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AC 7.24.23Page 1 City of Cupertino Audit Committee Regular Meeting Minutes July 24, 2023 CALL TO ORDER At 4:00 p.m., Chair Chen called the regular meeting to order in the City of Cupertino Conference Room A, 10300 Torre Avenue. ROLL CALL Committee Members Present: Chair Angela Chen, Vice Chair Sheila Mohan, Committee member J.R. Fruen, Committee member Laura Hammer, Committee member Sophie Song City Staff Present: Thomas Leung, Janet Liang, Jonathan Orozco, Pamela Wu Absent: Guests: Carlos Oblites (Chandler), Annie Rose Favreau (Moss Adams), Colleen Rozillis (Moss Adams), Ryan Maxey (U.S. Bank), Jennifer Meza (U.S. Bank), Rick Rosenthal (U.S. Bank) ORDERS OF THE DAY 1. APPROVE MINUTES OF REGULAR MEETING ON APRIL 24, 2023 Vice Chair Mohan motion, Committee member Fruen seconded. No public comment. The motion passes with Committee member Hammer abstaining. 2.. APPROVE MINUTES OF SPECIAL MEETING ON MAY 31, 2023 Vice Chair Mohan motion, Committee member Fruen seconded. No public comment. The motion passes with Committee member Song abstaining. POSTPONEMENTS ORAL COMMUNICATIONS OLD BUSINESS NEW BUSINESS 3. Consider receiving the OPEB & Pension Section 115 Trust Performance Report for the Quarter Ending June 30, 2023 Maxey noted that they are in early phases of combining resources at U.S. Bank with the first phase being that Rick is becoming part of PFM asset management. Meza and Rosenthal provided an overview of the report. Chair Chen asked if there was any major strategic change based on the market situation. Rosenthal noted most of the changes were made in 2022, with a shift of moving into index funds. Committee member Song asked if there were any changes made to the City’s investment. Rosenthal noted that the specific securities and rebalancing is done at his discretion Page 2 as they are hired as the discretionary asset manager. Committee member Song asked if the city needs to withdraw money and send money to another account, who is authorized to do so and if there is any verification. Meza noted that the Administrative Services director is and there is paperwork that needs to be completed. Orozco noted that it would need to be tied to CalPERS or the City’s general account and there must be discussions made in advance. Committee member Song asked how U.S. Bank protects the City’s assets in case of fraud. Meza noted that they constantly monitor, and they do contact the city by phone to see if the City is requesting to move money. Maxey added that they have extra checks and balances, and the funds are held in an exclusive trust to pay OPEB or pension liabilities. The places these monies can be sent to is limited and if it was sent anywhere else it will raise red flags and escalate. Internally they flag all disbursements, and if there is a change there is extra due diligence to get verbal confirmation. Vice Chair Mohan asked staff to speak about checks and balances within the City. Orozco noted that staff is working on getting a second confirmation on some of the transactions and implementing controls, so our assets are safeguarded. No Public Comment. 4. Consider the Treasurer's Investment Report for the Quarter Ending June 30, 2023 Leung provided an overview of the report. Oblites provided an overview of the report as well as structure and set up. Committee member Song asked if the dollar difference between the cost value and book value is an actual loss. Oblites noted that it is a paper loss because interest rates rose dramatically. Orozco noted that our investments are held to maturity so that loss will be irrelevant. Committee member Song asked if the City makes an $8.4 million gain, will the city pay Chandler an extra fee. Oblites noted that they do not do a performance base fee. Committee member Fruen motioned to receive the report and forward to City Council, Vice Chair Mohan seconded. No public comment. The motion passes unanimously. 5. Consider the Quarterly Internal Audit Status Report Rozillis provided an overview of the report. Committee member Song noted that she received a report that someone made a report to the fraud waste and abuse hotline sometime last weekend and asked why it was not included in the status report. Rozillis noted that it may not have fit in the timeframe of last quarter. Chair Chen asked if it was fraud-related. Committee member Song noted it is an allegation, but she does not know the status. Orozco noted that the details of the reports would not be discussed here as it is confidential and that it is not the duties of the audit committee. Committee member Song noted she was informed by a resident of Cupertino that an allegation was filed and was waiting to be informed of the status. Rozillis noted that if it is an active investigation, it must remain confidential. Rozillis added that their work is done under very strict professional standards and their team assesses their independence when there is a new engagement as well as rotating team members to ensure independence. Committee member Hammer suggested if Moss Adams could add cumulative statistics to the table. Moss Adams noted that they will. Page 3 No public comment. 6. Consider the Enterprise Leadership Assessment Report Rozillis and Favreau provided an overview of the report. Committee member Song asked how Moss Adams quantifies the significant investment. Favreau noted that observation 11 includes numbers on how much time staff liaisons commit to the groups. Vice Chair Mohan asked at which point will staff get to respond to these recommendations and asked which recommendations have been completed. Orozco noted that staff has reviewed, and this report will go to City Council for their direction on some of the recommendations. Committee member Fruen motioned to receive the report and recommend filing with City Council; Committee member Hammer seconded. No public comment. The motion carried unanimously. 7. Consider the FY 2023-24 Internal Audit Program Rozillis provided an overview of the report. Committee member Hammer expressed concern about the grant management audit not being included. Rozillis noted that it is due to budgetary constraints. Committee member Hammer asked if some grants could be added. Rozillis noted the amount of staff time it would take for the Enterprise Risk Assessment and there may not be enough time. Chair Chen noted her support in including the grants management audit. Vice Chair Mohan motioned to receive the report and recommend filing with City Council, Committee member Fruen seconded with friendly amendment to include the grants management audit if there is additional budget available. No public comment. The motion carried unanimously. 8. Consider the Audit Committee 2023 Schedule and Work Plan Orozco presented the committee's work plan. STAFF AND COMMITTEE REPORTS COMMITTEEMEMBER ATTENDANCE AT UPCOMING MEETINGS AND EVENTS FUTURE AGENDA SETTING ADJOURNMENT The meeting adjourned at 6:03 p.m. Recording Secretary: Janet Liang, Management Analyst