Audit Committee - Regular Meeting

Super. City staff, can we do a roll call?

Council member

for the audit committee meeting of July 28.

Council member Mohan?

Yes.

Vice mayor Moore? Here. Committee Member Wong?

Yeah.

For the record, Vice Chair Wu will now be in attendance. And Chair Shu?

Here. Great. Thanks for that. And I wanna kick us off by saying giving a warm welcome to our new fifth member, William Wong. Thanks so much for joining the committee. Glad to have you on board.

Great. Thank you very much. Delighted to be on board.

Fantastic. So what I was wondering what I'd like to do is actually move to item one and two, but I don't see anybody from the public here. And I'm not sure the minutes need comment anyways, but why don't we just cover item one and two both together since we don't have anybody from the public to comment. Hopefully everyone's had a chance to read the minutes.

If I might add, there was a supplemental sent out earlier today to make some corrections to

That's right. So the desk, changed. So what I'm gonna do is, with everybody nodding their heads, why don't we have a motion to approve both the April 28 and May 12 meetings?

I so move with the corrections that no. Seven. Perfect.

We've got a motion and a second. I don't think there's any discussion. Feel free to nope. We don't. So all in favor, I was to vote. All in favor, aye.

Aye.

Aye. We've got a unanimous passing of both of those. Very good. Thanks to for an appreciation. Oral communications. Again, I don't see anyone from the public, so we are good to go into number three, which is the informational item fiscal year twenty four-twenty five ACPER interim testing update. And I imagine we've got Sophia on the I see you on the on the screen. Welcome, Sophia. And I think probably we hand over to you, Sofia or Jonathan. You wanna say something. Okay. We'll go right to So,

I have a brief brief presentation prepared. I'm not sure how much time do I get today, so I would try to go, as fast as I could. And, good afternoon again. And then my name is Sofia Ku from the parent group, thank you for having me here. And, let me see if, so, again, this is for fiscal year twenty five. The city's Cupertino's order. Can you

guys see my screen now? Yes.

Sure. Thank you. The

show

So this is in accordance of professional standard, you see section two sixty that we are required to communicate with those charge of governance. Here, we determine that the committee members are those charges of governance. So that's why I'm here. And, also, we would like to talk about the timing a little bit as well. So what I will go through today is the scope of work, management responsibilities, and then our responsibilities as an auditor and our engagement team and, audio approach, and then the the key focus is on the interim procedures and the time frame and also, some touch up on the implementation of new gas people announcements.

So the scope of work includes, audit of the city's annual comprehensive financial report, which is the effort, and also single audit, which is expected for this year. And, also, agree upon procedures on the city's gain of operation limit, investment compliance, and also storm drain. Other items including the city state control report and then, again, the AUC two sixty communication with those charge of the governance at the conclusion as well. And, also, we are also engaged to per, to prepare a financial statement based on the information provided by the city. And then the management responsibilities, including prepare and then, prepare preparation, the fair presentation of a financial statement in accordance with US GAAP.

And, also, management is responsible for design implementation and maintenance of internal control relevant to the financial preparation. And, also, management is required to evaluate whether any events that will trigger a going concern. And then our responsibility is to form an express opinion on the financial statement with your oversight and also plan and perform our audit to per to obtain reasonable assurance, but not absolute assurance because we are not doing a 100% testing. So only reasonable assurance can be obtained. And we are also required to exercise professional judgment and maintain professional skepticism throughout the audit and also identify as the risk of material misstatement of the financial statements whether due to fraud or error.

And we are also required to obtain an understanding of the internal controls relevant to the audit in order to the design our audit procedures. And but our testing is not sufficient to provide an opinion in accordance with the yellow book. We are required to obtain understanding, but we are not required to issue opinion. And we are also required to evaluate the appropriateness of the accounting policies used by the management, and we also need to conclude whether any conditions or events will trigger the city's, ability to to continue as a going concern. So this is our service team, so we keep the same same people on the team.

Myself is the engagement partner, and Ross Goffter, he is the quality control director, and Mark who is our engagement manager who has been visiting the city couple times so far. And this is pretty standard audit approach that our firm has been conducting our audit. And from firm to firm, pretty pretty stable as well. So we finished the in for phase one and phase two. Phase one is the engagement acceptance.

Phase two is the interim work. So that that's why we are here today. And then, in September, we will move on to the field work and the post field work and also the, report preparation and review. You know, later slide, I will talk about more detailed time frame. So the interim procedures that we did, our initial risk assessment, and, again, we obtained understanding and performed walk throughs and the test of controls over the significant transaction cycles that we which including the, financial reporting and revenue cash we see collections and also procurement cash disbursements and also payroll, including census data testing over pension and OPEB as well.

And we also did IT control and also the fraud inquiries related party testing. And do we also send out the legal letters already, and but we haven't heard back, but we will follow-up. And this is the detailed time frame. So we started our procedure in back in May, and so now we already conclude our interim field work. No reportable findings.

And throughout the process, it went through, it it went really smoothly, And we are plan to start year end field work during, the week of September 22, and we are plan to provide a draft for the study to review around late October. And our tentative time frame to bring back to the audit committee is in late November, and a finalization time frame will be in December. And last year, we did get a break from Gatsby, but this year, there are two new pronouncements that need to be implemented. The first one is GASB one zero one, which is compensate absences, and the GASB one zero two, certain, risk disclosures including concentration or any limitation raise raising revenues. So, the gas p one zero one, it might take the May might take some time to go through because the sick leave that requires reevaluate how we account for the sick leave.

And then the gas p one zero two during the discussion with the management, it doesn't seem that the city would require, city would require another disclosure, related to gas b one zero two. This will, conclude my brief presentation for today, and then I will be happy to answer any questions that you may have.

Super. Thanks, Sophia. Let me, throw it out to the committee members. Any, clarifying questions that we have? I've got one. Well, maybe we think of others. You you mentioned the state controller's report on, I think, slide one or two, and I've I've honestly forgotten what, what's that.

So that's a that's a required, another financial reporting from the state controller office, and that report's due January 31, the subsequent year. So the current, the fiscal year '25 will be due in 01/31/2025, 2026. That the '30, it requires a separate disclosure so that they it's a standard template that, state requires to to put different expenditures revenue in different bucket based on the audited financial statement, and then we, and then require to be submitted to the the portal.

So you issue opinion on that or

Pardon?

Does the PUN group issue an opinion No. For the documents submitted? Or I I just don't recall reviewing that in the past as a committee, which seems like a good thing for us to be reviewing.

So that's

Miss Sophia?

So we don't issue opinion on that one because that's really just for informational item, and then that's, we consider that as a nonaudit services that we provided to the city.

Okay. Nonaudit services. So we I don't remember looking at it before. But Yeah.

It's essentially pulling numbers out of our act for and compiling it and putting it into a report that was sent into the state. There's the numbers have already been audited for for our act for and so it's essentially reorganizing that information and submitting it to the state.

Maybe as an informational item, we could get it in our package for whenever that period occurs. That way we can look at it and see what it is. Perfect. Yeah.

Through the share Please. I'm kinda curious if they use that information for they have a dashboard or they haven't passed out a dashboard, and they would let you know the financial condition of all the cities across the state. Really? And maybe that's Oh. Something that they're using those numbers for. I don't know.

Yeah. Maybe when when January rolls around, you can have a little paragraph describing what it is and saying, here's the report, and we'll put it in our package. We don't necessarily have to have an agenda item for it necessarily, but we can combine it with something else maybe. Super. Any didn't you were about to say something else?

Yeah. No. I had I had a question about the new Gatsby requirements. Does that involve any additional steps that staff would have to place?

So currently, we have contracted with OpenVeb or now one TrueComp, believe it is now, but they're going by, to to run it with essentially an actuarial report. And based off of that, they'll provide us this report, which we will work with the fund provider. Which is they they have actuaries that based off of the information we give them, they'll run they'll review our MOUs, how many compensated absences individuals have, how is it reflected as far as a liability to the city, and kind of put a number to it. Right? What is this this liability?

And then we will work with, the PUN group within develop whether an entry is warranted and included in our financials. That assessment will occur somewhere mid September once we receive the report. So that's kind of a work in progress right now. So we're currently working with.

And both these have to be reflected in the next

Correct. In that fiscal year '25. Sorry.

Just clarification. I think you said OpenGap, but I believe it's

Thanks. Sorry. So it's Gov and Best. So OpenGap. Yeah. So Gov and Best and TrueComp, I think they've been using different names for different services. But TrueComp is who we ended up contracting with, which may be a subset of Gundinvest or maybe Gundvest completely changed their

name. But,

yeah, let's see. Sounds like we're good. Well, thanks, Sophie. I appreciate it. I I wonder for next year, if we might be able to get you in the interim period while you're still about to come into the interim.

And I know you've come to many of our meetings, but, that this is a little bit after you've already done the interim testing. So it's nice to get the report that you we're still doing that. But I wonder if we might, as a committee, have and we typically don't, but we might have input on direction of some of your audit steps. So I'm thinking maybe in April, if sitting staff's amenable to that and the committee's not have a different view. I'm just it's one person expressing this, but I think the idea is if we have some input, we might be able to provide it to you, and then you could do it before entering this over. Does that make sense or not? I'm flexible.

We can certainly have that discussion. Okay. They're they're getting ready. Maybe at the set the April timeline. Let's see. Before we stay start the Right. Next year, we can certainly have that conversation.

Perfect. Alright. Thanks very much for coming and, being so efficient in your presentation.

Thank you.

Thank you.

Thank you.

Fantastic. So we will accept or we've received it. So our action step is we've received it. So as chair, I'm Received. Their report.

Item four then, our next one, is another informational item, received the OPEB and pension section one one five trust performance report for quarter ending June 30. And I see we've got Dennis Mullins here and anything we've already gotten a report. We were a little pressed on time, but I wanted to make an opening comment just that I was impressed with the new format that I saw. I think I saw the new format the first time in in this report. It seemed CRISPR and I could certainly see the benchmark tie closer to what the performance was, which was one of our previous comments.

So Yep. Thanks for that. And Dennis, you wanna make some remarks again? We're a little pressed on time, so I apologize for condensing it, but

Not at all.

Appreciate your maybe giving us highlights and whatever you wanna cover.

Steve,

it was a good year for, both portfolios. They're managed the same. The, OPEB portfolio and the section one fifteen pension prefunding trust are both roughly 60% equities. The OPEB was exactly 65 equities, 28% fixed income, 4.7% real assets, two and a quarter cash. And that's the the two accounts mirror each other.

So this slide that's up here, that's the asset mix for the OPEB. Great year just ended. Both portfolios exceeded 12% for the year net of all fees. The OPEB was 12.61. The pension was 12.46.

As a reminder, both of these portfolios are invested in mutual funds. We use the best funds that we can find out there. We do not use proprietary products. The expense ratio of anybody's interest, weighted average expense ratio, which is something that we need to keep an eye on. And again, if you're interested, 19 basis points, that's very low and reflects the fact that we are using almost exclusively now index funds.

As at the April 28 meeting, one of the requests was let's get start moving closer to the benchmarks. And I moved out of the actively managed large cap equity funds and replaced them with index funds in the last quarter. Now that April 28 meeting was one third of the way through the second quarter. So we're starting to see results of that into the May and June, but we'll continue moving a little closer to the benchmark. The three year return, exceeds 12%.

That's a cumulative return of, you know, in excess of 36% if you compound that probably closer to 40. So it's been a really good it's been a really good period for, equities. If you remember the April meeting, we saw, negative returns for the first quarter of this year. The S and P 500 was down four and a quarter, and a lot of concern about tariff policies, policy uncertainty. Market was reacting to that.

And yet, for whatever reason, in the second quarter, the market has come rocketing back. The S and P up over 11 or 10.94% for a six month return of 6.2. Likewise, the MSCI ACWI, which is the all country world index, was down 1.25% in the first quarter, up 11.34 in the second quarter. So really good equity returns, in the first half of this year. So, again, capped off a really strong fiscal year, up over 12%.

And, and, again, moving a little more towards the benchmarks. So we'll continue that. We are developing attribution reports. You had requested those in the last meeting. I just got the June 30 performance reports in time for this meeting, so, I'll be getting those and following up with you. And, couple of little challenges there. We don't actually purchase the MSCI ACWI data, but we found the workaround a little bit. We're gonna compare it to an, an MSCI ACWI ETF. Last quarter was within 40 basis points total return. So it's be off a little bit, but but that I think it'll get us the data, the the picture that you're looking for.

And that's about it right now. I'll go ahead and just leave it at that very high level overview. And

Perfect.

Any questions, let me know.

Yep. Yep. Which I'll throw it open to our committee. Again, we don't have members in the public, so we're not asking for, comments. Anybody wanna kick off a question or a comment? We're all good? Okay. I think we're good this quarter. So, you know, take take our wins when we chance. Absolutely. I mean, maybe we should spend two hours just reflecting on the 12% performance, but I think it's pretty unusual and it's nice to see that we're we're tracking closer to the index. Think that certainly makes me a happy camper, personally. Thanks very much. Well, we will accept that report. Much appreciated, Dennis.

Again, your efficient presentation under our time constraints today. So we have now moved right along and accepted that report. And now our agenda item is an informational item on the treasurer's received the treasurer's investment report for the quarter ending June 30. And again, we've all seen, I hope, or or done our our reading beforehand, but is this one Christina kicks off or John Oh, I'll start us off.

And then we'll then punt it off to Carlos who will provide a brief overview of our investments.

I think that's my cue.

Just give me a brief moment, Carlos. Let me, just do a quick overview of status of our balances and then go from there. So this is, for, the treasurer's investment report, with the quarter ending on 06/30/2025. Overall, our cash and investments have increased by about $10,000,000. This is largely in our Wells Fargo checking account, which is our operating account.

Key items that, that drove this in the last quarter, we did receive our property taxes of the second make biggest deposit or of the year, along with franchise tax franchise fees and UUTs. We did have a in June, we did have a debt service payment that we made, so that did drive down believe it was about 2.2. And so the net of that is that that increase of about $7,000,000 in the the operating checking account. All the other changes are just due to interest earnings. And then moving on to the next tab.

All our investments are in compliance with state law and our investments policy, well as, it's in compliance with government code fifty three six forty six. The city has sufficient funds to meet its expenditures, requirements over the next six months. And with that, I will turn it over to Carlos.

Good afternoon, everybody. Let me just start by saying and I'm gonna keep my piece as brief as possible, but as always, I'll be available to answer your questions. It's it's important to note that we've been watching rates fall just slightly over the past year, though in a volatile manner. In the most recent iteration, I would say that most of that is is driven by three very basic factors. First is obviously what the Fed is going to do.

There's there's a little bit of a push and pull from a political standpoint as well as from an economic a true macroeconomic standpoint for the Federal Reserve to lower interest rates. Though the Fed has paused slightly and waited to see what what's gonna happen with with the tariffs picture. That's the second factor is that that's an unknown to investors. Investors can, for the most part, digest bad news. They can digest good news, but an unknown sometimes is worse than both of those.

So that that's the second piece. The the the Federal Reserve has sort of, weighted their they've taken a wait and see approach to see what, what what tariffs are gonna look like. And, of course, you probably saw this morning that there was a little bit of clarity on that field. The third topic, is, of course, fiscal policy and what the the the new bill it's it's already law, the one big beautiful bill, is going to do from a just from a, an economic standpoint over the long run. It is known to add to the deficit.

It is known to add to the national debt. Over the long run, it should put upward pressure on long term rates, creating, more of a steeper yield curve. So all everything I I I tell you is in the backdrop of all of that, and I'm just gonna walk you through some of the things that we've done, in the portfolio to, be positioned for that forthcoming, environment that I just described. So, why is the Fed why is the Fed, talking about lowering interest rates? Well, inflation is still slightly elevated, although I would argue that based on on what their target is, 2% for core personal consumption expenditures, we're we're kinda right near there.

It isn't so much that, and and it doesn't seem like it should be that because of employment because employment has looked quite good. In the month of June, we generated a 147,000 jobs. The past the the prior two months were were were, revised upwards by an additional 16,000 jobs. Unemployment is is in the range of 4.1%, and all of that is kind of a rosy picture. Why why would it be?

Well, primarily, you are seeing, the consumer ratchet back just slightly. If we look at retail sales, that's starting to sort of step back a little bit. And if we look at housing, not you wouldn't know it from looking at the Bay Area, but nationwide, you can see that housing is starting to enter the doldrums, partially because of high interest rates. The the month of June brought us an average of about 6.8% in a thirty year fixed rate mortgage. The key things are this.

We did have a negative GDP number for the last quarter. Most of that was was expected, and a lot of it came from net imports. People were trying to front run what was happening with the tariff wars in January, February, March. That really kicked off, and then people understood that that was to come. It was announced.

It started with Liberation Day on April 2. And within those two weeks, we saw a lot of volatility in interest rates. But at the end of the day, rate the Fed has has been on pause. They are due to meet later this week, and it is expected that they'll likely pause one more time. The Chandler view, however, is that with interest rates, and I'm gonna roll up to there, with interest rates at the level that we see and also with with from from the Fed's summary of economic projections, the the level of interest rates today are a bit restrictive.

And and the Fed is interested in moving that lower before they push us slower and into a contraction. So this is what I was saying earlier. You can see the treasury yield curve on the right hand side and the term structure of interest rates. Well, on the front end, on the short end where the fed directly impacts it two years and shorter, rates have come down, and that's what we've seen. You can even see two year yields here a year ago were somewhere in the 5% range.

And today, well, they're below 4%. That's come down, and it's come down considerably. The longer end is anchored by inflationary pressure, and that inflationary or expectation, I should say, that expectation is coming from unknowns having to do with tariffs and unknowns having to do with what fiscal policy is gonna look like over the long run. Investors will demand a higher yield over the long run to be compensated for what inflation will erode out of their earnings. Well, what what does it mean for you?

Well, you invest you don't invest out there, so that's that's not that's not the end of the world. What it does mean is that the ranges in which you are allowed to invest under California government code, we anticipate that those will eventually be lower. They already are, as you can see here. We've positioned our portfolios longer on average. We did that in the 2023, and we've maintained a longer stance relative to our our our our benchmark durations because we had a conviction that rates would be lower through the course of the next eighteen months, and that's exactly what's happened.

That has done two things for you. It's caused the portfolio to hold on to its interest income for longer. It means you've protected your interest income. You haven't been forced to reinvest in increasingly lower rates faster. You've you you you've done that. Everybody does because you much you have maturities periodically. But when you do, you you you slow that down, which holds on to your income stream longer. That's number one. Number two, when interest rates fall, the value of your investments goes up. And as a result, you had a really good year, from both of those, from strong interest income that you've protected and also from fair value appreciation.

Let's look at it. I'm gonna roll ahead. Did the this is the statement of compliance. Every everything is in in compliance. I'll let you look at that in your board packet or your committee packet, but I wanna roll to the main portfolio. Currently, that's valued at a $175,000,000. Let me zoom in on that so you can get a little bit of a better look. Right now, the yield to maturity is 3.73. That is the interest income you you would be earning into the future on an annualized basis, assuming nothing changes. Things change in this portfolio every not every day, but periodically.

You do have maturities that we we get the money back. We have to go back and reinvest. We pick up a different yield in the in in the market. The market yield as of June 30 was four zero three. That's the yield you would get on this portfolio had we bought the entire portfolio on that day. It infers a reinvestment rate. Think about it like this. If we have a maturity or you give us additional money, we're gonna make it look like this portfolio when we invested. And when we do that, we should be picking up somewhere around a four zero three. Very high credit quality.

That's part of the reason why you have this portfolio. Your objectives are safety followed by liquidity, and those two Trump, they they they are ahead of of return. When you look at the makeup of the portfolio, we are still very bullish on US treasuries. They make up, the bulk of your portfolio because on a relative basis, the yield is still competitive. And, also, because this is a liquidity a safety and liquidity portfolio, treasuries tend to provide the greatest amount of liquidity out there.

There's usually a counterparty ready ready and willing to buy a treasury from us if we needed to sell it in a pinch. Notice we're not buying agencies other than the agency mortgage backed securities. We've increased our purchases of those. They have the full backing of the agency. In this instance, these are commercial mortgage backed securities, multifamily housing mortgages backed by Freddie Mac directly. It's it's it's the the the ultimate backstop is the agency. These that we buy are actually rated triple a even though, the Freddie Mac is is rated double a plus. These are rated triple a because of the structures that we have. I do wanna highlight the corporates. I think, you know, that corporate spreads are tighter than they've they've been that way.

For for the last couple of years, they've been tightening, except for a period of time. We just saw a little tiny bit of widening. But for the most part, there is still value to be had in that sector as long as you stay diversified. I'm gonna roll ahead to the returns. So from a total return perspective, for the last twelve months, so for the fiscal year ended June 30, your return in this portfolio was six twenty, six six point two zero.

When you factor in the fees, it was closer to $6.12, and I think there's some rounding there. It's really closer to $6.13. I would say that three fifths of that number came from interest income. So that hits your budget directly. Those are greenbacks that can be spent on on city council initiatives, on on your budget, on the things that you spend money on, on on on debt service, on capital improvement, all the things that you do.

The other two fifths came from fair value appreciation That that doesn't hit the budget, but it is it is, an impact to your financials, and it is a true economic impact to the city. You you book it per GASB 31 through your income statement. When you look at the benchmark, the benchmark for the year was five fifty four. How is it that we're beating the benchmark so much? And consistently, if you go back since inception, even the last two years, a five fifty three versus a five zero three, for the that's the average. That's the average, taking compounding into effect, The geometric mean. Same thing for the last three years. You averaged three seventy eight per year taking compounding into effect versus the benchmark of three twenty eight. How is it that you do that? Really, for us, it's part of it is the the the duration.

But as you're aware, we constrain the duration. I said that we're maintaining the portfolio slightly longer than the benchmark duration. I'll I'll I'll highlight that because that is important. If you can see here, we've been averaging two point five four years where the benchmark is two forty eight, and that's and we've been longer, just slightly longer for quite a while now because of that anticipation of interest rates falling. That has caused your investments to go up in value, and it's caused you to hold on to that yield for longer.

That's why you have these great returns. But also because of the diversification, because of the introduction of, the corporates, the the allocations we put in corporate securities, the allocations that we have to asset backs and mortgage backs and supras, every everything that we have in the portfolio. These are yield advantage securities, yield advantage sectors. We add them, and we add them prudently mainly because we we we mitigate that risk. Over the long run, I would say that for the future, you you wanna kinda keep an eye on what what's happening with fiscal policy.

You will likely see a steeper yield curve, which will give longer term portfolios an even greater opportunity to outperform. So in terms of of risks, really, what we're focused on is what the long term hit to the economy may be from from the the the new bill that that this is the hallmark finance legislation from this administration. What that's going to look like, it's still an unknown. It's expected that tariff revenue is not likely to make up for for the additional debt we're taking on. If anything, tariffs, we're getting some sense that it may start falling somewhere between 1520% across the board unless unless some nations have made specific arrangements.

Let me stop there and take any questions that you may have.

Thanks, Carlos. Appreciate your presentation. Any questions from the committee?

I would just like to add one last thing that I wanted to add. Recently, we made the UAL payment or liability to CalPERS. That was for about 3 and a half million dollars, and that was done in the current the current month. Had it not been for the $10,000,000 ADP, or additional discretionary payment we paid back in December, it would have been 5,500,000.0. And I also wanna highlight that CalPERS recently released their earnings report, which they came in at about 11.6%, which is great news. And so that that's gonna also work in our favor because that $10,000,000 benefits from that 11.6%. So with that, I can go back

to questions for Carlos. I think we're really happy, Carlos. You're you're way ahead of the benchmark once again. Music to my head of feast, music to my particular interest, and appreciate your efficient presentation. Well, maybe we'll have some of these unknowns addressed in the future. Absolutely. On then, unless there's some urgent question. Okay. Appreciate it. Thanks, everybody.

So everybody. Have a great day.

You too. We will accept the treasurer's investment report for the quarter ending. Thanks, everybody. So item six is an informational item to review the internal audit, fraud, waste, and abuse programs. And I think, again, we've all seen in our packets, least initial PowerPoint presentations. But let me turn it over to Chelsea and Colleen. I see you're on the screen as well as Maria.

Yes. Thank you so much. So going over our audit status report. So we broke this up into two fiscal years, finishing off fiscal year twenty five. We do have the grant management internal control reviews still going on right now. We're conducting that detailed testing. And we're hoping that we're going to get that report to you all in the coming months. Special revenue fund, we are going to present on that later on today. And then our recommendation validation establishment program, this has been something that we started off this fiscal year, will continue next year. That'll be part of our ongoing internal audit status services.

But this was the establishment of that program. And I'm going to actually hand it over to my colleague Maria to talk about the recommendation validation we saw this time around.

Hi, everyone. Good evening. It's Maria Stroth from Baker Tilly. So just a quick update, just a couple of minutes here. So I know we presented this back in April as our initial effort to validate audit recommendations.

So taking a look at past audits that the city has had, looking at those recommendations, and validating whether or not the city has implemented those yet or whether those are still in progress to be implemented. And last time, you we'll see in the report, we had validated 45 recommendations, and that makes a lot of sense because we were getting that project, this project established, as Chelsea mentioned. And so we're gonna see quite a lot of recommendations upfront. And what you'll see in the report today is that we have validated three additional recommendations since April. Now that we sort of have the process established, we sort of been through our initial push to get things validated.

Now you'll start to see a few recommendations is my expectation, each time as we report on this each quarter. So we had three recommendations validated since our last summary in April, and you'll see those in the report that was provided. There was one related to the enterprise leadership assessment and looking at the effectiveness of the naming structure, and then two related to contract compliance that were implemented to really improve controllers around, the city's contract work with skilled labor and also conditional waiver requirements. So that's sort of our update there. We're continuing to validate those recommendations.

We'll do that on an ongoing basis, and we'll continue to provide this report just to provide you that assurance that the city is continuing to, implement the recommendations that are made in audits.

Thank you, Maria. And so just going back to that stat report, the second half of the first page gives you our fiscal twenty six projects that we are about to start. So council wide policy review, we are waiting to talk with city management about the timing of this project and when we can get this one off and started. But I can tell you that we are going to start initiating both the citywide internal control review, as well as the investment and cash flow policy review here shortly. So we're going to get, two projects off the ground running fairly quickly.

And then, of course, our ongoing internal audit services with that extra added, you know, recommendation validation that we're doing for the city. So those are fiscal year '26 projects. And then going on to page two, this just gives you the asked statistics on the fraud, waste, and abuse hotline, both on a quarterly perspective as well as a lifetime perspective and the outstanding open reports. That is all I have for this item.

Okay. Thanks, Chelsea and team out there. I want to make a quick comment that thanks so much for showing the aging on the outstanding report. I think that's, again, new this reporting period, which I found very interesting. So let me open it up to the committee. Questions from to clarify anything that, Maria or Chelsea has commented on?

Yep. Please. Thank you. Thank you for this, the report on the page regarding the fraud, waste, and abuse hotline statistics under employment matters. I wasn't sure how that works because it said, like, complaints received this quarter for employment matters was one, one under review, one referred to the appropriate city officials, One closed, one open. I'm kinda thinking that maybe you got two complaints. Or Yes. Okay.

That's I apologize for that. That was an error on our part. There is one under review. It's been given to the appropriate city officials, and we also had received another one, and that has been closed. So once Oh, okay. Once closed.

Okay. That's what that's what

I was figuring. It's like I apologize. Okay. So that one was confusing. Now with regards to the outstanding reports, so we did receive a closed session update on these.

Okay. And there's a policy issue that needs to get worked on, and I don't know how that will how how do we communicate that? Because you could foreseeably have a situation where having the separation of the individual who is the subject of the complaint from who's investigating, becomes a problem. So that's the there I don't know how do you create a policy around that without disclosing.

Yeah. So, you know, Colleen and I had opportunity to talk to the interim city manager last week, as well as the city attorney. They

kind

of were asking us some questions about the current fraud, waste, and abuse policy. We provided them that policy, really reminding them what it was based off of, practices. And I think that they were going to be talking internally, and they were going to get back to us. But the interim city manager did convey that city council had asked for her to come back to them with some recommendations.

Okay. So would that policy be something that this audit committee would weigh in on at all? Or it's just it's just kind of odd because it like, are we or would we be creating a policy in a closed session, which does not seem appropriate?

But we're certainly not gonna comment

on it. Yeah.

I may it it that may fall under the internal controls of such well, I'm sorry. That's actually out of context. So I would make the argument that you you probably could well, y'all will be reporting out. So anything that the in the internal auditors look into, they actually report to this committee. Right? If there's they're making a recommendation, I think there would be some feedback. To a certain extent, we can I think later on when we get to the roles the duties and roles and responsibilities, we can kind of maybe clarify some of that language?

But, yeah.

May I have a a a reminder of the the council wide policy review that I can see the list of the council policies on, in the record that's been all they've all been gathered together in the public records. Okay. Now the citywide internal control review, I could you remind me what that is? I know there there was a there there's a group of policies that the council requested permission to be able to look at. Are those is would that be what this internal control review would be looking at?

So the citywide internal control review is really looking at the broad scope of internal controls, so including policies and procedures, but really the processes that the city is following. So not focusing primarily on those policies because we've done that before, but looking at actual internal controls in action and in place that the city is doing. So it's interviewing employees about their day to day matters on internal controls, as well as selecting samples and making sure that we can follow through how those internal controls are working. It's really based off of best practice and then, you know, providing recommendations and kind of a road map of, you know, areas of high risk, medium risk, and low risk that the city might want to

look into in the future. Okay. Thank you. And and going back to the citywide policy review inventory versus the I would call them administrative policies for staff. There there were some, and I'll I'll request permission to read them again and and and bring it up internally, but there were some that looked like the council should be aware these policies exist and to know if they're being followed because there were some that had a little intersection with the council actions that they were supposed to do. So just just to let you know and then go back and and get you the names of them.

Wonderful. Yes. Thank you.

Good clarifying questions, which brings me to ask more since we are a committee, not subject we're we're not privy to the full session that city council has, of course, but we are getting this report on fraud, waste, and abuse. So my observation would be, however it percolates internally, it sounds like there's discussions ongoing. It would be nice to close the loop for the audit committee such that we know these we we see one that's here five hundred and fifteen days, and I think the question in our last session was, well, you know, what would are we sure that somebody's following up on that? And and we are from what you've said, but still it'd be nice to know policies maybe if it pops out. What is the policy for maybe treating that one urgently if it's possible or not?

I since I don't know what it really is, it's difficult to categorize. But maybe my my question, I guess, I can formulate sorry for rambling here is, can we maybe have a a simple closure of how these reports are being followed up on

Right.

In in some way?

Yeah. You know, there there is some some some of that is in the procedure right now. You know, really, we provide them to who we seek appropriate, and then we do a follow-up. But I think as we've mentioned before, you know, really, asking those leaders about these fraud, waste, and abuse reports and if there's anything that can expedite that process, I think, is appropriate. But you know, we are doing our due diligence. Colleen, if there are any you wanna add to that?

We will eventually report the outstanding ones closed. We hope to get a report back from city manager's office from the city attorney when those have been closed. So those will show up as closed and be off the list. As we've talked about a couple of times before, if there are issues that the committee needs to know about or council needs to know about, it's typically done in executive session or it's a need to know basis. Sometimes we will involve the audit committee chair in that. But the findings of an investigation often than that if it is something that was you know, the city needs to follow-up on, the city attorney then typically handles that.

Right. And I remember you telling us that last time, and that may makes perfect sense. May maybe it's like a footnote saying city attorney's office is handling the top five items that are all more than a hundred and thirty days outstanding or something like that. Is that is that ex disclosing too much information, or would that be possible? Then at least we've got the list closed, the city attorney. Presumably, you guys are waiting just like we would be.

I would say, it's probably safe to assume that anything that is over sixty days, maybe ninety days, is in the hands of the city attorney. There may be some that have been sent to HR, that might be kind of in that, early period there. But if something has been outstanding for more than a couple of months, it's typically part of a external investigation, and those can take quite some time.

Okay. So it makes perfect sense. I guess as the accountant sitting here, again, personal opinion, we there's no way for us to know that these items are there's nothing dropping through the cracks because there's so much information we're not privy to. So I'm trying to avoid well, I forgot to look at item number three because we thought the attorney was looking at it, and it turns out they weren't or something. So I'm sure that's not happening now in this case, but that's something that accountants always like is to double check how do you how do we as a committee know that, for example.

So we now can say we're relying on city council. So I've got two city council members sitting here that would certainly stand up and say, well, we don't we don't agree with that. So okay. We're all set. Any other questions on this item on our agenda? Otherwise, I'm gonna close it out.

Just very quickly.

Yeah. William, please.

Yeah. Just on the back of your your comment, I think it it would still be valuable having a footnote or or comment about the outstanding. Because as it stands, as a community member, I'm not aware of the severity of what what are the issues is this showing in aging, but it doesn't give an explanation of where the issues or that the community should be aware of. So I think a footnote or commentary on for example, I don't know. I think Colleen was saying that once above sixty hour I didn't give litigation or with the attorney. I think that will be some just a little bit more for context and for for completeness of the debt. Yeah. If I

could provide just a little bit of information, and I know this is your first meeting, so we can also have just a separate conversation if you'd like about this process. So we wanna be really careful about what we share publicly because of California whistleblower protection, we and need to make sure the city is protected as well as if something were to lead to a criminal or civil investigation, or lawsuit, then we don't wanna compromise that by it being aired in public. So we very much try to keep people involved on a need to know basis. We've been in situations before where we brought in the audit committee chair or the mayor in addition to the city attorney if we feel like something needs to be elevated. But we typically don't let the committee or council know until something is kinda complete and just let let you know that it's complete and things are being taken care of.

One thing that we can do is we could work with the city attorney around what additional information might be able to be provided without providing details, so we added the days outstanding. Let us go back to the city attorney and see if there's anything additional that they would feel comfortable with us adding without necessarily compromising anything that's in progress, and we can bring that back to the next meeting.

Great. Thank you. Fantastic. All right. On that pleasant note, we'll know more again in the future. Thanks very much for the succinct presentations, and we'll hear more from you, I think, a little bit later in our meeting. So thanks again. We will accept this information item as received. Moving on then to agenda item seven. This is an action item that is to discuss the audit committee duties, powers, and responsibilities.

And then the recommended action is to provide recommendation, if any, to city council for an audit committee municipal code government code section two point eight eight dot one zero zero update. And my comment, first of all, to kick us off before I hand it over to Jonathan is we put this item on the agenda to be responsive to city council's request that we as a committee take this action. So that's why this is here on our agenda, appreciate everybody's help in figuring this out. Jonathan, I know you've got a staff report. Are you the right one to track

this through?

I'll provide just a brief overview of what kind of led us to today, back on May 5 or May 20, city council directed audit committee to recon or consider amending the the scope of work included in section 2.88. Since then, we have we've well, we've provided very current, roles and responsibilities, as well as have Pauline, who are our internal auditors, to provide a brief or to answer questions that you you all may have. This is more of an open discussion for you all to discuss what is the the what you believe that the the role and responsibility of the audit committee to be and where it's evolved. And as just as a reminder, the last update, the audit committee back in February 2023, where in short, it instead of meeting on a monthly basis, it began meeting quarterly. And with it, it did not meet the meet to to to review the monthly investment reports.

It just met to review the reporting reports, before forwarding that to to counsel. And with that, I'll open the floor to for for you all to ask questions and discuss.

Okay. That's a good thing to do. We should ask questions. Any questions on the staff report from committee members?

I had a question. In 2023 when we when council approved the changes, only significant change was the number of meetings?

That from my understanding, yes. That was the the biggest change. So instead of meeting monthly, it started meeting quarterly and then as needed basis in between with the special meetings. Along with that, it no longer reviewed the the monthly investment report, investment reports that go to council as a in

the form of a info memo.

How many special meetings did we have last minute?

Give me a brief minute. I can take I wanna say two possible sessions. Two four seven. I think it's seven.

So if

you can be brief, I'll take the second one.

That's fine.

So this year, we're on track to have two. So we had one earlier in the year in in May, and we are expected to have another one in November to review the act for a soaking go to council in in December. Sorry. Vice mayor. Thank you.

Thank you for putting the municipal code in the report. Right. Also, so, well, it says that for 2.880.06, shackled at least one regular meeting. Reviewing that 2024, they missed it on q one and q four because they they switched over to special meetings. I've never paid attention to this regular meeting with Fireman, but it but that it's there.

In 2025, in the first quarter, we did a special meeting, didn't hit this the regular meeting. And so we need to make sure that we're getting making those regular meetings. And the attendance is based off of the regular meeting, the special meeting, and that was where we could have an individual miss several special meetings and and not have the regular meeting absence issue. There's something in the rules about that. So I went back to 2017 and, you know, counted up the number of meetings that we had.

So the original, municipal code before it was changed, at the audit committee was to review the monthly treasurer's report and the monthly investment report. And there's a government code 41004, which governs the monthly treasurer's report requirements for what's supposed to be in there, and that's, to have the receipts, disbursements, and fund balances, provided to the council. And so back in so that that's how it was written before. And when I was on the audit committee back in 2122, that's when we recognized that we were supposed to be doing this monthly. And so the meeting, he said, had gone in 2017 from 06/2018, June, 2024.

And this is while the embezzlement is unraveling. So they probably could have met a little bit more often. In 2021, Josh just in. Twenty two to thirteen, twenty twenty three to 07/1956. At issue with the the monthly treasurer's report and the investment report is that those are now done as informational memos.

They don't go to the council, and we're told that we're not allowed to speak about those reports because they're informational memos. So it would be my preference that somebody is allowed to speak about those reports, whether it's put on as a consent item here on the audit committee. But to have it be that we can't speak about them at all, it's that's not we're not doing our job as an audit committee in my opinion. So I I'm taking up too much of the floor time, so, you know Gotcha.

I think

yeah. Okay.

Why don't you

just figure

out what what's appropriate here?

Okay. So another municipal code part that I hadn't noticed before is that we shall appoint a secretary. And I we've we haven't ever done that. So two point eighty eight point zero five zero, and it looked like it was supposed to be, like, approved by the council at some point two. I don't think this is a difficult thing for us to do, and I I'm not sure whose hands is raised to be the secretary.

If finance manager gets that role or if we have somebody else who's whoever's doing the meeting minutes, maybe they're considered the secretary. I like I said, I I never noticed it, so thank you for putting the whole municipal code in there. And I I just kinda glossed over those parts and looked at the duties more carefully. So with the policy that I mentioned earlier, I think we should be allowed to look at other policies than just, you know, things that are related to finance, of course, but not just the investment policy. Like, there were some that were sitting in the the the administrative bucket for internal actions for the finance department, and I think the audit committee should be able to see those policies and be aware of them.

I understand that those are administrative functions, but it would be good for us to see that. And that we could have recommendations on potential investment policy modifications. Some cities have limitations on fossil fuel investing, for instance, or since we've made this change that you can have broad international investment, There there may be certain areas of the world. I'm not sure how to word this, that you might not wanna be investing in because of their some of their policies. Yeah.

So that that one kinda concerned me because we we eliminated the 20% cap, so it could foreseeably be, if we wanted to, have everything invested overseas, and then that just could lead to a lot of things that need to be talked about. And then lastly, the fraud, waste, and abuse, some kind of policy on the investigations that needs to happen. And I one thing crossed my mind is, like, do audit committees ever go into closed session?

Sure.

Yeah. Okay. So is there a way that I mean, it's something to ask the city of Shen. But it it it makes it harder to have discussions about this where I feel like two of us are are privy to information, and then it it makes it difficult. Fine.

So there's that. With regards to the budget format recommendations, one thing that that kind of crossed my thinking as we went through the budget, process this year and adopted it is that while we're tasked with budget format review, the the audit committee as a whole doesn't go back and look at the budget when it comes through and say, you know, this this change this this is a good one. This is working great, or, you know, we're gonna have to, change that. So I'm hoping that at some point, we'll have a some kind of a budget subcommittee. I don't know who would comprise that, but, people who are interested in the budget would hopefully wanna jump on that and carry it through and make make some recommendations to the council because we didn't get to the point where we were making line item adjustments, but I'd like it to be where council feels comfortable and has the time to say, you know, we've I understand that that this request is being made.

We're really not interested in it, and that should be a a committee of interested residents as well as some council members that would be doing that. And with that, that's it. Thank you.

Great. I tried to take notes, but let me come back as we get a full discussion going. Lillian, do you have anything to say? Or you're you're a new new member here. Don't feel like you have to, but you're welcome to say something now if you like.

No. I was we're really trying to understand what was the background to request from the from the city council to to make this review, and I'm I'm getting some context of why it's triggered. So I'm not familiar with with with body committees or or principles, but on private sector side, typically, the the investment management piece would be separate from from the audit committee. And and I think it comes back to your point about being table the investment report being table for information versus table for for review or or or voting. But other than that, I think it comes back to, I think, the review that had been conducted by by the internal auditors in terms of what is best practice.

And it looks as if we we are closely aligned to best practice, and there isn't any glaring gaps per se. But I but I think that investment piece is is an interest of one to to explore further. Yeah. But but there is if if I look at the the duties and responsibility of immediate as it stands, it it it is significant. And I I did raise this point initially about given this responsibility, know, what is what is our how do we satisfactory or or demonstrate that we've discharged our responsibility as as a committee? Yeah.

Very good. I think those are all valid comments. So let me make some comments too. Hanyan's not here, so we'll move forward. But I've I've had the benefit, I guess, of being involved with audit committees for quite a quite a time.

I do wanna address some of the things that Kitty brought up because you brought up most of the guidance, but I think there's there's good points that William just brought up as well. I'm particularly excited about the embezzlement comment because that was under my involvement with the city staff. And just to reminisce on those happy times, I can tell you they were a busy time with the mayor and myself. We're in a number of meetings. So, of course, they weren't subject to the Brown Act, and in in some sense, that was like a closed session as well.

So mayor Darcy and I locked our heads against the wall with Christina as well as external auditors, and there were no internal auditors at that time. And, of course, special councils that were brought in, etcetera, etcetera. So so the time is a little bit deceptive there. I I can unfortunate history, but but maybe we should've I I think we do have in some of the ACRA reports what the response to the barn door being open in some sense for that million dollars for people that aren't familiar. I think it's worth spending five minutes on that because it does relate into what our charter question here is.

So I I'm frequently talking to you guys about the three legged stool that we we as a city council, audit committee, and city staff came up with really as a response to the tour being open, then we discovered that it was open. Okay. So what do you do? First of all, the city staff actually uncovered the embezzlement, so there was a form of internal control that was functioning. It was a million dollars over, as you said, Katie, I think the estimate was ten years that these false companies are being created.

So it was relatively immaterial when we asked, well, why didn't you external auditors, to the extent the Pun Group's still on the line, they were not involved in that audit at the time, but we certainly asked, well, why was this million dollar not under identified by you guys? And so their initial response is, well, we again, like you heard today from the Pun Group, they're they're looking at internal controls and and materiality primarily. So they didn't find it because it was immaterial. And, of course, we don't wanna say a million dollars is immaterial as we are a public here. But the first answer was independent auditors didn't find it.

City staff internal controls did find it. We then had to address it. So the first thing was, well, how could it happen? City staff spent inordinate amount of time, and we so one of the reasons it happened was there was an outdated ERP system, which upgraded. And I was happy to say a while back now, Kitty, that that it was upgraded.

I I think it's under review now to be upgraded once again, which it's very whenever I hear that, well, we need to upgrade it because it's partly obsolescence, I start getting very nervous because that's one of the stools that comes apart from our response as a city. The second thing was, well, we needed an internal audit function that could actually go in, and the city didn't have an internal audit function. The audit committee was not tasked with doing the internal audit because we were that that is, I don't think, the charter or it certainly wasn't at that time. So bringing on now Baker Tilly was a huge plus, and I'm very pleased personally with all the high quality of work that they provide in the reports that we've seen. And they are addressing not only financial internal controls that you as you both all of you have commented, they're looking at operational controls, which is another big element that internal auditors can do.

External auditors are not typically tasked with that. So that that's also a huge plus where I think our audit committee was designed to provide input on the projects and then in collaboration with city council, their work plan gets approved. So, for example, if there's an appetite to do more projects, for example, I really think the right way for that to be funneled is through the internal audit work plan that we all come up with. Of course, there's dollars involved when you ask internal audit to do three or four more projects or more. And there's also staff time, which is hidden behind the scenes.

So but but, anyway, that's the second stool leg that we came up with. And then the third stool leg was separation of duties. One of the reasons that the embezzlement occurred was the city has had a traditional outlook of being extremely frugal, and there weren't enough accountants to really provide separation of duties. So even though accountants accounting staff, Christina can say or validate, I suppose, the budget for accounting staff is not always the highest priority. The great projects in the city that, of course, we're all excited to benefit from take priority, but I it it it additional accounts were hired.

So that was third element of the stool to allow maybe a little bit of flexibility in staffing so that it it may be somewhat inefficient sometimes, but otherwise, it allows separation of duty, which allows less likelihood of finding that barn door open again in the future. So I you know, there were also special audit committee meetings that addressed this three legged stool. So we did get that into the ACFR at one point. So it's written in there as a summary of this is what was was response. But I just wanted to say that there are meetings that are that are done through subcommittee that are then not subject to the Brown Act, which don't always get into the official record, although a report hopefully would come.

So I'm I'm personally not convinced that we necessarily need monthly meetings. Going back to that very good comment that you made, it brings back fond memories to in 2017 that we would we did have the monthly meeting requirement for the treasurer's report, but the way we, as a committee in those days covered is that that was really referring in the city's practice to the quarterly treasurer's report. So even though it was in the municipal code as a monthly meeting, which, you know, you're exactly right, that was in there, there there was not a provision of a monthly report to us. And the reasoning was that the credit was required for a quarterly report. So that's partly why prior to maybe twenty twenty two, twenty three, there were monthly meetings in a two year period or something when I wasn't on the board, but or the committee.

Prior to that, that particular requirement was not motivating monthly meetings, but it could have for other reasons, and we're certainly open to that. Secretary, I think that's a you know, we might consider I suppose other committees have that kind of question. Who's the secretary for the normal? And and we've got Kirsten in the in the in the room who might actually know the answer to these questions. But do you wanna make a comment at all about how how it's designed for the secretary to be appointed or or designed for Janet's been serving, I guess, in that function.

And probably to Yeah.

But but but, typically, my experience meeting secretary is someone who would use the science in minutes. We should do that again.

So maybe that's something we can get more clarity on, or we can suggest that the code be updated to correct for whatever our practice is, which has been not to have a secretary, which, you know, I I don't really have a a position one way or the other.

Have a recording.

Yeah. Exactly. See how the recording. So but and we do have minutes that we approve. So there seems like there's an answer here that's very close to being reached, but we don't know exactly what it might be.

Okay. So in another great point though, I when we looked at the false investment policy, I do think that we have the right currently as a committee to make suggestions. For example, if there were an appetite, for example, like you raised, Kitty for fossil fuels, I think that's something that we should bring up and then we'll say, okay. Council, five of us, three of us, three to two, whatever it is, that we we should no longer, maybe invest in fossil fuel related items. I can just observe that when Steve Scharf, who's a prior mayor on the committee, that very issue came up, and we did did address it.

There was a special city report by mister Wong's predecessor, who who went into great depth. So I think any anything relating to the policy that the committee actually looks at, I think we should be clear that we can go anywhere that that that appetite for the committee to do. So that I don't I I completely agree. In terms of fraud, waste, abuse, again, I think we are we are subject to what we previously talked about. There are obvious strategies here.

So and certainly closed sessions. Again, I I think we have not been using subcommittees. I'm not such a big fan of closed sessions because one of the things I think we have in an audit committee is we're we're open for the public to come and make comments or they can watch on YouTube now and maybe they'll participate. I don't know. It it's a little bit we are three of us are volunteer members, so it's a little different than maybe the city council where you're actually making operational decisions.

But my own view is that we could probably make our meetings more efficient by taking advantage of subcommittees as well as having designations that, well, if a particular member is interested in a topic, we could certainly benefit from that member going more deeply into something and then reporting back to the auto community as a whole. As well as we can do thing we can meet more frequently if that's that's a re an appetite for that. As far as the budget review, I think we've got a separate item on the agenda coming up, and I'm excited to get to that topic if we can. I'm sorry for talking so long, but I feel like I need to provide what what history I've got. So sorry for for the long winded item, but maybe we could address that budget item in particular when we get to the next item on our agenda because I know there's a sub there's a suggestion that we even consider a subcommittee, which in the past, we've had budget subcommittees, which I've found useful.

But I again, I won't point out an extreme time commitment on the part of staff and the subcommittee. I can remember a mayor and myself boarding ourselves up with city staff trying to figure out what was you know, we don't we just didn't know enough. So you're you're probably experiencing some of that. So there's lots of answers to that. So long winded story.

I personally think what we could do is come up with some suggestions in today's meeting for moving forward, which would be I've got three changes that I'm gonna suggest that I think summarizes some of the concerns that, you know, two two of our I left off the fine the great elements that William you brought up. I personally think we or I think the staff report pointed out, we are a hybrid of an audit committee and a finance committee. It's it's pretty clear that there's four or five items that are finance committee related typically and clear clear related audit committee items are internal audit, external audit, act for internal controls. So my first I'm I'm gonna suggest that maybe we have an appetite to create a motion that would cover what everybody said with a little bit of compromise. So my first suggestion is we change the committee name to audit and finance because I I personally don't really you could go all kinds of different directions and I'm I'm thinking the history of the last twenty years probably some of these finance committee elements by many city calls councils has has been suggested and why not keep them for for lack of a better or or we could just go crazy and say, don't you commit you know, create a new committee in the meantime without having that, maybe before we all discuss it, why don't we I'm gonna suggest three things.

Change the name of the committee to audit and finance and group the items accordingly on the municipal code. I'm also gonna suggest that there's not if you look at the best practices that the GFOA was alluded to in the staff report, there there it's a clear fallout that internal controls over financial reporting is typical element that a audit committee looks at on best practices. And I think we should spell that out a little bit more clearly and we could do that in item g, which talks about internal auditors, which is a great place to combine the clarity that we as an audit committee and would have responsibility to review the city's internal controls and internal audit reports. That might be a real succinct way to call out that special thing. And and one of the benefits of spelling out internal controls is I think it allows us to if there's an appetite on the committee to go in a particular direction, we could go there.

So it's not like we spill out because over time, these things can change, priorities change, people are interested in more things. Like, if you talk about internal controls, I'm not saying only over financial controls. Now I'm saying overall internal controls, and there's gonna be a report coming up on all internal controls in an operational sense that would allow the committee to identify projects either for the internal auditors or separately that staff would maybe come back and provide the committee with the report on or subcommittees could go in and do that same kind of thing. But if it allows complete flexibility on some of these items that maybe we've brought up here that might have an appetite. And my last and third point I would bring up is don't laugh, but Tanja is not here and he's really from a commercial context.

The Pricewaterhouse, one of the big four accounting firms has done a white paper recently. Harvard has had a formal reception, and they've come out suggesting that audit committees, least in the commercial context, start taking on responsibility for artificial intelligence. And I I find that as a a really good item to bring out as a separate third item here I'm proposing in the sense that the audit committee take on responsibility for reviewing how artificial intelligence is being Right. Citi's financial reporting. And that's that's not the IT responsibility of how is artificial intelligence being used throughout the organization.

It's how is it being used in regard to internal controls over something that the audit committee and audit and finance committee would be directly related to, which is finance. So I throw that all out because we we could have a motion that suggests that maybe with modifications or we could go a different direction. So let me be quiet for a while. Anybody comments, thoughts? Bring us to a closure here somehow.

Sheila, maybe another one. Okay.

I had a a comment on your suggestion that we call it the audit and finance committee. Great. I was just less excited about that only because finance is such a sort of umbrella term. You can put anything into this. Call it finance.

What I like about calling it the audit related to internal audit reports and internal controls. So so that's why I thought that we we just be sort of opening up the to blend everything and which would, think, have an impact. Yeah. So that's why I want one comment. Yeah.

You you talked about internal controls, and you wanted It already says to review some of it. Yeah. To review internal audit reports, and you wanted an expansion of that. Yeah.

I was thinking out of phrase, review internal controls of the city and internal audit reports.

Isn't that sort of implied? Aren't we doing that now? And you're doing

So as part of the internal auditor's work plan, part of this year's, it's it's a comprehensive citywide internal control review based off of the conversation I

had with

chair Schmidt last week, we would one of the options that I suggested was to expand the scope of work or that the Baker Tilly has on an annual basis to do periodic re reviews of internal controls and report out to to the the the, committee based off of that. So we'll review maybe a section of maybe finance related internal controls one year, and then move on to admin controls or other controls in the city, and then kind of circle back to the finance that you're thereafter. Kinda have some sort of schedule so that their cons a little bit better than the comprehensive one year review of the internal controls. This is really your if you want this that's one option for having that direct control over or direct oversight with from the city from the committee to these controls, I think when we start getting into the the operations. Right?

At what point do we kinda start separating that and kind of differentiate between what is direct oversight versus more of a review of the report, something that the internal auditors will conduct that that that assess.

I do agree with you, though. I think it's implied in the audit committee, and it used to be implied. So we would bring up items that were related to internal controls as part of our function even though it might not have been with specific seven, however many a through h r. But my experience has been if it's not specifically a through h, it it for whatever historic reasons now that we have, we don't have quite that. What what I think I agree with you, Sheila, is is that is implied that we would go wherever for example, the embezzlement, we had no idea what was causing that originally came from.

So we needed to have the ability to to look at it. But but so I'm suggesting you spell it out a little more just because recent historical experience is more a letter of the of the statement rather than what's general practice. I'm only one voice. That's what what he's motivated at.

If it's meant to classify g or even e, just Right.

Right.

That that not be a problem. You won't be adding to anything you're doing if it just be

Well, until we actually did something. Right. Right.

And then your your last suggestion about AI, that seems to be a whole new area that Citi will be getting into and finance stuff. So maybe just picking up on Jonathan's suggestion, but if you want, it is critical enough. Maybe give adding this on to Bakerton's contract and say, can can you look at this? I

see where you're going. It it I I mean, that's certainly what I think there's three options. One is just asking staff what's happening. Another one would be to ask a special project with the monitors. And then thirdly, we may not always wanna you know, it's like it's we have the power to review how it's happening.

So I'm not sure. I'm I'm not personally asking that we design an internal audit project looking at how AI is being used in financial reporting at this time. But I am curious how the new ERP is gonna incorporate AI in it, how maybe some of the the things that we're all doing, like the staff is probably using it in some fashion already to make their work more efficient. And then, ultimately, how can we make it more efficient for the audit committee, which would be a neat little in pan, finally, I guess, I would like to spell it out because we are in Silicon Valley as a nod to everybody in this valley that, well, okay, Cupertino was aware that this is something that's a hot topic. I I completely agree with you.

It could be subordinated under the internal control broader language if we have an appetite as a committee to put that in there because I look at it and it's just a subset of that. But for a variety of reasons, if you need to spell it out, I think, it's a and probably, yeah, you you guys on city council might get interviewed. Well, what are you doing with it now? But that's my thinking. Okay. Kitty, you may have some comments. We're going down the table here trying to have our discussion.

Yes. I actually did like the idea of the name change, the audit and and finance committee. I I think that's interesting. I think it's worthy of some discussion at the council. I I also appreciate the goals and audit reports.

I'm wondering if something like the cash balance, would that be included in that? Because, like, you know, a year or so ago, we had that non interest bearing checking growing to the 65,000,000. Do have the 3% account, and that's at, I think, about 51 half million. So there should be something that's in the works that'll move a chunk of that somewhere else. And I know that you're up against the the 60,000,000 approaching.

There's, like, like, a cutoff where you can no longer keep adding money into that your other investment.

Yes. So that's at 75,000,000 we're currently at the 60.

Okay. And then there was, like, the there's others there's a similar type of fund that you can invest in, but we don't we haven't discussed that. So would that be something that would fit under the item two internal controls and audits?

I think, personally, it might fit right now under the quarterly treasurer's investment report, to be honest. I mean or a subcommittee that maybe is coming up. We can always create a subcommittee.

Okay. So so there that's I kind of got a little lost on on that because you we have an an investment policy which says these are the rules that you have for investing, but there's not another policy that says these are the rules that govern how much cash you're gonna keep in this account and then move it to get it invested. And does does the 3% account count as an investment by definition? Or right. So I'm not sure if we are allowed to talk about it.

Is that is the thing. And there and we've been we've treated the audit committee with a very kind of a hard line follow these rules and and, you know, if we need to change some language so we have some more flexibility, that would be good. Because like the planning commission and the transportation issue, they couldn't talk about trans this particular transportation issue unless it went to the council. They got directs, and it goes back, and it takes a lot of time. I'd like it if if we can change some of the language so that we hear a little bit freer about topics that get discussed.

So going back to that, do under the current rules, are we allowed to discuss the the cash balance? Certainly.

And and to to share Schmidt's point, I I do believe that falls under c, which is to review the quarterly treasurer's investment report and kind of give us the you can ask this question. What what's the reason behind that $51,000,000 sitting there? And as you know, we've kind of been in odd situations these last few years. We kinda understand now where the city's going. Right?

And so we're developing just a little bit on the the finance side. We are developing a cash flow model that will address that. And the the the short of eventually, I wanna move into a direction. We only have about $5,000,000 sitting in there, and then the rest of it's being invested, whether it's in Leith or with Carlos Santana. And so we're I want to have something in place before making those those large movement of cash just to make sure that we there's any decisions by council to to let's say, and I don't have no clue what's going on with City Hall, if there's an appetite to maybe, refurbish it or if there was if they're opening the discussion to purchase a a piece of property that would satisfy.

I don't know. So we have to have some of that conversation before we make those big moves. And so at the very least, I think maybe Leith will kind of handle that because that $75,000,000, that really should kinda cover a lot of the those those needs cover. I don't know the direction on what how big we're going. So we'll have to have some of those more, difficult conversations before we make those large movements, of cash. And then maybe over time, we can work with Carlos as well, say, you know what? This is we might wanna keep some of these in the shorter investments because there may be a need to to draw down on these. And so we we before making any drastic moves, I wanna kinda set the lay down the framework for us to kinda move in any direction to be flexible.

Okay. Thank you. And if there's so you would call it something like a cash management policy that would ultimately be drafted? And is that something that if that would be an internal administrative policy, or is that a does does that council have input?

And maybe this is something a conversation we can have with, with Baker Tilly who will be doing that, that that review, late I think they were set to start in August and kinda go through. So depending on what comes out of that, those those those those recommendations, we can kinda move forward. But just as a kind of a from my perspective, I do want us to be a bit flexible in how we address that. So I don't want us to have $5,000,000 in there, and that's the max we can have. Right?

Because if we're anticipating a large disbursement, whether it is for a CIP project or for a, debt servicing, if we transfer these funds into to make those payments, well, then how flexible is that that policy to allow us? So a lot of that consideration would have to be made. So if it's 5%, we're we're gonna be capped at, let's say, maybe it is 5,000,000. Let's assuming that we have $200,000,000 in total earnings. But, yeah, we'll have that conversation depending on, again, what comes out of that that that that work plan. We can we kind of create a a a policy, and you can have that that conversation very similar to what we're having, in the next item related to the special revenue fund.

Perfect. So I also, appreciated the question about AI, and I'm wondering if that if this collection of ideas would go to counsel that this could be suggested as and if if an informational draft to that that would, at this time, address it. It leads to my question here for this municipal code 288110 city staff assistance. The audit committee shall have available to it such assistance of city staff as maybe with parts performance functions, the staff assignments, and administrative procedures to be under the general direction and supervision of the director of administrative services. Do we have to go to counsel and get permission for this information?

Or is the question is it included in the duties, powers, and responsibilities already, and are we able to ask for this information at this level and have it come back at the next meeting and give some kind of update on what you're doing with AI? I don't know what the answer is to this question.

Well, as I again, I think the implication was that we can look at internal controls even though it's not spelled out. So if the my own personal answer to that is if we had an appetite as a committee on any topic that covers internal controls, we have that authority. But we we have to be all sensitive to staff time and build consensus typically.

So the question is is it a reasonable request? And is and are we What's your request?

I'm

sorry. To find out about AI. How's AI being utilized? Is it something that we can ask at this level? Is it reasonable, small enough request?

I'm sort of throwing that out as a future looking again to the future, you know, not changing the charter yearly, but maybe every five years, I think, the, GFOA suggests you look at it. So, personally, my answer to your question is it doesn't rise to the level that I'm nervous about to wanna say go go find and report back with your what what is happening there. But it it it may be once the ERP system is is it's starting to be implemented, there may be an AI element in there that then it would start to become something important that we would say, go go report back to us if you could. Is that responsive

to you? Okay. So if this if we take all three, and I'll I'll add one more on. If we take all three items and move them on to the city council. And as it stands right now, the policies haven't been changed, and you as chair will need to be at that meeting. Then you could describe

that. And hopefully I could describe what whatever we're recommending as a committee, certainly. Like, if that's my personal opinion, I can wax eloquent for hours. But, certainly, I can express whatever we're gonna come up with as a recommendation here, but city staff would probably be there right next to me.

And just for clarification, something I do have two council members here. Was the idea or the intention for us to provide the municipal code updates in advance, so both formal noticing, or is it just another opportunity for y'all to discuss and then revisit it at a subsequent meeting?

It's an opportunity, Scott. Just just make

sure that we're session.

Study session type of thing. And then the last one was I I still stuck on that, the the treasurer's report. And and I under so that if there's not an appetite to go back to the monthly meetings, I would still like an entity to have the ability to speak to these reports. It just seems very odd that they get published. You're not the council's not allowed to talk to them.

If they show up if it's if it's quarterly and and we get all of them, I would like to have somebody be able to talk about it. And because once in a while, there's information in there that's kind of particularly interesting, and you wanna wanna flag it. And as in, like, when the the you had the 65,000,000 growing, that's like, well, that's noteworthy. We need to talk about this. So it could be that something or or that, you know, you ended up getting the $10,000,000 increase in the general fund.

What was the cause of that? And there might be a few little points that we wanna bring up. So that's the reason why it can be that council ends up putting it back into consent. I don't really like that idea so much because it the meetings are already gotten pretty long. But if if we could look at it here and then and if there is something that really rises to the patient, then you can say, this should go to counsel because there's something special here. Just just some thoughts of how to try to address that, you know, make it so that we can talk about it.

My personal response would be, as an audit committee, if there's an appetite, again, among the five of us, that we should look at those monthly reports, then I would say we could ask for them to be included in our I guess what you're saying is that it's not timely for us to look at if we wanna look at it every three months even though there's bunched together.

It's it's okay. Because you're getting you're getting it after the fact.

Right.

But if there's don't want to be looking at them every month, they are being published monthly. But to have a mechanism where discussion can take place Okay. Is the is the point of it.

I don't to me, the discussion should definitely be able to take place if there's an appetite. Like, we we could bring it up to the four hundred fourth.

Yeah.

Okay. This all sounds very good. I think we have some elements of overlap here. And in the interest of efficiency, what I would suggest is we have a motion, and I'm happy to make the motion. Although, usually, as chair, I try not to do that.

But I can make the motion, and then we can see if there's a second, and then we can discuss more or pass it one or the other. So I'd like to make a motion at this point to respond to this action item by coming up with, like, the following three recommendations, everything else being the same as it is. That is the three things I brought up. Change the name to audit and finance, group those the categories that are respective on the municipal code to make it clear that we've got combined hybrid function going on here. Modify item g to be review the city's internal controls and internal audit reports, and then add a new item I, review the use of artificial intelligence in the city's financial reporting, internal control or financial reporting, risk management, and compliance.

So is there a second?

More second.

Great. So now what we can do is discuss the motion. So any comments? I I can bring up the reason I stuck finance in there, Sheila. I agree completely with you that it's a very general term. But the when I talk to people in the public, they they do raise these issues about, well, what about this cash management thing? What about this other thing? Because they see these items on our agenda, I think, sometimes. And they they wonder, well, you are the audit committee. Well, we are, but we only take certain elements of the finance project because of historical reasons.

I I don't have a better word because I agree with you. It's but that's my response to that. So I kinda like adding on the new because we spend a lot of time listening to Chandler Group, listening to the US Bank, and and, of course, going through policies on investment, and that's typically not the audit committee. But that's the reason there's I'm I'm very flexible in modifying the motion if we choose if you're wrong about it.

No. I agree with you. We have sort of strayed away from the sort of strict audit responsibilities. And even when we discussed the budget format Right. It was the first time we

were doing

anything that seemed to be not strictly in our interest. Right.

But

But, again, my fear is that we would just be taking on too much. And

I agree. That's a great observation. How do we get volunteers to come? Thank you, Lauren. Don't close your ears if it's causing you to be nervous. But but I I do think we should be cognizant of it's tough to get volunteers. And you two, of course, are are all the time here in in the city, apparently. I mean, your your role is very different. But I I think if we if we expect city councils to be adding more finance items on here, I'm personally gonna say, well, can you do that through a subcommittee of city council, or can you do it through a one person city council person goes and gets the staff group together? Or can you have internal audit?

Look at it. You can put it on our list. But if internal audit and staff, what we've got but but if we're just gonna take on more items, I don't know how we can get through the agenda. It it is my 2¢. Kitty, any comments on our motion, more discussion?

Well, if it if it goes to counsel without the treasurer's report or getting reviewed on there, then I'll probably be asking them to have that brought up there since it is getting published. Just to provide that ability for discussion to happen.

You may spell it out that it's a role for the audit committee as part of its maybe review of the treasurer's investment report that we would also look at the monthly.

Treasurer's reports. Yeah. Yeah. So that the treasurer's report's governed by government code six four one zero zero four, I believe it is. But it tells you exactly what's supposed to be in their report that's supposed to be published monthly. So it's a it's meeting a requirement. It needs to be presented to the legislative body. And as it's being presented now as as an informational item, it to me, that's a little bothersome because the the lack of discussion ability. And then to me, it's not you see, you're not really presenting it in in a public transparent way. That's so that's the issue. It's like

so try

to try to figure out a way to address them.

And I'm wondering if possibly the city staff if we do the recommendations the way I've got the motion or we've got the motion on the table, it might be there's other things that you guys think about as well as a city council that could get changed in front of a recommendation. So this might be one example where you city staff might respond saying, well, here's how the monthly report could be incorporated into what the functions already are rather than us putting it right now as a as a specific item.

And and make suggestions for how to resolve the discussion issue with regards to the monthly treasures and Right.

That that might seem better at at the city council level if I can Maybe. Okay. Any other comments? Otherwise, we'll give you the vote.

Have the comments.

You okay? Yeah. Alright. I know this is my wording was I did write it down so I can give it to whoever our our handy dandy person. Why don't you read the motion back since we're supposed to do that, and then we can all hold on.

The motion to make the following three changes, the current municipal foot section covering audit committee responsibility. One, change the name of the committee audit and finance committee. Two, modify the wording to current item g to be review sorry. To review the city's internal controls and internal audit reports. Three. Add new item. Five. To review the use of artificial intelligence in the city's financial reporting, internal control over the financial reporting, risk management, and compliance.

Great. Thanks, Jonathan. And, let's take a vote. All in favor, aye.

Aye. Aye. Aye.

Oh, you got a unanimous. Okay. Very good.

We'd like to die. We'd like to die. Okay.

That's a good question. Are we wrapping up at six?

We we have to because the arts and culture is coming. So our our hearts stop, unfortunately, tonight. So we may have to now worry about, can we get to some really important items? We've only got ten minutes, though. So suggestions on how we proceed are welcome.

Is here. Alright.

I understand.

Continue moving forward with the special revenue funds. Okay.

They can report that out.

Then maybe nine and ten, we, push off to a subsequent meeting. Okay. Let's do that. So item number nine is Eight. Sorry. I've I've got an x here for different because it says well, it says to city council, that means the chair goes to the city council. So I've got an x whatever those are taking time here on our agenda. But I wanted to talk about vice mayor at the last city council meeting that I attended. Had a great suggestion, and we'll talk about that later. Okay. So item number seven no. Eight. Sorry. Item eight. Action item.

Special revenue fund process audit update. Receive the special revenue fund process audit update and forward to city council. Can we turn it over to Baker Tillett?

That sounds great. And you know, I can make this pretty speedy because it is a relatively short report. So going see, starting us off here and going straight to the purpose and scope of what this project is about. So really what we are here to do was to document the process used for the special revenue fund accounting, how does the city use it, identify those gaps and compare it to best practices, as well as conduct testing a prior year accounting. Now I will say that I come forward with you every single time and I tell you the methodology, so it's nothing very extraordinarily different.

It's a four phase approach. And so I will say that this did take a while. We started this project back in August, and we did finish in April. So there was one overarching recommendation that came from this report, and I think that the process improvements are kind of supplements to this overarching observation. And observation is there are processes and there are controls that exist to ensure allowable expenditures are recorded to the special revenue funds.

But some of those processes and controls aren't documented. And that can lead to risk as well as staff going throughout the city and just overall staff training. And we do know, as I'm sure you all are aware, that there was some miscoding of expenditures to a special revenue fund in fiscal year twenty twenty four. And so we attribute some of those errors to not having those documented processes. So really making sure to verify that process and controls are present and are for those allowable expenditures, as well as conducting and documenting staff training once that documentation occurs.

And like I mentioned, we did have two process improvements, and I think that those really do kind of complement the overall observation of making sure that you obtain and document city attorney review and approval of those proposed expenditures, as well as making sure to maintain information around roles and responsibilities around these funds. That was pretty darn quick, and so I know that there's probably questions, and

I'm curious to answer.

Fantastic. Who who wants to kick off? Yeah. Please. William.

Thank you for the update. I I think it sounds like very clean audit. Couple of questions. One is the miscoding. What what any idea what was the the quantum model, the the dollar value of the items that were miscoded?

So it if I remember correctly, it was north of a 100,000. However, those coatings were after being discovered or bringing to the finance's attention. We reclassed those expenditures, and they were relating, to legal expenses in the BMR, below market rate fund. Subsequently, we did a thorough review, internally, working, finance work closely with community development and the city attorney's office to review all transactions running through that fund and reclass those, those accounts according to those expenses.

Thank you.

And it's fair to say that there is no financial accounting implications?

No. So the the currently, the the the fund sitting in that the that that that that fund, fund three sixty five, I remember fact, there were BMR fund, is is correct. And it

it Yeah. Yep.

Thank you. Thank you.

Sure. Any other questions?

I I agree with the with the point that our documentation will be specific. So even in the the BMR, but it it just wasn't specific enough. I

Mhmm.

It doesn't clearly say the legal expenses.

So in in this situation, it was there was quite a bit of staff turnover. And with that staff turnover, there wasn't a clear indication as invoices were moving between departments, what fund it should eventually land. And with that that oversight or basic understanding, I think that's where the the some of the the oversight or miscodings occurred. Since it was brought to our attention, all responsible staff were then retrained or just trained. And so they're well aware of what's, what's that.

And one of the the issues that's identified is as some invoices are moving between departments, they may become redacted and then not knowing where where it should actually ultimately land. So then now there's a bit more communication between, the various departments.

Question. This this says this is an action item. I don't quite understand what our action rule is because it said then it says receive and forward to counsel. So to that point, I I would like there to be a recommendation to the council that the BMR policy gets reviewed because one of the things that happened kind of out of that with the legal fees, when the Mary Avenue project came to council and we were going to write funds from BMR Fund to that project and to the Eden Housing Wolf Road project, I wanted to, at that point, increase that amount of money and not see it going to administrative, things. And that was asking the question, can we can we fund the administrative, portion some from somewhere else?

And the answer was yes. It can come out of the general fund. And so my preference would be that if we do send it up to counsel to talk about the policy, that the policy would have some sort of prioritization that says, you know, tangible items. We wanna see a project. We wanna see real units and not admin being paid from through that. And so it it did have an impact seeing that. And so I do think that the policy is

is blocked.

It's it's got

it could be read. Right. It is subject to interpretation. And if you wanna look at the costs associated with the BMR fund, surely the staff time and legal expenses and all. Our expenses unless we make it a specified that we should not.

And to your point, I think putting the expense where it belongs, it being because, let's say, administrative staff is overseeing this this program, it is appropriate to code it there. However, it is also the city council's prerogative to I want to fund these admin costs through the general fund, and we wanna transfer those funds then. So let's say it costs a $100,000 in admin fees, relating to staff time and whatnot. I wanna see a $100,000 transferred from the general fund to the BMR fund to cover these expenses. And then all the tangible, items are being, are being paid for directly out of the BMR, fees, let's say.

Go ahead, Peggy.

Another question. There was a something about the the Haven to Home and rotating shelter car park issue, and I was there it said that we observed some ambiguity exists in the link between tested expenditures. Is that something that it's is it being recommended that we have a policy change or or something regards to this? Is that something we need to make a recommendation to council to look into this this program?

From my understanding, the one of the recommendations by is to refine that language, to remove some of that ambiguity, in terms of what is admin. These are what's kind of that general, description. So it would then kinda fall back on CPE that kinda help refine that because that they're the the ones that house that that that policy, right, and then provide that rec and that that that word change, or maybe it comes to, where city council let's say this gets forwarded to council, at which point council then directs, every fine minute of the the the handbook with that policy, to to to address some of these issues.

And and that money was coming from the BMR fund? Correct. Okay. So when we're thinking about what we want the public to see, there's there's parts of with The Haven to Home that that looks great in the news article about the city and what we're doing. A magazine subscription or newspaper subscription, not so great. So if there's the things suggestions that can be made to the council that will help make it so that our our BMR funds are really addressing the issue and and that and then we need a newspaper about something that's that's covered general funds.

Yeah. I feel like there's something here. By looking at the recommendation, it seems like we as a committee could forward the report. And with our clarification, maybe Maybe it's here. Not sure I understand all the issues, but we we could say staff provide clarification on the wording that's not currently well documented according to the new recommendation as part of the presentation of the internal audit report that we are accepting and forwarding on.

So that way, it addresses what you're saying as part of it instead of you guys having to say, we'll go back and change the wording. Just change the wording when we're making this presentation to the city council, and then city council can comment on it. Does that make sense?

Yes. I have four more. I'll I'll just list them really quickly if we need to be out of here. One was I'm trying to figure out where SB one funds, exist, so if that could be clarified, then it goes up to counsel. The measure would twenty sixteen funds. If b 1,600, there's conditions. They're going this is going way back. For instance, Main Street had I believe it was a full it's like $40,000 needed to be set aside for some street improvements. How is that being, like, classified in the transportation fund? I don't know where those those monies lie.

Lastly, it was the art in lieu of fund. I don't know if that counts as a special revenue fund. I kinda thought it did. And we had moved some of that money over to Jollimand Park. So I don't know if that counts as a special revenue fund that we need to be tracking as well.

As part of the BMR?

No. No. It's it's its own thing. So if you're if you if you're doing a development and you decide that you're not don't wanna put art on the project, you're going to give the city I think it's 1% of the development cost, and that's gonna go into an art in lieu of But and then, for instance, Jellingham Park had some art elements. That money was moved over to the Jellingham Park all inclusive land.

Okay.

That's kind of an artsy

part. I see. So what I'm trying to do is is grab on to a general way we could forward this on. So I think the clarification of wording still works with the recommendation, but there's a series of sub points under that that staff could come. Like, there may be some clarification in the BMR report that was done that ripples into other policies, it sounds like, and other items that council or vice mayor Moore could separately identify the staff before that report gets presented to city council. How's that as a modifier? We gotta convert it to a

motion somehow. So So well, it issues like, measure b twenty sixteen funds would be specifically for something. They were getting awarded that money for

But it's relating to BMR because it was uncovered that the wording was unclear for that kind of thing.

But we okay.

And so, therefore, you guys see that because that's part of the recommendation, and, therefore, you're going to look at the implications to other funds. Okay. Or how how do we

My hunch is that it's sitting in the transportation fund somehow or transit transportation impact that all that all three of those are sitting there, but they have a specific purpose that they they need to go to.

And you're correct. It's just quickly, it's in fund two second, which is the transportation. K. So So I've

got a motion to to sort of strengthen the line strengthen the line for general special fund special revenue fund.

But the the sounds to me that the motion would be to to for this council, provide clarifying language as to the what would be updated in the BMR handbook and address the few items that Muffer's

part of that. Right? The SP one and well, we'll be out soon.

My apology to interrupt.

We're moving out. Yep. I had

it. So I think you may have to provide an email on the three if that's not So we've got a motion to that effect.

So what's the motion? Is

there a second?

Not a second.

You got it. Okay.

Pamela seconding it. Session? No. So all in favor of that motion to have to be clarified. But I think we're aware of it. All

aye. Aye. Aye.

Okay. We've got any unanimous passing unless And

then we'll continue to next

And then just then rest of the items to to be addressed at a later meeting.

What Jonathan just said was why I didn't Thank you, everybody, for your patience and for

your