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AC 01.27.25City of Cupertino Audit Committee Special Meeting Minutes January 27, 2025 CALL TO ORDER At 3:30 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, Councilmember Sheila Mohan, Vice Mayor Kitty Moore City Staff Present: Janet Liang, Jonathan Orozco, Kristina Alfaro, Richard Wong Absent: Committee member Angela Chen, Committee member Hanyan Wu Guests: Carlos Oblites (Chandler), Chelsea Ritchie (Moss Adams), Keith Stribling (PARS), Angela Tang (PARS), Jennifer Meza (PARS) ORDERS OF THE DAY 1. APPROVE MINUTES OF SPECIAL MEETING ON NOVEMBER 25, 2024 Councilmember Mohan motioned to approve the minutes with Chair Schmidt’s edits, Vice Mayor Moore seconded. The motion passes with Committee member Angela Chen and Committee member Hanyan Wu absent with Vice Mayor Moore abstaining. POSTPONEMENTS ORAL COMMUNICATIONS OLD BUSINESS NEW BUSINESS 2. Receive OPEB & Pension Section 115 Trust Performance Report for Quarter Ending December 31, 2024 Meza and Stribling provided an overview. Chair Schmidt inquired about the City’s fixed income performance of 2.53% compared to the BBARC Global, which had a return of -1.69% for the year. He asked what contributed to the difference and why the City’s portfolio performed significantly better than the index. Stribling explained that BBARC Global includes foreign bonds, which were negatively impacted by the strengthening of the U.S. dollar. He added that the BBARC US exhibited similar directional movement but that the City's portfolio still outperformed. When asked why BBARC US was Page 2 included as a benchmark, Stribling noted that having additional benchmarks does not pose a downside and can provide useful comparative insights. Chair Schmidt further inquired why the City’s fixed income investments performed better than the benchmark. Stribling clarified that because the City's portfolio is focused on U.S. bonds and excludes foreign bonds, it was not subject to the same currency fluctuations. He also noted that including a global benchmark would imply that the portfolio manager is actively making decisions relative to foreign bonds. Councilmember Mohan asked if the benchmark indices were refined during the October meeting and whether any changes had been made since then. Orozco confirmed that no changes were made to the benchmark or target allocations. Councilmember Mohan also questioned the relevance of these benchmarks to the City’s financial strategy. Orozco responded that adjustments to the benchmarks are planned for 2025 to better align with the City’s investment strategy. Chair Schmidt clarified that Stribling will recalculate performance metrics on page 13 of the report, and Stribling confirmed. No public comment. The committee received the report. 3. Receive the Internal Audit and Fraud, Waste, and Abuse programs update Ritchie provided an overview. Chair Schmidt asked how many external auditor recommendations were being tracked for gap analysis. Ritchie confirmed that all external audit findings are included in the review. Chair Schmidt further inquired whether any reports had identified deficiencies. Orozco cited prior-period adjustments related to reclassifying certain items to unidentified liability assets, which were subsequently corrected in the FY 2023-24 audit. Chair Schmidt asked whether these identified gaps represent a one-time issue or an ongoing process improvement effort. Ritchie stated that the process would be continuous, with recommendations validated throughout future audits. Councilmember Mohan inquired about the Policy Inventory gap analysis and why it was not included in the update. Ritchie noted that the analysis had since been finalized. Councilmember Mohan asked if the CIP policy has been resolved. Alfaro noted that staff is conducting a comprehensive review of City Council policies, which will be presented to the Council. Vice Mayor Moore inquired about the hotline statistics and if the committee will hear more about the reports as well as some more details about the cases. Ritchie provided an overview. Orozco asked if Moss Adams could include the length of how long the reports have been open. Ritchie noted that Moss Adams will add the length time into the report. Vice Mayor Moore noted that Page 1 Page 3 No public comment. The committee received the report. 4. Receive the Treasurer's Investment Report for the Quarter Ending December 31, 2024 Orozco provided an overview. Oblites provided an overview. Chair Schmidt asked what is the difference between the cost value and the book value. Oblites explained that cost value represents the purchase price of securities, including any accrued interest owed to the prior owner at the time of purchase. Upon maturity, securities are redeemed at par value, and depending on market conditions, they may have been purchased at a premium (above par) or a discount (below par). The book value accounts for these premiums and discounts, amortized over the life of the bond. Orozco noted that the City records investments at cost as it is easier for the City to reconcile. Councilmember Mohan asked if there had been any changes in the City's investment approach since prioritizing high-quality fixed-income securities. Oblites confirmed that there had been no changes and that, per State law and the City's Investment Policy, investment decisions continue to prioritize safety and liquidity before returns No public comment. The committee received the report. 5. Receive the proposed Audit Committee 2025 Schedule and Workplan Orozco provided an overview. Vice Mayor Moore asked whether benchmark reviews would be incorporated into the workplan. Chair Schmidt noted that benchmark discussions align with the quarterly OPEB & Pension Trust performance reviews. Orozco confirmed that any discussion on benchmark adjustments would occur during the October meeting. No public comment. STAFF AND COMMITTEE REPORTS COMMITTEEMEMBER ATTENDANCE AT UPCOMING MEETINGS AND EVENTS FUTURE AGENDA SETTING ADJOURNMENT The meeting adjourned at 4:57 p.m. Recording Secretary: the City Attorney is resigning and that may play a role in lengthening the process of these reports. Page 3 Janet Liang, Management Analyst