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Audit 07-17-2018CALL TO ORDER City of Cupe1iino Audit Committee July 17, 2018 At 4:03p.m ., Chainnan Eno Schmidt called the meeting to order at Conference Room A, Cupertino City Hall , 10300 Torre Avenue , Cupertino CA 95014. ROLL CALL Co1mnittee Members Present: Chainnan Eno Schmidt, Daisy Liang, Mayor Paul City Staff Present: Kristina Alfaro , Bill Mitchell , Zach Korach , Beth Viajar, and Thomas Leung Absent: Jim Luther and Councilmember Chang Guests: Dennis Yu, PARS , Monique Spyke and Ellen Clark (PFM), Kathy Lai and Matthew Geerdes (Crowe) via conference call. APPROVAL OF MINUTES Mayor Paul motioned to approve the April 10, 2018 regular meeting minutes, Chainnan Schmidt seconded subject to receiving and reviewing Council-adopted City and OPEB Investment Policies , and the motion passed. ORAL COMMUNICATIONS OLD BUSINESS NEW BUSINESS 1. PARS presentation for Pension Rate Stabilization Program (PRSP) Dennis Yu gave a presentation on PARS' pension rate stabilization program for the City. Chairman Schmidt inquired about PARS ' flexibility in using investment managers. Chairman Schmidt also inquired about PARS' ability to perfonn and provide forecasting/projection models based on various investing and funding strategies. Dennis Yu responded affinnatively and Chairman Schmidt recommended that if PARS is selected, City staff work with PARS on these models and analysis. 2. PFM presentation for Pension Rate Stabilization Program (PRSP) Monique Spyke and Ellen Clark gave a presentation on PFM's pension rate stabilization program for the City. Chairman Schmidt inquired about PARS' ability to perform and provide forecasting/projection models based on various investing and funding strategies. Chairman Schmidt also inquired about the important and relevance of considering short-tenn and long-term needs. Monique Spyke and Ellen Clark responded affirmatively and explained that the need for resources (short-term versus long-tenn) may differ from one agency to the next. Cupe1iino Audit Committee 3. Audit Committee evaluation and selection of third party administrator for Section 115 Trust (PRSP) Finance Manager Korach referenced the staff report which indicated PARS' more advantageous fee structure and their core business focus being Section 115 Trusts. The Committee and City staff deliberated and all agreed that the economies of scale favored the selection of PARS. The Committee has been pleased with PARS' performance in past years. Darcy motioned to select PARS as the City's trust administrator, Chai1man Schmidt seconded, and the motion passed unanimously. Chainnan Schmidt recommended to add Audit Committee oversight to Section 115 Trust to investment policy once Council approves Trust. Delegation of Duty: Zach has wording to add to policy and send mark-up to c01mnittee. Mayor Paul motioned to approve investment policy and committee member Luther seconded, and motion passed unanimously. Chainnan Schmidt motioned to approve OPEB investment policy, c01mnittee member Luther seconded, and motion passed unanimously. 4. Interim Report on FY 2017-18 financial statement audit and Investment Policy AUP Kathy Lai , Engagement Partner, introduced the team and turned it over to Matt Geerdes , Senior Audit Manager, to present the report. Chainnan Schmidt inquired about the City's bank reconciliation procedures and policies. Geerdes responded by discussing their audit procedures over the bank reconciliation and reported no related findings. Mayor Paul inquired regarding the City's disbursement cycle and what procedures were performed . Geerdes addressed by discussing the audit procedures perfonned in FY 2017-18 and reported no related-findings. Mayor Paul also inquired of the auditor's perfonnance and ability to perfonn testing in years preceding FY 2017- 18 (the year currently under audit). Geerdes responded by noting that when procedures outside the scope of a financial statement audit are requested , clients commonly seek agreed-upon procedures (AUP) audits and/or consult with forensic accounting finns. 5. MOIC from Previous Year (FY 2016-17): Management's responses on current status Finance Manager Korach presented the current status for each of the notable items. Bill Mitchell offered explanation regarding the City's bank reconciliation process as it relates to various off-site modules within the City. Korach, Viajar, and Leung clarified the procedures and documentation currently in place. Korach discussed the City's asset management module (for capital assets) and Mayor Paul inquired about the lack of operational integration and both he and Chairman Schmidt recommended bringing this item back to the December 11 , 2018 Audit Committee meeting for further discussion and resolution, if any. Geerdes added that the City's capital assets will be an area the audit team focuses on during the final phase of the audit during the month of September. Page 2 6. Review of Treasurer's Investment Report for QE June 2018 Finance Manager Korach presented the Treasurer 's Investment report for the quarter ending June 30 , 2018. Mayor Paul inquired about the $25 million transfer and its nature. Korach noted that it was a transfer from the City's money market account to the City's LAIF account for the opportunity of higher yield . Chainnan Sclunidt motioned to approve the report , Mayor Paul seconded, and the motion passed unanimously. 7. ADJOURNMENT Chainnan Sclunidt moved to adjourn the meeting , Mayor Paul seconded , adjourned the meeting at 6: 16pm.