Audit 05-01-20171. CALL TO ORDER
City of Cupertino
Audit Committee
Special Meeting
May 1, 2017
At 4 :00 p .m., Chainnan Eno Schmidt called the meeting to order at Conference Room A ,
Cupertino City Hall, 10300 Torre A venue, Cupertino CA 95014.
2. ROLL CALL
Committee Members Present: Chairman Eno Schmidt, Vice Chair Mark Zavislak, Peter
Shin, and Councilmember Rod Sinks
City Staff Present: Kristina Alfaro, Lisa Taitano, David Brandt, and Beth Viajar
Absent: Councilmember Steven Scharf
Guests : Kathy Lai , Kevin Smith and Matthew Geerdes from Crowe Horwath, Rick
Rosenthal and Carolyn Cox of US Bank
3. APPROVAL OF MINUTES
Committee Chair Schmidt moved to approve the Minutes of the March 13, 2017 special
meeting. Council member Sinks seconded and the motion passed 3 -1 with Peter Shin
voting No .
4. ORAL COMMUNICATIONS
Alfaro gave a review of City Staff recommendations proposed to be presented to City
Council to address the four material weaknesses identified by the independent auditor,
Maze & Associates in their Memorandum dated March 7. 2017 on Internal Control
("MOIC") for the Year Ended June 30 , 2016 . After a series of questions from Committee
members , Councilmember Sinks expressed the consensus of the Committee to approve
the recommendations and asked City Staff provide the Audit Committee monthly
updates/timeline with specific dates for planned actions and any revisions and a listing of
assigned staff and fraction of their effort/time put in on these action items . City staff
indicated this direction would be taken.
5. NEW BUSINESS
A. Crowe and Horwath introduction and discussions on the Investment
AUP, additional review of internal controls and Audit Committee input on
fiscal 2017 audit, the proposed audit schedule for FY2016-17, and training
opportunities
Introductions were made by Kathy Lai , Kevin Smith and Matthew Geerdes of
Crowe Horwath .
• Kathy reviewed the proposed wording already confinned with City Staff to
modify on page 5 of the Investment Policy, the redlined changes regarding
review of internal controls to be reflected in the policy as part of agreed-
upon procedures. This revised wording now conforms the actual practice
of the independent auditor with the policy statement language as in prior
Cupertino Audit Committee
years an Agreed Upon Procedures report will be provided by Crowe,
Horwath to the Audit Committee and City.
• Kathy Lai reviewed a brief presentation on Crowe Horwath ' s approach to
the audit and other services to be provided to the City for the fiscal year
July 1, 2016 through June 30 , 2017 . Crowe has a project management
secure proprietary system that assists with c01rununication and
transparency during their audit procedures.
• Chairman Schmidt smrunarized that the major input from the Audit
Committee into Crowe Horwath 's interim audit procedures involves the
high priority that the Committee puts on the successful implementation of
the City Staff's plan to address the four major weaknesses in internal
control identified in the recently concluded audit of fiscal 2016.
B. Review and propose changes to the City's two investment policies
Upon question from Committee member Zavislak, Rick Rosenthal of US Bank
agreed that from his perspective the only change to the OPEB Investment Policy
statement provided to the Committee should be to make a correction on page 2 to
reduce by 1 % from the Real Estate asset class and add a correspondingl % to the
Equity asset class so that Equity= 63%, and Real Estate= 5 % for the Benchmark
Target. Committee member Shin motioned to accept the OPEB Investment policy as
corrected , Councilmember Sinks seconded and the motion passed unanimously.
For the Investment Policy, Committee member Zavislak Motioned to approve the
investment policy, with marked changes , seconded by Chairman Schmidt, and the
motion passed unanimously.
C. Annual Performance review of the OPEB Retiree Health Investment
Trust (US Bank and PARS)
Rick Rosenthal of US Bank provided an annual performance review of the OPEB
Retiree Health Investment Trust as of March 31 , 2017 .
D. Review of Standard Work Plan and the Action Items List
• Chairman Schmidt indicated that the April column of the Standard Work
Plan schedule should include an item in which the Audit Committee
provides the independent auditor with the Committee's input for the
interim independent audit procedures.
• In regard to the Action items list, City Manager Brandt gave indication of
direction of staff priorities for items 3,4 , 10 , 11 and 13 of action items.
E. Review of the Treasurer's Investment Report for QE March 2017
Chairman Schmidt motioned to approve, Committee member Zavislak seconded
and the motion passed with 3 v otes in favor and 1 abstention by Peter Shin.
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F. Next meeting date and adjournment for the Committee
6. ADJOURNMENT
Sinks motioned to adjourn at 6: 18pm with the next regularly scheduled meeting of the
Committee be scheduled on July 11 , 2017 at 4 :00pm for two hours , Zavislak
seconded with a unanimous approval.
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