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AC 10.31.24Page 1 City of Cupertino Audit Committee Special Meeting DRAFT Minutes October 31, 2024 CALL TO ORDER At 4:10 p.m., Chair Schmidt called the special meeting to order in the City of Cupertino Quinlan Conference Room, 10185 North Stelling Road. ROLL CALL Committee Members Present: Chair Eno Schmidt, Mayor Sheila Mohan, Committee member Hanyan Wu City Staff Present: Janet Liang, Jonathan Orozco, Pamela Wu Absent: Committee member Angela Chen, Councilmember Hung Wei Guests: Sophia Kuo (The Pun Group), Jennifer Meza (PARS), Dennis Mullins (US Bank) ORDERS OF THE DAY 1. APPROVE MINUTES OF REGULAR MEETING ON JUNE 24, 2024 Mayor Mohan motioned, Committee member Wu seconded. The motion passes with Committee member Wu and Councilmember Wei absent. POSTPONEMENTS ORAL COMMUNICATIONS OLD BUSINESS NEW BUSINESS 2. Receive OPEB & Pension Section 115 Trust Performance Report for Quarter Ending September 30, 2024 Mullins provided an overview. Chair Schmidt noted that the City’s 115 Trusts have been invested in the fixed income high yield category sleeve for a number of years and asked what might trigger a change in this investment and whether US Bank is commonly seeing this category now across other trusts which it helps manage. Mullins noted it is a permanent asset class and the standard position is to hold an allocation to high yield bonds. Chair Schmidt asked that since the MSCI AC World Free Index is shown as the City Trusts’ benchmark for equities (page 9 of the US Bank report), could this index components be added to the Common Stock Detail page (page 8 of the US Bank report) replacing the S&P 500. Mullins noted that they would check to see if it could be possible to add the detail . Chair Schmidt suggested that in the future at most during one meeting out of the Audit Committee’s yearly meetings, US Bank could describe the general market conditions but that otherwise and unless Committee members have questions, the US Bank Page 2 portion of future meetings focus on why or how the performance of each trust’s investments varies, if it does, from that of the benchmark index. Mayor Mohan inquired about the benchmark. Orozco noted that this benchmark was established when the Section 115 trust was created, it may have evolved over the years and staff noted that there can be more in-depth discussions with US Bank to refind the presentation to the Audit Committee. Mullins noted that they will run numbers on the benchmarks and the investments to see how close the investments are tracking and to make sure that the benchmarks are relevant and that US Bank has relevant subscription data to populate the reports. Chair Schmidt asked that in the future there be an analysis presented on each of the investment classes as to their performances vs. their index. Mullins noted that they can add a separate chart that will include that information and see if we can identify if its from timing or selection. Committee member Wu asked why the equity part of the portfolio is added as an ETF. Mullins noted that it is more cost-effective, more diversification for less money. No public comment. 3. Receive the Internal Audit and Fraud, Waste, and Abuse programs update Orozco provided an overview. Chair Schmidt noted that there is a fraud item that was closed out on the report and asked for Moss Adams to expand further on it next time. they received the report. Chair Schmidt noted Audit Committee receiving the report. No Public Comment. 4. Fiscal Year 2023-24 ACFR Update Kuo provided an overview. Mayor Mohan asked if the timelines to submit the final draft was in November. Orozco confirmed that the timeline and asked if Audit Committee is available the week of Thanksgiving to review the ACFR as it is a tight deadline as staff is looking to get the ACFR to City Council as well before the end of the year. No public comment. 5. Review and accept the City-Wide Policy Inventory and Gap Analysis Report Orozco provided an overview. Mayor Mohan inquried about the high-risk item – CIP, do we have a policy and what is being done with the policy. Orozco noted that staff is aware of the concerns and is addressing it with a comment included when the report is sent to City Council. Mayor Mohan asked what they mean when they define it as high risk. Wu noted that the analysis is part of the City Work Program to look at all the policies the City has and realized that the policies were a collection of Administrative and Council approved policies accumulated over the years. The City created a separation between the two categories and asked Moss Adams to review the admin policies against industry standards to see if there are any risks to the operation. Wu noted that in terms of CIP, our policies are not as robust in comparison to other cities and CIP is an area that can be improved to be streamlined and is not a risk to anyone but to the operation. Page 3 Chair Schmidt inquired about the identified Law Enforcement Gap as this function is outsourced. Wu noted that regarding Law Enforcement it is hard to say as the policies are more internal operations by the County Sheriff’s Office and because it is contracted, those policies may not be shared with the City. Chair Schmidt suggested that even though it is outsourced, City staff might contact the Sheriff’s Office to ascertain what their management might have obtained in terms of reports that could be shared on this area. No public comment. 6. Review and accept the OPEB and Pension Trust Investment Policies Orozco provided an overview. Chair Schmidt noted that there is limitation to not go over 20% for foreign investments and the portfolio is getting close to 20%. Mullins noted to remove the limitation. Orozco confirmed that staff will remove that language. No public comment. 7. Receive the Treasurer's Investment Report for the Quarter Ending September 30, 2024 Orozco provided an overview. Oblites provided an overview. No public comment. 8. Receive the proposed Audit Committee 2024 Schedule and Workplan Orozco provided an overview. No public comment. STAFF AND COMMITTEE REPORTS COMMITTEEMEMBER ATTENDANCE AT UPCOMING MEETINGS AND EVENTS FUTURE AGENDA SETTING ADJOURNMENT The meeting adjourned at 6:01 p.m. Recording Secretary: Janet Liang, Management Analyst