AC 11-15-2021Page 1
City of Cupertino
Audit Committee Regular Meeting
Minutes
November 15, 2021
CALL TO ORDER
At 4:00 p.m., Chair Liang called the special meeting to order. This was a teleconference meeting
with no physical location.
ROLL CALL
Committee Members Present: Chair Daisy Liang, Vice Chair Chen, Committee Member Song
(arrived late), Vice Mayor Chao, Councilmember Moore
City Staff Present: Greg Larson, Kristina Alfaro, Zach Korach, Thomas Leung
Absent: None.
Guests: Rick Rosenthal, Mark Steranka (Moss Adams)
1. APPROVAL OF MINUTES
Vice Mayor Chao moved to approve the regular meeting minutes of October 25, 2021. Chair
Liang seconded and the motion carried unanimously with Vice Chair Chen abstaining
ORAL COMMUNICATIONS
None.
NEW BUSINESS
2. Review and Consider Accepting OPEB and Pension Investment Trust Policies – 45 minutes
Korach provided a brief presentation on the OPEB and Pension Investment Trusts, including
their purpose, roles and responsibilities, and recommended revisions to the draft policies.
Councilmember Moore inquired about the December 7th approval date as well as the
benchmark target that were established. Rick Rosenthal explained the benchmarks and the
broadest measures used. Councilmember Moore expressed concern about commodity
benchmarks existing despite no commodities included in the portfolio. Rosenthal explained the
methodology of commodities within US Bank and that the range is from 0-2%. Vice Mayor
Chao asked if the Committee reviews the policy every year. Vice Mayor Chao discussed the
return performance of the trusts compared to the target rate of return and the strong
performance by US Bank. Vice Mayor Chao asked how points within a range are determined
and which asset class has seen the strongest return over the previous year. Rosenthal explained
how equities have been the strongest class and how US Bank operates tactically through market
conditions and how it affects the ranges. Chair Liang asked how quickly US Bank responds to
market conditions. Rosenthal noted that it’s constantly being evaluated, but significant changes
do not occur regularly. Councilmember Moore inquired about the discount rate or target rate of
return and how the Committee can recommend to Council without having discussion. Korach
noted that the discount rate or target rate of return is determined by Audit Committee and
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recommended to City Council and that the discount rate and sensitivity analysis was presented
during the September special meeting. Councilmember Moore referenced a staff report from
2019 that offered additional information. Korach discussed the history of the discount
rate/target rate of return reductions and the recommendation to maintain the current rates for
the next year. Councilmember Moore requested the updated analysis. City Manager Larson
inquired about CalPERS media attention and where the City thinks they might go in terms of
discount rate reductions. Thomas Leung noted that CalPERS would be making a final
determination between 6.5%-7% during their November board meeting. Councilmember Moore
moved to accept the policies as stated with an updated discount rate and sensitivity analysis
brought to the Committee at a future meeting. Vice Mayor Chao seconded and the motion
carried unanimously.
3.HdL Contract and Candidate Refund Error – 35 minutes
City Manager Larson highlighted the HdL contract challenges as discussed in the staff report.
Larson discussed aspects of budget and purchasing authority. Committee Member Song asked
about Moss Adams audit and the ethics, transparency, and segregation of duties. Larson
discussed the various internal controls and cost benefit considerations. Vice Mayor Chao noted
that the contract issue still should have been prevented/detected and wondered what can be
done in the future. Larson noted that bringing the function in-house would assist with the
oversight as well as the cost. Vice Chair Chen asked about a potential purchasing manager –
Larson suggested waiting for the internal audit report to receive recommendations from Moss
Adams. Vice Chair Chen also asked about the use of work orders. Larson agreed that the use of
work orders could be beneficial. Vice Chair Chen asked about the City Manager’s budget
authority. Larson noted that purchasing authority was $175,000. Councilmember Moore
discussed the history of the contract amendments and noted that the first contract was exceeded
as well. Councilmember Moore expressed interest in ensuring the contract service and other
budget account line item amounts provide more control. Councilmember Moore noted that the
delivering of masks should have been covered under the CARES Act. Peggy Griffin thanked the
Committee and staff for looking into the matter and requested that Larson’s presentation be
attached to the agenda materials. Korach provided an update on the refund error and noted that
this is an opportunity for improvement and the City is eager to receive Moss Adams’
recommendations for implementation considerations. Vice Mayor Chao agreed and requested a
final resolution/response to these matters come back to the Committee. Vice Chair Chen
expressed interest in seeing the final resolution as decided by City Council.
Vice Chair Chen motioned to move items 4, 5, 6 to a future meeting. Councilmember Moore
seconded and the motion carried unanimously by all members present.
OLD BUSINESS
None.
STAFF AND COMMITTEE REPORTS
None.
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FUTURE AGENDA SETTING
A special meeting on December 13, 2021 will be scheduled to discuss items 4, 5, and 6 as well as
the discount rate sensitivity analysis.
ADJOURNMENT
The meeting adjourned at 6:00 p.m.
Recording Secretary:
Zach Korach, Finance Manager