Audit 05-08-2013 City of Cupertino
Audit Committee
Special Meeting Minutes
May 8, 2013
1. CALL TO ORDER
At 4:06 p.m. Finance Director Woo called the meeting to order at Cupertino City Hall,
10300 Torre Avenue, Emergency Operations Center (moved from Conference Room
A).
2. ROLL CALL
Community Members Present: Angela Chen, Raymond Yin
Council Members Present: Rod Sinks, Mark Santoro (at 4:15)
City Staff Present: David Woo
Absent: Eno Schmidt
3. APPROVAL OF MINUTES
Community Member Yin moved to approve the minutes of the regular meeting of
January 24, 2013. Community Member Chen seconded and the motion passed 3-0
with Council Member Santoro and Community Member Schmidt absent.
4. ORAL COMMUNICATIONS - NONE
5. WRITTEN COMMUNICATIONS - NONE
6. NEW BUSINESS
A. Discuss fixed income investments in the PARS OPEB trust
Woo reported on his discussion with Andrew Brown of HighMark and his research on
reducing the minimum asset allocation toward intermediate-term fixed-income
investments described in the trust's Investment Guidelines Document from 25% to 0%.
The City could direct that it be brought to any percentage down to zero, but
HighMark would likely still follow the former guideline based on their advice. After
further discussion on this and other matters, the Committee asked that the following
points be discussed in future Committee meetings in this general order:
1) Next meeting —have actuary determine the long-term cash outflow needs from the
trust
2) With knowledge of this outflow need, what is the optimal asset allocation,
including those for intermediate-term bonds, that should be incorporated into the
trust's Investment Guidelines Document?
3) Under direction from the City, the trust recently moved large-cap equities from
actively-managed funds to exchange-traded funds. The Committee is now looking
at the fixed income portfolio. Are the high actively-managed mutual fund fees on
the fixed income portion of the portfolio worth the returns or is the City better off
City of Cupertino
Audit Committee
Special Meeting Minutes
May 8, 2013
using exchange-traded funds, other passively-managed mutual funds, or even
direct bond purchases, if possible, to save on costs?
4) Are we getting good investment advice and returns from the overall fee that we
are paying to PARS, the trustee, investment advisor and mutual funds? Should we
look into changing a part or all of this package?
B. Accept Treasurer's Investment and Budget Report for March 2013
Woo presented the Investment Portfolio report, the Investments-by-Type Managed
Portfolio chart, the Rate of Return Comparison chart, and the General Fund Budget
Report, including year-to-date estimates and year-end projections.
Yin motioned to accept the Treasurer's Investment and Budget Report for March 2013.
Chen seconded and the motion passed 4-0 with Schmidt absent.
C. Annual review and acceptance of City Investment Policy
Woo presented the City Investment Policy dated May 21, 2013. He indicated that no
changes from the current policy are proposed. Based on a question from Chen, Woo
stated that the policy can be brought back at any Committee meeting for proposed
revisions.
Yin motioned to accept the City Investment Policy. Chen seconded and the motion
passed 4-0 with Schmidt absent.
D. Accept Single Audit report for June 30, 2012
Woo stated that the Single Audit report had one finding about the City using an
outdated format for the quarterly report of receipts and disbursements. Staff corrected
the finding by using the current format for the most recent quarterly report. Based on
a question from Yin, Woo stated that the single audit is a combination of grant audits
formerly done by individual federal granting agencies. The audit can be done by the
City's external auditor.
Sinks motioned to accept the Single Audit report for June 30, 2012. Yin seconded and
the motion passed 4-0 with Schmidt absent.
7. OLD BUSINESS-NONE
City of Cupertino
Audit Committee
Special Meeting Minutes
May 8, 2013
8. OTHER COMMITTEE UPDATES/REPORTS—NONE
9. ADJOURNMENT
The meeting was adjourned at 5:45 p.m.
David Woo
Finance Director