Tim Riley (Chairman), John Crosier, Betty - University System of ...

Attachment 1
AUDIT COMMITTEE MEETING
OCTOBER 3, 2011
Granite State College
Concord, New Hampshire
Committee members present: Tim Riley (Chairman), John Crosier, Betty Hoadley and Lorraine
Merrill
Trustees present: Chancellor Ed MacKay, Hank Stebbins, Jude Blake, Pamela Diamantis, Kurt
Eddins and Dick Galway
Staff present: (UNH) Dick Cannon, Joanna Young, and Mark Rubinstein; (KSC) Jay Kahn;
(GSC) Lisa Shawney; (PSU) Steve Taksar; (USNH) Ken Cody, Vicki Escalera, Tia Miller, Carol
Mitchell, Ron Rodgers, and Lorna Jacobsen
Faculty present: (UNH) Robert Woodward.
Others present: Lee Leahy, Patrick Dury and Monique Griffin from PricewaterhouseCoopers
The meeting was called to order at 3:05 by Chairman Riley who welcomed Committee
members, staff and PricewaterhouseCoopers (PwC) representatives.
I. APPROVAL OF CONSENT AND ACCEPTANCE AGENDA (The consent
agenda appears below)
VOTED, that the Consent Agenda be approved.
A. Approve minutes of the Committee’s meetings on March 24, 2011
and September 19, 2011
B. Approve changes to the Audit Committee Charter for Board of
Trustees’ consideration
MOVED, on recommendation of the Chancellor, that the
following motion be presented for consideration by the Board of
Trustees:

MOVED, on recommendation of the Audit Committee, that
changes to the Audit Committee Charter in Appendix 9 to the
Bylaws of the Board of Trustees reflected in “Proposed 2011
Revision of the Audit Committee Charter” be approved.
C. Accept Internal Audit reports issued since Audit Committee meeting
of March 24, 2011:
University System of New Hampshire Benefits Enrollment System Security
University of New Hampshire Research Computing and Instrumentation Data Center
Operations
Plymouth State University Global Education Office Study Abroad Programs Followup
-End of Consent Agenda –
II. ITEM FOR COMMITTEE DISCUSSION AND INFORMATION
1. Review of Audit Committee’s FY12 work plan and goals
III. NON-PUBLIC SESSION WITH EXTERNAL AUDITORS
At 3:10 p.m. the Audit Committee by roll call vote unanimously approved the following motion:
VOTED, that the Audit Committee go into non-public session for the purpose of
discussing personnel matters, as authorized by RSA 91-A: 3, II (a).
Representatives from PricewaterhouseCoopers joined the Committee for the non-public session,
all staff left the meeting.
At 3:15 p.m. the Committee reconvened in public session and Chairman Riley reported that no
action was taken during non-public session. The staff rejoined the Committee members in
public session.
IV. ACTION ITEMS BY COMMITTEE FOR CONSIDERATION OF THE
BOARD OF TRUSTEES
1. Review of University System of New Hampshire Financial Statements by Management
Vice Chancellor Cody gave a brief overview of the presentation and introduced USNH
Controller Carol Mitchell who discussed highlights from the USNH financial statements for the
year ending June 30, 2011.
Ms. Mitchell gave a summary of activities statement and balance sheet trends noting that
unrestricted net assets were up by $60 million in the past year. She then described the
commitments against unrestricted net assets including bond bullet payments, major construction
projects, and approved internal borrowings. In total, commitments against unrestricted net
assets increased from $10 million to $85 million in the past year, so uncommitted unrestricted
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net assets has actually decreased during FY11 from $139 million to $124 million. Vice
Chancellor Cody pointed out that these commitments have already been approved by the
trustees, so these dollars cannot be spent twice and should be thought of as unavailable.
Ms. Mitchell asked if there were any questions regarding the draft financial statement6s
distributed with the agenda. Trustee Stebbins raised a concern about the wording in one
sentence of the management discussion and analysis that pertained to state support. The
committee agreed that Trustee Stebbins, Chairman Riley and Vice Chancellor Cody should
agree to edits as necessary. .
Vice Chancellor Cody reviewed the USNH “Framework” for Planning and Budgeting and said
that next year all funds budgeting will allow for comparison of actual to budgeted revenues and
expenditures on an “all funds” basis. He described the goals from the “Framework” document
and the consequences that would occur if USNH was not able to achieve the goal of
maintaining its bond rating, including reputational damage, higher costs of borrowing, and
reduced access to credit. He discussed the importance of the two financial strategic indicators:
Operating Margin (OM) and Unrestricted Net Assets (UNA). He said these two ratios measure
the choices USNH makes between spending on current operations versus building net assets for
long-term financial health.
In response to Trustee Crosier, Vice Chancellor Cody said that other public institutions are
facing similar state funding problems and their ratios may slide as well, but because state
appropriations are now an even smaller percentage of USNH revenues, our need to carefully
plan, budget and monitor these measures has increased. He said healthy operating margins in
the past have allowed USNH to make strategic investments; it is the reason we are in good
financial health today.
Vice Chancellor Cody reviewed Moody’s higher education rating methodology and said that
Moody’s has confidence in USNH’s governance and management. He described a process he
and his team went through to evaluate risks to USNH’s long term credit rating and the
probability that these risks would occur. Vice Chancellor Cody reviewed several graphs
analyzing the eight risks identified which illustrated USNH’s operating margin, dependence on
nonresident tuition revenue and the impact of financial aid, unrestricted net assets to Debt, State
Appropriation History, facilities investments, fundraising results, ,liquidity, and governance and
management. He summarized by saying that USNH’s financial condition looks strong at June
30, 2011 but that there are many commitments against those net assets, FY12 is going to be
very difficult, FY13 should be better, and in FY14 USNH needs to have its operating margin
back to normal 3% to 5% to avoid the risk of a bond downgrade.
2. PricewaterhouseCoopers Report “The University System of New Hampshire – Report to
the Audit Committee”
PwC engagement partner Lee Leahy reported on the status of the audit and said that the draft
financial statements had been signed. She introduced Patrick Dury and Monique Griffin who
reviewed financial results, matters of significance and other required communications.
In response to Chairman Riley, Mr. Dury said the audit procedures in the investment area focus
on changes in fair valuation of alternative investments. He said the auditors rely on
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management, reports by the investment consultant Prime Buchholz, and also look at the
financial statements of the underlying investments. He said PwC also reviews due diligence
procedures of management and said that management’s judgments and estimates appear
reasonable.
Ms. Griffin reviewed the auditor’s work in the postretirement medical benefits, depreciation
and debt areas. She said of the $444 million in debt through the New Hampshire Health and
Education Facilities Authority, $95 million is classified as current. She said PwC works with
management over the course of the year when new debt is issued.
Ms. Griffin reviewed required communications to the Audit Committee and said that PwC
agreed with management’s estimates and judgments and that there were no significant
unadjusted differences arising from the audit. She said the auditors were not aware of any fraud
or illegal acts, and did not have any disagreements with management in the course of
conducting the audit.
Ms. Leahy congratulated Vice Chancellor Cody, Controller Carol Mitchell, Internal Audit Director Vicki
Escalera and their staffs for all the hard work and cooperation that led to a very successful audit. Vice
Chancellor Cody added his praise to the work of Carol Mitchell and Vicki Escalera and their staffs.
At 4:20 p.m. the Audit Committee by roll call vote unanimously approved the following motion:
VOTED, that the Audit Committee go into non-public session for the purpose of
discussing personnel matters, as authorized by RSA 91-A: 3, II (a).
Representatives from PricewaterhouseCoopers joined the Committee for the non-public session.
All staff left the meeting.
At 4:25 p.m. the Committee reconvened in public session and Chairman Riley reported that no
action was taken during non-public session. The staff rejoined the Committee members in
public session.
Chairman Riley commented that the auditors had shared very positive comments about the staff
in the non-public session praising their accuracy, professionalism and diligence with the
Committee.
Chairman Stebbins asked that the financial statements be modified as described earlier in these
minutes and the Committee took the following action with the understanding that this minor
change would be made, exact wording to be approved by the Chairman of the Audit Committee
and Trustee Stebbins.
3. Approve USNH Financial Statements
VOTED, on recommendation of the Chancellor, that the following motion be
presented for consideration by the Board of Trustees:
MOVED, on recommendation of the Audit Committee, that the USNH Financial
Statements for the fiscal year ended June 30, 2011 be accepted and forwarded to the
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V. OTHER BUSINESS
Governor, the Legislative Fiscal Committee, and others as specified in state statute
RSA 187-A-22.
{The Committee voted unanimously in favor of this motion}
1. Chair or Committee comments
2. Next meeting date: December 12, 2011, at 3:00 pm at Granite State College in Concord
(agenda to focus on legal issues, component units of USNH, and open audit issues)
3. The Committee adjourned at 4:30 p.m.
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