AC 03-27-2023 Written CommunicationsFrom:Rhoda Fry
To:City of Cupertino Audit Committee; City Clerk; City Council; Cupertino City Manager"s Office
Subject:Oral Communications City Council 4/4/2023 and today"s audit committee
Date:Monday, March 27, 2023 12:16:28 PM
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Dear City Clerk,
Please add Oral Communications City Council 4/4/2023 and today's audit committee
Thanks, Rhoda Fry
Requests for Audit Committee:
AGENDA ITEM #2
1. Make Crowe aware of California Department of Tax and Fee Administration(CDTFA) audit2. The ACFR mentions that council appoints the treasurer, to my knowledge, this has not
happened in at least 50 years. See 5th page of pdf report, first agenda item, firstattachment.3. On the AFCFR, admin cost has more than doubled between 2021 and 2022, $3637Mto $7293M. There is some explanation for some increases, but this does not explain
entire increase. See 28th page of pdf report, first agenda item, first attachment. Weneed an explanation4. Address all deficiencies listed and are there any past deficiencies that are yet to beresolved.
AGENDA #6 - WORK PLAN
1. Review monthly treasurer’s report with corresponding accounts payable (not doingso creates risk)2. Review monthly investment report (not doing so creates risk)3. Chandler Asset company previously provide in-person monthly reports fromCarlos Oblites, we need these back, especially given future uncertainties4. Need updates on internal audit Moss Adams5. Need updates for cdtfa audit; 2022 budget mentioned in twice last year that a majorcontributor to our sales tax base was being audited and this could cause uncertaintyin our budget.6. Enterprise Funds:a) The Blackberry Farm enterprise fund needs to be changed to Blackberry FarmGolf, to ensure there is not confusionb) The Senior Center previously had an enterprise fund and now it is gone. Weneed to get this transparency back. We also need an enterprise fund for BlackberryFarm pools/picnic7. Need updates fraud/waste/abuse per municipal code
2.88.100 Duties–Powers–Responsibilities.
The powers and functions of the Audit Committee shall be as follows:
To review the annual audit report and management letter;
To recommend appointment of auditors;
To review the monthly Treasurer’s report;
To recommend a budget format;
To review City investment policies and internal controls of such policies;
To recommend appointment of internal auditors;
To review internal audit reports;
To review quarterly Fraud, Waste, and Abuse Program reports
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Continued economic growth driven primarily by the business to business sector continued through FY
2014-15 until a slight $400,000 decline in FY 2015-16 due to a one-time clean up payment from the
previous year received in FY 2016-17. FY 2016-17 increased significantly with a $3.5 million “triple-flip”
close-out payment. There was a modest decrease in FY 2017-18 which was again attributable to the one-
time “triple-flip” close-out payment from FY 2016-17 that was not received in FY 2017-18. Despite the
fluctuation, the sales tax base experienced strong growth. FY 2018-19 experienced a slight decrease due to
the tapering of localized sales tax dollars from construction and completion of Apple Campus 2 which
further indicates a return to normalcy in respect to previous years. Additionally, the City received a one-
time quarterly clean-up payment in FY 2017-18 of $1.6 million that contributed to the comparative decrease
in FY 2018-19. In FY 2019-20, the City’s sales taxes experienced growth due to a one-time double payment
from Apple. Additionally, a change in estimate in which the City adjusted its accrual practice to include the
full remittance amounts from July and August 2020 contributed to approximately $9.0 of the increase over
the previous fiscal year. This change in estimate will be applied prospectively and consistently moving
forward. Though much uncertainty remains during the course of the pandemic, the City has seen positive
sales tax trends into FY 2020-21 due to the telework transition and the state-wide need for additional
electronic equipment and infrastructure, and the Wayfair decision.
With the economic recovery and easing of credit, commercial development activity picked up considerably
in 2012-13 and 2013-14 led by plan reviews of the new Apple Campus 2. Plans for the redevelopment of
the Marina shopping center into a mixed-use project, Marina Plaza, was approved in 2016. This project will
include 23,000 sq. ft. of retail and restaurant use, a 122-room boutique hotel, and 188 residential units
including 16 below market rate units. Construction of a five story, 148-room Hyatt House hotel was
completed in April 2019 and includes a full-service restaurant and meeting rooms. Through the City’s new
General Plan Amendment (GPA) Authorization Process applications for two development projects were
authorized by City Council during FY 2019-20 with the De Anza Hotel and the Cupertino Village Hotel.
The City’s pension and retiree medical (also referred to as OPEB, Other Post-Employment Benefits)
unfunded actuarial accrued liabilities are discussed in the Notes to the Basic Financial Statements. The City
must pay CalPERS, the state’s government pension system, annually to reduce its long-term liability for
pensions. Cupertino’s CalPERS actuarial valuation report as of June 30, 2021 reported a pension unfunded
accrued liability of $41.3 million with annual payments to CalPERS of 32.8% and 32.2% of projected
payroll for 2023-24 and 2024-25, respectively, with ongoing decreases after that. CalPERS recently
experienced strong performance in FY 2020-21 with a return of 21.3% that ultimately triggered a reduction
in the discount rate from 7% to 6.8%. To address long-term rising costs, Cupertino and state law has reduced
pension benefits for new hires and increased employee contributions. As of the June 30, 2022, the City has
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2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Sales Tax ($ in millions)