracts National Grid enters into on behalf of LIPA. That audit is scheduled to begin later this year, and we’ll have more audits to follow.”

DiNapoli conducted this baseline audit as a part of his commitment to improve protections for Long Island ratepayers. The purpose of the audit was to identify areas warranting further scrutiny.

The audit, which covered Jan. 1, 2006 through Sept. 23, 2008, examined whether LIPA had adequate controls over 11 core fiscal operations, including: board governance; procurement and contracting; cash receipts and disbursements; internal control certifications; computer equipment inventory; debt issuance; billing and collections; investments; budgeting and expenditure control; accounting and information systems; and, payroll.

The audit found several fiscal operations in need of improvement, including:

Debt Issuance – LIPA lacks documented procedures for issuing debt. With more than $6.8 billion of debt outstanding, LIPA needs to formalize these procedures to ensure full accountability of ratepayer monies.

Procurement and Contracting – LIPA filed its 2007 procurement report, indicating it had 105 contracts totaling more than $6.6 billion. However, the report was filed without Board approval and failed to disclose 73 contracts totaling $107 million that National Grid had entered into on behalf of LIPA, even though these contracts were subject to State approval. By not disclosing these contracts, LIPA deprived the public and State officials of information regarding the use of ratepayer funds.

Cash Disbursements – LIPA officials did not follow up on checks it had written but had not been cashed. For example, LIPA had 209 outstanding checks totaling $485,000, including $300,000 outstanding for more than one year, with the oldest dating back to 2000. By allowing outstanding checks to accumulate, LIPA may miss an opportunity to identify potential problems in its payment processes and could be unnecessarily reserving funds for items which may never be presented for payment.

Board Governance – Some Board members had poor attendance at meetings and others did not have the appropriate training regarding their legal, fiduciary, financial and ethical responsibilities. Routine attendance by a fully staffed Board composed of appropriately trained individuals is essential to ensuring that all constituencies are represented by individuals who understand and properly execute their role as Board members.

Click here for a copy of the audit.



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