AUDIT COMMITTEE OF THE CITY OF NEW YORK MINUTES OF THE AUDIT COMMITTEE MEETING WEDNESDAY, JUNE 17, 2015, IN THE COMPTROLLER S OFFICE BOARDROOM

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1 AUDIT COMMITTEE OF THE CITY OF NEW YORK MINUTES OF THE AUDIT COMMITTEE MEETING WEDNESDAY, JUNE 17, 2015, IN THE COMPTROLLER S OFFICE BOARDROOM ATTENDANCE Chair Bernard Rosen Private Members Mark Kaplan 1 Bud Larson Michael Spitzer Public Members Secretary Independent Auditors Others Representing the Mayor John Grathwol Representing the Comptroller Michele Mark Levine Representing the Public Advocate Lawrence Schimmel Jacqueline Thompson Deloitte & Touche LLP Glenn Friedrich, Michael Malloy, Alexander Schillaci New York City Health and Hospitals Corporation James Linhart, Julien John WTC Captive Insurance Company David Biester, James Schoenbeck, Todd Theisfeldt New York City Transit Authority & Staten Island Rapid Transit Operating Authority Jackie Ospina, William Vazoulas City of New York Deferred Compensation Plan Joan Barrow, Ed Chen, Beth Kushner New York City Mayor s Office of Operations Florim Ardolli, George Davis, George Worley, Victor Wynnytsky 1 Participated in Executive Session only, by telephone.

2 New York City Office of Management & Budget Larian Angelo, Erik Bagwell, Enid Ellis, Nicole Fleming, Jacqueline Geaney, Xiaochao Jin, Vanessa Morris, Raymond Lee, Luisa Sanchez New York City Comptroller s Office Camille Arezzo, Nancy Brunner, Susan Cornwall, Alma Fana, Thema Holder, Berta Lara, Bianca Rexach, Jessica Sanchez, Joan Stapleton, Rachel Torres, Shiqi Yao New York State Comptroller s Office Justine DeGeorge Financial Information Services Agency Paul Fesssler, Roy Mogilanski, Peter Reddy New York City Independent Budget Office Frank Posillico

3 Audit Committee Meeting June 17, 2015 I. Call to Order and Roll Call Mr. Bernard Rosen, Audit Committee Chair, called the meeting to order at 9:30 a.m. Ms. Jacqueline Thompson, Committee Secretary, called the roll. A quorum was present. II. Review of the Draft Minutes of the Previous Audit Committee Meeting The first order of business was the approval of the draft minutes of the May 20, 2015 Audit Committee meeting. The Chair inquired if there were any comments on the draft minutes as presented. Subject to the editorial comments submitted to the Committee Secretary, the Chair called for a motion to approve the minutes; Mr. Michael Spitzer made a motion; the motion to approve the minutes of the May 20 th meeting carried unanimously. III. Review of the Financial Statements and Management Letters (where applicable) for the following entities: New York City Health and Hospitals Corporation WTC Captive Insurance Company New York City Transit Authority and Staten Island Rapid Transit Operating Authority City of New York Deferred Compensation Plans June 17, 2015 Page 1 of 9

4 New York City Health and Hospitals Corporation The next agenda item was the review of the financial statements of New York City Health and Hospitals Corporation (HHC) for the fiscal year ended June 30, Mr. Julien John, HHC s Comptroller, introduced the other HHC representatives present, and KPMG LLP, HHC s independent auditor. As a member of HHC s Board of Directors, the Chair recused himself from the discussion; Mr. Spitzer assumed the position of Chair for the HHC session. Mr. John provided an overview of HHC s financial statements and highlighted that Governmental Accounting Statement Board (GASB) Statement No. 65, Items Previously Reported as Assets and Liabilities and GASB Statement No. 68, Accounting and Financial Reporting for Pensions were implemented in The impact of GASB Statement No.65 on the net deficit position at the beginning of the year for 2013 was approximately $9.8 million, and the impact of GASB 68 on the net deficit position at the beginning of the year for 2013 was approximately $3.4 billion. Mr. John also reported the following: Grants receivables decreased by $222.9 million from 2013 primarily due to the receipt of Community Development Block Grant funds of $183 million, which was reported as a receivable in the prior year. Capital assets (net) increased by approximately $140 million, which was due to major modernization projects at Harlem Hospital Center, Gouverneur Health services, and additional construction projects. June 17, 2015 Page 2 of 9

5 The amount due to The City of New York decreased by $103.7 million, as the City increased its operating subsidy to HHC. The City also elected to fund collective bargaining settlements in the amount of $114 million. Personal services increased by $129.5 million due to increases in collective bargaining estimates. HHC s management letter had 11 observations. HHC concurred with KPMG's observations and recommendations. Most of the recommendations are in the process of being implemented. The only exception is a recommendation regarding the centralization of various functions. A study is being conducted to determine the feasibility of implementation. A question and answer session followed and the main issues discussed were: With the Affordable Care Act (ACA) and a global cap on Medicaid, as well as the state's implementation of a delivery system reform incentive program, hospital systems are being asked to adapt and change to many new environments. The ACA was funded with cuts to traditional programs that healthcare systems (such as HHC) that serve undocumented aliens who are ineligible for insurance under ACA were largely dependent on. HHC is positioning itself to be a provider of choice for insured patients. A major program is being implemented to analyze the patient experience to improve market share. No material deficiencies or significant deficiencies were identified as part of the independent audit. June 17, 2015 Page 3 of 9

6 There being no further questions, the Chair thanked the representatives of HHC for their participation at today s meeting. WTC Captive Insurance Company Mr. Rosen resumed his position as Chair. The next agenda item was the review of the financial statements of WTC Captive Insurance Company (WTCC) for the fiscal year ended December 31, Mr. David Biester, WTCC s Acting President and Chief Executive Officer, introduced the other WTCC representatives present, and Saslow Lufkin & Buggy, LLP, WTCC s independent auditor. Mr. John Grathwol and Ms. Nicole Fleming recused themselves from the discussion. Mr. Biester provided an overview of WTCC's financial statements and highlighted the following: Settlement payments to date totaled over $665 million. The only source of revenue came from the investment portfolio. WTCC finished the year with $325.9 million in assets and $5.3 million will be paid out in the near future. Expenditures exceeded the investment income by $6 million. A question and answer session followed and the main issues discussed were: The plaintiff population included first responders, people working with contractors, volunteers at the sites, New York Police Department, New York City Fire Department and Sanitation workers. The settlements to date have been primarily for respiratory issues that tend to be acute. There is uncertainty about the expectation for future claims. June 17, 2015 Page 4 of 9

7 WTCC was set up to provide insurance for contractors and first responders for environmental liability. It is not a compensation fund for victims impacted by the events of 9/11. WTCC has maintained a very conservative investment policy. There being no further questions the Chair thanked the representatives of WTCC for their participation at today s meeting. New York City Transit Authority and Staten Island Rapid Transit Operating Authority The next agenda item was the review of the financial statements of the New York City Transit Authority (TA) and the Staten Island Rapid Transit Operating Authority (SIRTOA) for the fiscal year ended December 31, Mr. William Vazoulas, TA Controller, introduced the other TA and SIRTOA representatives present, and Deloitte & Touche LLP, the independent auditor for TA and SIRTOA. Mr. Vazoulas and Ms. Jackie Ospina, Deputy Director of Operations Accounting, provided an overview of TA's and SIRTOA's financial statements and highlighted the following: New York City Transit Authority The finances of TA had remained stable in 2014 with increased ridership, due in part to the improving economy and real estate market. Revenues from fares increased $139 million in 2014 from the prior year primarily due to an annualization of the March 2013 fare increase and higher ridership. June 17, 2015 Page 5 of 9

8 Overtime expenses increased by 15% in 2014 from the prior year due mostly to adverse weather incidents, unscheduled service interruptions, and other factors. Health expenses increased due primarily to insurance rate increases. Additionally, there were higher workers compensation reserve requirements based on the actuarial evaluation. Postemployment benefits other than pensions increased in 2014 from the prior year by $111 million due mostly to the actuarial evaluation. Significant projects include the number 7 line extension and the Second Avenue Subway, Phase 1, from 61 st Street to 96 th Street. Sandy-related work continues, as is the rehabilitation of the South Ferry terminal, which are going well. Staten Island Rapid Transit Operating Authority Health and welfare expenses increased $1.3 million in 2014 from the prior year mainly due to insurance rate increases. Professional service expenses increased by $500,000 mainly due to information technology-related system upgrades. There was a decrease in the Federal Emergency Management Agency (FEMA) reimbursement. The change in capital projects was due mainly to increased capital expenditures related to Sandy restoration projects. June 17, 2015 Page 6 of 9

9 A question and answer session followed and the main issues discussed were: TA Private insurance and FEMA money is being used for Superstorm Sandy repairs. Liability expenses include workers compensation as well as claims from individuals who are injured. SIRTOA SIRTOA collects fares now at the second-to-last stop because people were getting off one stop sooner to avoid paying the fare. Salary and wages for SIRTOA went up due to an increase in the headcount by about 7%. There being no further questions, the Chair thanked the representatives of TA and SIRTOA for their participation at today s meeting. City of New York Deferred Compensation Plan (DCP) The next agenda item was the review of the financial statements of Deferred Compensation Plan (DCP) for the fiscal year ended December 31, Ms. Beth Kushner, DCP Deputy Director, introduced the other DCP representative present, and Marks Paneth LLP, the independent auditor for DCP. Ms. Kushner provided an overview of DCP's financial statements and highlighted the following: 457 Plan Net Position exceeded $13.4 billion at the end of 2014, an increase of $800 million from June 17, 2015 Page 7 of 9

10 401(k) Plan Net Position exceeded $1.9 billion, an increase of $560 million since NYCE IRA Plan Net Position increased from $148.3 million in 2012 to approximately $219 million at the end of (a) Plan Net Position increased from $13.5 million in 2012 to $19.3 million at the end of A question and answer session followed and the main issues discussed were: 2014 was a good year for domestic equities and core fixed income. The number of employees participating in the deferred compensation plans has been increasing. There being no further questions, the Chair thanked the representatives of DCP for their participation at today s meeting. IV. Executive Session With no further business for the public session, the Chair asked for a motion for the Committee to enter the Executive Session to discuss non-public financial matters. The motion was made by Mr. Bud Larson and was unanimously approved, and the Committee moved into Executive Session. V. Other Matters When the Audit Committee returned to public session, Chairman Rosen called for a motion to engage Grant Thornton LLP as an independent certified public accounting firm to conduct June 17, 2015 Page 8 of 9

11 audits of the City's financial statements, prepare management letters, conduct legally required Single Audits, and other related services for the period of fiscal years ending on June 30, 2016 through June 30, Mr. John Grathwol made a motion; the motion to approve the request carried unanimously. There being no further business before the Committee, the Chair asked for a motion to adjourn the June 17, 2015 Audit Committee meeting; Ms. Levine made a motion; the motion was unanimously approved; and the Committee adjourned until the next scheduled meeting on October 21, 2015, at 9:30 a.m. June 17, 2015 Page 9 of 9