Audit Committee - Regular Meeting

Meeting of the Audit Committee on July 28th. You know, the order and city staff, can we have a roll call?

Nice to meet you all. Here. Here.

Here.

Super.

Okay, so everybody who's watching live and in person, we've had... a bit of a scramble here, but we're excited to have our meeting and we get started. Are there any oral communications that you see virtually? I don't see anyone in the room here.

Chair, I see your request virtually and my request personally.

Thank you. So we'll move to the consent calendar then. And there's three items on our agenda in there and I have A bit of experience, and we've got, I should introduce the vice mayor here. We're lucky to have a quorum, and the vice mayor is representing Ray Wong as an alternate, I think is the way it works. So thank you very much for fitting us into your schedule so we can have our meeting here. We're handling consent items, and you can ask questions if you have a question, otherwise you No, we can't deliberate unless we pull an item. So I do have a question on the second item to get us started, but I don't want to pull it. I think it's a simple enough one in regard to Dennis. Thank you very much for adding page 16 of 33 in the PDF. Dennis is a representative of U.S. Bank. Thanks for attending. But page 16 is an attribution of, I suppose, the city's different achievement versus the index. And it's Very nice to have that in there. I wondered if, as elucidating for a minute or two, you could just explain a bit about how that table works. And primarily, there's an attribution on the the commodity line shows a positive 0.45% attribution, even though both portfolios have a zero allocation to commodities. And that maybe is a springboard for maybe briefly explaining how that works.

Well, sure. Thank you. The simple explanation for that is that In the old benchmark, we had the 2 percent allocation to the commodity benchmark. So, if you look at the, well, let me walk you through this real quick. Here's the benchmark composition in the upper left-hand corner. So, for stocks, we use the MSCI All Country World Index. For bonds, we use the Bloomberg Aggregate. There's an S&P Global REIT Index for real estate. And then that next one says S&P GSCI. That's the commodity index. That stands for S&P Goldman Sachs Commodity Index. And then the last one is a three-month T-bill index for the cash. And remember, the index, idea of the index is to, as the best quote I ever saw was, it should represent the pond from which we are fishing for investments. So, it represents the entire global public investment opportunity set. The next column you'll see is as of 7-1 of 26, we have a new benchmark that's in your most recently updated investment policy. It is very close to the old benchmark, just a tiny little change. But the old benchmark is the second column, and since that runs through June 30, that's the one we're using here. So, we're using a benchmark of 63 percent MSCI All Country World Index, 29 percent bonds, 5 percent REITs, 2 percent commodities, GSCI, and 1 percent cash. Now, to answer your question, the reason It was beneficial because commodities are performance down.

Yep. Dennis, I'm not sure we heard your complete sentence. Could you repeat what you just said? My apologies.

Oh, sure. The reason it was beneficial to performance to not own any commodities is because in the quarter, and this whole chart right here is for the one quarter. Because during the quarter, it would have reduced performance. It would have detracted from performance if we had owned commodities. So we picked up a little bit. So the way that, let's go over to the pension box. The way that the attribution report works is there's a column for selection, and this is the effect on the performance for whether or not you had investments in that category. and did they, the whole idea of selection, did your selections do better than the benchmark or worse? And so, you can see what we do is for the top line there, the stocks, we take the return of your stocks minus the return of the benchmark, and you can see the selection, the selection attribution on that top line was minus .31. That means, That means the benchmark did a little bit better than what we selected. The next column is weighted, and that represents if you were overweighted in an investment that did really well, that would be beneficial. And so if you were underweighted in an investment category that did very poorly, that would be beneficial. And then the opposite of those two would be a detraction. There's an interaction. component. I'm not going to get into the math of that, but then there's a portfolio total. And that portfolio total is the stocks in your portfolio did a little bit below what the stocks in the benchmark did in total. So minus 0.23%. If you add up that column portfolio total, it comes to 0.26 or 26 basis points. And then if you go down below under Total portfolio return for the quarter, you'll see net return was 10.11% for the portfolio. The benchmark was 9.85. The variance was 0.26. And so that box up there explains the variance. So good news is we outperformed the benchmark just a little bit. And then the box shows how. And to kind of sum this up in plain language, I put a little paragraph down below, slight positive, and this applies to both portfolios, by the way, because they're managed almost identically. Slight positive variance in the quarter from both bonds, I'm sorry, from bonds due to high yield exposure. The benchmark does not include high yield exposure, the portfolio does. So there's a little bit of a mismatch, intentional mismatch, and it paid off in the quarter. The real estate portfolio total number was positive, nine basis points. And global infrastructure, we did a little better there, so that was additive. Stocks, slightly underperformed. Performance of stocks was helped, however, by our allocation to small cap, which is not in the index. I mentioned in here large stocks were up 15%, small stocks were up 21%. So that's why it was beneficial to have some small stocks. Detracting from stock performance was our slight underweight to emerging markets. So the benchmark for stocks is the MSCI All Country World Index. I'm replicating that with several mutual funds, one for U.S. stocks, one for developed foreign stocks, one for emerging foreign stocks. And my percentages are always a little off because it's very difficult to replicate that exactly. And so that explains why we're off the benchmark just a little bit.

No, I think that's great, Dennis. I just wanted to highlight your question. My question you've answered fully, and I wanted to highlight it. Thank you very much, and I expect that we'll have many more chances to interact with this in future quarters. So thanks again for working it through for us. Any other questions or clarification on the consent items in all three?

Thank you. I was wondering, Jonathan, if you had a chance to look at my questions that I sent in regarding having the 115 and OPEB have pretty much the same percentage in equities.

So I think that one of the questions that you had is, is there a shorter horizon for pension versus OPEB? In short, I don't think there's necessarily because you're looking from the perspective of a retiree, right? Pensions kind of would be long-term, right? Same thing with OPEB. However, but the use of those pensions versus or how we're able to utilize a trust for the pension versus OPEB could be strategically different. From the OPEB perspective, and I think you highlighted it, is on a downturn of an economy, if the pension didn't perform well and to maintain a... in a desired level of funding status, we can draw on that pension and provide it to CalPERS to help pay for our unfunded accrued liability or UAL. Whereas with the OPEB, we can, and this is conversations I've been having with Tina and a third party would be to assess our, use it similarly, but as of today, we're a bit overfunded. So if we need to draw on it to assist with budget constraints, right? And so we can draw on that to help pay for our retiree benefits. And so you can use them similarly, but for different purposes, and there's different restrictions on both in terms of reporting on our financials, but the method where the investment policies are essentially the same. We have the same investment strategies for both.

Could you explain if there was a downturn and CalPERS wanted to raise our contribution? Is that what happens?

CalPERS would have to hit a certain... threshold before they can assess whether they want to change their discount rate, which would then ultimately change how much each agency would have to be contributing, because then in turn that will also change your fund status, right? But that goes through a full process that needs to go to their board, they need to approve it and whatnot, and then it gets kind of trickled down. And it's not immediate. Usually there's like a two-year period in which it goes into effect. So it gives agencies enough time to essentially shift a little bit and kind of understand how that adjustment to the discount rate will affect their funding status.

Okay, and the other question I had was the $19 million jump in the general fund. What was going on there?

There's actually, I had Richard look into this for me, and I have some data points here, but I'd like him to take a stab at this one first.

We're going to the Treasurer's report there, Matt.

Yeah.

Item three on the consent calendar. Richard?

Hi, yeah, hi, everyone. So OPEB had a increase in 2.6 million as far as from prior quarter. And property tax, the balance there is a total of 7 million received in the fourth quarter. And that's a 1.2 million increase from Q3. For sales tax, we had a balance of 7 million received in the fourth quarter with a 1.1 million increase from Q3. And the annual excess eRAF receipt came through in the fourth quarter, and that was for 1.3 million. And the last major receipt we had to make up the 19 million is PG&E's franchise fee, which is an annual receipt for 1.4 million.

So in short, there was about $40 million in revenue that the city generated last quarter versus the $20 million, just specifically for the general fund, that it expensed. And now kind of we're starting to accrue back as we're at year end. So some of those numbers are going to be shifting a little bit as we kind of move away. But from a cash perspective, we saw almost twice as much revenue for that one quarter versus expenditures is the short.

So will that, when it goes to the Council, can that be added into the report?

Okay, we'll adjust the report to reflect that additional detail.

Great. And thank you for adding the Cal Fit. I think it's under consent.

It is. It's in the Treasurer's report. Any other clarifying questions? Seeing none, are there any comments from the public? I see none in this room.

Chair, I see no requests to speak virtually, and we have no requests in person.

Excellent. Thank you for that. So I would welcome a motion.

Moore, I move the consent calendar. Second.

Excellent. We've got a second, and we've got a motion. I'm not going to repeat that. uh any further comments on the motion i let's take vote all in favor aye aye unanimous of the three in the room and thank you very much and chair for the record in addition to council member long being absent committee member wong is also absent oh yeah thank you for that true okay so moving on to new business our item four is an informational item receive the fiscal year 2025-26 act for interim testing update and i think uh we're going to go right to uh the pun group or richard will introduce the plan richard will introduce thank you richard wong

Yeah, hi, so we are in year four of our five-year contract with our external auditors, the PUN Group. Our interim audit started in May, and Sophia here, the PUN Group's assurance partner, is here today to provide an update on our fiscal year 25-26 Act for Interim Audit Testing and to answer any questions you may have.

Thank you.

Thank you.

Welcome, Sophia.

Thank you. Good evening, committee chair and then committee members and also the city's management. Again, this is Sophia from the PUN Group. I'm the engagement partner for the city's audit. And thank you for having me here today. So like Richard mentioned, I would like to give an update on where we are at for fiscal year 25-26 audit. So he also mentioned we started the interim field work back in May with the focuses on the evaluating the city's internal control. So over the significant transaction cycles that includes financial reporting. So we evaluate the manual journal entry process, bank consideration process, and also the city's budget process as well. And also the revenue collection, cash receipt process, procurement, expenditures, as well as payroll and then HR related functions. And again, we started the field work in late May and then we substantially completed our interim field work around June timeframe. with no observations or findings to report. And I also would like to take this opportunity to briefly discuss the new GASB pronouncements that would be effective for fiscal year 25, 26, and it will be impacting the financial statements that will be presented to you in November. And the first one is GASB 103, financial reporting model improvements. And the second one is GASB 104, disclosure of certain capital assets. So we have been working with the city's management to determine the impact of these two GASB pronouncements. The GASB 103 is relatively higher than GASB 104. So the biggest changes impacts are on the MD&A management discussion and analysis. So because of the change, the sales management will need to rewrite and reorganize the MD&A with only five components required by the standard. So component number one is overview of the financial statements, show how the financial statements flow through from fund statement to government-wide and also the no disclosure and request supplementary information, supplementary information, how the financial statement look like. And the second component is the financial statement summaries. The third one is the detailed analysis of the transaction happened during the year with a focus on the current year operations instead of only focusing on the dollar amount or percentage changes. The fourth component is the significant capital assets and long-term financing activities. The fifth one is the currently known facts, decision, and the conditions, such as the new labor negotiation, if any, and also the maybe potential pension discount rate changes. If that happens, it also needs to be discussed in the MD&A. And other than MD&A changes, another two significant changes from this pre-announcement, the first one, another one is the proprietary fund operating and non-operating revenue expenses classification to present a statement of revenue expenses and changes in fund balance properly And another one is adding a column on the budgetary comparison schedule, including the variances between original and final budget. And another change on the budgetary comparison schedule is to provide notes with the significant variances on the original budget and then final budget, and also the final budget and then the final result. So to provide explanations why those significant variances happen during the year. In terms of GASB 104, the anticipated impact of GASB 104 on the city's financial statements is expected to be minimum. We will continue evaluate implementation and then to determine whether any potential impacts as part of our year-end audit process. So overall, we remain on track to begin our year-end field work in late September, which is consistent with our schedule in prior years. Assuming that we receive the trial balance and also all the requested audit documentation as planned, and there are no significant issues during the audit, we anticipate to provide a draft of the effort to the committee for review due in the second half of November so that we can meet and present in late November or early December, depending on everybody's availability. This will conclude my update for fiscal year 25, 26 audit. I will be happy to answer any questions that you may have.

Thank you, Sophia. Let me ask the committee, anyone have a clarifying question? I always have some, but you guys get to go first.

I'm curious what they mean by, and is it GASB 103 or 104 that wants to have information about the original and final budget changes? Which one is it and what does that actually mean?

So the original schedule, I mean, the original schedule shows the original adopted budget and final budget, and there is a column for variance column compare the final budget to the ... final result. And then because of this new change, we need to add additional column to show the variance from the original budget to the final budget during the year. The city might have budget amendments and the mid-year budget adjustments. So this is a new requirement. There is additional column need to be added to calculate the difference between the original budget and final budget. So it's also on the presentation.

As I remember, the MD&A had quite a bit on those changes anyways, didn't it, Jonathan? So maybe the city was providing additional information that was above the minimal requirement.

No, the MD&A had various components that, well, historically kind of followed a very somewhat rigid structure. And so every year we would have to at least meet those requirements, at least to present it to GEO for a way to ensure that it's to get the Certificate of Excellence or Achievement. as Sophia stated. So there's quite a bit of a difference as to how rigid the structure was to what it's going to be now. And there's just more, there's going to be more analysis rather than just telling a story, right? That's what we're, they really want to, instead of saying, these numbers changed from, 10 million to 15 million. Well, why? Why did it change? And so the questions is going to be kind of further. Why did something happen and why did that happen? So the MDNA is more of a storytelling as to rather than kind of just strictly. this number went to this number um and so it's going to be quite a change from uh prior years so that's going to be a work in progress um between here and in November as far as kind of several different iterations and kind of back and forth between staff and the the auditors to make sure that we're meeting the requirements as outlined by GFOA or the CASB follow along

So would that include if you had like a change in revenue that you'd have to explain that? Certainly. Like fully?

So obviously it would be major changes. I mean, if it's probably like a 10% change for revenue, that's quite a change, right, from year over year. Now, I'm not sure to what extent do we need to include budget to actuals in that situation, but because that's, as we know now, one of the biggest variances that we're going to see next year or for last year is gonna be sales taxes, right? And I think kind of going into the detail, even though we don't want to keep bringing up CDTFA, it's still a kind of, we're seeing some of the, how that's affected the city and it will continue to affect the city until we've kind of normalized it. And it might take a couple more years before we see that. But, Sophia, can you please answer which GASB pronouncement would require the city to include the variance column in the Budget 2 Actuals or Budget 2?

This is GASB 103, the Financial Reporting Model Improvements.

Vice Mayor, you've got a question?

This item has no attachment, right? And you mentioned the presentation. So is that available?

It's just a verbal presentation or update to the audit committee.

There's usually no written because it's a lot of information. It will be nice to have a written update because I can remember all Everything. And then a very basic question. So this update is a testing update for ECFAR, for internal control. What exactly you are doing for testing?

So during interim field work, that's the, like I mentioned earlier, it's our internal control evaluation phase. So it's based on our risk assessment. We identify significant transaction cycles. So we evaluate the financial reporting process that includes how the city process bank reconciliation and also how the city process cash receipts and also the payroll, how it was done. and also how the procurement was executed all the way to the invoice process until the check cleared. So that's what we call internal control and interim field work. So that's what we test. We pick samples. We got all our population, and then we pick samples, and then we work with the city to get the support to complete our testing.

Okay. My question is, we've had a change in finance directors, and congratulations to our new one who's sitting in the room here, Jonathan. But I want to ask you, it's been a smooth transition, I presume, or you would have highlighted some whatever non-smooth elements would have arisen?

I think I personally have been working with Jonathan since we started this contract. And then the first year, because changing of new auditors, and then there were some hiccups. So the first year, it took a little bit longer than what we anticipated. And then after the first year, the second year went really smoothly. I think even with the transition and also the change that happened at the city, Incheon really went really smoothly. That's why I can be here today to present. And then there was really no finding and no observations from our internal control evaluation phase.

Great. Thank you. All right. I don't see any comments from the public in the room. Are there any virtual?

No, sir.

Thank you. All right. Why don't we move to a motion? We don't actually have a motion. I think this is an information item, so we'll accept it as an information item. Thank you, Sophia, and good luck on the rest of your work. We'll see you in November. Thank you. So on to item five on our agenda, also an informational item, and a number of internal audit ones here we're going to have in sequence. This one is to receive the internal audit and the fraud, waste, and abuse programs update. I guess Baker Tilly is going to go right in, or do we have a staff comment? Yeah, I think they can take it right out. Great. Thank you, Chelsea.

Right. Wonderful. Well, I will get us started. Great news. Looking at the Grant Management Internal Control Review, this is going to be presented to you all today. This was the last item for fiscal year 24-25, and that has been finalized. So really good news there. So then looking at fiscal year 2526 internal audit program, the investment cash flow policy review recommendation. So this is still going back and forth with city management. I hope to have an update with you all in October on that one. Then the citywide internal control review. This one, we have been really busy at work, lots of different requests going back and forth, but I do believe that we will have a report to provide you all in the October timeframe for that. Of course, there is that ongoing internal audit services. That's what we do, why I'm here today, and also involves our fraud, waste, and abuse hotline. So going on to page number two, you will see that there were no complaints that were received this time frame. But we do have those eight open report still. I do want to say that those are still under the city attorney's review, but I have met with the city attorney as well as the city manager, and I think that there's going to be some new verbiage in the city fraud, waste, and abuse policy that they're reviewing, so that hopefully these are going to be closed soon. Any questions before I move on to the validation report?

I guess as a question, it's It would be helpful for me if we could title this second page fraud, waste and abuse report.

Okay.

And I don't know if that's inconvenient or whatever, but a lot of these get posted on the website and it's not maybe intuitive to people that aren't familiar with this, that this is representing that.

We can easily get that fixed.

Thank you.

All right. Any questions before moving on to the validation report piece of our ongoing internal audit services?

Looks like we're good.

Perfect. If you could bring up actually the PowerPoint. What you'll find is there were no recommendations that we validated this quarter. I thought it would be a good reminder to why we're doing this process and really what this serves. All right. Perfect. So going on to the second page, really what is this program and the thing that we involve the ongoing internal audit services? So this is a crucial step in the audit process because believe it or not, it breaks my heart to say this, but sometimes reports are put on the wayside with management. So they get reports, they get recommendations, and nothing comes out of those recommendations. So this is a really great mechanism and tool for the city to make sure that they're held accountable for making sure that they're effectively implementing those corrective actions in the identified audit issues. So what are we doing during this time? We're always reviewing documentation and evidence provided by the city to help remediate those recommendations. We will talk to relevant stakeholders for clarification, any confirmation needed, and we really assess what steps the city has taken to make sure that they have remediated those recommendations. And so once again, why do we do this? Why is this a healthy practice? It helps improve corrective actions, making sure everyone's accountable and really supports that continuous improvement that the city is always looking for. So next slide. So back in fiscal year 25-26 we had 79 recommendations. We have validated 54 recommendations in our time here with the city and there are still 25 that were open. This is really important though because When talking to the city right before we were going to provide this information for this audit committee, there are 16 open recommendations that the city says that they have completed in July. I am really hopeful that next quarter, I'm going to have a lot to report in this area. 16 recommendations, then we'll only have nine left for this entire thing, which is great. So next slide, this kind of shows you those 25 open areas. And like I mentioned, we will have 16 remedied, hopefully by the next quarter. Any questions on that?

Any questions?

Comments, great.

yeah i'm excited i do have a question in terms of the the the it's great news that the 16 that's uh unexpected from my side there's there's been some that are went back to 2022 or uh it's not my question is i wonder if the 16 is going to address all the really old ones or if it doesn't if staff could work with you to maybe figure out a footnote that would indicate that maybe later in 2027 the really old ones if there are any that aren't covered by the 16 when they might get addressed

And I think if you look at that last slide, and I'm sorry to keep on doing that to you, Janet, but that last slide just shows, so staff did want to take that consideration. I think that was something that you had mentioned last time. And so the staff, what they have shown you is the expected completion date by quarter. They're saying that by- This did look new to me.

Yes.

Yes. So this kind of helps illustrate when those findings will be remedied.

So let's see if you could help me then dive a little deeper. Like, for example, on this other detail report, there was four. Well, I don't want to go into the details, but there were five that were in 2022. How would we use this report to see whether those are in the... 16 or remain to be?

You don't see that here, but as Chelsea was saying, we can probably provide an updated report that kind of dials in on any outstanding of the nine potential ones that are still outstanding, what period they relate to, and so we would see essentially this with that specific recommendation. Fantastic.

Yeah, I think next time when an update is provided, it will be great to have the list that's already verified and especially the list that's open because I don't know where to start to even ask because I don't know what these recommendations are. And also, I do wonder, wouldn't We do a report, we do a recommendation, and we start to implement. A lot of times we find out there might be an adjustment needed for those recommendations. So do you... those kind of re-evaluation in the middle of the implementation?

That's a great question. So obviously processes, things change, right, from a recommendation from fiscal year 22. So absolutely, we're going to take that into consideration. And I do believe, Colleen, please feel free to jump in here, but I do believe that, you know, sometimes a recommendation might no longer be valid. And in that case, that is something that we would just remove from the listing at that time.

Yeah, correct. A great example is if the city reorganizes, a recommendation related to a process or a responsibility might not be relevant. So then we would close that and we would call it administrative closure. But it would come off of the list for you all and it would be closed. We wouldn't just close things kind of hey it's been too long let's close it we want to work with the city on the appropriate answer but we definitely do take those things into consideration ideally everything is implementable and practical because we work with staff on the front end but things do come up over time yeah so if there could be a list of validated recommendations what what do we have done for each of them that would be nice

You're talking about column C?

Column C, yeah.

Could you expand a bit on what your suggestion is? Sorry.

Like the recommendation of doing something and then maybe a comment on what you have verified on the city have implemented it.

Yes. So when we do.

You have those.

We do. And so, you know, this quarter there wasn't any recommendations that had been validated. When this report is presented, when there are recommendations validated, they talk about what had happened. So what was validated? What were we able to validate? at that time.

So you mean if I look into a previous audit meeting.

Right. That will be there.

Correct.

It'll talk about what the actual recommendation was that we were able to validate.

Okay, it might be nice. If there is a cross-reference, like the last time the valid recommendation was reported in the audit committee on what date. That way people can look for it if they want to.

Okay.

And then it would be nice to have a list of the open recommendations. Yeah.

May we have that report, the PowerPoint that you just shared? I don't see it online. Also, is there a landing page? Would I find it under budgets? I remember that there used to be the collection of all the Moss Adams Baker Tilley reports. They were all together on some web page, but I know that we've reworked the website. So I don't know how to pull that up.

And I did see some of them before we had our commissioner mayor meeting a couple of weeks ago. So there is an internal audit section. I'm not sure it's been completely updated. So it's a great comment there. Like how to get to that. Maybe not all the federal audit reports are posted there because there's been a number in 2026 and maybe there's been some reorganization. Yeah, if you go down below, the audit plans are there. And then the final reports, I think we might. How do I get to that? Yeah, usually the AI will just take you to it. Go ahead and click on Finance. Go to Financial Reports, and then there's an Internal Audits subsection.

Okay. So if I landed on the main page, I'm starting on the main page of the website. Go ahead and click on City. Okay.

Then under Finance.

So if I just do a search on the city homepage for internal audit, I don't get that.

I get a bunch of... Sometimes the search isn't the greatest. So if you go to your city, and then under departments, you scroll down and go to finance. A couple more down. There we go. And then if you click a couple more over...

There we are. Okay, so I was wanting to see the Baker-Tilly report with all of these recommendations. There was one that you had. It was several, maybe 30 pages long, and it was all in a table. Where's the small font? Lots of recommendations. I think it's the one that would have all of these recommendations on it.

This one had a vast majority of them.

This is the ERA. I'm thinking that you're wanting all the recommendations. Colleen, I don't know if we've provided a report with all the recommendations. We keep track of them in our own database, but we don't have a report that we've provided the city with all those recommendations.

Okay, so for instance, I was looking, wanting to know what the four old Civil Grand Jury 2022 recommendations are, because I'm curious if some of them have been just already fixed. And it's been like four years since that report came out and the people have all changed. So I don't know where, like, where can I find it? but what the recommendations were.

That may not have been part of the internal audit reports. Is there a separate place?

We tell you, so at that time, if so, for instance, if there were six findings and two had been resolved, at that time, we would tell you that there was two resolved, but we wouldn't tell you the four that would be open still, right, Colleen?

Right. Honestly, it's a staff function to close the findings, and we track whether the recommendations have been implemented. So I think it will be up to staff how much detail they would want to provide to you. For example, the budget process review that we did, once those findings, once we have said they're validated, you could look at that entire report and say, this is closed. But we can work with staff to provide a little bit more detail in our presentation about what's remaining. And it would be up to staff whether they might want to keep a master log available to the public of the audit findings. We show you in the report kind of a high level because it would be a very, very long report with a lot of detail to have the language of each recommendation provided and to keep that log over time.

okay higher level for the committee well as a council member and we have members of the public who are not always supportive of the council um that having that four items back from 2022 on this report could be used by um someone to come up to a council meeting and say look there's four things that still haven't been taken care of from 2022 And we will know nothing about what these four items are, which make us look really bad. So I would like to be able to kind of risk management that potential situation. We've seen it before where these reports have been misused to abuse people.

Yeah, that's completely understandable. So we'll work with staff on the format and content so that you have some more detail without it being an overwhelming amount of paperwork that then the city's got to print out and publish every quarter.

So I'm really glad to see the language talking about the process improvement here. And I think that's really important. And we've turned around a good number of the residents to view this as a positive. But it has been used to both insult the council and insult staff at times. And so we want to get everybody on the same page. for the positive results that this is having on the city and try to limit those opportunities for it to be mischaracterized.

Okay, so originally there were 79 recommendations, right? Correct. So is there a document that, I'm assuming that's a document the council has approved with the 79 recommendations?

That would be every report that we issue adds to the denominator of the recommendation. So it's not a static number, 79. We probably started with fewer than 79 when we began the validation process. And every... Every report that is completed then adds additional recommendations. So we validate and the percentage, the number will change over time.

You keep updating.

Right.

Oh, that's why it's hard to find one document that has all.

So, for example, after the grant or grant management is presented to all, then we would add those to the list. Does that make sense?

Oh, I see. So you'll probably see it at the very bottom under special revenue fund process review. You'll see another line, 2026 grant management. So it's not there yet, but maybe next quarter you'll see that with the X number of recommendations.

Oh, I see.

Okay. This is a very helpful report. Let me reemphasize because it includes not only internal audit, it includes other recommendations, for example, from the external auditor, as I understand it. So the special revenue fund process or a single audit? Maybe the single audit is an example.

So this one, I believe it's still a function of the internal audit. All these reports were provided by...

Okay, so I misunderstood that. I thought this was... There was a comprehensive report I get from you guys, I thought, that's got all the recommendations that you're tracking. So it's only internal audit.

That's not correct. This includes two grand jury reports, as well as a single audit finding that the city received in 2022.

So the single audit would be the external previous auditors, and then the grand jury, of course, is the grand jury. So that's why I thought this was a more comprehensive document, not that internal audit is going to come up with most of the recommendations we would expect. So what's the basis of capturing a recommendation then? since we've got three different sources right now it makes sense to me to have external audit internal audit i guess i wouldn't have expected a grand jury anyways but so that's fine i get it is there are there any other sources that that you guys typically look at when you go into a municipal situation or

Sure.

It's great for us as a committee. This is great for us to see what's out there, what's being looked at. I think it's maybe we're not giving it as much credit as it deserves. It's quite a nice thing to close the loop, so to speak, which I really like this report. But any others, Colleen, that come to mind? Is that the typical source of everything?

This is pretty typical. This was a management decision at the time we established this program to go back and include the grand jury reports. We would typically include internal and external audit. And if the city were to receive findings from another auditor, for example, HUD or another federal agency that came in, you could include those two just for transparency's sake. There was a decision made to include the grand jury. I would say our clients are kind of 50-50 on whether they include grand jury findings or not in this. But it does daylight whether the city is making movement on recommendations from external bodies. And that's what the committee chose at the time.

And there was, that reminds me then, wasn't there a finding in one of the grants during the COVID era that, so that was a special report from the external auditors probably.

I think I do believe that 2022 single out so that's okay okay yeah great okay yeah but I still it's yeah I think it's nice to include a grand jury but we had another civil grand jury report this year so would that be added I'm curious but then I do think that we We should have a document with all the 79 recommendations, even if they are being adjusted. But I assume you do have that list somewhere.

right yeah we can work with management like we'll have we'll have an update i wonder maybe you could the internal auditors could work with city staff and come back with maybe a suggestion on how to handle it because there seems like there's a potential for a lot of material and we want to make sure we're getting maybe a summary report and then we can go into detail when we see something and you've also raised the issue of maybe the public has a different interest in than This committee so possibly one solution to address what you're talking about is you guys could come up with a Proposal for us next next quarter in conjunction with this report to say how you would handle or I'm just throwing it out because as a committee, Mayor, maybe you have something to add.

It doesn't have to be one, just to clarify, it doesn't, you don't have to create a whole new document for this. Just that would be nice to have a list of 79 and then maybe it's five different documents and then just say, okay, if each one is from which document, then at least there is a place people can look for information. That's good enough.

Mayor, you have it.

Thank you for mentioning the Civil Grand Jury. So this year we had three Cupertinos named in three. So the first was with regards to remote teleconferencing, convenience versus compliance. We had a VTA one and then POPLs. so unfortunately we've got three more to add and we've been working on the first one we're we're working on all three um the first one is really in process um and it will um ultimately get into our uh council procedures manual we'll have to have a discussion about that probably in November to make some adjustments there um but I I guess it would get added on to your the reports list, perhaps?

Maybe it comes back to my question of clarification, which was, can we maybe have a little text on the bottom that says, reports, what is the universe of total recommendations? And it comes from, I guess we're saying the past, the decision list, civil juries, internal audit recommendations, external audit recommendations. that way everybody knows those are city staff then when when internal audit may not be aware of everything city staff would have a triggering process to identify these uh i'm not thinking of a very extensive but some kind of note on here that i never thought of would be helpful i didn't realize there was a decision made in prior years for example so that's helpful to to know that we're continuing the work of prior committees that we can build on Okay, I think we should move on from this item probably if we can. Any other burning questions or we got our stuff addressed?

So we could vote to or choose to recommend that we no longer include the civil grand juries here because that's being handled at a council level. And then it's kind of duplicative if we're analyzing and having our consultant analyze the same civil grand jury.

Let's see if there's any comments from the public and then we can maybe go to a motion even though this is an informational item.

Chair, I see no request to speak.

Fantastic. I'm thinking, you know, maybe we could talk some more and have a motion or we can whatever you take direction from. It sounds like a great idea to, you know, address what we're going to include on this. Reaffirm what's been in here in the past or remove some. It could be a nice time to do that. City staff have any comments on your opinion?

Ultimately, this is a report that goes to the audit committee. So if you all want to remove or include additional by including, maybe it's the external audit findings, if there are any. So which I think would be more relevant for this body. We can certainly do that.

Yeah, I can see lots of other committees or institutions that maybe make complaints. So I don't know that this is appropriate for us necessarily. Colleen, do you have some experience? And you said some cities do add civil jury comments. So is that widespread, do you think, anecdotally?

It really depends on how grand jury complaints are handled. I would agree with the mayor's comment that because these are handled at the council level, it is a little bit redundant. It just depends on how you all want to handle it. But typically the council says, here's how we plan to respond. Management implements, comes back to council and says, we responded this way. And then we would validate at the same time.

Right, so getting rid of redundancy, I'm all in favor of.

Vice Mayor, I don't think we had control over what was being done at that time. That's what I'm all adding.

Oh yeah, and it was used as a tool? I really didn't think it's bad to include the civil grand jury because it's nice to see all four was implemented and four still open. I'm curious what's still open. But on the other hand, not all the recommendation from grand jury has to do with audit. on or finance right for so does it make sense to include recommendations that may not have to do with finance and also a lot of times not a lot maybe some 50%, I think, of the recommendations we disagree with. So it doesn't mean they... Because the grand jury, civil grand jury, consists of people who have never been elected official. They make recommendation, but then they don't even know how city works. And so I don't think their recommendation is always... good recommendation. So I don't know if these eight are those eight that's reasonable that we have accepted or the recommendation that's directly from the Segal Grant Jury. So that would be my concern with taking an external recommendation without our own validation, whether those recommendations are suitable for Cupertino.

Yeah, I think that goes to my observation is typically these kinds of reports are stuff this committee has input or control over. And so internal audit reports into both the city council and the audit committee is the way that's structured and same way basically for the external auditor. So it makes perfect sense to me that this committee would have input on the reports coming back to the committee, whereas we have no real direction with the I could see where the city attorney has input I would hope or expect on these kinds of things but that we would we would get input from either the external auditors saying this is a significant enough issue it shows up in the ACPR and you guys could be aware of it or we see it in the footnote or inter auditor does a project and then brings it up for us but this separately I mean there's like we could probably imagine other organizations that have comments maybe coming to the city that we have no real It doesn't seem to fit within our purview, but I can see where it could if we extend it and city council says, why don't you watch over it? So I'm happy to have a motion that clarifies what we think this is. We can either do it through city staff consulting with maybe the city attorney can get involved or whatever you think, or we can take a vote here and just say, let's stick it with internal audit and external auditors, which are reporting directly to this committee and other groups that don't.

Okay, so I'll make a motion that we remove civil grand jury recommendations from this report. And then if there is any financial related issue that's recommended from civil grand jury, we will rely on, I think this council, the city manager or city attorney will comment. can refer them to the internal auditor who can then recommend an appropriate way to integrate those into the city's process. Bye. More second. Yeah.

And I like here, I don't want to talk about the bottle issue here and at council. I don't want to talk about VTA here and at council or, or even the council procedures manual that we're going to have to go through that it's, it's very redundant. Um, people can come to the council meeting and make their input there rather than taking up our precious time of it.

So maybe like show me the money, maybe that item is relevant to this committee and then I'm sure that the staff will bring that to the committee together with Baker City.

My input on this might be first, I can ask again, city staff or I think the city manager's office is represented in our committee here as well. But again, to me, it's what does this committee have authority over? And I'm happy to take responsibility for things, but I didn't realize this was a decision maybe that had been in scope a number of years ago. I personally, all the things you said, I'm not sure we can rely on the city staff bringing us issues. I think that's part of the. Nice loop being closed here. There's a formal report given by the external auditors or internal auditors, and they have recommendations and we're going to go soon to a new item. That's got a series of them and then they get on this report and then they're either address city staff either agrees with them or they don't. And then at some point, there's a resolution, whereas things we don't have control over it. I don't see how this loop gets closed easily.

So maybe we simplify the motion to just say we remove the Civil Grand Jewelry report.

Unless City Council wants to put it back in our purview or something.

They can pick and choose indirect items. So you're withdrawing your first, your main motion.

This is the new motion. The new motion that we remove Civil Grand Jewelry recommendations from The audit recommendation report, more tracking report.

Okay. And then we've got a motion and we can discuss it now. Again, I'd like to clarify that that motion is because we're clarifying what this audit committee has purview over as we understand it.

Okay. So can I amend the motion to say that we are removing Civil Grand Jury recommendations from the Audit Recommendation Tracking Report because it's not in the purview of this committee? Yeah. It's closer to what I want.

I always have to, you guys are the political ones.

Would you like to rephrase the motion? I'm just looking at it. Maybe you can rephrase the motion. Well, maybe. I always draw my motion. You can.

No, no, no, no, no. That's not what I mean. I think just simply relying on the fact that like, if there was a report, like show me the money that the council, if while we're talking about it, we could direct staff to bring this to the audit committee. If we felt that the audit committee had some, input that would be helpful. Yeah.

But that does not need to be part of the motion. It's just what the council is willing to do. Yeah. So is the motion clear?

I do believe it's clear. Just to add a bit to it, and it's later on our agenda, is the Internal Audit Work Program. Seeing that that is going to Council in September, maybe that's the opportunity Council can take to add a civil grand jury report to the validation as a follow-up or as a work program item to ensure that it's been seen through. So if there is a civil grand jury report, like, show me the money, right? Maybe it's within the purview of this body to review and make sure that it's been addressed. And maybe the council can make that decision at the time when we take the work program for consideration.

Okay. But we can still be making that recommendation to the council.

Yeah.

About this at this time. Yeah. Okay.

Well, I think we can remove it if we choose from this report, but that's fine too. Yeah. Yeah.

No, I'm just saying for future, right? Let's say we remove them now from all future reports. If there is a future civil grandeur report that you want Baker Tilly or internal auditors to ensure that it's been validated, we can include it as part of that validation process or during the annual review of our work plan.

You mean have that emerged at this level, you're saying?

I would say probably from the direction from council down.

Okay.

So that is the same as what I was anticipating.

Okay.

Okay. Where am I at? I guess we've got a motion.

May I clarify that Morbidge accepted the child's motion?

Can you read it back?

The amendment is per view of the, because it is not within the purview of the audit committee.

I wasn't sure. Over-entry recommendations from the audit committee. recommendation tracking report because it's not in the purview of the committee.

It may not be.

If it wasn't, then why are we even doing it? If it wasn't in our purview, why are we even doing it? So I would question if that was, and it seems to be more of an observational statement rather than the motion. You mean the reason for the motion? Yeah. Yeah, and I'm not entirely sure because it's been our practice that we've been doing this. Why are we now saying that it's not...

I think it's important to include that in the motion per chair's recommendation. To clarify, it's not...

within the purview of the community that was before i heard the mayor's comment which made perfect sense as well unfortunately i honestly think maybe we could handle this in another way which is again i'm not trying to push it off into a committee but possibly internal auditors and staff can go back in consultation with all the various parties that and ask what should be the scope of the total recommendation column. We can take that choice with a motion here or we can ask further input, I guess. Is there an appetite?

I can accept the friendly amendment even though I question it. So you accept the friendly amendment to add this because this is not in purview of the Audit Committee, right? So do we want to amend that to also include the Chair's comment about direct staff to bring back the universe of reports that we are taking to for the total recommendations.

I'm happy with that.

Yeah. Okay.

Except staff may not want to. It's okay.

Can I make a quick suggestion?

Yeah, please. We're working as a team here.

I know that the committee charter is not maybe set in stone at the moment, but it would probably be easily covered if the motion just referenced reports that are under the purview of the committee as outlined in its charter or directed by counsel. So that would cover, for example, if a grand jury report came to council there were items that you wanted to refer to the audit committee you could do that in the um the required responses to the grand jury and that would cover the the universe without us then being able to um put everything into the tracking report that could possibly be relevant yeah i like that wording actually

I think for the motion, it's not defining what's the universe. It's asking, directing the staff to make a recommendation to the committee. Here is what we should consider. And the staff can then say, OK, the universe is per the charter of the committee. Right. So that's OK. Right. I don't think we need to modify the motion.

What Colleen said sounded very succinct and to what I was driving at, so I don't mean to be annoying here. Could you repeat that possibly, Colleen?

Sure. It would be limited to tracking recommendations that are under the purview of the audit committee per its charter or as directed by council.

Okay, accept that. Yes. So we've got substitute motion, more second.

Excellent. We've had a nice discussion. I like this motion a lot. Any other final comments? Let's take a vote.

Sorry, did I write Chau move the substitute motion? Mm-hmm.

Yeah, I moved the substitute motion. There were two amendments, right? No, three amendments. First is the purview. Second is add direction to staff. And that direction was amended. So there were three amendments on the second motion. Well, you could also...

You could also just, she doesn't have to type all that out.

Yeah, or I can just make a new motion that include all that. Whichever you prefer.

Remove the main motion again, and then just have this. So this will be the main motion. And it'll probably read better in the minutes that you don't have this long.

Well, just do a substitute motion, which include the second motion with the three amendments.

No, no, no. You want to withdraw your main motion, which had all those amendments. You're going to create a new main motion with Colleen's simplified limited to tracking the recommendations of the audit committee per the charter or by direction of council, the simplified one, and just put that in. And then in the meeting minutes, because you don't have to put the original main motion in the minutes, you just have this one. Don't move.

Okay, so child's moving and more. Remove the civil grand jury recommendations from the audit committee recommendation tracking report limited to tracking recommendations that are within the, under the purview of the audit committee per its charter or as directed by council.

set oh should that include direct staff to bring back the no okay that's okay no we've got that now okay yeah so the previous motion was withdrawn so you don't need to put that okay thank you save all the time for the minutes super all right let's take a vote on that as uh just stated all in favor all right

Any opposed? No, it's unanimous of us here. Thanks, everyone. I think we came to a nice resolution. You can put that as a footnote down here on our report, whatever our motion was that we so succinctly have in the minutes now. Great. I think we're still at the point where, well, I guess we're finished with this item. This was an informational item on which we corrected or we made a motion. So thank you. Oh, yeah. for the presentation. It went a little longer than I anticipated, but now I think we're into the next part of your presentation, which is item six.

Yes.

Which is receive the grants management internal control review final report.

Yes. Yeah, so this is really exciting. I'm going to go to the executive summary just to kind of point out some of the highlights of the report, and then I'll open the floor for questions. So, you know, this was really to assess the internal controls over grant management activities for the city, really looking specifically for compliance with policies and procedures. as well as best practices. So we really looked at the application, the review, the administrative and reporting processes related to grant management processes. This actually took place in June through October of 2025. So that's important just to remember that some of these recommendations might have already been mitigated by the city. You know, thinking about how much total grants the city has, it's pretty substantial. So looking at, you know, fiscal year 24, for example, 25% of the program revenues related to grants. So this is a very material balance for the city and something that's really important. So going down to the second page, you will see that we do like to highlight things that are going really well and the city is doing really well. I'll call out a couple of these. So one, you know, looking at departments, it looks like they have really organized folders for all this information. grant documentation, making sure that they have record retention rights on it, as well as audit readiness, which is so important, as you know, for your external auditors, as well as when pesky internal auditors come. So really nicely done. Also another one to highlight, segregation of These really appear to be in practice in invoice reviews, approvals, reducing that risk of errors or unauthorized transactions, which is something to really highlight for the city. And also, you know, there are, there appears to be really good handoff lists to help mitigate controls. You know, if there was any risks of staff turnover, you know, everyone has an understanding of what needs to be done in this process. So great job to the city. But like most cities, there are some opportunities for improvement. And if you go to page number three, this lists out nine areas that I wanted to highlight in the report. But obviously, there's details below and there's other recommendations below. So looking at these high level, really making sure to have standard grant management policies and procedures and continuity plans. So we talk about really having that handoff to maintain grant management activities. What if there are staff absences, transitions, that sort of thing. Making sure that there is a centralized grant opportunity identification and monitoring. So when we were looking at multiple departments within the city, there were sometimes different ways that different departments are communicating identifying and monitoring these grants. And so really having a holistic approach across the city really helps make sure everyone is in under agreement and the process is continuous throughout. A couple other things, making sure that everyone, you know, that there's segregation of duties across departments. So we did see, you know, some areas that had great segregation of duties, others, you know, that might have staff staff issues, not have enough staff, that sort of thing that could lead to the potential of, you know, some segregation of duty issues. looking at this again just making sure that there's consistent internal control internal reviews and approval processes for grant reporting as you all know grant reporting can be very cumbersome and there's a lot of different things so making sure that you know the city really is crossing the t's and dotting the i's so to speak in making sure that they are doing the appropriate grant reporting um It's a lot of information. And so I think to really make the best of your time, I'll open up for any questions or comments that you all have.

Why don't we do a roundtable here? Any clarifying questions from the committee members?

I'm kind of wondering how but one of the one of the problems that we've seen is that grants are being like applied for and then kind of find out about that after the fact. And has that been improved upon. For instance, there was a grant for, it was some, what was it, artificial intelligence, virtual reality program. It was about $100,000 that was given to the city to create this VR you'd have the virtual reality headset. But that didn't, it didn't like go through the council and it got kind of put on to like a work program, special project. But all the money came from outside. It did use some staff time, but is there something in the process now that would be different so that that could rise to the level of getting to the council? Because that's a substantial amount of money and then the city is supposed to be continuing like using this VR thing. It was the one with the deep decarbonization of your house with your changing out your appliances and stuff. And it had Cooper in it. I don't know if you ever tried it out.

So so there was one for McLellan wrench. And that's another one. That was much smaller. There is another one. I didn't know that.

Yeah, so they're supposed to have it out like at our festivals and whatnot for people to check out. Last year? It might have been two years ago. Yeah, so you put on the virtual reality headset outside in the library field for the green, what is that?

Oh, you need the headset.

It needs the headset to work. Right. Right and you would see Cooper and then you would be asked you know like where can you make changes and you have different questions about you'd be walking around the house and changing out the appliances for like uh get rid of the gas stove for something their induction heating type of thing um that's as an example so is there anything in the system that would keep that from happening?

And maybe what I add, so there is, and we just took this to council a month or two ago, is the grant policy. And so it kind of provided some guardrails as to what would be going to council. And I think, if I remember correctly, one of the emphasis on what would be taken or the pursuit of grants is the amount of staff time required to essentially to pursue. And So it's the short of what it boils down to. So if it's going to be heavy staff time to pursue this, the idea is it would go to council for approval. Now, if it's nominal or it's essentially not much, I think that the pursuit of the grant would not require it to go to council. However, I think there are some thresholds that would require council to approve the grant. And one of the other bits, and you will see it as one of the findings, is it ultimately would also require the city manager's approval or their designee on any grant.

So can we maybe use those as case study? And so these are the grant in the past, and whether the new policy, how would the new policy would apply for this? I think that would help us to understand how the new policy would work, maybe whether any adjustment is needed.

One more area. So the SV Hopper, they, and I don't know if this, I don't recall it going to council, but there has been an application from two different kinds of grants to extend that. But I don't recall us having a discussion about it on the council agenda. And those are significant amounts of grants. You know, I'm pretty sure it's over a million dollars.

maybe we could organize our our comments here and i guess some of them are process related and there's some recent development i guess was the policy that would jonathan's referring to was that part of your incorporated that you did you finish this study before that yes so if you look our very first finding was around policies and procedures and i think that was an administrative policy jonathan that you have been working on is that correct

No, that one was a council.

Oh, council policy. So we have not reviewed this. Like I mentioned, this report actually, you know, we finished our testing and the report was, the draft was initially in October of last year. So it's been a while since we have worked on this area. What I want to say, we do have a follow-up, you know, when we get to the next fiscal year internal audit work plan for this type of thing.

Right. is kind of what i would lead into to the extent you've done a certain amount of work and there's a number of recommendations and when i look at the city staff response it's basically since this report was finished or the work was done there's been a grants analyst who's been hired who presumably is doing all kinds of Policy and implementation things and that leads into this, I guess. Proposal that we have in the next agenda item. So we're sort of. What I'm trying to do is figure out how we can take the benefits of what we see in front of us, but then recognize we've got another item potentially where we could address some of the. Almost both of your questions in some sense are like, follow ons to the scoping of that follow on project. I don't know if you guys see where I'm going here, but we can get rid of this item. I don't want to say get rid of, but how does city staff is responding saying basically there's a new person and all of these recommendations are being re-evaluated. Is that correct?

I think that's the general or at least our position that the new grants analyst has addressed or that there's a process in place that addresses most of these.

I almost think we could accept this item and then on the next agenda item drill in more deeply as to what follow-on items make sense.

I'm curious that this says it's an action item. And six, it seems more informational. Right. But I'm also wondering, so this is going to go to council. So the staff report should have some mention about how this report was generated at this time, and the city's already been implementing the recommendations. So the things that the original report Yeah, it's important, but we've made XYZ changes so that the council doesn't get confused by it. And then also include that grant policy, too, as a reminder that we had already done that.

So maybe you should have an item that says what you just said. We handle this sometimes through a staff report, and Jonathan could include that the committee discussed this report, received it, and forwarded it to city council, but with the caveats that the mayor has just listed.

I have a question for the consultant.

Okay, clarifying questions. We're still on those, actually. And don't let me forget, we've got to go to the public.

So this report was done last year. And I do wonder... How did you collect information to create this report? For example, those issues with grants we have observed, and it seems you are not aware of those. So I wonder what kind of process you had used to create this report. Maybe there are people you should have interviewed, but you didn't. so maybe the report should even be delayed so you can collect more complete information before making this recommendation do you want me to take a step up or do you want to

You can start and then I can add my two cents.

Because I have two other examples of things didn't work before.

So the testing period was, again, the beginning of fiscal year 25-26. And that's what they tested. But since then, or concurrently, there were some changes occurring within the city. One with the... with the hiring of the grant analyst. And so as the report was being generated, being essentially circulated within the city for review, which was delayed a bit due to staff turnover and the review process. So that's what delayed the report itself. And so it still retained the original testing period, but changes had already began, right? And that was part of our response.

So you're saying you only tested... any grants that's being applied for during those periods or being

Not necessarily slide, but review, right? It could be a combination of grants that were in progress, right? If we're like CDBG, that's a year-round and continual grant, right? And so as they're testing that, we could be early on in the years, may or may not have a lot of invoices. But if it's a grant that's kind of crossing a specific time period, they could be testing that one. So again, their testing period was... A couple months. They're only looking at one specific time, but there could be other things. And the report was generated based off of that testing window.

So if there were things happened before that testing window and that we need a policy recommendation, For those grants, they are not included. So how can we include those? Is it possible to revise the report to include things that we think could be improved on and then have a revised report?

So a couple of things. I want to remind you, this report is not even from this past fiscal year. It was from the fiscal year before that. So really, we're looking at an item that was from fiscal year 25. So I agree with Jonathan. This is a report and a point of time. And we really need to move forward and think, what is the future for the city? I think, I do think that what your comments are valid. And I think that I would really lean into that next agenda item, which is talking about our internal audit plan for 27. And you can be specific in maybe that scope of work and saying, these are specific, not only do we want you to follow up on the findings of this, but there are specific other areas that council or this committee you know, is concerned with that we would like to include in that scope and that be a new report for the next fiscal year.

And I guess to chime in on that, there is a description in this report that you're asking us to receive today on pages four and five that talks about your scope and methodology. So maybe that addresses some of the vice mayor's comments, even though I agree that we should be looking at what's the current situation with the current analyst and what do we expect would be helpful for cities to control controls or operations from a future perspective so i'd suggest that we receive this report um and maybe leave it at that and city council city staff can have do whatever because they're not forwarding at the city council necessarily as our action item and then dive right into the next item on our agenda which will address maybe in more depth what you're bringing up placement

I think it does say in the executive summary that the internal control review took place between June and October 2025. That's a very short amount of time. So if your testing is only for those few months, so of course it's not going to capture the problems we have seen over the years and you would not have captured things we need improve on.

Right. So that actually, so that's how long the project took place. So the scope of our project was for fiscal year 25. So the project only, we worked on this project from June 25 through October. of 2025 but the scope so what the grant management process that we looked within the city was for fiscal year 25. so it was for a year also yeah before 2025 so it's one year a snapshot of one year from july july 2024

to June 2025.

That's correct.

That's not clear from your executive summary.

Okay.

I would kind of suggest that we could form a subcommittee to talk about, to test the grant concerns against the new policy and what result would happen now if those were being suggested or pursued. What would be different with the new policy and just do that as an offline project.

So I'd like to mention two other major grants that

um the city staff has some applied to maybe the subcommittee can consider i don't want to cut you short because those are super ideas that really would fit better maybe in our work plan or in the uh next item seven both both of your comments i think are very relevant for those two items maybe a way to solve this one is the red in the staff response to just about every one of the recommendations based on what this period was covered is basically there's been a grants manager hired that is now everything is superseded so i hate to say it but it's it's just time has progressed forward and we didn't get this report or it couldn't be finalized or whatever so to some extent we could receive this report and highlight that management management's uh response is that there's all kinds of policy and personnel changes and that we as a committee then my response to that is let's address that in items seven and eight

Is that your motion?

I don't know if we need a motion necessarily. It's sort of clarifying the reception of the report, but we could, yeah, if you want to make a motion. So moved. Okay. Is there a second? Which would be me. New motion, so I can second it. Okay. Ferris seconds it.

I would like to request a change, though. The executive summary didn't make it clear this is a the review of only the fiscal year 2025, which is from July 2024. It's not a review of all of the city's grants management. So if we can make that clear in the title of the report and in the executive summary of the report, then I can accept it. Otherwise, I think it's confusing.

Vice Mayor, it's in the first paragraph. It's actually a summary on the first page.

It just says that the review took place. during that time. But it didn't say the data they used for the review is for fiscal year 2025. So they only look at the grants that's being processed or in progress during those time.

Okay, so I think it's super clear, but

You didn't say it's only a review of one year of rent.

I think it's clear, too, because there's a lot of scope. And again, I really want to put this in the mirror. So I guess we... We don't have any public comment. We skipped over that and went to a motion just to get our little procedural thing going. We didn't skip anybody because there was no one who had raised their hand. So I think we have a motion and why don't we just vote on it and see where it goes. So all in favor of the motion?

Chair, I'm sorry, may I clarify the motion? And also, I just wanted to clarify, so Okay, let me just read what I, yeah. To receive the grants management internal control review final report with the understanding that the management's response notes that subsequent policy personnel and organizational changes have superseded many of the report's findings and to address those changes further under items seven and eight.

I think that reflects, Jonathan, you have a slight modification. Just seven, not eight.

Just seven?

Correct.

okay mayor is that reflective of what yeah i think so so is the is the committee making a recommendation to forward the report to council or is that automatic

Well, it's not automatic and it is in our recommended action, but we can always modify our action. But I'm happy to forward it based on this motion as a clarifying thing. So why don't we vote on the motion first and then address. Do you want that in the motion is what you suggest?

Well, it's part of the recommended action. I just wanted clarity.

If you want to vote, if you want to amend the motion to forward this report to City Council. Okay.

Great. And I so second agree or whatever, if that's required. All right. All in favor of that, as so nicely re-read to us? Aye. Aye. Any opposed? Opposed. Okay. And there's only three of us, so okay. Very good. I appreciate the patience and discussion on this. There's a lot of issues that we brought up, and I see that we're running a bit later than I anticipated. Can we, is everybody available to maybe address 7 and 8? uh i don't want you to have to come on third day but city staff can we stay for a little bit longer while we go into item seven or we don't need to it's not like council yeah let's keep going okay Okay. I still, I am sensitive to the clock and we can always defer that. We have that, I have that authority, I guess. So let's move on to our item seven action item, 2026-27 internal audit work program review. And we'd like to receive that and forward to city council as our action item and over to Baker Tilly.

Thank you. All right. This is very exciting talking about what we can do for the next festival year. So just a reminder of what we do at Baker Tilly. We serve as a designated internal auditor for the city, and we're really focusing on these areas, risk, internal controls, efficiency and effectiveness, best practices, and then compliance. Our work is always completed under the appropriate industry standards, so the IIA, looking at government accounting standards as well as the AICPA. All right, so what is the role of an internal auditor? I think this is always something really important to look at. We are an independent function that really helps kind of look at the achievements and objectives of the city. And so if you look at this chart, illustration is showing you how we have communication with both the governing bodies, so city council, this audit committee here, as well as management. And so it really shows that there is that third communication, and then all the communication lines, really making sure that we are separate from your external audit. And so you see that at the very right-hand side of this illustration showing that your external assurance providers, so for your external auditor, the PUN group, they are separate from this action. So going into our internal audit program, how do we come up with an internal audit program to present to you all today? There's many components, the enterprise risk assessment, which we do every three to five years, getting input from employees and residents, as well as performance metrics for cities. We also look at general opportunities. So risk controls, compliance, and performance. And then last but not least, that tracking and reporting. So that validation report that we talked about earlier today, looking at those findings and recommendations, the fraud, waste, and abuse hotline, that would be another thing. Looking at implementation that the city has been doing as well as that validation that we talked about. So those inputs really make up our internal audit program and what we present to you all. This is just another illustration talking just again what we talked about just now looking at the internal audit program and really just how it umbrellas all the different components as well as city functions. We're not just looking at the finance department, we look at other areas, other departments within the city. A really holistic approach. Just to kind of highlight what has the city done, you know, we've had two enterprise risk assessments. So both in 2021 and 2024, we are currently in a citywide internal control review that we talked about earlier today. And we've also had some performance. So looking at the efficiency and effectiveness. So those performance audits, we've had five accomplished. over the years, policies reviewed. We have looked at over 147 policies. To remind you, we did a city council review this past fiscal year, as well as we are looking at the investment cash flow policy, also with the city. You all know this. There was some recommendations delivered. I look at this number and I can tell you it is incorrect because we know now that 79 also includes the external audit as well as the civil grand jury reports. So that is not correct. But we have delivered, you know, Many recommendations and there have been 39 ethics hotline reports received over the years, and you know in fiscal year 26 we were able to validate seven recommendations so kind of an idea of what we do with our time. This also just kind of shows you the different departments. And like I mentioned, it's not just looking at the finance department or the administrative services as a whole, but really we have dabbled in public works. We've done enterprise projects. So looking at the, you know, the enterprise risk assessments, internal control review, city manager's office and public works over our time. Next. This is the big discussion item. These are the potential projects that we have identified for this fiscal year. What I will say is that we have $120,000 currently budgeted in this fiscal year. We are bringing forth right now $230,000 of projects. Obviously, there's some pick and choose or if there's other potential projects that this committee wants to bring up or identify for management, that's obviously open as well. First one, code enforcement, so the 311 response time review, so evaluating the city's code enforcement complaint response process, really focusing on response times, staffing availability, and service delivery. a property tax review. So inventory property tax revenues and compared to relevant legislation and agreements to identify opportunities to improve the understanding of those distributions, county service delivery, and intergovernmental funding. So there has been also talks about the investment cashflow review. So you know that this past fiscal year, we looked at the actual policy. So taking that policy and looking at the current processes that the city has and making sure that those align with the policy, making sure that it's cohesive and fluid. A permitting efficiency study, so evaluating the efficiency and effectiveness of the city's permitting process, really identifying opportunities to streamline workflows, reduce process times, customer service, and overall service delivery. That grant management follow-up, something that we kind of talked about. So this, you know, this one we had really scoped around looking at those individual recommendations from that report and really digging deeper into making sure that the city had completed those recommendations. You know, obviously room for suggestions by Vice Mayor about potential, you know, other opportunities for that scope. The recruitment and retention study, that's really assessing the city's recruitment and retention practices, really identifying opportunities to improve hiring efficiency, and really the city's ability to attract and retain those qualified employees and making sure that there's long-term organizational stability for the city. The last two, that's the program management and recommendation validations. Those two kind of go hand in hand with each other and are really what we do on a quarterly basis with you all, as well as looking at the fraud, waste and abuse hotline and validating those recommendations when it comes time.

Thank you for the introduction to the report and we've all had, well, we've all reflected on these comments. My introductory comments here are internal audit is a key function that the city hasn't had prior to six or so years ago, I think. It's a fundamental element, I think, within good practice for cities, and it was a response in part to the defalcation and embezzlement that occurred and so it in my uh memory and very happy to see that there is an internal audit function so it's not limited only to the financial elements that baker tilly has pointed out here it's also can be operational so that's very exciting as well my clarifying question after my introduction is how much uh input did were you taking from prior audit committee discussions over the past year and or city staff input?

That's a great question and definitely looked at what we have talked about, reflected what we've talked about over the past year here at the audit committee. We also met with Jonathan and his team as well as the city manager's team as well to kind of talk about those inputs. But thinking about The overarching looking at the enterprise risk assessment, that's a huge tool that our team uses to help utilize what would be really relevant, what are potentially high-risk areas that we had identified prior years that the city might want to look into.

Fair. Terrifying questions. Terrifying questions.

Well, so trying to prioritize this list, because this is not, this is put in order of the cost almost, or were you trying to share this as a priority, or how did it end up being?

No, I would say it's I don't think that there's any priority. It was just kind of a list of projects. And I don't think we really even have a it's not any order other than the last two are kind of things that we we have to have program management. So that one and then the validation or recommendation validation is something that the committee in the city has always encouraged.

Okay and we're budgeted at $120,000 but we can go we can go higher than that and then council can knock some things off. I'm wondering with the investment cash flow review if staff feels comfortable with the cash flow policy that we have right now because I saw that you did. Like you moved the money to get it down to the $5 million in that operating account, and you're using CalFit. So to me, this is a problem that you have kind of, for the present time, it's kind of solved, in my opinion. So I would say no to that one. Do you have a thought on that? Is that something? Or for this list, are there things that you strongly are interested in? Because I can come up with, for permitting 311 property tax and recruitment that I would be interested in. I'm not sure if the recruitment part is particularly necessary at this particular time because we've just had a number of hires. But the permitting, we hear a lot about that, a lot about 311. And then the property tax review, I can share what this is about. um which is because it has to go to our sheriff's contract but it goes into the sheriff's contract and trying to figure out the actual numbers that are coming to the city because i'm able to estimate but i need help with some of these because the property tax embeds some other taxes in it And sales tax, it's not super clear where it's all getting distributed. And I don't want to be, when we're doing our negotiations, saying falsehoods to the county. But I am saying that they get over $100 million from Cupertino each year, and that's something that we need to have. It can't be I'm generating this number, which is why I would definitely support looking at the property tax distribution item. But were there some favorites in the list?

Yeah, I will say that the recruitment and retention study, that was something that the city manager's office or city manager had requested.

Correct. Okay. And I think 311 and permitting were also pretty strong contenders.

Yeah, so I wonder whether for property tax review, Is this appropriate for the Baker Tilly to do this study or it's something really our lobbyist has been doing that study? No. So the Baker Tilly has this expertise to study property tax.

So Colleen, I'm going to lean on you on this one.

Sure. So we do have folks in our public sector financial operations group who can provide advisory on this. I would say from an internal audit perspective, I actually talked about this with the chair last week, it's right on the line because it deals with policy a little bit more than it deals with maybe operations or the type of work that internal audit typically does. And so while we do have the capability to do the work, we want to be pretty careful as your internal auditor about how the information is used. And we also need to be a little bit thoughtful. The county of Santa Clara is not currently a Baker Tilly client, but the housing authority, I believe, is. So we want to be thoughtful about independence as well. So we would want to scope this really carefully with you should you, the committee choose to do this. And I understand mayor that this is a priority of yours. So if we did choose to move forward, we'd want to sit down and scope out in detail with you so that we both feel comfortable with that.

I think that's maybe a clarifying question for me is I look at these as high-level priority items once we get the list agreed upon here as a committee that we then are sending back to city staff an internal audit to scope more as well as forwarding up to city council for the budgeting look so I think there's a lot of behind-the-scenes scoping we can call it scoping I guess to the extent any committee member maybe has an interest in that we could either set up a subcommittee which can consist of that one committee member or we can have up to two of us depending or I take direction from city staff too since there's a number of projects here and we can't, I don't think internal audit can do many of these without information and support from the city staff. So to the extent we're scoping things, I would presume city staff's got a big input into what can be done and when can it be done and who's doing it and things like that. So how do you suggest maybe this unfold and remind us how this has unfolded in prior years?

So the top, This is from what the mayor had pointed out as her top projects. It looks like it's distributed across the city, that it's not heavy on one particular department, right? Code enforcement being the CDD. Recruitment is probably going to be more along community resources. permitting kind of crosses both CDD and public works. So there might be a little more of a challenge there. But I'm sure Pauline and Chelsea would be able to work around scheduling to ensure that there's not too much overlap there. Am I right?

Yeah.

Okay. I don't want to speak for you guys, but yeah. And so there would be less of a draw on that one particular department. And then if the committee wanted to pursue one of the others, this probably being closer to the finance, whether that's the property tax or the grants management or even the cash flow if the committee wanted to pursue that one. So as far as from a staff workload, I don't think that's as much of an issue. Again, at the end of the day, if you pursue most of these or just even those top three, you are looking to have a budget adjustment needed, right? Because I think with those top three plus the recommended validations, we're looking at about 180, I believe. So we would have to request a council for an additional 60 plus if you wanted to add either one of the other three, which would be property tax permitting, I'm sorry, property tax and investment cash flow review or the grant management follow-up. Or if there was another item that you wanted a follow-up or additional on whether that's I think, Chair, you know, we discussed possibly the a report of sorts to be provided in terms of the fund balance or appropriate fund balance conversations with Chelsea and Colleen have been more along the lines, it's probably going to be more of a management report rather than a full blown project. On the previous Oh, so that was just that's not on here because it's not really from conversations with calling and Chelsea. It's not so much of a project. It's more it would be closely to a report to kind of, hey, this is best practices per GFOA and whatnot. kind of something along the lines. And there would be, obviously there would be some sort of, and Colleen, correct me if I'm wrong, it's more of a, some research kind of best practice, not so much what is the city doing and how should a city, because a lot of that's really policy that's driving that.

Yeah, and just to follow up, we would, most of our recommendations, all of our recommendations are going to come, be based off of the GFOA guidance. So that's why we really said, you know, looking at the GFOA guidance, We could put that in a report, but is that really beneficial?

That's in regard to the study that's not on this list to clarify that. So I think we're still trying to get clarifying questions. So you have a question, Vice Mayor?

So the other question is regarding the permitting efficiency study. So... I think one of the work program this year has been permitting streamlining and the Planning Commission is already working on. It's towards the end of their review and going to be streamlining. So I assume they already done some study if they are doing the policy change modification on that. So I'm not sure. So this permitting efficiency, are you going to look at then 2026 year data and then but then that's where we are probably going to already change things next year. So how is, I think this is something where you really need maybe last year. So I'm a little unsure about the timing of that.

Okay. Let's see. Does city staff have a comment on, I guess you're more in tune. This is really a scoping thing.

Is this something you've already worked with the planning about the timing on? Not yet.

No, the permitting efficient, actually that your top contenders actually came from city manager's office, which was the code enforcement response time review, along with permitting efficiency study and the recruitment and retention study. That was the city manager's office recommendations. And so whether that has kind of shifted a little bit due to the planning commission's involvement, Probably at the end of the day that I'm not sure. Well, in terms of testing and what period it's going to cover, I look to Colleen.

Yeah, I mean, we can work with the city on that. So, you know, depending on the scheduling of when we do that project, that's something that we always work with city management on, as well as, you know, really defining the scope and timing the time frame that we're looking into, you know, that those are all really refined once we get an idea of what projects to be working on.

So in this situation, let's say there are some adjustments to the workflow and that occurs in the first half of the fiscal year. Maybe Baker Tilly can do the review in the second half to see how that's being implemented. If that's the direction, right?

One more question. It does seem like the recommendation validations is something that we do want to continue. Like we have to ask to have that go on. And what is exactly the program management again? I'm sorry.

So that's having me here right now, doing our monthly updates with Jonathan and team to talk about project status, reviewing the fraud, waste, and abuse hotline, monitoring that, creating these reports, that sort of thing.

It seems almost like the recommendation validation, like you need to continue that.

Right. Those two. And that's so typically those two are we almost combine, you know, and we've done in prior years and just those are. kind of the ones that we have to do. Okay. That's like a basic thing. Yes.

So we would end up, if you went with recruitment 311 and permitting, you're at 140. And then, so 170 out of the 270. So you could still send it to council with that, even though it's above the 120. I don't know if property tax could be done by a combination of HDL and city staff and Jason, and how perfect do those numbers need to be in order to advocate? So for Colleen's question about what the numbers are gonna be used for, it'll be used for advocacy for the city. So we have this disparity between the amount of property tax our city gets versus other cities. We're much lower for the property tax that we get back and that's really the crux of the matter is to see what we can do to advocate for the city moving forward long-term through some sort of legislative change in Sacramento if at all possible or if there's anything we can do about that. So that's why the numbers need to be defensible. But I'm not sure if Baker Tilly's the right entity to do that and if you feel comfortable knowing what we're going to be using the numbers for.

I have some thoughts. And first and foremost, you're reliant on county data, right? The county is the ultimate tax collector. And so you will be reliant on county data for all of this analysis and what is available to you. And ideally, everything is available publicly. But the reliance and cooperation with the county is going to be really important through this process as well. It may... it may be worthwhile for you all to consider who you would like to be involved in that, just from that perspective, because your relationship with the county is really important, right? It's not limited to just this, but you have to work together on many items. So I would recommend talking maybe with the city manager and with the finance director a little bit more about how you'd like to go about the work before you engage someone to do it. We certainly can do the analysis in our professional standards. We're not allowed to advocate for our clients, but we can make you recommendations or we can provide data.

Okay. So my question is, what's most useful here? This is both for the committee and staff and internal auditors. All of these projects, in some sense, we don't have a budget constraint because we can, as the mayor indicated, send all of these up and say, you know, if you think of some more, add those too. Or we could try to delete some of these or some other hybrid approach. So how do we make the rest of our meeting efficient here? I know we had a great discussion on grant management follow-up, and there's probably lots of follow-up items that we could specify in the scoping. And Vice Mayor had some really good comments that we don't want to forget that she had them, but I'm not sure this is the... maybe we if we said we wanted to move forward with grant management follow-up then we need some more input and city staff would assemble that scoping and maybe solicit the vice mayor's comments i'm just talking out loud here i'm trying to figure a way to move forward with this do we really want to delete any of these items is there an app that's one way to go about it i'm not i don't have an appetite to delete any of them since i've removed budget constraint and the personnel constraint um thoughts Right.

You could prioritize. The only one that I could see potentially getting removed is the cash flow review, investment and cash flow review at this time. But if by investment we mean talking about reserves, if that could be assumed to be embedded in that item, then maybe add that word. into the project description to get the best practices on reserves, because I've been wanting to hear that. So that was the only one that I could remove. But if you add in the reserves, then I really want it. And then we could prioritize, but also like recommended validations and program management seems like that has to move forward. So I would put that on the top of the list as these two are necessary. And then we could prioritize recruitment 311 or permitting. and just give a prioritized list to the council and they can discuss it. With the entire list though available.

Sure, I like that idea. So before we go too much into talking about that, we're still showing, why don't we just, are there any comments from the public?

Sometimes they come late.

So one more question.

Yeah, now we can maybe move a motion too if you want.

So regarding the grant management follow up, it says follow up on outstanding recommendations and assess progress the city has made. So here you are referring to the Grants Management Final Report, the recommendations made there.

Correct.

Based on the one-year review, right? There is a lot of really great recommendations there already. Right.

And so you were saying, does this project involve follow-up on those recommendations?

So that project will be working with the city staff to implement those recommendations that's in that report right so doing it really doesn't that mean the council has to approve those recommendations rather than just receive the report because those recommendations i think some of them are pretty involved in terms of implementation staff

The report will be forwarded to Council, and I believe Council's action is just to receive the report. That's how it's been in the past.

Okay. But then, so the staff will decide, I guess, some priority on what recommendations to implement and how?

Maybe if I could outline how to follow up on that, maybe all the recommendations in that report would go into the equivalent of the 79 number that we saw, and then staff will talk with internal audit, and some of the things will go away because of the new grant management analyst that's been brought on, the new policy that's apparently out there, and then internal audit would evaluate whether those two facts are actually true, and then they would put it in the resolution column. Is that how you would envision it?

That is one way. Yes, absolutely. You know, I know, Vice Mayor, you had other areas that you wanted to look into. So that's, I mean, these are potential, you know, obviously we can mold them to what is most beneficial for the city and what management thinks they can take on.

Does that help?

Yeah, so I guess go back to what we talked about some earlier grants that we had concerns on. So that may require some case study. how those come about. So one example is augmented reality app. And I think another example is the city received a grant to redevelop the heart of the city plan, which the council never requested, but the city got almost $500,000 grant, I think $450,000. And But the same grant, we could have applied for other things that could have gotten approved. Then at the time, the council didn't see the need to redo the heart of the city plan. So we eventually didn't, didn't receive, didn't, I think, accept the grant. So that's a wasted effort because there wasn't, it wasn't synchronized the way the council priority at the time. And another example is the ATP active transportation plan that grant for we were being presented all this project is funded by this particular VTA grant therefore we have to move forward with the project, otherwise we will lose the grant. It's always been like that, right? The other one was also, we already got the grant, you have to approve the project. So the ATP, we kind of said, we move forward with that. But the same type of grant could also be applied to other transportation projects in the city. It doesn't have to be used for this particular project. So this has been a way that the grant approval is driving council priority rather than the other way around.

One recommendation I might make if the committee is interested in that project, it sounds like with this new policy that has been developed and implemented, we could take a look at that policy and test it against certain grants to make sure that the process and all the way to council approval is done appropriately and we can see the process laid out against this new policy to make sure that these instances that you're talking about don't happen again or if there's something that could slip through the cracks.

Yeah, if we can have some case studies, these cases, a new process would have handled this way. That would be helpful. Another example is the BMR grant. Not grant. This is actually BMR fees. So this is not grant. I'm not sure where it's applied, but the BMR fees has been used to pay for legal fees that's not related exactly to below market rate and for newspaper subscription and the public has brought this up to us so um This is probably not grant, but then it's a way how we use different funds for different functions. I think another example was, I think we had, there was some issue with the HUD grant that we somehow did not report properly. That was resolved, but then Would the current process prevent us from making the same mistake again? So maybe staff has some comments.

So we recently had a special revenue fund project, and that addressed the concerns you had with the BMR, which the new process has been essentially a lot of it ultimately was staffing. training and whatnot. So that one has been put to rest. We have implemented a process to address that issue.

Basically administrative overhead is going to getting paid for from the general fund. So BMR is just going towards building BMR rather than having all this other administrative stuff pulling

from that. There's been a lot more restrictions and even director oversight of that specific fund to ensure that nothing slips between the cracks, that it's more what we're allowing to or what expenses are funneling through into that fund are actually more restricted. Although the handbook could be more inclusive, administratively we've restricted what actually goes to that fund.

Okay. So I think the HUD grant is probably related to CDBG grant? Correct. And so that will also go through the same process or it's a different process?

I believe it's a separate process because it's kind of different rules apply to CDBG. However, it is managed by the same individuals. Nicky, he's quite knowledgeable with CDBG, and so I'm quite confident in his abilities to ensure that the expenses that are allocated to that fund are appropriate.

There. Thank you. So I did run this through Claude and asked Claude to prioritize the list in order of importance. And they did it based on fiduciary risk, financial materiality, how directly each ties to active city priorities, and came up with the investment cash flow chart. First to last, investment cash flow review for 35. They said the highest fiduciary risk category, safeguarding of public funds. This is the kind of audit that protects against fraud, mismanagement of exposure, and is often treated as core recurring due diligence. Number two, and I would argue who should do this, but it was the property tax review, directly complements your ongoing EV8 allocation ERAF and BLF swap work. This audit could formalize and validate the analysis you're already doing informally and has real revenue implications. I don't think they're overstating that. But three, permitting efficiency study. Highest fee but permitting delays have direct economic development and revenue consequences. developer relations, fee capture, staff type, high visibility, and high potential return on investment. Four, recruitment and retention study, 45,000. Workforce risk affects every other city function. Turnover and vacancy costs compound over time This is foundational to organizational capacity. Then 311 response time review, important for service delivery and public trust, but lower financial fiduciary risk than the items above. Grant management follow-up, compliance-driven grantor requirements, clawback risks, but scoped as a follow-up rather than a new risk area. And then the last two were the program management and validations. But they said program management, necessary overhead to keep the audit function running. Recommended validation, lowest cost, largely administrative stocking of prior findings, important for accountability.

Keep in mind, AI like Quark tend to give you a recommendation based on your past questions. Which is why those are on top.

Oh, but I haven't asked about the other one.

These other things are all new. I know it tends to bias based on what they know about you. It does that to me.

But of my own accord, I went with the recruitment property tax 311 and permitting and then add REC validation and program.

Sometimes they create a new account and ask again.

I think you can also look at process. There's one element of process. We'd be here a lot later tonight if we hadn't had a tracking of our comments over the past year in our various meetings. So it's not that it's just this meeting that we're talking about. There's other projects that got excluded. We've settled on this list, so there's still the scoping element for each one of them. I think maybe we might want to make a note for the following year that it whenever we get to the next item which we won't probably tonight but the uh the work plan that we have that's when we've often said well wouldn't it be good if we could do this or that and i know you've raised a few of those over the past year so i'm very happy that we're at this stage i think we're at the point where we could maybe keep the i don't hear anyone really having an appetite to remove items on here but maybe the priority of them is something in doubt um we could maybe get consensus on that i'm not even sure that's helpful though um the city council is going to probably want to come fresh at this list if we forward it and but you two are both on the council is it helpful for us to come up with a priority uh in some way and then does that have weight with the city council i mean the two of you would then well support it i suppose

Well, you have two that are automatic, so you only have six to prioritize. Property tax review gets a question mark for who's best to do that. So you could remove it or just put it to the side and say, this one, we're not sure how best to handle it.

um well i think we can keep it and then say city staff and internal audit and of course any other people that have input like the mayor would then come up with a little bit more scoping before it would go to city council i would think some more work on where i see us having our value here is saying we could list these items with all of them right now for example and then say the top five from our perspective are or top four and then but all of them are are valuable and more scoping is going to come from internal audit and uh city staff before it gets to city council and then even more scoping might come at city council saying well they want you guys want more full committee does how about that as an approach so keep property tax in there but it needs some more scoping so colleen is happy and you're happy and city staffs have

Okay, so could, should we each say what our top?

Why don't you propose one and we'll just agree or disagree.

I've got the recruitment property tax 311 and permitting.

I'm fine with those. But Ms. Mayer, you've got one that you refer to elevator.

This is a priority, CHAT-GPT, which is my go-to. So CHAT-GPT puts permitting efficiency first, code enforcement second, property tax reveals third, grant management follow-up, and investment cash flow and recruitment and retention study. So it's like totally different priorities. Well,

Do you support that priority or can we maybe...

I do think property tax review might be best to handle separately because we need those numbers for a different purpose. It's not really for an audit. It's really for advocacy. So what I'm hearing... You're saying the number needs to be defensible, right? So it might be best to...

What I'm hearing, we can probably group the permitting, recruitment, and free loan one as your top three, not any particular order, followed by grant, at least some of the comments is probably grant, followed by investment cash, and then lastly, property tax, with the last two being automatic.

Okay. So the For recruitment and retention, I think the mayor initially also didn't think that's important, right? That one is also the lowest. in my list, except the tool and program management. So I'm wondering.

This is public works. It needs some stabilization, it seems. I think that's a very important one right there. I can agree with the permitting recruitment and 311 in the top group, and we could present it that way. You know, this is our top group. This is a must-have program management, and then we have just break it into a Tier 1 and Tier 2. Tier 1 permitting, recruitment, and 311. Because the manager is asking for recruitment, I would say. If she's identified that, we should probably support her on that. And then go with the grant investment and property tax and just call it Tier 2 in no particular order and have that identified as that these are not in order. This is our first upper group and our lower group and then our automatic group.

I like that approach. I can get behind it. Vice Mayor, you're nodding, it sounds like.

All right, so why don't we have a motion that... I do have a question still about the recruitment and retention. This seems to... This is not a typical internal audit function. It overlaps with HR. That's something I think that... the city's, the HR department has been doing over the years, right? So how would this be different? Is it appropriate? Yeah.

If you recall Chelsea's presentation, our scope is not just internal controls. It's also performance, efficiency, and effectiveness. So our goal is to help out across the city based on its highest risk areas. Our enterprise risk assessment did identify this as a higher risk area than it was requested by the city manager, but our scope is for any part of city operations that could increase the city's risk. And your ability to recruit and retain employees is certainly an area of operational risk. And every time there's turnover, it costs the city money too.

Yeah, but then do you have the expertise in this area?

Yes. Yeah, we do. We've done dozens of HR-related public sector studies.

Have you done any recruitment?

Yes, yeah.

Your company does recruitment?

We don't do recruitment itself. We do assessments of performance, efficiency, and effectiveness related to what the city's goals are and best practice. But we have folks on our team who are actually retired or former municipal human resources directors.

Okay. Great. Why don't we...

try to get a motion here that would uh i suggest on the tiers and to city council that we're supportive of these and of course more detail is available and will likely be available before presentation um so i move that we create two tiers um and these are in no particular order within the tier that we have the permitting um the recruitment and 311 in considered tier one tier two would be the grants investment, cash flow, and property tax. And then we will have the, I don't know how to identify it, but the automatic baseline items would be project management and recommendation validation.

Those are physically required, so these are really automatic.

They must be included. Must have.

I second it.

Okay.

Then we can discuss our motion. We've got a motion. I think that was clear. Do we need to reread it back? We're good? Okay. I like it. Any other thoughts to... and are you are you receiving the report and forwarding it to the City Council yes with our comment the motion the tier the tier though I guess we're forwarding the report with the tiers that are in the motion I'll be sure to include that as part of the staff report perfect yeah all right good clarification all right all in favor of this motion Hi. It's unanimous of the three of us. All right. Thank you. We do have one more item, which we can just maybe scurry really quickly through, which is the Excel sheet. And thank you, Colleen and Chelsea, for leading us through. Sorry, it's gotten a little bit later than we all anticipated. You had to come back two times, but the poor vice mayor here had even more trouble. So congratulations. uh thank you everyone and our last sheet is we we keep track of this so again i think it fits in well with this last internal audit discussion we had the idea is we as we come up with things we can have a subcommittee or we can uh uh suggest internal audit do it and i'm much more in favor of of settling on the internal audit for city staff can actually do reports itself so and a number of them are forthcoming so any changes that anyone has to this uh thanks jonathan for keeping it Obviously, we see this every meeting, so I'd suggest we just move forward. But more studies certainly welcome by everybody. All right.

One recommendation I have, we've already for next October 26, you've already received the citywide control. Oh, citywide control review. Excuse me. I'm not seeing correctly. I thought there was a citywide policy. We're good.

Right. Yeah, all right.

This is nice.

On that happy note.

Your overview.

Oh yeah, public comment on our item eight. I totally forgot. The last person, hopefully we, do we have any? All right, on that happy note. Thanks everybody. We are concluded.

Is there a motion for that? Is there a motion?

No, we don't do a motion on it. We accept it as an information item and receive it. But often we have many discussions on it. So we are adjourned.

And we can flash love to him.