Audit Committee Report - BSA Board Page 2 of 2 November 8, 2013 Base reported on by this committee at the last board meeting on hold as a result.
BSA AUDIT COMMITTEE REPORT June 26, 2014
The Audit Committee met at BNL on June 26, 2014. Items reviewed or approved included: minutes of the March 11, 2014 meeting; the financial condition of both the Laboratory and BSA; the proposed FY15 BSA budget; BHSO’s concerns with BNL’s Business Environment; as well as the risk package including reports from all represented management systems (Legal, Information Resources, Records, Procurement, Property, Finance, Internal Audit, Project Management). The committee met with BNL’s CFO and Internal Audit Director to gain a better understanding of the business environment at BNL. The Committee also met in executive session with BHSO. The Committee is concerned that BHSO has lost confidence in the Business environment as communicated in their April 30, 2014 letter to Lab Director, Doon Gibbs. FY14 BNL business performance is in line with the downside scenario utilized during FY14 business planning; business results in excess of the downside scenario would have created a reserve for laboratory management to fund incremental investments, however, none has been realized. Spending through May is generally in line with realizing $655M total annual cost. Total funding is on track to reach the expected new funds target of $598M. The reduction in backlog is consistent with expectations as NSLSII construction is nearing completion. Direct FTE’s are down overall yet the ratio of direct to total FTE’s remains strong at 59.2%. The unfavorable variance in the standard labor pool reported last meeting remains an issue – BNL has taken actions to reduce the variance from $9.7M to $2.3M and continues to work on ways to reduce the short fall. An outside peer review team recommended against increasing labor rates causing BNL management to identify opportunities to reduce costs. BSA net income continues to trend low as a result of receiving a 91% rating from the DOE for FY13 rather than the expected 94%, a longer M&O proposal process than originally planned resulted in $200K in costs over budget, as well as some staffing decisions resulting in unplanned BSA cost. All of these items resulted in a $650K challenge that BSA management took actions to absorb $250K so far resulting in a net risk to the income budget of $400K. The BNL Business Environment has experienced a number of “events” in the last several months. The quantity, magnitude, and in some instances failure to timely communicate has negatively affected the BHSO’s confidence in the business assurance process. BHSO expressed their concern in a letter dated April 30, 2014 (see attached) and put the accounting change to a Value Added Audit Committee Report - BSA Board
Page 1 of 2
November 8, 2013
Base reported on by this committee at the last board meeting on hold as a result. While the letter indicated support for the actions taken and involvement of the corporate partners to quickly take action, BHSO elevated the letter during the recent Financial Management Assurance process. The committee reviewed each “event,” the root cause and management’s actions to remediate. Each event had unique circumstances, and some had origins several years prior. In response, the committee recommended the corporate partners conduct a peer review of the broader business systems, and that engagement of the Deputy Director of Operations be solicited in conjunction with the review as recommendations will likely extend beyond the CFO community. ACT Status: BNL continues to have only 2 ACT projects: a $320K STEM related effort and a $5M work scope for SGRID, both from the State of NY. $1.0M of partner equity continues to be used for these ACT projects. Recently a signed agreement from the state was received allowing us to now invoice against the project – we anticipate a $600K payment before the end of the fiscal year. The STEM related ACT project was the source of one of the business events at BNL. The project documentation was provided to BHSO indicating that no “sponsor” materials or staff were being used in the conduct of the project; this statement is relevant to the indemnification language provided by DOE. It was an erroneous assertion as the cost share participant in the project is, by definition, a sponsor and was contributing staff time at BNL. When BHSO learned of this error, the sponsor’s staff vacated the lab’s premises in order to maintain the indemnity clause on this contract. Accounting change to Value Added Base: This change is on hold pending BNL management’s further discussion on our ability to handle change in the business environment. BHSO input: BHSO emphasized their concern with the business environment at BNL and encouraged BSA management to show the same level of emphasis for business related measures as they do for safety.
Audit Committee Report - BSA Board
Page 2 of 2
November 8, 2013