Dominion Power 2004 Annual Report Download - page 56

D 2004/Page 54
Management’s Annual Report on Internal Control over Financial Reporting
Management of Dominion Resources, Inc. (Dominion) understands and
accepts responsibility for its financial statements and related disclosures
and the effectiveness of internal control over financial reporting (internal
control). Dominion continuously strives to identify opportunities to enhance
the effectiveness and efficiency of internal control, just as it does through-
out all aspects of its business.
Management maintains a system of internal control designed to pro-
vide reasonable assurance, at a reasonable cost, that Dominion’s and its
subsidiaries’ assets are safeguarded against loss from unauthorized use or
disposition and that transactions are executed and recorded in accordance
with established procedures. This system includes written policies, an
organizational structure designed to ensure appropriate segregation of
responsibilities, careful selection and training of qualified personnel and
internal audits.
The Audit Committee of the Board of Directors of Dominion, composed
entirely of independent directors, meets periodically with the independent
registered public accounting firm, the internal auditors and management to
discuss auditing, internal control, and financial reporting matters of
Dominion and to ensure that each is properly discharging its responsibili-
ties. Both the independent registered public accounting firm and the inter-
nal auditors periodically meet alone with the Audit Committee and have
free access to the Committee at any time.
SEC rules implementing Section 404 of the Sarbanes-Oxley Act of 2002
require Dominion’s 2004 Annual Report to contain a management’s report
and a report of the independent registered public accounting firm regarding
the effectiveness of internal control. As a basis for management’s report,
Dominion tested and evaluated the design and operating effectiveness of
internal controls. Based on its assessment as of December 31, 2004,
Dominion makes the following assertion:
Management is responsible for establishing and maintaining effective
internal control over financial reporting of Dominion.
There are inherent limitations in the effectiveness of any internal con-
trol, including the possibility of human error and the circumvention or over-
riding of controls. Accordingly, even effective internal controls can provide
only reasonable assurance with respect to financial statement preparation.
Further, because of changes in conditions, the effectiveness of internal
control may vary over time.
On December 31, 2003, Dominion adopted Financial Accounting Stan-
dards Board Interpretation No. 46 (revised December 2003),
Consolidation
of Variable Interest Entities,
for its interests in special purpose entities,
referred to as SPEs. As a result, Dominion has included in its consolidated
financial statements certain SPEs. The Consolidated Balance Sheet, as of
December 31, 2004, reflects $621 million of net property, plant and equip-
ment and deferred charges and $688 million of related debt attributable to
these SPEs. As these SPEs are owned by unrelated parties, Dominion does
not have the authority to dictate or modify, and therefore could not assess
the internal controls in place at these entities. Management’s conclusion
regarding the effectiveness of Dominion’s internal control does not extend
to the internal controls of these SPEs.
Management evaluated Dominion’s internal control over financial
reporting as of December 31, 2004. This assessment was based on criteria
for effective internal control over financial reporting described in Internal
Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this assessment,
management believes that Dominion maintained effective internal control
over financial reporting as of December 31, 2004.
The independent registered public accounting firm that audited the
financial statements has issued an attestation report on Dominion’s
assessment of the internal control over financial reporting.
February 28, 2005