Audit of the Massachusetts Clean Energy Center Objectives, Scope and Methodology

An explanation of what this audit examined and how it was conducted.

Overview

In accordance with Section 12 of Chapter 11 of the Massachusetts General Laws, the Office of the State Auditor has conducted a performance audit of certain activities of the Massachusetts Clean Energy Center (MassCEC) for the period July 1, 2015 through June 30, 2017.

We conducted this performance audit in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.

Below is a list of our audit objectives, indicating each question we intended our audit to answer; the conclusion we reached regarding each objective; and, if applicable, where each objective is discussed in the audit findings.

Objective	Conclusion
Did the Wind Technology Testing Center (WTTC) generate sufficient revenue to cover operating expenses?	Yes
Did MassCEC have a record of investing in financially viable Massachusetts companies?	Yes
Does MassCEC properly administer the Equity Investment and Venture Debt Investments Programs?	Yes
Does MassCEC have adequate internal controls, including policies and procedures, over the processing of wire transfers and internal fund transfers?	No; see Finding 1
Did MassCEC have a disaster-recovery plan (DRP) and business-continuity plan (BCP) in place for its computer operations?	No; see Finding 2

 

To achieve our audit objectives, we gained an understanding of MassCEC’s internal control environment related to our audit objectives by reviewing applicable laws, agency policies, and procedures, as well as conducting inquires with MassCEC management regarding investment performance. We evaluated the design and tested the operating effectiveness of controls over WTTC; investments made in clean energy companies in Massachusetts; the administration of the Equity Investment and Venture Debt Investments Programs; the processing of wire transfers and internal fund transfers; and the existence of a DRP and BCP for MassCEC’s computer operations. In addition, the audit team performed the following procedures:

• To determine whether WTTC generated sufficient revenue to cover its operating expenses, we compared the financial statements and annual budgets of WTTC to the audited financial statements of MassCEC for fiscal years 2016 and 2017. We verified actual rent paid using the monthly bank statements for the audit period and reviewed the depreciation schedules³ of assets and the allocation of MassCEC expenses. We also attended a MassCEC Audit Committee meeting during which the independent external auditors presented an analysis of WTTC’s financial position.
• To determine whether MassCEC had a record of investing in financially viable Massachusetts companies, we reviewed all 14 contract agreements of the companies in which MassCEC invested during the audit period. We reconciled MassCEC’s list of investments in companies during our audit period to its audited financial statements to confirm our population of investments. We verified with the Office of the Secretary of the Commonwealth (Corporations Division) that each of these companies was headquartered in Massachusetts. We reviewed the audited financial statements for the companies in which MassCEC invested to identify revenue growth and declines during the audit period.
• We examined reports MassCEC prepared that provided performance metrics for investments made during fiscal years 2016 and 2017. We verified information in supporting documentation regarding companies invested in by MassCEC, such as the total number of employees, the total funding raised from other investors, the valuations performed by MassCEC, the total revenue generated, and MassCEC’s investment returns on these companies.
• We reviewed the agency’s financial records related to investments that were written down as uncollectable during our audit period, prepared an analysis of gains and losses, and reconciled the investments to MassCEC’s audited financial statements. We interviewed MassCEC’s director of investments to discuss the agency’s investment portfolio performance.
• To determine whether MassCEC properly administered its Equity Investment and Venture Debt Investments Programs, we reviewed all the awards made by MassCEC through these programs during the audit period and confirmed that they received proper approvals from the agency’s chief executive officer, chief financial officer, general counsel, managing director of investments, board of directors, and/or investment committee in accordance with the agency’s bylaws.
• We verified that each of the 14 companies MassCEC invested in during our audit period certified that its financial statements were presented in accordance with generally accepted accounting principles.
• To determine whether MassCEC had adequate internal controls, including policies and procedures, over the processing of internal fund transfers, we selected a sample of 8 out of 24 months of internal fund transfers during the audit period and verified that MassCEC’s controller had approved these transactions via electronic signature. We reviewed all fund transfers to ensure that all transfers were performed and no funds were misappropriated. We then reviewed all supporting documentation, including letters from the Massachusetts Department of Energy Resources related to the dispersal of Alternative Compliance Payments,⁴ internal emails, minutes of board meetings (if applicable), spreadsheets, and invoices, to confirm that the controller had properly authorized the transactions.
• We chose a sample of 20 out of the 75 wire transfers that were performed during the audit period to determine whether MassCEC’s controller and personnel at the appropriate level of management (chief financial officer, chief executive officer, and chief operating officer) had approved each transaction and whether each transaction had the appropriate supporting documentation.
• To assess the adequacy of system availability, we determined whether formal (i.e., documented, tested, and board-approved) planning had been performed to develop and maintain a DRP and BCP to resume computer operations should the network application systems become inoperable or inaccessible. We also determined whether mission-critical application systems had been assessed for security vulnerabilities and whether risks to computer operations had been evaluated by MassCEC’s management in conjunction with the agency’s Information Technology Department (within its Corporate Department).

We used data from MassCEC’s Great Plains accounting and customer relationship management system to review equity investment and venture debt activity, internal and external bank transfers, and user access security during our audit period. We reviewed the controls in place for access to the data, program changes, and computer operations. We compared system reports to the audited financial statements, traced system financial information to bank statements and invoices, and determined that the data from these systems were sufficiently reliable for the purposes of our audit. 

We used nonstatistical sampling to help achieve our audit objectives and therefore did not project our results to the various populations.

3. A depreciation schedule is a detailed report of fixed assets that shows annual and accumulated reductions in their value.

4. Retail electricity suppliers can make Alternative Compliance Payments to the Massachusetts Department of Energy Resources, collected by MassCEC to comply with the Massachusetts Renewable Energy Portfolio Standard and Alternative Energy Portfolio Standard regulations.

Date published:	June 11, 2018