PERALTA COMMUNITY COLLEGE DISTRICT
AUDIT AND FINANCE COMMITTEE MEETING
MINUTES
Date:
Location:
Start time:
End time:
February 22, 2007
Chancellor’s Conference Room, District Office
4:05 p.m.
5:45 p.m.
PRESENT:
Bill Withrow, Chair
William Riley, Trustee
Abel Guillen, Trustee (via conference call)
Thomas Smith, Vice Chancellor, Finance & Administration
Elihu Harris, Chancellor
GUESTS:
Heidi White, Vavrinek Trine Day & Co. LLP
Bill Rauch, Vavrinek Trine Day & Co. LLP
Mark Harris, The Pineapple Group
Johnnie Griffin, IV, The Pineapple Group
AGENDA:
1. Review and approve the agenda.
2. Review and approve the minutes of the January 18, 2007 meeting
3. Status and timeline for the external audit, including a briefing by Heidi
White, the managing partner for the audit
4. Briefing by Mark Harris on the status and prognosis of our investment
program.
5. Briefing by the CFO and Chief Administrative Officer with respect to the
following recommendation from the Accreditation Commission that must be
responded to by March 15, 2007
 “The team recommends that the college and district clarify and
communicate their respective responsibilities for the hiring process and
that the process by revised and streamlined for all categories of academic
and classified staff.”
Chair Withrow opened the meeting at 4:05 p.m. Trustee Guillen will be joining the meeting via
conference call at 5:00 p.m.
External Auditors Report (Heidi White)
Ms. White distributed an audit update with results of work to date, pending audit work and
some of their findings. The audit is primarily complete including capital assets with a good
idea of revenue that has come in. They have some findings and recommendations. The general
overview of areas to make comment on: 1) area of federal compliance; 2) couple of areas in
student financial aid (BCC). Tom Smith has passed this information on to Howard Perdue,
Associate Vice Chancellor for Admissions and Records. Ms. White will also follow up with VC
Perdue. There seems to be some disorganization, e.g., documents filed wrong, some students
over rewarded. Need organization in department, maybe some cross-training with the other
colleges. Areas noted in prior audits, impact in number of students and larger workload.
Chair Withrow asked if Peralta would be better off if we had one office for student aid for all
four colleges. Ms. White felt better served with the way it is set up, however, oversight and
management should be reviewed more frequently through the year. Could be that during
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higher activity times, the other offices could provide some support. Once VC Perdue has
reviewed the area of concern a plan can be developed.
The State Chancellor’s Office added area of state compliance. The auditors have comments in
areas of CalWorks, standards of scholarship and the non-credit courses. This is consistent in
all four District colleges. The State Chancellor’s office requested list of non-credit courses of
only the courses actually completed, it is not a significant area but this is the first year it was
included as a compliance area. Some colleges did not send their list. Ms. White did not think it
was intentional.
The auditors will have findings in area of financial statement and internal controls. They still
need information systems audit and will be recommending security. The Information
Technology department will be able to provide efficient and accurate reporting on a timely
basis. Chair Withrow [referring back to systems] was it PeopleSoft or was it organizational?
Ms. White indicated it was a combination of both. PeopleSoft is a unique system. Peralta
needs to look at the computer controls, some of the problem could be management. VC Smith
stated that a systems audit will be performed.
Ms. White indicated that the auditors still need to do cash reconciliation accounts and need to
check and see if all transactions are recorded.
[Trustee Riley arrived at 4:15 p.m. Chair Withrow briefly brought him up to date on the audit].
Ms. White indicated that Yvonne Dorrough (Associate Vice Chancellor for Budget and Finance)
was lead on the cash reconciliation. After the second payroll analysis, there were payroll
issues to be resolved before cash reconciliation could go forward. VC Smith commented that
when they began reconciling the payroll, they found a batch of $600K that did not get posted.
Ms. White confirmed that when they were doing the reconciliation, it was discovered that a
batch had not been posted to the General Ledger. It was there, but it had not been posted. In
analyzing this payroll posting hopefully the District can run reports through IT to see if there
are other accounts that need to be posted to the G/L. VC Smith acknowledged that this is due
to an inability for IT to run these reports. Ms. Dorrough mentioned that if you duplicate
payroll on month to month, it will only take one date. Payroll installed without link to liability
accounts. The programmers were not capable of loading; then in the last 30 days we converted
everything into a liability type account with a query to see if payroll posts properly. We are in
accruals, any changes to a person’s paycheck, it back dates; looking to recycle into G/L. VC
Smith said what that means is the 311 report will have to be amended and we will need to
recalculate the 50% law. The District may be in a better position.
Chair Withrow expressed concern regarding PeopleSoft and was curious if these same problems
crossed over into other clients of our auditors. Ms. White explained that they are familiar with
PeopleSoft, but it is the customization in use for your specific purposes, i.e., some Districts are
single college, Peralta is not. Chair Withrow queried that shouldn’t financial systems and
processes be similar. Ms. White said yes, but it has to do with the coding. Each college is a
unique entity.
On the cash reconciliations, Ms. White mentioned they do have follow up issues. The auditors
will be back next week to try and complete those. The audit will not be complete until they
finish those things, i.e., get everything posted. Some issues with accounts payable and 50%
law calculation and general overview of 311 process still needs to be completed. Ms. White
stated that when they file, the audit will go to Peralta, then back to their office, then to the
state and the Federal Office Audit Clearinghouse. Hopefully, they will be able to come to the
full Board by March 27, 2007. Filing requirement from single audit and federal opinion on
financial statement needs to be filed by the end of March. Ms. Dorrough needs to declare all
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funds and financial aid component by end of month – objective by this weekend is to run a trial
balance.
VC Smith suggested for Audit Committee to have next meeting on March 22nd at 4:00 p.m. We
need to get done by March 31st or they may cut off financial aid. Trustee Riley asked if we
should try to meet earlier. VC Smith needs to do complete MD and A. We can put holder on
Board agenda. Ms. White felt that meeting on March 22nd, then with the final audit going to
the Board on 27th, we will be able to file by end of March.
The auditors need to do verification prior to preparing the final report. Some key points:
 Ms. White indicated that unless something comes up in cash reconciliation, they can
provide an unqualified opinion. It will be a qualified opinion to feds and state.
 The management letter can be separated from financial statements, but it does go to the
state agencies and federal audit clearing house also to the Department of Education and
the Department of Health and Human Services for dedicated funds. Ms. White indicated
that they get everything, not separated out.
 Some disbursements from the Student Association funds did not get approval but the
funds have been accounted for. We did not find any illegal procurements.
 The District will receive the representation letters once the auditors have finished the final
reconciliations and final reports. Those letters state that the District disclosed all relevant
materials and accepted audit adjustments.
 Chair Withrow asked if there were any significant lack of checks and balances, such as
procurement. Ms. White indicated they have found issues within Purchasing where a
vendor can be set up and payments can be made out of A/P; the control feature of being
segregated out is not functioning appropriately.
 Ms. White said that everything seems to be in place, written procedures are a key control
going forward in conjunction with policies. As far as board polices, the District is not
lacking specific direction.
 Ms. White did say that she had seen some improvements in place with our PeopleSoft
system. Some items will be open items for next year as well.
 All status updates will be given to VC Smith.
Hiring Procedures – Accreditation Report (Chair Withrow)
A letter dated January 31, 2007 was sent to Frank Chong, President of Laney College, from the
Accrediting Commission for Community and Junior Colleges. A copy of this letter was
forwarded to Trustee Withrow. Chair Withrow had a few concerns 1) why the letter was sent to
Laney and not the Vice Chancellor for Finance and Administration or the Vice Chancellor of
Education Services. 2) Because of that, we need a better process for distribution of these types
of documents.
Chair Withrow is concerned about Recommendation 9 on the hiring process at the District. VC
Smith stated we have a process for recruitment and selection in Human Resources. Chair
Withrow countered that the Accreditation Committee sites specific data, giving a description of
basis leading up to recommendation. VC Smith has not seen anything. Chair Withrow was
concerned about the Board’s responsibilities and how we should respond.
VC Smith stated the District has Board Policies 3.36 and 3.18; we also have procedures on
hiring in the Local 790 and 39 agreements. In the PFT contract, there is Article 9, as well as
Article 30, for faculty hiring procedures. VC Smith went on to say that the District’s process
has been streamlined in the past two years. There used to be huge hiring committees. We cut
down on number of people on committee and things have moved faster.
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Chair Withrow feels we will probably need a board policy on when there is a reason for not
filling a position based on budgetary reasons; put in holding category. VC Smith said the
District’s entire budgeting process is based on funded positions. When someone retires, they
let us know, we go out to fill position, but if they [the college] decide they don’t need it, then
they can move the money someplace else. Chair Withrow would like that information included
in the response letter to the Accreditation Committee.
At 5:00 p.m. Trustee Guillen joined via conference call. Chair Withrow gave overview of the
audit report. Anticipate unqualified opinion.
Investment Program Status Report (Mark Harris – The Pineapple Group)
Mark Harris discussed the current status and key deliverables of the District’s investments
with Lehman Brothers.
The District’s portfolio has grown since initial investment. Real estate investments up 26-27%
managed by Lehman Brothers, not in single family, but in retail and commercial business.
In the international area, Mr. Harris felt there was an “underperformance” failure to maximize
what the District could have yielded in their favor; still it was a 14-16% return over the past
year.
Mr. Smith asked if he thought the asset allocation Peralta built over a year ago is still
appropriate or would he recommend something different. Mr. Harris suggested some fine
tuning and the District may want to look at changing asset allocation slightly; make long term
changes. He likes real estate area right now. Lehman Brothers is strong on real estate side. If
you want to take 5% allocation and increase it, the District may want to re-look at taking
advantage of hot market. He doesn’t recommend fixed allocation change. He will be prepared
by the time the final report is issued in April to suggest some other areas to take advantage of
strong market; 2007 should be as strong as 2006.
Chair Withrow asked about our current risk profile and if that profile has changed, i.e., our
exposure to oil and energy side. Mr. Harris responded that they need to receive the data that
Lehman provides us. Models require some sophistication. We (the Pineapple Group) would
like to play that role for you. We will continue to play mid level role. Currently, Lehman
Brothers reports to the Board when the Audit and Finance Committee and Mark Harris
recommend that they explain some information. They did this recently and the meeting went
quite well. At one year anniversary, Lehman will report to the entire Board.
Lehman does supply reports to VC Smith on a monthly basis. They will be ready to report
early next month. It took awhile to get the data in a format that could be easily reviewed.
Trustee Guillen thought it best to have a Financial Advisor in place to look over the investment
banker. He would be comfortable going down that path. Chair Withrow added he is
concerned about focusing on risk profiles. Need to watch risk profile. Mr. Harris will prepare a
letter to submit to the Board.
VC Smith will provide more information to Trustee Guillen on the underwriters.
VC Smith indicated the District is setting up a special reserve between $5-8M just in case there
are any fluctuations in the market. We are now doing four years of interest only which is
creating more income.
Mr. Harris said it is time to go to Board with process to select emerging manager or managers
or someone to join Lehman Brothers; 15% of proceeds to go to subcontractor which is a
process that we should be engaged in. When we give our final report, we should make
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suggestion to an emerging manager. VC Smith complimented Mr. Harris saying he had done a
splendid job this year. VC Smith requested an RFP from Mark Harris and his firm. Mr. Harris
will prepare a proposal to be the District’s financial advisor by the Board’s March 13th meeting.
Chancellor Harris stated our minimum expectation is 2% over funds and we need about 6%
and he questioned whether there was some point where we want to buy down some of our
debt. Mr. Harris indicated the short answer is yes, it is what VC Smith wants to do; maybe put
some in fixed income side.
The District is looking at moving health and welfare fund, out of general fund.
VC Smith will be working on over the next six months (the debt side).
Chair Withrow went back to item number 5 on agenda (Accreditation Commission).
VC Smith said that Wyman Fong (Human Resources Manager) will be contacting Elnora Webb
(Vice President, Instruction) and Frank Chong (President, Laney College) who will be
responding. The District can provide the documentation for them. This will be discussed at
next Tuesday’s (February 27) Board meeting.
Chair Withrow mentioned that this letter is not complimentary to the Office of the Chancellor
or the Board. Laney will not be preparing the response. March13th is formal letter,
presentation at March 27th on 3 items (Recommendations 6, 7 and 9) pointed out in the letter.
Chancellor Harris brought up the issue of how we are going to deal with naming opportunities.
The District is trying to raise $200K to name the BCC library after Trustee Susan Duncan, are
there other colleges that have procedures? VC Smith said that the District is not aware of what
the rules are. Berkeley wants to name not only the library and but one of their labs too.
District needs long term focus and we need to understand State rules. This will be discussed
at the Standards Committee meeting next Thursday (February 29th).
The meeting adjourned at 5:45 p.m.
February 22, 2007
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