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AC 4.24.23Page 1 City of Cupertino Audit Committee Regular Meeting Minutes April 24, 2023 CALL TO ORDER At 4:00 p.m., Vice Chair Mohan called the regular meeting to order in the City of Cupertino Conference Room A, 10300 Torre Avenue, and via teleconference. ROLL CALL Committee Members Present: Vice Chair Sheila Mohan, Committee member J.R. Fruen, Committee member Sophie Song City Staff Present: Kristina Alfaro, Thomas Leung, Janet Liang, Susan Michael, Matt Morley, Jonathan Orozco, Elizabeth Viajar Absent: Chair Angela Chen, Committee member Laura Hammer Guests: Jordan Wahl (Moss Adams), Adam Rondeau (Moss Adams), Colleen Rozillis (Moss Adams), Stephen Bachetti (Moss Adams), Rick Rosenthal (U.S. Bank), Jennifer Meza (U.S. Bank), Carlos Oblites (Chandler) ORDERS OF THE DAY 1. APPROVE MINUTES OF REGULAR MEETING ON MARCH 27, 2023 Committee member Fruen motioned to approve the minutes with edits, and Committee member Song seconded. Peggy Griffin made comments. The motion carried unanimously with Chair Chen and Committee member Hammer absent. POSTPONEMENTS ORAL COMMUNICATIONS Peggy Griffin and Rhoda Fry made comments. OLD BUSINESS NEW BUSINESS 2. Consider receiving the OPEB & Pension Section 115 Trust Performance Report for the Quarter Ending March 31, 2023 Meza and Rosenthal provided an overview of the report. Vice Chair Mohan asked how US bank handles situations in which the commodities market not holding up. Rosenthal noted they do not hold commodities exposure directly and that because the commodities market turned negative, it benefits the City. Vice Chair Mohan inquired about U.S. Banks’ strategies as the emerging markets are lagging behind. Rosenthal noted the fund was sold and placed into an index fund so that it could track the benchmark closer. Page 2 Committee member Song asked if the investment balance is balanced and nontaxable, what does nontaxable mean. Rosenthal noted that it is part of their internal coding, and it determines whether or not they buy taxable securities in the bond space or municipal securities. Committee member Song inquired about the portfolio’s $1.6M in real estate assets. Rosenthal noted they are real estate investments in an index fund. Vice Chair Mohan asked what is the cause for the increase in OPEB and Pension. Rosenthal noted that there are many reasons and concerns about a recession, focusing on the federal government and people having optimism that the Fed is coming to an end of their rate increase cycle. 3. Consider the Library Construction Audit Final Report Bacchetti, Wahl, and Rondeau provided an overview of the report. Committee member Song asked how the contract was selected, whether it was reviewed, and whether it was part of the scope. Rozillis noted that it is not part of the scope for construction audits which they covered under the Procurement Operational Review last fiscal year. Rozillis noted that types of projects are bid according to best practice. Bacchetti noted that the construction contract audit is specifically related to reviewing the contract terms and the associated controls. Committee member Song asked when the project was done, what was the cost per square foot compared to others. Bacchetti noted that it was not part of this audit’s scope but that it should be calculated to establish the contract value and if it is within square footage. Committee member Song asked if engineers were hired to review the cost or if the financial auditors were because there are different types of auditors. Alfaro noted that this was the scope approved by the Audit Committee and City Council, and another audit could be brought up for the next internal audit program to be included. Rozillis noted that this proves the City’s processes are working and adds value as it notes that what the City is doing is correct. Bachetti noted that they have a team of qualified and experienced construction auditors and that small findings are an indication of good controls. Rhoda Fry and Peggy Griffin made comments. Vice Chair Mohan asked if there is an engineering audit or any other audits at the end of any construction projects. Staff noted that there is no other audit but that there are final procedures and that major construction of the library is complete. Vice Chair Mohan asked if the language amendments is something the City can do for future projects. Morley noted that they have reviewed with the City attorney and will continue to look to improve the contract language , but some of the recommendations may not be used as there are items not allowed under state law. Vice Chair Mohan asked why the contractor would have no further documents. Morley noted that the compliance document was not something that the contractor could go back and create. Committee member Song asked if they could elaborate on contract compliance. Rondeau noted that there was only one deviation, and waivers come in 2 types, conditional and non-conditional. Out of the 45 documents, there was one documentation missing, and the conditional waiver acts as a promise that when the waiver is received, the account will be settled. Once payment is received, they will issue a non-conditional waiver. Page 3 Committee member Fruen motioned to receive the report and forward to City Council, Committee member Song seconded. The motion carried unanimously with Chair Chen and Committee member Hammer absent. 4. Consider the Internal Audit Status Report and Fraud, Waste, and Abuse Program Update Rozillis provided an overview of the report. Committee member Song asked what the allegation is. Rozillis noted that as it is being investigated, they cannot reveal information due to confidentially. Vice Chair Mohan asked at which point the information is disclosed. Rozillis noted that they will follow up with the City Attorney to determine. Committee member Song asked who has the knowledge. Rozillis noted Moss Adams and the City Attorney. Rhoda Fry and Peggy Griffin made comments. Committee member Song noted that the City Attorney reports to the Committee, and so why is the information kept confidential. Rozillis noted that it is best practice , and City Attorney will hold information confidential until they can release it. Alfaro noted that it is an ongoing investigation, and once the investigation concludes, they will note if it could be released. 5. Consider the Treasurer's Investment Report for the Quarter Ending March 31, 2023 Leung provided an overview of the report. Oblites provided an overview of the report. Vice Chair Mohan asked if the March investment report takes into account the new requirements for liquidity. Oblites confirmed that it does not. Committee member Song asked what it takes to get approval to change the strategy. Oblites noted that it is generally driven by staff and based on budgetary and financial needs to get a good asset-liability match. For most cities it is left to staff to determine and needs to comply with government code and investment policy, which is governed by City Council. Rhoda Fry and Peggy Griffin made comments. Vice Chair Mohan motioned to receive the report and recommend filing with City Council; Committee member Fruen seconded. The motion carried unanimously with Chair Chen and Committee member Hammer absent. 6. Consider the City's Investment Policy Leung provided an overview. Oblites provided an overview. Committee member Fruen asked given the date of the letter, does it incorporate the needs for increased liquidity. Oblites noted that the change to the policy does not affect the liquidity rate or the change in strategy. Both strategies continue to meet requirements and policy of the code. Vice Chair Mohan asked what is the benchmark index for the total rate of return. Oblites noted that it is an index of treasuries and agencies between 1-5 years with a duration of 2.5 years. Committee member Fruen motioned to receive the report and recommend filing with City Council; Vice Chair Mohan seconded. The motion carried unanimously with Chair Chen and Committee member Hammer absent. Page 4 7. Consider the Audit Committee 2023 Schedule and Work Plan Leung presented the committee's work plan. STAFF AND COMMITTEE REPORTS COMMITTEE MEMBER ATTENDANCE AT UPCOMING MEETINGS AND EVENTS FUTURE AGENDA SETTING ADJOURNMENT The meeting adjourned at 6:03 p.m. Recording Secretary: Janet Liang, Administrative Assistant