Audit Committee - Regular Meeting

Well, I guess we have to connect in YouTube. Then Are we connected in? Okay. This is the meeting committee and city staff. Did you do a local for us, please?

Council member Mohan?

She's actually no longer on the committee. Yes. But I don't expect her. Is it ready? I think so.

Mayor Moore?

Present.

Council member Wong?

Present. Sorry. No. I don't think so.

Council member.

Oh. They they

have the same.

What? IT. Yeah. Council member Wong.

That should be

Wang, didn't it?

W a n g. Yeah.

I think he goes by Wong, though. Oh, does

he? Yeah. Oh, okay. No.

Yeah. Okay. I have apologies.

Committee member Wong?

Yes. Vice

chair Wu?

Yes. Present.

Chair Schmidt?

Here.

All present with council member Wong absent.

Great. Well, I've filled our meeting to order there. We have a form. And, Lindsay, is there anyone from the public that wants to speak on general that you see?

We have no speakers here.

I see none in here either. So we'll just march forward into our first three items on the agenda, which are the consent items. And I do have one comment on the second item, which is I've I've chatted with Jonathan and Dennis, and I think in future reports, we're gonna have a variance analysis attribution, which we've talked about frequently. So we don't have it for the current report and expect it, I think, in the future. So let's comment on that consent item.

And then the question I have a question on the third consent item, which is the treasurer's report. The attachment is item a, Chandler's investment report, and I noticed that there this question, I guess, is for Carlos. I don't know if Carlos is on the line, but the question is the city's hi, Carlos. Thanks for joining. We have, you know, like, a way of approaching these reports using the consent function now.

So my question is for that item, the city's portfolio seems to have a overweighting to higher durations than the benchmark. And I wondered if you could just briefly explain why that is.

You're on mute, Carlos.

Thank you. I apologize for that. That that is deliberate. Although this the position has been just being to start to bring that duration position a little bit closer to the benchmark. As you're aware, some of the some of the decisions that we make as an investment manager have to do with how we position the maturities in the portfolio.

So the term structure of all the investments, will not necessarily look like the benchmark. We make a decision, and we use analytics and and and some, processes to help us to inform us on how we wanna position that. The actual duration. So when we average out those maturities and their average durations, the associated duration of all securities, how that averages out to the duration of the portfolio, where we position that relative to the benchmark is also a deliberate decision. On top of that, obviously, how much we have in different sectors is a deliberate decision that may stray and will definitely stray away from what the benchmark looks like.

Currently, the overall duration of the portfolio as of March 31 was two point five six years. The benchmark was at two point four seven years. You were longer three months prior. You were at two point six three. We have been gradually bringing your duration down to be closer to the duration of the benchmark. You were at two point six three years. Three months ago, as of March 31, you're at 2.56. That's lower. And we're moving you towards 2.47 where the benchmark is. And we do that very gradually.

We take incremental steps. And and and we won't be exactly at the duration. Our intent is to be slightly above it, and that's a call that we make based on what we think the capital markets are going to do. In this instance, this is related to the volatility related to the war in or in in Iran and The Middle East. The rise in in, risk or I should say the rise in volatility of risk assets, and specifically the rise in the price of a barrel of oil has caused rates to move up and down with a lot of volatility and generally remain a little higher.

And when we have volatile periods, we wanna be a little bit more neutral to our target as measured by the benchmark. So the answer is it's a deliberate decision. It's not random. And right now, you you've been longer since the 2023 when we made a call that rates would be falling, and that's exactly what they've done up until the beginning of this war. Right now, we're in the process of moving you closer to neutral, just slightly above to neutral, and that's our our plan right now. I hope that answers your question.

Yeah. It does, Carlos. Thank you very much. If are any other committee members having comments or brief questions along the consent items, mayor?

Item three, I wanna point out almost 12,000,000 in the operating checking account. And I was wondering if that's in alignment with the new cash flow policy. Or I don't 5,000,000 target.

Got it. It

is 5,000,000 is our target. Currently, we're butting up against the lay cap.

Okay.

So the the ID we'll be exploring other options, other investment pools to be able to tap into as well as possibly longer term investments from Gentleman.

Okay. And and there is that something called Cal. It's like a California one, some other pools.

Yeah. Camp. There's a handful of them that that would meet our and we can get into it a little more in detail in the investment investment policy that kinda discusses that a little more.

Okay. Mhmm. Any other comments, question? Excellent. I have one last question for John. Mayor just mentioned the cash flow model. I'm wondering if in a future to be determined audit committee meeting, we might have a brief presentation on that cash flow model by staff.

We can include it as part of our quarterly investment report if you'd like so that we can kind of incorporate it all into one. Or you know what? Better yet, there is a as part of our internal audit, they had reviewed our cash flow policy and whatnot. So that'll kind of feed into that. So that is set to go to to be verified by the audit committee in July.

That would be ideal if we could work it in on July meeting as part of that. Fantastic. Okay. Do we have a motion for the consent items? Or let's see. Yeah. I need a moment. Like, I gotta be my it's been three months since I went through a meeting. We're we're it's I'm inviting the staff before we've done that. We ask questions. Well, public comments comes before my invitation of a motion. So are there any Lindsay that you see out there?

No speakers here.

Excellent. So why don't we go to a motion on More so moved. Excellent. I hear is there a second? Second. Got a second from the vice chair. Any other thoughts of question, comments, discussion from the committee?

Yes. Just to clarify, I'm moving the consent item on it. Just Ah.

I missed what you know. Yeah.

Because I said so moved, but I don't think I got your full sentence out.

Oh, no. I did.

That's okay.

No. Good. Perfect. Perfect. Perfect. That's why I need to okay. Perfect. So, yeah. I well, seeing no other points of of interest here, why don't we all vote? All in favor of the motion, say aye. Aye. Aye. Any opposed? Looks like it carries unanimously. So be it. Excellent. I'm so enthused about consent items. It doesn't take much to get excited in an auction. What? And just do so much more now. Alright. So that brings us to new business. Item number four, receiving the internal audit. Oh, yeah. And thank you, Carlos, if you're still there for attending our meeting.

And thank you internal auditors for coming to our meeting. This item is received the internal audit, fraud, waste, and abuse programs, and internal audit programs updates. Jonathan or Chelsea,

just over to

you guys.

Thanks for coming.

Thank you. It's nice to see you all tonight. Let me share my screen here. Is everybody able to see my screen?

Yes. Yeah. We can see it, but it's such small font.

It's small.

Let me get this bigger for us. How about there? Does that work?

Well, I'm following it up on my own screen, so but I don't know. Committee members and thoughts, 50. I think they're younger than I am, so they're all seeing it fine. What's up?

Alright. Well, I will get us started here. We still have one open item project from the fiscal year '24 and '25 audit program, and that's over the grant management internal control review. We are still trying to finalize this report. I had talks with Jonathan last week, and I'm I'm pretty confident that we should have something to you by the next audit committee meeting.

But this one, that is the the last remaining for the fiscal year twenty four, twenty five. So looking at fiscal year twenty five, twenty six internal audit program, we're going to be receiving you'll be receiving a presentation by my colleague, Annie Rose, today over the council wide policy review inventory. We are working, with Citi on feedback and finalization of the investment slash cash flow policy review and recommendation. So going back and forth with the city on those. We also have the citywide internal control review.

This is going really well. We performed interviews. And right now, we're really working on testing those high risk controls that we found, hoping to have a draft report to you all next time around. And then, of course, our ongoing internal audit services. This also includes, monitoring the fraud, waste, and abuse hotline as well as performing validation continuation. And I will be going over, both of those statistics here in a second. Is there any questions about either last year's or this year's current internal audit program?

I don't see any yes unless there's a question. We'll just we may think of one, Chelsea, but if you could that's great.

Absolutely. Well, I will go into the fraud, waste, and abuse statistics. So I did see your question, about, you know, the timing of this. So really the timing of when we're looking at this quarter, it was from January 17 through April 20, and we have not received any complaints this quarter. So zero.

So that still remains. We have 39 total reports. 31 of those reports have been closed, and there have there still are eight reports that are open. So going into those reports, I will tell you I met a couple of times with the city attorney this this quarter, and she is very, very diligent in trying to get these, eight closed as soon as possible. So hoping to see this statistic go lower in the coming quarter. Yeah.

While we're talking about this, a couple of questions, and, like, other members may have some as well. I'm I'm wondering if you could entitle this FWA. I think in the past, you used to do that, and it's it's useful for sometimes we extract this and then we show it to city staff, for example. And if it says fraud, waste, and abuse at the top, it's very helpful. And in along those lines, I showed this to the city manager since our last audit committee meeting since you internal auditors were so gracious to say, you know, why don't you go talk to the city manager?

Oh, okay. I did. And I'm happy to see that the report has some additional calls on it. Like, for example, refer to appropriate city officials under review, that kind of thing. So I think our our goal in the past have been, well, how do we demonstrate to the public that there's actually some movement on some of these longer outstanding items?

And so the, I think, consensus with Jonathan and Tina and others was that there can be additional steps included in the report that indicate that there is in fact movement behind the scenes, but at some point, it gets to the policy makers decision, which I guess is referred to, I don't know, appropriate city officials. I'm wondering if it's some point, it gets to the highest level we can get, and it's you know, that's where it needs to be resolved. Am am I right in that, Chelsea? Is

That is correct. That is correct. And I think that is currently where the city is right now, you know, in getting these resolved, especially some of the the longer reports. So like I mentioned, I do think that you will see some positive movement in these outstanding reports by the next quarter.

Great. Any questions from our committee on this, at least? Yeah. Here.

Just wanna comment on the fraud recent abuse reporting. I did send an email to the city manager about it because I had a difficult time getting to that page. If I go to the landing page website, the website's been changed a bit. So if I don't know that the fraud, waste, and abuse hotline exists, I wouldn't know to put it in the search box to find it. And I put this in my email a little bit more prominent there for new people or members of the public a a go and look at that page. So hopefully, that'll get better.

We're both attracting it. Thank you, internal auditors. I think both of us were given our to dos on the last meeting. Great. We're we're making progress.

Wonderful. Well, talk about progress. Let's talk about the audit validation. So, you know, looking at the audit validation, there were a total of 79 recommendations. We have 25 that are still open.

And during this past quarter, we were able to validate three new recommendations. Those were specifically all on the 2023 report. This was the library expansion construction audit. And so looking at those, two of them were talking about change orders. So the city has added language on the change order form to verify hourly labor rates with certified payroll substantiation.

So the finding has been implemented. The second one, the city was able to update the change order form to indicate language about the amount to verify that sufficient markups are applied on the next change order value. And then last but not least, one was around, adding language to the design build entity contract that, the contract supersedes any agreement between the design build entity and subcontractor. So that language has been further added into the contract. So really great.

You know, I know that the city has a lot going on right now, but yet they're still being able to validate, findings and get get these cleared. Any questions?

Yeah. I think I sent you one which was it seems like in the open recommendations column, there's 25 of which 16 relating to '22 or twenty twenty twenty three. So I I was wondering hopefully, it's not gonna be that I need to go talk to the city manager, but what can we do to, I guess, estimate when these may be resolved by I I know it takes city staff time. It takes your team time to evaluate their responses, but it seemed like three or four years ago it's quite an elapse of time. So my question is, do we have some guesstimate as to when we may resolve these relatively older items?

Yeah. That's a great question. And I think this, you know, will be a conversation that I will have with city staff and management to see if they are, you know, able to kind of give us an idea of when they believe they can help remedy the remedy these findings and, you know, clears clear some of the recommendations. If if city staff and management are able to do that, I would be happy to add those statistics into this report.

So I guess, rolling into it a little more, is this a matter of resource allocation or maybe it's a question for Jonathan? Any any comments on I guess you could hire a bunch of people, but that's not practical.

I suppose it would be more of setting a priority to address these. As you know, staff is limited in the amount of time they have in the day. So if this is council's direction or if this is prioritized of some of the other responsibilities, we can certainly make a a task to get to to either address or at least provide a implementation date.

Well, I heard the top policy making group mentioned. They look over it to the representative. But does this come to the city council? Just practically, how does this get into the city council decision making tree if it does or if this looks along by itself? Good question. Actually, this the internal audit program is

I don't think that actually gets, forwarded to council now that I'm thinking about. So let me go back to to management and discuss that, see how we can address this. And by July, we'll have an answer for you.

Sound like a super answer. Any other questions on this element? Great. Okay. Thanks, Chelsea, for

Thank you.

Presentation. Appreciate it. Okay. Do we need an we don't need an emotion on that one. I think, do we an information or receiving it. Maybe we should have I can ex so advice everyone, am I just gonna accept it? I can receive it as chair unless we have an appetite for making a motion. Since I see no appetite being expressed, I hereby receive the report. Thank you very much on behalf of the committee. On to item number ah, you know, we left off the public comment, which I imagine, Lindsay, you would have captured me if I had gone too far.

So I your silence indicates we don't have any. Correct?

We have no speakers, sir.

Okay. So moving on. Item five on our agenda is an informational item. Receive the City Council policy review final report. And this is going to be another paper, Kelly. Annie, it looks like you're you're scheduled up to present. Thank you for coming.

Yes. Thank you so much for having me here this evening. For those of you who I haven't met yet, I'm Annie Rose Fabro, and I'm a director with the Baker Tilly team. So my group did the council policy review project, and my plan for this afternoon was just to present to you a brief overview of the scope of that work, our major findings, and then see if there are any questions or conversation there. But in general, we were looking at the council related policies, so the policies that guide how council operates.

And those included the council procedures manual, the code of ethics and conduct, the policy and guidelines on sister cities, friendship cities, and international delegations, social media policy, and technology use policy. So those were the primary areas that we were evaluating. And we were looking to make improvements in clarity, consistency, alignment with industry best practice, and to identify if there were any significant gaps. So I would say the the big picture takeaway, the the frontline takeaway that I'd like to leave you with is that when we were reviewing the policies themselves, there were no policy areas that were entirely missing. It wasn't like we found a policy that you fully did not have in place.

So that is fantastic. Within that, though, within the policies that you do have, we did find some gaps within each one of those. And so that's what the majority of our report focuses on. We have six observations here. Now you will notice we were reviewing five policies, and we have six observations. So our first observation was actually not focused on a specific policy, but instead looking at the environment in which the policies are created, reviewed, trained on, and sustained forward. And what we found there is, again, good news. All of

your policies Sorry. Sorry to interrupt. I wonder if my flash on the screen, the report that you may be referencing, not everybody maybe has a know, on their device. Absolutely.

Yeah. I can bring that up right now.

Thanks.

Yeah. Absolutely. Okay. Is that large enough for people to see?

That's not bad. Thanks. Great.

So in going through the observations, the first one here and this is just the summary, so there's a lot more detail in the report itself. But the first one is focused on that policy environment itself. And the recommendation here is to look at implementing a more structured policy management framework. So thinking about a formalized process to actually review your policies. So good news here, all the policies we looked at had been updated in the last five years, but the updates have been happening in a pretty organic and ad hoc manner when an individual council member brings some things forward or there's an issue that needs to be resolved versus what we would generally expect to see, which is on a cadence of every three to five years, for example, the policies are brought forward and reviewed.

We'd also wanna see standardized training to make sure that all council members, staff who are supporting these policies receive standardized training on a regular basis to make sure that the policies are understood. And, also, there were some questions here about the enforcement mechanisms. What actually enforcement mechanisms or procedures are even available to the city? So that was a general question that came up that would, we would recommend adding some clarity around. The rest of the observations that we have listed here, and I'll go through these quickly as well, are focused on the individual policies themselves.

So the first one we looked at and the most robust of all of the work is the city council procedures manual. This is a really great manual. It hits so many of the common practices that we would want to see here, many of those foundational topics, and it covers a lot of ground. We did compare it to several peer city manuals as well as part of this work. We did peer benchmarking, and there were some sections that were either partially present or fully a gap in terms of sections that we would expect to see there.

So we have a recommendation to consider revising the manual to add or expand on particular sections that would really improve the clarity and the effectiveness of this guide to help council operations move forward. Moving into the smaller policy areas, we have the code of ethics and conduct. This is a very comprehensive policy, which is fantastic. But, again, there are some areas here that are really focused. Our recommendation is around improving the clarity and administration of this policy to make sure that it's a really effective guide there.

We also looked at the sister cities, friendship cities, and international delegations policies. Of all the ones that we looked at, this is the one that we would say needs the most support and work at this point in time. There are quite a few gray areas here and a little bit of lack of clarity around why that program in and of itself exists and and what it's trying to do for the city. So we do recommend fully reviewing and updating this policy to improve clarity, and that's both for council members, but also for the staff who are required to implement that policy. And I'm happy to go into details there.

And then the last two are very similar recommendations, the city's social media policy and the city's technology use policy. They're really focused at staff level administrative guidance rather than focusing on council specific issues. And there are certainly council specific issues that come up in both of these areas in relation to meeting restrictions and things like that. So our recommendations for both of those areas would be to consider developing standalone policies that would really be designed for elected and appointed officials. They can build upon the city's current social media and technology use policies and reference across, but something that would really focus in on what will be most helpful for elected and appointed officials.

So that is my brief overview. But that being said, I'm happy to go into any of these sections if you have any follow-up questions for me.

Great. Thanks, Addy. Throw it to our committee members. Any questions? Yeah. I have question. Go ahead, Will.

Yeah. I've got two questions. One one is what is this current status of the observations? And and two is, what what is the process going forward in terms of closing these observations?

So these are being presented to you today. They have not yet, you know, been moved forward or actively shared out broadly with staff. So I would say these all of the observations here are open, and they'll go through a similar process to many of our other observations and recommendations where there will be a determination of, you know, whether you wish to have staff resources. City council and management will decide on the right allocation of staff resources to address these, and then they will be closed out as you move forward. In general, though, from our perspective, the sister cities policy is the one that we would recommend moving forward with now.

The others, I think, can all wait until you come into the natural cycle of the next time you update these policies. You could pick up some of the recommendations that we have here and incorporate. I think the sister cities is the one that we really focus on currently, and the others can be done over time as well.

Do I have a couple of things?

Yeah. But thank you.

Okay. There.

Okay. So the sister city's policy will be coming to the council, I believe it's next week. And there's some of the recommendations are in there. And I did speak to the city manager earlier this afternoon and went over the policy recommendations and the questions that that show up in this report. So some will be addressed, and some will need some some more thought on.

You know, just right now, one of the issues that that I have is for a policy is we've we've had two asks of the council appointee to this committee. And in the commissioner's handbook, I I think it's changed. The words changed. If you if if a commissioner misses 25% of the regular meetings, they would be, I think, recommended for removal at this point. I don't think it's an automatic.

I think it had been automatic. So and I assigned a a second alternate for this position after the first half since, and that did get passed through in February. So I don't know what happened here with regards to either showing up. So I don't know if that should be a policy show a policy around that for council members not attending their committee assignments because that's that's becoming an an issue.

So that's a comment, I guess. Is there a way that Sort of the question. Point is how do we work in these kinds of questions into your analysis?

The question of whether there should be a policy of attendance?

Yeah. For the council members? Well, at least we have assignments, regional assignments, and I'm hearing that there's been a a number of absences. Yeah.

Yeah. And I think that that speaks to even in observation one, we're talking about clearly defined enforcement mechanisms. You'll see in the report that really gets down to when folks are not doing the things that we have requested they do, what are those enforcement mechanisms?

What is

appropriate consequences for that? So I think that this is a good example of that where we don't yet have clarity on that front around exactly you know, we might have the expectations clearly defined, but we don't necessarily have that immediate next steps defined if those expectations are not met. So I would say that that is addressed here within that section, but I think in general, you're bringing up an excellent point that we saw really throughout many of the policy areas where we don't have that clearly addressed.

Okay. So I'm not really I'm not really sure with regards to that information what you're hoping to get from this committee. So,

for

example, we don't have a process for admonition or censure for the council members. And I did I was trying to, a couple years ago, get have a policy put in place around that, and I was doing some review of of surrounding cities, what San Jose has and what Los Altos has regarding that. And, ordinarily, for instance, a council member would be removed from their committee assignments as that would be like a censure punishment that would happen. The way our procedures manual, and that's coming to the council next week, is written up, we have no process for that. And so a couple years ago, we had a council majority that voted to pull two council members off of all of their committee assignments without having a process of review.

It was just an action that they could do then. And because there's been no change and no process put in place, it could still it could still happen again like that. And that should be that's, like, the last resort. They've done something really, you know, terrible, and then you take them off their assignments. Not as a kind of a willy nilly, we're we're the political powers now, and they're

gonna take

them off. Then there was another one with regards to investigating council members and and how to do a proper investigation, what the expectations of, like, the council members that are being investigated, how that how that process should unfold. So is that what are you hoping for from this committee with regards to moving this towards the the city council?

Great question. So I think the the items that you're mentioning mentioning here are things that definitely come up within the assessment itself both in relation to the city council procedures manual and the code of ethics and conduct as well. Our next steps after it is received here, we it has been requested that we present this full report to city council. So that will be the last piece as part of our work on this, and then that will be, I assume, a discussion of which elements of these recommendations you may wish to move forward. Okay.

That's good. Thank you.

Any other from the committee members? I have one. Well, maybe on here, you're still thinking. I read with interest the let's see. I wrote it down.

The executive summary, always a good starting point. Right? Indicates that Baker Tilly evaluated the city's council related policies to identify opportunities to improve clarity, consistency, and usability, determine whether there were any major gaps and align council operational procedures with best practices. So my question is on the determine whether there were any major gaps. I know you mentioned something about those, but I was trying to read the report then to find so my question is, are all six of these observations the maybe major gaps for going into the full gaps that are indicated in more detail in the policy?

Are those full gaps equivalent to major gaps, or are there no major gaps altogether?

Great question. So in terms of the policies themselves, there are no policy gaps, meaning you're not missing an entire policy. So that is the good news that we're working off of. Within individual policies, we did identify some partial and some full gaps where a particular topic was or was not addressed in the policy. So I'm not exactly sure of your definition of full gaps, but when we're looking through and using the word gap, that's really what we're talking speaking to is a specific topic that we would expect to see in that particular policy.

And it either might be partially addressed but not totally clear or it might not be addressed at all, in which case we would call that a full gap within the policy.

Okay. That helps me understand what you meant because I honestly was trying to find gaps of any major gaps. So to to me, possibly, that could be a strengthening in your report to indicate that there were, in fact, no major gaps, but that there are these other types of gaps within the policies. But, you know, if if without we're trying to get it into a a linguistic too too detail there, I think we'll we'll open it up to comment, and then I think we should talk about a motion on this particular item rather than the chair receiving it. But stay around, Annie.

Lindsay, any public comments?

We have no speakers today.

Okay. So then what I'd like to do is move us into a motion. And my thought here is building on what the mayor was asking and and what Annie here is saying, I one of the roles I see the audit committee having is internal auditors report into city council and the audit committee. So we have the opportunity of drilling into the report in any way we like or once we're satisfied, forwarding it to the city council with our comments or lack of promise saying it's fine as it is. So I think this is a good one for considering that if the committee has an appetite, we can have a motion that says, report was you know, we deliberated on it, and we had a few changes or suggestions that were debated back and forth, and we think we should highlight those or we're not.

So I'm throwing this out as what's the appetite here? Do we wanna clarify our news video? I'm just receiving it.

I'd like the comments to go to the council.

I only said two, probably. And so at least two of us, why don't we drive to come up with a motion that I heard something in some emotion could be like this, that that we received the report but had some points of emphasis. For example, the disciplinary element that may flow through more than just the one item of observation. That that's one one way of phrasing emotion, I suppose.

And the of the policy members at the end with regards to their meeting assignments.

Okay. That's certainly what we are starting to talk touch on city council stuff that you're suggesting. That's kind of like I think we can word that very carefully, I suppose. But okay. I hear you. That's good. Any other well, maybe we can have a motion if there are any other topics that that come to mind. I don't you know, I honestly think you could do better on the major gaps of wording, but I don't think it it rises to us wanting to emphasize that to city council. And also maybe the staff has something to try to get on this. Think it's pretty quiet down there.

I just wanted to confirm. As of right now, I only have two, which is the attendance and disciplinary action. Is there any other topics that we wanna include? These items would be included in the staff report as topics of discussion or recommendations for

Points of that was inspired by the audit committee in after our deliberation were asked for. I mean, to be honest, this is one of the first times that I've kind of actually looked at this particular issue. I guess I must have been busy with other issues, I I Baker Tilly has his internal auditor, I guess this was on the internal audit work program.

So That's correct.

Yeah. So It seems like there's a lot of meat in the report, to be honest, but I'm not sure I have a lot of other issues that I can deal with confident raising at this point. So those are the two summaries I see. We could have a motion that includes the report or, you know, very thankful for having it.

We have one clarifying question. How often is the the policy reviewed? Is this, a annual cadence, or is this kind of just trying to kinda understand.

Great question. So Yeah. We recommend a cadence of every three to five years for policies to be reviewed. All

of

the policies that we looked at had been reviewed within the past five years. So so they were falling within that cadence.

Yeah. And this is the I guess, a little amplification on that. There's there's city staff type of policies and other city council related policies, and this is taking that second bucket. So I think those two are fine for a motion. But

And and we're going over the council procedures also. Again, each time each mayor has kind of their own way of doing things, and so sometimes there's gonna be some adjustments based on that. For instance, we've been going over

future

agenda items topic and how do we want that to be run with an eye towards ad meetings over twenty hundred pages of agenda packet material. We wanna have another topic that could end up extended, drawn out conversation about the the wide universe of future agenda possibilities. The answer for me is no. But next year, it could be that somebody does wanna have that. And so that one is some things are more on who's the chair and what does

the chair wanna see. So it dawns on me that maybe a subcommittee comes into play, not necessarily at our level, but that could be something we consider in a motion that, you know, more in-depth collaboration with staff, other interested community members because it's an ongoing question. How how can some of these policy issues be addressed? But Yeah. Doctor Menon, don't know if we wanna put that in the motions. But

I would yeah. Some of it some is the the the chair's prerogative for how they're gonna run the meeting, so you don't wanna take that Right.

Away. You know?

Why don't we stick with the two? They're very obvious to us. And is anyone willing to step up and make a note?

We're so moved that we include the comments from today's meeting as well as goes to Mr. Munson.

So clarifying that motion, we're accepting the report, grateful for it, and we've got two points of emphasis. Is there a second to that? Yes. Okay. We've got a second. Okay. We've got a motion. Any further debate on this motion? Alright. While we take a vote on it. All in favor of the motion is? They aye.

Aye. There

are no opposed, so you've unanimous motion. Thank you very much, Annie, and thank you for telling.

Thank you for your time tonight.

Thanks, Jeff. Okay. So we're moving on to item six, which is annual review of the city's investment policy, which as Jonathan has has the head, but possible help from Chandler.

Oh, I'm gonna start us off and then Carlos will finish. So before you use the city's draft annual investment policy for your review, as part of our standard practice, the policy is reviewed each year to ensure it remains aligned with California government code requirements and industry best practices before being forwarded to city council for adoption. At a high level, the city's investment objectives remain unchanged and continue to prioritize preservation of principle, followed by liquidity, and then return rate of return. Overall, Chandler Asset Management has concluded that the policy continues to be well written and effective in guiding the city's estimate portfolio. Series updates are relatively minor and focuses on clarification and alignment with recent legislative changes.

The key updates include additional detail and eligibility criteria for local government investment pools to strengthen oversight while maintaining flexibility and a minor updates to reflect recent changes in state law including SB five eighty five. With that, I turn it over to Carlos who will walk us through some of these updates in a bit more detail. Absolutely. Thank you very much. So there were some minor edits to the policy as a result

changes to California government code fifty three six hundred in the related sections. Those changes came from senate bill five nine five. Effectively, senate bill five nine five extended the maximum maturity for commercial paper, which is a type of investment instrument that the city is eligible to purchase. It extended final maturity from nine months out to thirteen months, specifically three hundred ninety seven days. We think that that's a positive development that the city should adopt.

Secondly, there were provisions from, I believe, several years ago, senate bill 14 oh, five years ago, seven bill senate bill fourteen eighty nine. Those bills basically allowed for a couple of things. They allowed for they they allowed for cities to be able to purchase up to 40% in commercial paper if there was you know, in case of an emergency as long as they had investable assets of a 100,000,000 or more. So I think we extended that. The the the date it's already it was already in your policy, but there was a sunset date of 01/01/2026.

The new date is 01/01/2031, so we extended that. There used to be a prohibition on purchasing zero interest rate accrual securities, but that was lifted if it was governmental security. That, again, was another law enacted back in five years ago when the authors of that bill thought that The United States would pursue a zero interest rate policy. And if they did that, they would inadvertently place you in a position of inadvertently breaking the law. So they put that provision that you can own those, and that sunset in 01/01/2026.

And this past year, it was extended again to 2031, so we made that update. Lastly, one of the liquidity vehicles that we have been discussing with staff for some time are local government investment pools. They're organized in the state of California as joint powers authorities, and they and they they basically sponsor investment pools that run similarly to a money market mutual fund. But they have a little bit of an advantage because they invest, to look a little bit like a prime

fund, which is

very well diversified, whereas most local governments take advantage of a a sweet vehicle, which is typically a governmental money fund with just treasuries and agencies. So it has an advantage from a yield perspective. And so we're exploring that with with Citi staff, and you already allowed these, but the language was vague. So we went through and clarified it, made it very specific, and made it to mirror the language in California government code. I'll pause there and take any questions that you may have on these.

Hey. Committee members, questions? I think we're pretty good. I appreciate the red line version. It makes some of us who've read these things a lot easier to review the current version. So thanks, Carlos, for your efficient explanation and Jonathan as well, your staff report. Why don't we see if there's any public comment?

We have no speakers here.

Thanks, Lindsay. Why don't we move forward to a motion, which will be to accept in full as adjusted red line version of the investment policy to city council for its approval.

Moore so moved.

Excellent. Second. Second. Great. Thanks, vice chair. Any more discussions? Take a vote. All in favor, aye.

Aye. Aye.

Any opposed? I think we're unanimous. I counted my hearing correct in there? So thanks, everyone. And we will now move on to end up item number seven, which is a little exciting one. Well, all kinds of single audits and gain investment limits and storm drains. So Jonathan and the fund group, Sofia, as well as Mark, I turn it over to you guys.

I'll let Sofia kick us off.

Yeah. Of course.

Thank you, and good afternoon, chair and community members. This is Sofia, cofounder of Punk Group, and I'm an audit partner for the city of Cupertino. So I'm here today to see if you guys have any questions on the agreed upon procedures that we performed and also the fiscal year twenty twenty five single audit. So the first thing is the agree upon procedures that include the investment AUP, STONG DREAN AUP, Gale Lamet AUP. So we have performed the agreed upon procedure procedures that I'm not going into details because all the procedures that we performed already been listed on the accountant's report that we issue.

So we completed all the procedures. We did not have any findings to report. And, I do have two things that I want to emphasize on about these reports. So the first thing that is we added an additional detail on our accountant's report, on our investment AUP that was on the second paragraph of this report about assisting the Citi's management in the determining the Citi's compliance with the policy so that it the report is more in line with the city's investment policy requirement under the internal control section. And this is also to address prior year comment from the audit committee, meeting.

And for the single audit, we assess the highway, planning construction, public work project as our major program this year. We completed the audit without any findings, which, which also indicated that prior year finding from 2024 were properly addressed so that we we don't have any finding to report this year. So this will be the summary of all the reports that we issued. I will be happy to answer any questions that you may have.

Fantastic. Thanks, Sophia, for modifying that procedures as we had discussed prior to last year. Any questions from committee members? I read the reports diligently. They look very interesting as I said. And I guess overall, I I asked this last year, my apologies. I didn't look back in my notes. The reason that we do the the city does the storm drain is because it's in the in that legislation that's requiring a AUP or storm drain report or what's the reason?

I vaguely remember that there was there was a condition as part of the storm drain tax that there would be an AUP that would be provided to council on an annual basis when they adopt the rate in rate increases. And so this AUP will be as part of Bursal, the sustainability manager's report that's set to go to council later next month.

So I know this is maybe not the right place to do it, but maybe it would be good to confirm that there is actually that provision in the original legislation. Someone probably did that long ago. They probably think that every year. And maybe next year, I won't forget that we did this and asked the same question again. We're sorry. Mayor?

They do reference the muni code section three point three eight point one six o a. Observe the clean water and storm protection fees have been deposited and recorded in fund two thirty within the account, many numbers for that section of the unit.

So it's actually in the business?

It looks like it

we do this storm drain thing.

And they mentioned another part, three point thirty eight point zero nine zero, specifies that the city finance department bills out fees to property owners in situations where the fee was not included in the annual taxes assessment. I've read this code on this storm drain fee pass. Yeah. They're they're referencing they reference three sections of the mini code. Now more there's more that many sections. Okay.

Yeah. So question is there. Yeah. Okay.

So it's We've we've done the research

on the fly. Thank you very much there. Yeah. Okay. So this is an informational item. Why don't I exercise my chair authority here, and we hereby receive the reports and thank city staff and the public for being very ambitious in the public.

Thank you.

Good. So moving on to agenda item number eight. Discuss the amendments to audit committee view, hours, responsibilities. We have a staff report. Honestly, why don't you kick us off?

Yeah. And this is another verbal presentation. So this item is returning to the audit committee following direction from city council at the 10/07/2025 study session. At that meeting, Council supported the original proposed updates of the committee's and asked for additional items to be brought back to the Audit Committee for further consideration before returning to Council. At a high level, the original amendments include renaming the committee to Audit and Finance Committee, clarifying oversight of internal controls and audit reports, and then adding a provision related to artificial intelligence and financial oversight.

In addition to those items, counsel requested feedback from the committee on a few key areas. First, a meeting frequency, whether increasing from four to six meetings per year would better support the committee's role with flexibility to counsel if there is no business. Second, expanded financial oversight, including potential review of the city's budget, long term financial forecast, reserve policies and major financial transactions. And third, whether there is value in establishing a budget subcommittee to allow for more detailed review of the budget content. The treasurer's investment reports have already been transitioned to the council's consent calendar and consistent with council direction.

Today's discussion is intended to gather your feedback on these items so staff can return to council with a refined recommendation. This ends my presentation and I'm available to answer any questions.

Great. Well, thank you, Jonathan. Any questions, comments from the committee?

With regards to the reserve policies, so I've noticed that our account balances have got $317,000,000 I believe. So the question that actually having is where is that sweet spot where we're not hoarding taxpayer dollars and by instead of providing facilities and where what's the dollar amount that we should be targeting? And I don't have the expertise to be able to determine that. But I feel as though we have the fiduciary duty to the taxpayers that during their lifetime, if if we're hoarding money for some reason, they're not getting what they're they would be expecting. So I've had that yeah.

I love to see the bank account growing. That's wonderful. But are we being fair to the public? And then what does fair look like? So we should have no more than 250,000,000. Well, that's not gonna make sense years. So that's that with regard to such clients, I don't know who would be financial analyst that that this is their specialty.

Well, let me let me say that that's not this that sounds like a super interesting question. And and it doesn't get any more deeper than that. Right? So thank you for that. And I think I think it's great as we discussed the chart, practice in context, and we can Yeah.

Also everything. So I think there even and in addition, maybe we could put that in the other items that are addressed in the staff report as additional possibilities that this committee either has already authority or should consider passing. So maybe this is a good time for me to comment while you guys are coming up with more questions. My comment clarifying on this is the staff report is there's already in the municipal code a a series of responsibilities, and some of those, I think, are pretty broad. My theory is we wanna keep them as broad as we can without hamstringing or restricting or or requiring things that aren't aren't maybe as important as the future, but we don't have to the more you aren't going into a a more difficult response to issues that come up.

So maybe each of these issues is to think about in terms of, do we already have authority as a committee on leadership? It's still pretty interesting. Does there I could take a broad view of this, for example, and say we clearly have authority to look over the audited financial statements, which is the Akver. And in the Akver, there's all kinds of discussion about reserves. So we could say that we already have some authority because every year we're supposed to forward the act for, and that's a big responsibility to go.

So we could and, again, I'm taking one extreme of how do I approach these problems. Say that, boy, there's an appetite in my committee. There's a lot of goes into that. That's an appetite, but when we're setting an agenda, could, I think, address that by saying, okay. It's part of the effort.

The audit independent auditors address what the reserves are. There's all kinds of revenue in the financial statements indicating that, and then there's comments about why the reserves are what they are in this. So I think you're right. We did take that authority under our big authority. We need some expert who can make some narrow decisions, but I think we could easily ask internal auditors, for example, to do a study if we wanted to go that route, or we could even ask the independent auditors.

But it's more like in the internal auditor question, I think, because it's a special project that we don't wanna chant her with the independence of Huddl group. They have to give an opinion. So but I guess my answer is long winded as it is. I'm trying to clarify all of these that I think the internal auditors are a huge resource. They've seen what they can do. They're very good at what they do. Our authority is to tell them what to do and then make sure there's a budget and city councils approving whatever we're recommending. But I think that would be an example of one where we have that. Don't see Stephanie have a view that maybe the after maybe my interpretation is quite broader.

No. I think thank you, chair. The starting point is the effort that can establishes what your fund balance is at the end of a fiscal year or at the beginning of the the following fiscal year. So just for reference, the general fund had a 181,000 a 181,000,000 in fund balance at the end of last fiscal year. GFOA's best practice says that you should have the minimum of no more than no less than two months worth of your operating expenses or revenues. So as you know, our general fund is about a $100,000,000 a year. Right? So that would equate to somewhere, let's say, 115 to 20,000,000, right, reserve. We far exceed that. Right?

And so we know we have a hefty fund balance. Now it's council's discretion or their direction as to how that money should be spent. Right? We just got out of the CDT and and so that kinda put a pause of unspending. So we started building steps. Right? Now we're seeing sheriff's contract. So that's another topic. So it's kind of pausing any large construction projects. However, council also did direct staff to go to to perform a an analysis for city hall, which we know it's gonna be quite pricey.

And so there's an analysis that needs to be performed as far as what is the future spending of the city, what's the projection, one. And then two, what are some of these major projects that that the city needs to

pursue or kind of spend? Where are

we gonna land once all these projects are completed and once you've essentially drawn down that that that reserve? And so it's not to say you go you know what you have, let's say, from the $1.81, let's say, just say 20,000,000 is the minimum

we should have.

Should we go spend a 160,000,000 tomorrow? Certainly not. Right? There should be a plan for that money, and that's something that we would we should discuss further, but we should go over one one step at a time. So probably the biggest hurdle that the city has right now is the sheriff's contract and then some of these larger projects like city hall, I think, once that that's established. But in the meantime, maybe this is a good project to include as part of the Baker Tilly's fiscal year 2627 internal program internal audit program.

So I'm hearing John did not object to the structure I was trying to elucidate. So I have one example. You have more.

Yeah. So I I do think that using the route of the the act for is is good. I don't know if it could fall under e, which is to review city and best policies and internal controls of such policies. And with that, we have their I believe it's called a reserve policy, which has the the floor, but not not a ceiling on that,

which at

at some point that should probably be discussed. I I don't know where this would fall into the the request from the council. But the budget, I've wanted to see a spot check of of two of the budget units that's to see if number are they building upon old old years? And or can they actually go through and find where it says contract services that the spot check to see if the contracts that are are for that numbers up to any nexus at all. And I've kind of wondered about that.

And I think that that would be a baker to

us. I think it could be for sure other than the structure that we set because we look we've seen them do the formatting help for us as well as provide all kinds of other operational comments. So my that's definitely one that in fact, my thought was when city council did its study session that this would be a natural one. But maybe now is the time to put put another element of this on the table for all of us is there's there's a bunch of developments. I mean, what there's this dollars behind every one of these projects.

So the way I look at it is, first, you've got sit first, you've got the idea. Then you've gotta structure the idea into how can you make it into something that's doable by somebody. So whether we have city staff, federal audit, independent auditors. So there I think as we add more of the items to our our audit committee list of projects. I'm definitely not opposed to adding a whole bunch more.

But I we have this we don't have much of authority ourselves, so we have to be working in collaboration with city staff and city council. It's got the policy to actually spend a lot. So I'm not sure how we can clarify, I think, as a committee, how this would work. Let's every every meeting, we have, you know, this list of what we're planning to do. And we have the internal auditors come and prepare our program for next year.

So I think a lot of these, we should probably plan that work it into that. There's a budget that the internal auditors work with. And before that decided, we probably should policymakers to preset targets so we could actually do some of these things. Right? Yeah. I'm there. First,

we need to look at two point eighty eight point one one zero on city staff assistance because I believe we're having a municipal code update regarding finance department. And this one says the audit committee shall have available to it such assistance of city staff as maybe required to perform its functions, the staff assignments, and administrative procedures to be under the general direction and supervision of the director of administrative services. I think that needs an edit for the duty code update.

There's a that

don't know if it's all of these little parts were caught. If there's a few I think the treasurer one maybe needs it. I this is the first I noticed this that the director of the straight search.

So this is the reference to 80.11? Yeah. Okay. Yeah. I I did capture that one.

Okay. Good. Good. Okay. Good. But I'm wondering what this means in terms of we wanna have get some things done, you know, because that goes into well, staff would be doing it via consultant.

It might be. I there there's a lot of stuff staff can do. It's gonna be an ongoing, for example, charter for these kinds of projects that we've got some staff adding this potentially. Mean, it's the whole thing comes back in my mind. And, again, speak up. There's a lot of industry experience on this side of the table as well as as from your side. But but there's staff resources that can do stuff. Then there's independent contractors internal auditor. There's various all kinds of different people. So

Like, the spot checks could be staff can do that. It could. Now but in because there's so many different budget units, I would personally be saying, you're gonna spot check. We wanna see a spot check of two. This and this is getting into operational more of the so if you go to a consultant and have them do that, we've got that separation, but it's more like we would like the city manager to be directing that this happens as an operational type thing. It just seems like I don't know how to

Well, what happens in in this and maybe, Jonathan, we've got the municipal and our internal auditors, certainly. There's can comment too. But in industry, there's a the audit committee has huge authority to go wherever its charter allows it, and that's an internal control. So it's an internal control issue. Audit committee can draw all kinds of resources that the operational finance department will will offer without any sign of complaint.

In my experience, in the municipal situation, it's doesn't work the same way. But it doesn't mean it couldn't work in a different way than it is now. We can start with what's the budget of the internal audit. We can we could argue that it needs to be x dollars that would then include the ability to flex into these kinds of projects. Internal auditors may need some years would not spend that.

But in in other years where we've got other other appetite, then they would. So you you could set that up as part of the budgeting process that the city goes through. So I've I've commented before that budget could be I think the budget for the internal auditors got fit into the city manager's partner when I raised this earlier. You happen to know off the top of what who determines the budget of the internal auditors currently, finance or the city manager?

Oh, counts council.

Okay. So there we are. So I think maybe, you know, what what has happened in the past doesn't mean it has to happen. And so there's different questions. One is what's the charter? What's the authority? What do we want the municipal code to say? And and the way I'm putting out here is it already says a lot of good stuff. It's it's kind of up to us to say, well, we'd like to start exercising some of that in the following way by increasing the internal audit. So that's my answer to this whole meeting agenda, I guess, other than the three items that the committee came up with a little bit of refinement in the name.

And as the staff report said, looking at, you know, AI issues that I think are topical, We should probably look at them anyways other than the authorities we have based on the arguments I'm making, but let's bring that one out. And then the third one is making it clear that we cover internal audit or control issues. So is that I'm trying to go into what we're addressing the charter while at the same time addressing specific projects. So it's kind of a big we can also come back and address it when we when we address our what our profits are here. But I think it's good to get it into a framework first.

Any comments you guys are pretty familiar with internal audit, for example, or these kinds of issues in industry. What's your thoughts? We'll come back. Okay. But we don't have any public comments, I presume.

We have. Yes. We can share.

Yeah. So we'll just continue our little buried stuff.

I'm I'm not sure where to park this topic. Which of the because of of our position that we took on measure a, which is accounting sales tax, point 65%. We took a a post position on that. And then I started looking at the the county budget and where their their money was going. And now we've had the issue sheriff's contract where they said they've been subsidizing us for years.

And so I did a bunch of research into where our sales tax goes and where our property tax goes. And I'd like this to become a topic of discussion, but I'm not sure

We're owner city type idea. It is. Very persuasive than the last commissioner, by

the way. Oh, so you've seen us.

It's a report that I can break out. It's on another section of our agenda, but the builder city concept is something the mayor introduced, and I thought it was very well embedded.

And there's So that's

a great question where that would fit. I think one of the reason we wanna make our agenda as efficient set items is some of the recurring stuff without doing the bucket of consenting, then we can move on to some of these other questions. So where would a question like that fit? That's a great question, actually.

In about oh gosh. A little over no. It might have been last week. Anyway, so it's looking at it's like Sunnyvale has a combined sheriff fire, and so I was curious how much we spent on fire. And it's it's huge number. 81,600,000.

It's a

state of our property tax. And I think at least it's way more than us. So we're subsidizing the whole network. A normal city, $3.03 50 per person. This is 1,300 per capita

off of that. So

this it's I think it's information that that needs to be shared and that more of the city should know about it and then decide if this is something that needs to be changed. But it I don't know how this topic kind of fits into Like, what would you call this?

Well, let me throw another one out. Since we went through the actor thing, let let's go back to the other element of the municipal code, which is we look at internal controls. That's the audit committee's one of the main functions of an audit committee. Financial internal controls often, generally, we've got the internal audit department, which can do operational also. Okay.

What's that mean? Well, budgeting is a very important internal control of the city house. And so if if there's, you know, a a danger that the city may be running out of reserves or having a lot of revenue to cover its issues or particular contracts or something to me, that's a that's a a going concern type of issue that in industry everybody just immediately jumps off. So, yeah, we gotta look at that. So, again, I think the authority is in the municipal poll already for us.

Again, Jonathan, you get to alright. I think the last one that was that I was stretching. I don't think this one is much of a stretch if there's a huge contractual issue that's suddenly subject to big numbers that the audit committee would have authority in other context to look at it. What what what's your view on that stretch of you wanna call it stretch?

To be frank, I probably wouldn't put it in just the general internal controls. I following council's direction as far as the formatting and the budget subcommittee and kind of start budget format to to include that. I think you would then be able to pull in the the sales and property tax, how that is calculated into that that and how it kinda feeds into the budget, right, in performing that analysis with them. Right? So you can tackle year over year, but sales and property tax can be the emphasis one year.

You can kinda move on to other taxes the next year and kind of do some sort of cycle. Right? I'm sure as audit subcommittee members are moving seats, maybe a set of a pair of committee members are focused on property taxes and sales taxes, where the next is more on the their services fees, the city charges, the presidents. Right? And so you can go and then maybe based off of that those conversations that would staff and that analysis performed, they would then report out to the the rest of the audit committee or even to counsel as far as findings or in conjunction with report that that the staff provides as part of the budget process to council that that these emphasis or certain topics were discussed as part of the subcommittee.

This is what was what what what was generated.

So let me restate in my opinion of understanding what we're saying. I think that's a great point. There's a we'll need to have subcommittees in addition to supervising independent auditors, internal auditor, contractor. So we have done the subcommittee route, and sometimes that's good to frame a project, which I have to be honest. I think the committee members here can only be at the high level of that kind of a subcommittee that we worked on and go into much more.

Yeah. That's really not what these typically committee members are gonna be able to do. That's helping frame a project can then let it go off into another incarnation. So that's a great point. Not only do we have all the independent contractors, we've got subcommittees that we are certainly utilizing. So that's that does make more sense. Yeah. Please. I mean, we're interacting here. I think trying to keep it in a context of what can we agree upon today that we can then forward to city council in terms of what we have. So this has been very productive. Keep going.

I was wondering if if the committee feels that we're the council has been looking at taxes. And should that, maybe in the future, be something that takes has a stop here where the potential taxes are discussed and what their implications would be before it gets to the council because there's a dollar amount associated with each potential. And I'm just kind of thinking, going back, if we could turn the clock back, because we're already so far along this year, could or should that be something that this committee would look at? Sure.

Right. It could be, and that's a great question. Again, what I would think is, first of all, there's the big question that this is a audit committee or a finance committee, and then we sort of cross that decision point by saying we've been acting both capacities for decades. So once you open up, in my mind, the finance part of the committee, it's much less well defined in a lot of ways than the audit committee aspect of it because there there are these kinds of questions that are inevitably less well defined. So I I think there's a tug and pull here in terms of what kind of resources, how can we as a committee, we could we could maybe, you know, have more meetings, which is one of our questions today.

I'm not personally in favor of having more meetings because I think we should be efficient enough to delegate these things to other experts and not being experts necessarily ourselves, but we can at least carve out what it is we're asking and then supervise that. So I don't think more meetings necessarily answer. Subcommittees are certainly an answer. Internal auditors are certainly an answer once the project's well enough defined and the budget has been obtained. In terms of actually looking at some of these finance issues, it certainly could be done that way.

But there's there's a tug and pull as we have trouble getting large public members that are qualified to do all these great things. There there some of what you're saying, think, is a is a staff issue in the city that where the policymakers say, okay. We want a special report, whether that policymaker is coming from us as a committee or city council or some other committee. There is ultimately some of this is is a staff finance function. Well, we wanna report it breaks down taxes, and that's what we would do if you, as policymakers, told us to do something, the first thing we gotta look at is.

So maybe that helps comments from you guys in terms of how do we structure ourselves in a discussion here. We're having more meetings. We haven't touched on that. Meeting. Dealing with the committee.

Right now, I think maybe we can re recap. I always get confused, but in the yeah. But looked at it as having one prior quarterly meeting, and then we've generally had two special meetings. And when we've had million dollar issues or other significant issues, we've had many more meetings. So the numbers up was a little bit on the number of meetings, and I have to say the year where we had the default pay a lot of work that was not built this time.

There's my billing at zero. But so I don't have an appetite for increasing the number of meetings, but I'm certainly open to whatever the committee is we makes sense or staff or the council.

I could make a recommendation to to I think that would fall somewhere between our existing structure and what council's asking. So, yes, we meet on a quarterly basis. And, currently, we do have a special meeting planned for November slash December to go over the annual comprehensive financial report. So that one is would be number five. Right?

It's kind of a moving target depending on when the audit's completed. Should there be another meeting, kind of a a moving one would probably if there would be a recommendation, would be June to close out specifically for internal audit work program items. So before going into the new fiscal year, any outstanding program projects that Baker Tilly has been working on, and that's the the sole purpose of that meeting or anything that may come up that's outside. And I thought that would kind of capture that the year meet the six requirements and it not necessarily provide a a great workload. Now let's say the internal audit work program items are addressed within the normal course of business, right, during the course.

Should if let's say we get to April, and we've already addressed all. They've been heard by the audit committee. At that point, it probably makes sense just to cancel that meeting. And so that was what essentially the the the from my understanding, what the the vice mayor was was looking for, to have additional meetings and counsel if needed those special meetings.

Thank you for that. That's very good. That that all of this reminds me, the more we suggest part coding in the municipal code, it's much more difficult to change it. So expanding the as occurs makes more sense to me than hard coding, but I'm not hearing you object. So either I guess in other context, it's like, well, if the committee is not doing a good job, then maybe they wouldn't be asked to meet more frequently.

So I can look at this as a very positive thing, and we certainly could take on more responsibilities. But it's kinda like, well, what happens in the long term? And people burn out. I can see committee members, honestly, I've done this long enough to burn out as a real risk. Hopefully, we're adding some value to this, to me, I think we're doing better. But you can try to bite off too much, and I'm afraid that may be part of the hard issue that we're addressing here is would it be great if this committee can do all kinds of things? I'm not sure sure that it is. So that's where I'm going to. Okay. How do we make this into a motion and then we can talk some more?

So I'm happy to suggest a motion, but why don't I guess staff has a suggestion here. But I was happy with what the free charter management, I wanna call that. We had specific worry last year, keeping those as a continuing charter recommendation from us and in our meetings as they are currently with the ability to have special meetings called as appropriate as well as subcommittee meetings and as well as increasing the internal audit funding budget as deemed appropriate. So that could be the outline of something that that was in motion.

I'm thinking. I agree with that, but I I think maybe for the next item with regards to the calendar, I can request perhaps that we look at look at the taxes. For that one, it isn't just the the percentage. It's ultimately that I if I were to follow the topic all the way to the top, it would be that I would wanna see some direction given to the manager to work on seeing if there's some legislative means that we could build in order to get these nineteen seventy eight percentages updated because that's really the the crux of the locked in with these very old the 15% of our property tax going to the fire where we only get to keep 6.51 to see if there's some k. So that's

kind of

like, I'm wondering if we we begin it here, goes to council. We reckon council look at it. Council say, wow. This is terrible. There is something you can do about it. Yeah. And then that would follow on after this discussion with the sheriff. So be now if that makes sense as a way to have this topic

go through the system. It might, but and I like hearing that. Here here's one issue that we've touched on that comes right back into play is, how do we spend other people's money in a way that makes sense? And right now, I if I'm only asking this and then trying to get some levity while we also have the the problem here is we've got lots of things that I I could see we could come with these projects, and I like that for a lot, you know, but the previous one, I liked previous two. That's very I like those two.

It it's but they're gonna take staff time, and they're gonna take resources, whether it's our team members not burning themselves out, but bringing it, and then also maybe getting the right experts that can bring some experience as well as insight into the project. So right. Maybe another project we could add to this that I can add is response issue is is how do we tighten up the budgeting element of what what do the four of us right now or the five of us, what can we spend on some of these things? And how do we not go crazy by saying, well, we wanna do this project and this project and just send it to city council. You guys worry about it.

We don't have them. That doesn't have them. Yet, but maybe they have it spoiled away in budget for the interview authors that we are recruiting to right now. Are you listening, Chelsea? No. No. So

I am listening.

So I hear you say, well, we can address some of this in this part of the thing, but it doesn't change the way of the whole problem of, you know, how do we fund it. So so let me throw out that we could, you know, come up with a couple $100,000 in a big in a budget that we have right now at the city. That's that's rounds to less than what? 2%, one it's not even 1% problem.

You're up to have a 100,000 for the the auditors. So

Was that per year? That's all. A three year deal. And

how does that compare to that?

We have to perform that analysis.

That is. So what I'm saying is we could triple the whatever the audit budget is, we can triple it because they seem to be busy doing things already that we're happy with, but we've got some more things we wanna do. So how do we get some more clarity on that before we actually on the we we can put them on here, but I feel bad when I put them on there. I can't actually do them. That's that's not good either. So maybe we need a book or a staff report that could outline how we could be more efficient in addressing this question. What's that? Because we don't really know what we've said. So how can we tell Chelsea?

Who's the chair? What what does the city staff assistance actually means? The audits have available to it, such assistance of city performance functions. So we if we consider these things part of the functions, then this So I'm unlimited budget. I

Depends on how much you wanna give us. Right?

I would agree with that.

Is it unlimited?

The authority is there is what you're saying. But there's a practical level. So Yeah. I think we could maybe make this a collaborative element. So let's say you could come up with three or four, maybe of the 10 that all of us are thinking of that would be great projects, and we could prioritize them.

We could say, city manager, what do you think? I mean, that that is another observation. I I've mentioned that resources are constrained. In the past, we've had a lot of success with city manager actually being president for for sure for representative, but you're also an independent finance person. So I think having city manager in these kinds of discussions adds a practical element. I've asked city manager, fellow or senator delegate, but none of the things haven't really worked out. So

They attempted to just as a why they did attempt to make it today. Unfortunately, they got cut off at city.

I completely believe it and understand it, but then we've had some the reason I bring it up is sometimes there's these default patient issues that go across departmental things. Sometimes there's authority issues that we're asking. Like, right now, it would be nice to know, well, yeah, they've got scroll away 300,000 that we can just pull out, and then we could probably quickly make our motion over to this. It might not. But it's not that easy because maybe they don't have it.

Public, they're not gonna say it anyway. So but what I'd suggest is we move on to the project list, which one way to get it started is we could have that discussion when that's there. And in the meantime, we've been trying to get our charter, which maybe I'm just seeing an appetite here that couple of us were nodding heads on the motion I had sort of outlined. If we have agreement on that, then we can further go from the principal. We have a lot of authority, but we're still not sure of is how we can judiciously exercise that in a collaborative function, and then we could talk about that in this.

So given the various additional topics that we would like to entertain perhaps, we don't know what the budget is, and we need to have some clarity around that.

That's what I mean. Yes. Yeah. Plus all the things that maybe the city council went through in their study session, I think, fits into the same thing. It's the authority I'm far as I'm concerned is still there. I don't think we need more meetings, which is by by by necessity gonna make us be efficient to handle any extra projects that are added in addition or something will get out of our meetings or something. They won't have to be hard coded. I guess I'm coming back as a broken record. So yeah. I'm seeing enough nods to do we wanna have a motion that somehow strives to accomplish what I had previously said?

Jonathan, did you keep track? Well, I guess we're trying to keep I'll make the motion. I I the motion is to It's the biggest part of the city. It's a pool. The last year's first and not changed the number of meetings or the visible code suggest times for meetings.

And all the things that were requested in the study session would be under our authority, but we're not sure how the effect no. I can't go. By this too much. Gonna can I cut it off whenever I said pretty soon? I guess no more extra meetings, the three things we suggested last time. Everything else is in doubt because we don't know the budget, and we wanted to know auditors to be able to do.

And so we are we are meeting budget authority.

Yeah. You know? But so we wanna put that in the charter. It doesn't seem like that we will make the charter motion clean. Right?

In in terms of what's being recommended, it seems like it's essentially everything status quo. However, what based off the conversation that's had and some of the desires of counsel, it seems like the audit committee can address those through the next increase in the budget you recall asking the the internal the external auditors or another consultant to perform an analysis, which would then report back to the audit committee.

And that could be in the staff report that goes with this. Okay. Correct. So now the motion is clean. Is that Charter is clear. There's three municipal code amendments, and there's no additional meetings. And that's it. That's what we're recommending municipal code change to. And then in addition, we have this discussion and staff supports or whatever to already for additional projects that we would then work into our normal course of action that we we have for we have mechanisms for setting the internal audit program already. Let's see.

Comes to us first, then it goes to city council. So we'll think, you know, next year when that arrives, we can do that or, you know, subcommittees and all these other things to talk. You wanna read the motion? We kinda have a second before we have a read document motion. Anyone want a second? Whatever it looks like a. I can let you guys sleep. Three was your repeat what the three municipal sole executive.

So you need to retain the three original motions by the audit committee, one being the name change, two being clarification on oversight of internal audit reports, and three being the use of artificial intelligence as the tool for financial reporting. In addition to those three, it would be to not change the meeting requirements as set by the municipal code. That would be the the action. And then included in the staff report is the request of additional appropriations for other projects as set at a future date or per recommendation in July.

That sounds like a clear enough motion. Thank you. Alright. We've got a second. Excellent. Now we can actually debate the motion. Anyone else? Comments, questions, thoughts? I'd like to consume at least a little bit of time, and we're gonna jump into this soon is budget issue. Maybe it's appropriate. Do you guys think it's more appropriate if you're talking about this to talk about it or to talk about it now.

Spinal Sure. What that title means to you?

Yeah. What that means to me is I can easily see tripling Chelsea's internal audit budget projects and whatever additional staff time that imply. You depend her team is depending on staff providing them with as much information as possible. So there's a huge cost involved there. So whatever tripling means for staff, it could be more.

But if you give me free rein personally, I could come up with some exciting problems. I'd ask you first, and then we can list some more. So it it I'm having some struck struggle bringing it back to practicality. I've gotta share these meetings, and today we've been very efficient. Well, sometimes we have a lot of discussion on other topics that aren't are worthy.

We only have two hours at a regular meeting. So this goes to, well, why aren't you having more meetings? Well, I think we can get what we're currently tasked with doing done with the meetings that are required. Start adding all kinds of finance related issues. I'm willing to take that on as a chair, but I'm just observing that these meetings are gonna take more time.

They're gonna go into issues that aren't easily addressed in our staff report. First of all, we don't five don't have a long background, so we're gonna need a lot more reading time. Any members are gonna have to read these reports. We're gonna need more basic stuff. So I I think this is all fine because it's being responsive to city council, but I'm just raising it since this is the time to discuss while we have the motion. Well, I don't think it changes the motion, but it just clarifies it.

Can I just ask one Yeah? It's actually gonna be directed to Chelsea. Do you have the bandwidth to increase your budget?

Absolutely. Yeah. You know, we have over fifty fifty team members that do this within, our internal audit team. So definitely can add more members if needed. Obviously, we would wanna talk to you all about the details.

Thank you.

Very great question. We we shouldn't assume anything. Okay. On that note, we'll probably need more clarification, but are we happy? We want to take a vote. Everybody's had a chance to stress. Okay. Why don't why don't we take a vote on the motion as all the table? All in favor, aye. Aye. Any opposed? No. We don't have any. It looks like it's. Aye. Good. So thank you very much for any concluding discussion. Jonathan, you carry that down still. We're done for us. And now we move on to oh, item nine.

Sorry. Next page, which is our so it's an informational item, but probably we should unfortunately, we've got ten minutes to actually discuss this. So it's gonna be more discussion time. So I think my question would be, can we just list right now maybe the three that we already have on the table? There was one that was a budget related issue that was very interesting, very big level reserve slash budget.

How can we put that in some sort of a phrase that we could I think what we what I'm looking for is identifying three or four items here that we need more staff consideration and thinking on for us to be able to deliberate in a future meeting as to when we might address it and who might address it. Right? Because we don't know budgeting. We don't know what's and then there's input on all this is. We don't know what Chelsea's input might be.

So the goal here is to maybe what three additional projects or more can we route a lot here that are then further considered behind the scenes. How's that? So first one that you mentioned, sounded interesting was how how do we compare the city's reserves as currently constituted of light of legal and fiduciary responsibilities and constraints. That good for one? Jonathan, maybe we're gonna need your Pretty I think all of these are gonna be very broad because we're still trying to figure out how do we find in and structure them into a way that we can, you know, get to work on.

That was one. Then you had a couple more. And I'm sorry. My Oh,

pardon me. So the the one regarding the budget was I'd like to see a spot check of the actual budget book get into, for instance, you have a BlackBerry Farm golf course item. You know, can someone bot check on those numbers and see if check for accuracy? And that doesn't really I mean, you could get receive a report on that, but that's a little different. The auditor and whoever is that department had, you know, to talk to whoever's set up that budget unit.

So my concern is that it could be that over time, some of these as we were, the budget had kind of underestimated revenue and overestimated the expenses, and we would end up with a large unassigned fund balance at the end of the year. And this went on for a good while, and I kind of wonder if there's a potential there in spot checking with with highlighted. There's a potential that some of these items are are too high. They need to down or or that there's some errors that are being hidden because of the because the budget is too too big. I don't know how to word that better, but just

No. It's a common problem, I think, in industry. This is an operational issue that pointing out. So we can definitely, I would think, get that into some sort of a set internal onward guys, you know, to help us phrase that. But

And perhaps, like, a various

threshold at, you know, level. Right. So you're you're you're raising I mean, use it or lose it. The whole budgeting integrity is is part of what you're you're asking. So I I think there's a couple sub points at least that come to mind. One is you raise BlackBerry, but there's also the materiality element of it. So independent auditors do something in this area because they're having to issue an audit opinion on the city's budgeting. Right? Because that's kids in the act, or is that just in the MD and A? So the

internal functions don't necessarily

Right.

Right. Come in. They wouldn't necessarily have a an opinion. Right? Because even AUPs don't have opinions. They just have findings. Right? Whereas, like, a single audit or the annual comprehensive financial report does have an opinion. And so what they would provide is in by the sounds of it is, is the budget too conservative? Right? Are we underestimating revenue too much and overestimating expenses? And so how far from actuals or realistically what you're going what you anticipate should you be deviated?

Right. And there's some other variance analysis though. I think the moistures maybe raises. So what we can do is we're gonna make the project that's looks at the budget in terms of integrity of the process as well as so people aren't gaining the system by asking for more than what they have in one chance to send this. That that's what I mean by integrity. Tighten up that wording, but but also then you're pointing on various various variance analysis in the budget that gave them more efficient, something like that. That's an operational issue with all others. Are you still on the line, by the way?

I sure am.

I wonder if we can make this interactive. So we have the first one that was relatively easy because I made it so general. It's hard to second one here is an operational element of budget. You probably have top of mind all kinds of things you can think of that that relate into that that might help us phrase this very general topic that we're trying to put on the table.

Absolutely. So I did hear, you know, us saying that we would do periodic spot checks of the budget. So creating having samples, throughout the year, that's something that we could do. Checking for accuracy and the overall budget intake process.

Yeah. I think maybe right. So it's gonna take more refinement. But but, for example, let's say I'm given a budget on some I'm in the audit committee, and suddenly now I wanna budget for a $100,000 next year because we're gonna spend some money. And, you know, how how what are the guardrails around that general request? That so those kinds of projects.

Right. So I think looking at, probably, would wanna look at the overall policy and procedure that the city has in place for this and making sure that the guardrails that are included in that policy and procedure are are, you know, being abided by for those special projects.

Okay. So let's leave it at that for a moment because what I'm thinking, we can have input from committee members separately provided to Jonathan maybe or or as a clearinghouse for and then, Chelsea, you could provide input to whether that the project makes sense. But we've got something there in terms of spot checking budget, let's say, for a moment. And then I for some reason, I thought there were three that you were brought us.

Taxes and property taxes.

It was still up to Taxes. Taxes. Okay. By the way, the audit committee, 31,000. Yeah. Okay. Great. I think that's salaries and That's probably staff price.

Also a contract. Yeah.

Yeah. Yeah. No. Better

bump that one off.

There's no lines of contracts. Correct. But I but that's the council.

Correct. I'll have to go looking for it, but it was moved, so we'll have to sure that it's in the right spot.

Right. So another placeholder can relate to something else that somebody might be thinking of. So we've we've mentioned the likelihood that we're gonna have authority for artificial intelligence. So we know next year, assuming that that got into the municipal code, we were gonna have something related to that. So that could well be an interview project that says how the staff currently using AI, and then we would I want to know what how that impacts the financial statements or not?

Shortest staff is not using currently in its ERP system AI or financial reporting. However, with the new ERP system, there is a component that uses AI to help streamline some processes. So as we're moving through that implementation, we can notate how it's being used or utilized and how the future it could play a factor in in its reporting. I know the Pun Group currently uses AI to help their their their sample selection and so to to identify what would be likely causes of our misreporting issues. So that is the the short of of AI.

For that. I think having the authority is important, but we may need to think this committee motion. I'm not I'm hesitant to even put that on the so anything else based on the staff report from the city council and study session. Go on here. To be honest, I'm having an adult brain toward the end of our meeting here, and I'm not it's not coming. So I'm happy not to add any more.

I I would like to point out there was a slight modification to the work plan. I highlighted here in for Ed. Let me not included in the the desk. And this is just based off conversations we had earlier. So as part of the July meeting, included it through the the pending pre internal audit work program items, which is the citywide internal control review, investment in cash flow policy review and recommendation, and lastly, the grants management internal control review.

That's I just added it earlier. So this is essentially a working document. So based off of what's discussed here, this is how it's gonna end up laying out. So I can provide an updated

Yeah. Well, thank you for doing that because it was a draining mental while the agenda is going to bring it on, put some more things in the consent bunker. Okay. So unless you have some more items, anyone, I think I'm happy with this these changes. I mean, we've got some more behind the scenes, well, because most likely staff report will come back to us. So a lot of interesting things. Excited to everybody. Thank you for a very efficient meeting, and I call some of my well, let's see. We also have some recent partnership. Sorry, guys. Steph, let's sign in.

No. I don't, but I have a question. Could I be could I as a way to introduce parts as a report.

And so I So you can

I just That would be

great because I can report, and but I don't think it's enough that you gave that presentation, like, a half hour? So I think the committee could send us a PowerPoint whatever you use. Today? Or

for to be included for written communication Yeah.

Written. For this agenda?

Yeah. Oh, okay. Right.

Does that seem legit to do that?

Sure. Yes. Okay. Feels great. Okay. And then future agenda setting, we already covered. Jonathan, so what's the difference between that one and item nine? I guess, future agenda study or general concept?

Yeah. From my understanding, some committees don't have a dedicated schedule and work plan, so maybe that's a little separate. It may be redundant.

Maybe we can delete it

in the future. Lindsay can look into it. You but I think we should keep number nine on our quarterly meetings. Yes.

But that's because you you have an item nine.

So this

is an item this this this is is an an issue that we were discussing this morning. It's the city and insurance attorney our procedures are coming up. And so there's been some debate because on the on the city council, we have a a future agenda items heading, but it's just a report, and it's not to have discussion about those. Those, if you want for the council, if you wanna put something on the agenda, you would get a second, and you would go through email. So the the the mayor can put stuff on the agenda, but it goes onto a TBD list. Mhmm. So we're actually setting things. So this is a little bit different.

Interesting. Yeah. So this seems more useful because a lot of us have different views and we work it out as a committee rather than, you know, that committee.

And we're not having a we're not haggling over. So one of the things that was sort of happening at the last meeting was the the haggling over. So you when you do that, you're getting into a deliberation on here are the merits of this that I wanna have on the agenda.

Right.

And then somebody might may not agree. So Right. I see that you're using it through item nine, the calendar. So I think that's a neat way to do it.

Great. So maybe, Lindsay, we can get rid of future agenda setting, and we'll just keep number nine done. Alright. That's call us here by.

Thank you.