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AC 2.27.23Page 1 City of Cupertino Audit Committee Regular Meeting Minutes February 27, 2023 CALL TO ORDER At 4:00 p.m., Vice Chair Chen called the regular meeting to order. This was a teleconference meeting with no physical location. ROLL CALL Committee Members Present: Chair Angela Chen, Vice Chair Sheila Mohan, Committee member J.R. Fruen, Committee member Laura Hammer (4:01p.m.), Committee member Sophie Song (4:10p.m.) City Staff Present: Kristina Alfaro, Pamela Wu, Matt Morley, Thomas Leung, Beth Viajar, Janet Liang Absent: Guests: Carlos Oblites (Chandler), Colleen Rozillis (Moss Adams), Jessie Lenhardt (Moss Adams), Tammy Lohr (Moss Adams) ORDERS OF THE DAY 1. APPROVE MINUTES OF REGULAR MEETING ON JANUARY 23, 2022 Chair Chen requested that staff include the recommendation made during the meeting in the minutes. Committee member Fruen then made a motion to approve the minutes with the recommended amendments, which was seconded by Vice Chair Mohan. The motion carried 4-0 with Committee member Song absent. POSTPONEMENTS ORAL COMMUNICATIONS OLD BUSINESS NEW BUSINESS 2. Consider an Internal Audit Overview Alfaro gave an introduction to the report, while Colleen and Lohr presented an overview. When Chair Chen inquired about the process for implementing recommendations, Colleen explained that once they have a draft report and recommendations, they review them with the City Manager’s Office, relevant staff, and stakeholders to ensure their feasibility. In some cases, management responses may be required, but if the recommendations are accepted, no management response is necessary. Additionally, an implementation plan may be developed, which was included in the procurement study. Council may direct management to create an Page 2 implementation plan for other studies. Vice Chair Mohan requested further information about the accomplishments, to which Colleen replied that quarterly updates and an annual report at the end of each fiscal year are available. Alfaro added that the internal audit reports can be accessed on the finance webpage under Internal Audit. No public comment. 3. Consider the Quarterly Internal Audit Status Report Rozillis provided an overview of the report. Vice Chair Mohan inquired about the complaint mentioned in the Fraud, Waste, and Abuse report and whether it would be disclosed. Lohr explained that they prioritize confidentiality, and there are specific circumstances in which they would disclose the nature of the report to the committee. Otherwise, they manage and resolve the complaint without revealing its details to others. This process follows the triage outlined in the program manual. Chair Chen asked when the draft report for the Library Construction Audit would be available, and Rozillis replied that it would be presented at the next meeting. Committee member Hammer asked whether issues would be highlighted in the column designated for appropriate City Officials, and Lohr confirmed this. In such cases, they work with city management to address the issue. No public comment. 4. Consider the Budget Process Review Final Report Lenhardt presented an overview of the report, and Alfaro provided updates on the steps staff has taken, such as drafting budget policies and launching the Budget Management folder on the City's Intranet page. The City is also reviewing areas that did not meet GFOA standards and will bring updates as part of budget format review. Alfaro also mentioned that staff is exploring an ERP system that can provide a dashboard/high-level overview of the budget. Committee member Fruen asked why timeliness did not rank as high as other factors in terms of satisfaction. Alfaro explained that the quarterly reporting timeline is tight, and staff members are not solely dedicated to budget tasks, with the exception of Leung. Vice Chair Mohan asked for clarification on why the City needs to adopt a budget policy when the State already requires a balanced budget. Lenhardt explained that it is an informal practice that GFOA recommends to support consistent practices and to provide future individuals with a better understanding of the budget's full intent. Lohr added that documenting the policy would outline the how and why behind consistent practices as the State does not detail this information. Rozillis noted that policies are useful for future reference. Committee member Hammer asked whether they reviewed the review process or the budget process. Lenhardt clarified that they reviewed the process for developing the budget, including budget submission and review, adjustments, and monitoring throughout the fiscal year. Committee member Hammer moved to receive and forward the report to City Council, which Committee member Fruen seconded. No public comment. The motion passed unanimously with all members present. 5. Consider the Monthly Treasurer's Investment Report for January 2023 Leung and Oblites provided an overview of the report. Vice Chair Mohan asked if the investment structure was comparable to other municipal clients. Oblites explained that the term structure was specific to the City because a specific strategy was developed, but other governments might have a similar structure based on liquidity needs and risk tolerance. Most of the asset classes were similar to other local governments, but the City targets a longer average maturity and longer Page 3 duration that generates higher returns in the long run. Oblites also noted that the portfolio was designed to withstand unexpected shocks to the system and was diversified among some of the safest security asset classes available to all investors globally. They actively do credit analysis on anything that is not treasury or agency-related to minimize risk. Chair Chen asked for the difference between book value and par value and which best reflects the City's true level of assets. Oblites explained that the market value was the value that someone was willing to pay for it today, while the book value was the value at which the assets were carried today, reflecting premiums and discounts. He believed that the book value best reflected the City's level of assets because it was what the City was carrying. If the portfolio was held to maturity, the par value would be the best indication of what the City would receive. Committee member Fruen motioned to recommend filing the report with City Council, and Vice Chair Mohan seconded the motion. No public comment. The motion carried unanimously with all members present. 6. Consider the Monthly Treasurer's Report for January 2023 Leung provided an overview of the report. Committee member Fruen motioned to recommend filing the report with City Council, and Vice Chair Mohan seconded. No public comment. The motion carried unanimously with all members present. 7. Consider the Audit Committee 2023 Schedule and Work Plan Leung presented the committee's workplan and noted that the committee had recommended transitioning to quarterly meetings. Leung further stated that the second reading of the ordinance would take place in March, and as a result, starting from April, the Audit Committee meetings would be held quarterly. Wu added that the ordinance would come into effect 30 days after the second reading. Chair Chen noted that Audit Committee would tentatively cancel the May 22 meeting. STAFF AND COMMITTEE REPORTS COMMITTEEMEMBER ATTENDANCE AT UPCOMING MEETINGS AND EVENTS FUTURE AGENDA SETTING ADJOURNMENT The meeting adjourned at 5:54 p.m. Recording Secretary: Janet Liang, Administrative Assistant