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Audit 10-13-2016 (Special)1. CALL TO ORDER City of Cupe1iino Audit Committee Regular Meeting October 13, 2016 At 3:0lp.m. Chairman Eno Schmidt called the meeting to order at Conference Room EOC , Cupertino City Hall , 10300 Torre Avenue, Cupertino CA 95014. 2. ROLL CALL: Committee Members Present: Chairman Eno Schmidt, Mark Zavislak, and Peter Shin City Staff Present: Kristina Alfaro, Lisa Taitano , and Mary Redwine Absent: Councilmember Sinks and Councilmember Paul Guests: Mark Wong and Grace Zhang (Maze and Associates) 3. APPROVAL OF MINUTES Committee member Shin moved to approve the July 14, 2016 meeting minutes with the addition of 2 amendments proposed by Committee member Shin. Committee member Zavislak seconded and the motion passed unanimously. The 2 amendments are as follows: 1. Committee member Ship requested to have the following statement added to the July 14 , 2016 meeting minutes. "The 2.7 million dollar reduction was not verified with Lisa's March 22 email chart submitted at the July 14th meeting", according to C01mnittee member Shin. 2. Add the following note to B 1, before B2. Committee members Paul and Shin asked to reformat the Total Expenditure chart to show costs related to employee salary and benefits . 4. ORAL COMMUNICATIONS -NONE - 5. NEW BUSINESS A. Review of FY2015-16 Interim Audit with Maze Mark Wong and Grace Zhang of Maze and Associates discussed the Interim accounting issues memo of June 30, 2016. Taitano gave an update on the six findings , described as not mate1ial , from the FYI 5/16 Interim Audit that was included in the packet. Committee Chair Schmidt noted there was a potentially significant and material weakness with regard to no bank reconciliation since July 2015. B. Status on FY2015-16 yearend close with staff Taitano discussed status of yearend close. Staff has identified additional deposits received by city in FYI 4/15 that were inadvertently booked as revenue and we later found out (in this fiscal year) that they should have been booked as deposits (liability balance). This issue is being addressed. Taitano stated that staff has implemented a wire lock down, for any wire over $50,000. All deposits will be required to be submitted to the City to either be electronic transfer or wire. Schmidt asking about prior period adjustments; Taitano said staff found six transactions that add to $2.5 million. Maze said it most likely will be a restatement as all transactions were in the general fund. Taitano discussed how the developer mitigation report is used for deposit reconciliation. ~ommittee Chair Schmidt asked to have his eight questions Cupertino Audit Committee that he emailed to Taitano and Maze put on record as types of questions for the committee and Maze to deliberate on. Here are Committee Chair Schmidt's questions : o Was any cash discovered to be missing? Page2 o Why did the audit procedures and the changes in internal control by City staff resulting from the identification of the previous fiscal year prior period adjustment (the error), not uncover the current prior period adjustment in the same account category? o Is the financial impact limited only to developer deposits? o Do bond holders of the City's debt need to be notified or are there any other legal implications of this prior period adjustment? • Does the City's legal counsel need to be informed and opine on this issue? o What are the extra costs involved to the City resulting from the uncovering of this prior period adjustment ( error)? o What assurance can be provided that there will not be a p1ior period adjustment (error) in accounting in this same c~tegory uncovered in future • by the independent auditor? • by City staff? Chair Schmidt asked the Committee to direct their questions via email to Redwine and Taitano , and copy Schmidt, and to create a comprehensive list for Taitano to have and coordinate with Maze to obtain consensus responses for the committee. C. Review of Progress on Uncompleted Action Items from Previous meetings Meeting adjourned before reaching item , moving to subsequent Audit Committee meeting. D. Treasurer's Investment Reports for QE June 30 and September 30, 2016 Taitano discussed the reports which included duration calculations. Chairman Schmidt suggested a motioned to have City staff come back with interpretation or proposed recommendation addressing the issue reported in item #4 of Maze's Interim Accounting Issues Memo. Zavislak motioned, Shin seconded and passed unanimously. Shin raised a series of issues relating to internal control on investment schedule. Committee member Zavislak motioned to forward the reports to Council, Committee member Shin seconded and the motion passed unanimously. E. Overview of Auditor RFP process Mark Wong and Grace Zhang of Maze left the meeting. Taitano discussed the upcoming Auditor RFP process. Taitano provided background on what the audit subcommittee role and duties were for the Auditor RFP process. She also explained that staffs management of the process was essential to maintain proper procurement standards , as the contract would be executed by the City Manager and compliance with the requirements of the contract would rest with City staff. Committee decided to have a special meeting of two members with three constituting a quornm. A meeting quornm would require public noticing and hinder the subcommittee from accomplishing its work efficiently. The Committee asked Redwine to check committee members schedules for this special meeting to discuss the RFP issue to occur in the next two weeks. Committee member Zavislak motioned to schedule this special meeting and committee member Shin seconded the motion and the motion passed unanimously. ADJOURNMENT The meeting was adjourned at 5:35pm by Zavislak motion and seconded by Schmidt with a unanimous approval. 1. CALL TO ORDER City of Cupertino Audit Committee Regular Meeting July 14 , 2016 At 3 :05p.m. Chairman Eno Schmidt called the meeting to order at Conference Room EOC, Cupertino City Hall, 10300 Torre Avenue, Cupertino CA 95014. 2. ROLL CALL: Committee Members Present: Councilmember Sinks , Councilmember Paul , Chairman Eno Schmidt, Mark Zavislak , and Peter Shin City Staff Present: David Brandt, Kristina Alfaro , Lisa Taitano , Cheuk Law , and Mary Redwine Absent: None Guests: Rick Rosenthal and Carolyn Cox (US Bank), Mitch Barker and Jennifer Meza (PARS) for item 5A. 3. APPROVAL OF MINUTES Schmidt invited a motion to approve the minutes of the special meetings of M arch 2 1, 2 016 and of April 14 , 2016, and the motion passed unanimously. 4. ORAL COMMUNICATIONS -NONE - 5. NEW BUSINESS A. PARS Annual presentation on Retiree Health Trust Performance Rick from US Bank gave a portfolio performance review as of July 14 , 2016 , with a market review and outlook. B. Review and recommend budget format improvements 1. Budget-at-a-Glance ( existing) Alfaro reviewed the data and graphs illustrated in the BAAG brochure. Committee suggested replacing the Revenue by Fund pie with Revenue by Source pie, removing % from Property Tax pie, and adding a graphic representing percentage of expenses to employee compensation. Since one of the Audit Committee 's powers and functions according to the Municipal code (chapter 2.88.100) us "to recommend a budget format ," the committee agreed to a) ask City staff to coordinate with OpenGov and to come to the next meeting to give a presentation on budget formats (maximum 30 minutes) and b) for City staff to summarize a list for the Audit Committee of the various budget formats being used currently by the City including summary budget, printed "big book" budget, quarterly budgets and Open Gov budget fonnats. 2. 2. Budget-to-Actual graphic (proposed) Alfaro suggested removing the prior 4-year detail at account level tables from the printed Adopted Budget as this data is available through the OpenGov p01ial. The committee agreed to remove those tables from the budget book going forward. Cupertino Audit Committee C. Internal Controls and MOIC discussion Taitano discussed findings in the report provided by Maze & Associates. a) Findings and Recommendations b) Hiring additional staff with strong governmental accounting knowledge Page2 Taitano gave a review of staffing levels and how she is handling deficiencies. c) Staff training in technical governmental accounting and cross training Money was budgeted for FY2016-17 for staff training within the accounting group and for decentralize accounting staff. d) Retainer deposits payable should be monitored more closely and with better coordination Chairman Schmidt raised the issue of staffing with respect to this item. Conversation took place on how the problem occurs, why it is persistent, and what needs to be done to prevent it going forward. An additional accountant position was considered in addition to the process improvements implemented by accounting staff. Chairman Schmidt asked that City staff again to reach out to Peter to address Peter's questions about not understanding how the prior period adjustment on developer deposits was properly audited and accounted for in the financial statements for the year ending June 30, 2015. e) Status on Interim Audit and Final Audit Taitano provided dates for the Interim Audit and the Final Audit. The Standard Work Plan for the Committee has an interim report on the CAFR by the auditors in the October meeting. As the schedule for completing the final audit falls after the October meeting date, the Committee requested an update on the Interim Audit be provided from Maze at the October meeting. Additionally the Committee requested that Maze provide its audit report at the October meeting on the investment cycle (with focus on wire cycle) in accordance with the requirements in the recently approved Investment Policy. D. Review of Progress on Uncompleted Action Items from Previous Meetings and Standard Work Plan for Audit Committee Committee agreed that City staff should add an Expected Date of Completion column including dates for each item to the list of uncompleted items . E. Treasurer's Investment Report for Quarter Ending June 30, 2016 Item deferred to next meeting. ADJOURNMENT The meeting was adjourned at 5:47pm by Zavislak and seconded by Sinks 1. CALL TO ORDER City of Cupertino Audit Committee Special Meeting November 9, 2016 At 3 :40p.m. Chairman Eno Schmidt called the special meeting to order at Conference Room EOC , Cupertino City Hall , 10300 Torre Avenue, Cupertino CA 95014. 2. ROLL CALL: Committee Members Present: Chainnan Eno Schmidt, Mark Zavislak, Peter Shin, Councilmember Sinks, and Councilmember Paul arrived late at conclusion of meeting City Staff Present: Kristina Alfaro , Lisa Taitano, and Mary Redwine Absent: Councilmember Paul 3. ORAL COMMUNICATIONS -NONE - 4. NEW BUSINESS A. Audit Procurement Process Taitano pro v ided background on what th e audit sub committee rol e and duti es ar e for th e Auditor RFP process . She also explained that staffs management of the process was essenti al to maintain proper procurement standards , as the contract would be executed by the City Manager and compliance with the requirements of the contract would rest with City staff. Councilmember Sinks moved to have Chairman Schmidt and Committee member Zavislak as the subcommittee to work with City Staff and to bring back a recommendation to the Audit Committee . Zavislak seconded the motion, motion r,ass~d with Shin v oting no. ADJOURNMENT The meeting was moved adjourned at 3:55pm by Zavislak and seconded by Sinks with a unanimous approval.