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okay let's call the meeting to order
roll call
judicial insect
premodern
used to do it
there will be michael bilbrey
report
worked here
rupak nur
accounts
monetary
executive report bussell
money message he remembers of the committee they'll present my exact
report answers in the current activities from the risk in ontario
staff is continued with efforts to enhance our management of risk
compliance and auditing functions in capabilities
details are provided in your committee and one is sure fear the highlights
in addition to addressing the personal trading regulations
we are pleased to advise that the personal trading system platform
continues to be on schedule
he recently conducted a uh... contractor entered into a contract
for platform impressed towards continued growth uh...
the light date of december first two thousand twelve
information security management section and i_t_t_ division
have jointly lobster information security roadmap
the road map as a five-year phased implementation
to further enhance the security information of calpers and its members
and stakeholders
pursuant to the board audit uh... approved resolution policy i'm happy to
say that calpers has no internal findings over when year
as of june thirtieth two thousand twelve
leslie we're pleased to announce the appointment of gary bush as the chief
compliance officer
gary started july sixteenth and joins us from the california prison industry
authority
where he led at their joint venture and free venture programs as well as the
church's planning
performance management processes
private joins his service gary lead business development quality control
compliance program for ernest in young
and pricewaterhousecoopers in europe and the united states
gary report directly to kathleen web our chief officer riske compliance and
ethics fugitive yet
it's literally scientific presumes fails to show up as first lady
ben thank you mister share this was my report
then q uh... that brings us to the consent idm
uh... elite yet
action item is the approval and i was sure learned promotion
moved seconded
uh... and discussion
not all those in favor say aye
seductive
moving on too
uh... item for the consent information items
uh... sorry if anybody wants to pull
so that takes us to five
on it
good morning goodman
and margaret young kirk helper staff and this is gender and five a
which is an information item the annual audit plan and risk assessment
you risk in our committee requested additional detail regarding our risk
assessment proton audit selection process
they'll use to develop our annual audit plan
it was presented an approved at the may two thousand twelve meeting
you also requested more detailed descriptions uh... on our planned audits
so uh...
the often answers has completed her annual risk assessment for the purpose
of developing octane audit plan as required by the international standards
for the professional practice and internal auditing
uh... we follow an approach that's very much in line with very widely accepted
practices
and in fact we've received an external quality assurance review that confirmed
that our risk assessment
complied with the standards and appropriately includes management
involvement
so if two main areas of our risk assessment
first i'll go over our
contacting public agency
risk assessment
crook at the nun at the impact of a number of risk factors such as the
agency size and type
whether they have safety coverage whether they have highly compensated
employees
high levels of special comp
charted cities and other
risk factors
been reassigned each risk factor
uh... value
and so than each entity you see the score
by telling the assigned values
then we got the agency's into hiding in my lab
we focus mostly
on the high risk agencies
but we also do
lo and medium institute make sure we get some
good man and coverage and then we also respond a lot too
request
this is how we've been doing our risk assessment but now and we plan to seek
new approaches to increase our ability to efficiently target resources on the
highest risk agencies issues by leveraging part new technology and that
discusses a little bit further in the next agenda item might be
for internal audits
our approach is highly aligned with leading practices and um...
includes reviewing business area jected strategic plans key projects
operation summers and other resources
we also leverage existing risk assessment information and analysis
prepared by
the enterprise risk management division
and map that information to our
body universe
so for each audit entity week by risk factors and miss kori tightening a
similar process
we look at assessed adequacy and effectiveness of program controls
the character complexity the peace process
and underlying activities dollar sized transaction ***
and uh... a number of other factors as shown on the edge and on page two
and then said
to put our products and together we look at other factors such as management
report priorities
the timing about activities coincide with them
with the peace process appropriately
logical sequencing some-odd it's uh... any insurance provided by other
insurance
functions
so on and then taking all this into account in applying professional
judgment
experience auditors we select
areas to including a potted plant
uh... there's a graphical depictions of are
audit planning process in attachment to today's agenda item
and then uh...
attachment one is art
audit plan annotated with more detail on what the individual i'd objectives are
for each on it
overall risk assessment is an ongoing activity and to remain flexible in
responsive to changing conditions over the year
will continually reassessed article entities
and um...
respond to emerging risks and ad-hoc requests
with them refreshment aparato plan and will bring that back to you during the
year needed
so that isn't overview of our process and i hope that
answers the questions that you had lifetime
any questions your comments
figured
thank you thank you mr
margaret on the united tipsy here
comet
and when i looked at the
epics hotline report
it doesn't
lists where the tips that being refer to use a harmony
tips that you kitty
scotland
manson
well i
receive uh...
not a whole lot i think most of those
most of the calls yayyy
ninety-day tourette
things in the mail directly in new york phone calls
from time to time it's not a real high volume but but occasionally deacon
flickr
choice
how do you
i'll give you the i_r_s_ make other characters in the neck the day
recover certain that dollar amount but you got a new way to assess sort of
to question i guess how you know
how effective it is in terms of
possible measurements of probably coupon and and and art you how do you sort of
validate your scoring methods yes that they really do identify the higher risk
uh... versus middle and lower risk
think uh... c
uh...
how we process it is i think if we have alan
agency and then we do find that there's
issues there
or that we've identified
uh... areas that need
correction etc
need and
in some cases some rather in-depth analysis to correct issues
and also i believe
an important aspect of it is if we find it issue could be we then might thinking
it can be seeing a lot of other agencies to it helps us to assess where we need
to
focus our attention
as i'm going to talk about in the next agenda item
worked on a plan to try to increase more and more as we go along with uh...
really leveraging my calpers
database that we now have that we could never have before
too tight a really
even better where the problem here is my
as far as recoveries uh...
like dollar recoveries
i think that's a little bit difficult to assess because if
if we find somebody say their compensation is misreported
it should get corrected in the have meant to do
rate
i've never you know what works
the the market return doubling tripling and at what point
would you say well diminishing return you know we've got another five step we
have
rather frightened and find anything additional so did you noted exmoor
audits and right
well i think there's a couple things to consider and this will be agatha eleven
more than exigent item but
one is the
public agencies perception that we are looking at things like bull correct them
so they need
the more compliant they realize that we're discovering an error and somebody
else's agency they might think either exit before
and again i think you're right there is a
worth it
perfect returned and i think that's why we're trying to
move toward
leveraging mike help hurts
and is it again assignments can build in the future it's not
instantaneous but
to try to get more automated and more reliant on more efficient automated ways
and especially targeting commonplace rather simple problems that we see a lot
for example under reporting them
uniform allowance is a very common finding
it's not one it's very
complicated needs a great deal announced by and experience auditor
where we quickly have other uh...
findings whereas usually more
the executive level people at public agencies that we might find and rather
complex reporting situation we need a lot more
workin' assistance from programming for the legal office insulin
at some point
i think we should have discussion not about factors but awaits you give them
uh... hope but i would suggest us probably closer because we certainly
don't
tell people how to came the system
that that's some point when you're reporting
on this again
perjury if you're interested
uh... any other comments questions
if not we will move on to the next one
okay thank you
citizens item five b
and this is a gamut public agency review expansion alternatives
and also in information item
so there is not a committee requested that uh... i come back within estimates
staff resources it would be needed to both double and triple the number of
public agency reviews
that we complete the fiscal year
so this is an item provides that and also
provides concepts on you and innovative ways to achieve their risk sensing in
coverage by leveraging new tools an emerging approaches
that together with an moderate increase in staff resources will achieved their
efficiency
so based on our analysis we recommend an increase attend staff an office of audit
services
and we also recommend we work to take advantage of the new tools and
approaches that will discuss pulau
so and also staff resources to um... accommodate such an increase would also
be needed in other divisions as i set forth
in that bottom half of the page
so to double the number of agencies we've review
uh... with
being increase approximately twenty p y equivalents
in office of audit services customer account services division and the legal
office
and uh...
that we'd
the staff uh... cost there would be approximately one point nine million
dollars per year
to triple the number of agencies reviewed using our current approach
um... that way
equate to approximately thirty nine p y equivalents
and that would be approximately three point six
million in staff cost
and i detailed at the bottom of at page one that breakdown between different
divisions there
but we also think it's important and to bring up
to consider other possible approaches to achieve better coverage without just
simply adding and
p wise
city implementation of the my calpers database brings about major
possibilities
for enhance risk targeting arid action
using data analytics and business intelligence
and this is something that's really
very new right now but i thought was important to them
bring up this in a strategic kind of talk about
resource planning and and program uh...
program planning for the future
so with the recommended approach that we would increase the number of audits but
and more importantly we'd better address the high-risk areas
and use our fewer auto resources to address the important but simpler and
more routine areas that i was talking about few minutes ago
so um...
another practice that's gaining wide acceptance
within audits is for the audit function to partner with other sharon's functions
optimize risk intelligence
so we plan to explore strategically with officer enterprise risk management
uh... to uh...
collaborating corny activities to minimize gaps and seek uh...
synergies
so right now we do however send on-site reviews but we see the future as
continuing on-site reviews will always need us to do the moron complex areas
but we also would like to see an
develop user of my calpers database to reduce uh...
art completely lines on-site reviews
and hope to hear
have kind meeting
kind of middle ground teasing
the data analytics as best we can as well as companies with on-site bps
so in conclusion the recommendation would be to in
crease uh... office about it services staff by ten p wise to enable us to
respond more complex audits
and continued to fish in the identify more routinely she's been more agencies
and we also recommend we work to take advantage of
business intelligence and data analysis tools
and um...
i'd also like to know if accepted other divisions with the choir increased
resources as noted earlier
anne resource additions accepted by the committee based on this package and i
will be requested through the established
budget process
so that concludes this item
thank you's to cherry pink using occurred that term
i'm very pleased to see this comeback
to the committee and to be going forward to finance
you know this is a the issue of soph
it's opens and it is not just privacy skits compliance with our rules and
there's inadvertent non-compliance and there is
did unit intentional non-compliant
this is a problem that affects all areas and i i have my businesses in transit we
see a lot of people invading the pair box and trying to you can get on trains
without paying
wet but i've noticed is that if there are not enough
and
folks around tech inc here that we have we have
uke transit cops sector checking the people have
and pay their fair if there aren't enough
then
we see a big spread infront
if there is a certain level
obviously not hand percent coverage but if there's a certain level of coverage
that it serves as a real deterrent and people are
etsu focuses everyone's attention that they need to pay their fair and easy to
make sure that
so if you thought about and looked around at all at white is
what is a level that would serve as a good deterrent in survey
uh... which helps
publicly and political season art this is not there
if the main focus of their work right they're all doing that their business
but
what would focus their attention to ensure that the really focus on
compliance
with the rules and down
well i believe that if they see that we are out there an looking for issues
namely
actually
make adjustments to non-compliant um...
compensation or other arrangements
uh... i think that that
newspapers have been
neoprene articles in the paper about some of our audits and so i would hope
that that would
get people's attention and let them know that we are looking and we're gonna make
adjustments
we find noncompliance
you can just wondering if there's a standard
so that the best practice standard of proof
it you know we put the we have fifteen hundred public agencies plus
when thousands school districts thing like that so
what uh... what how many
on its what percentage of that whole number of religious issue will be
trying to cover in terms of art it's every year three best practice
viewpoint
you know i've never really heard of it admit number or a percentage that is
supposed to be the best practice
but what kind would say is them
i think we do have the need to do more than we are doing now we have a
some whateva back onto a tank you know
work through right now and we get more and more requests as well
on but i think i would also
i think that we can really
over the next couple of years uh... really enhance our ability to do data
analytics and not really think of it is a key gency by agency
as much as
coverage of a
uh... and issue
you know cross-cutting across the agencies
and we have um... been sort of talking among our staff about what are some
comparisons of dated points that we could do to target
certain issues
and i think that that way rather than approaching it agency the agency which
which is good in which is what we've been doing 'cause that's really all we
had before bed
if we can do more uh... and get more coverage of the
more agencies uncertain
issues
again we don't have that today but i think if we go in that direction
we can get a lot more efficiency and on
instead of just a lot more coverage that way look what i do think that would be
dead and i i fully support using leveraging technology to theke you know
expand our coverage
youth i would ask uh... that if victim i'd imagine there must be some academic
research armistice
it's not a at problem that is uh... limited to calpers and i would just like
to know you know if for every
one percent
uh...
an additional cover you know i_d_ coverage
what does that do in terms of deterring bad behavior and encouraging our
incentive of his being uh...
the behavior
and it is they're sort of the sweet spot that we are to be trying to hit uh... in
terms of coverage
so um... i know you're not act asking for action but i fully support at least
starting with doubling i'm not certain that that's the remember i would like to
add have a little bit more comfort around what the right number of staff is
that
i can certainly look into that and bring something that next time
okay thank you very much for your work
uh...
the nine committee members
your you might want to manuel billet travelers
uh... but michael
uh... limit let me call on
michael on that
mister scheck
so what is our plan regarding the ten p wives are we looking at maybe this year
next year bringing them in a rethinking of some of them what it was our plans
as far as giving them in and if we do get them and how long does it take the
telephone up to speed to be doing yet
well this uh... any resize additions uh... that we would plan to go through
our budget process and b
along with that all the other resource um...
requests
i think that
reasonably be couldn't hire ten people
all at once it would be
not really practical
cite kat i would same i would
plan defacing over
several six-month cycles
it takes
about
about happy here for a auditor to become kind of up and running and independent
on
so it would be a little bit up a time before we got time to send up to speed
evening responses
twins and critical area no we look at it
relatively simple perspire process and brings them
an army commander staff in such a
of critical area that these are just so important to what's going on
uh... right now
can you turn on bills mike
kpit good morning i'd just wanted to add a couple questions
first one on the uh... use of data analytics
in the ability to for that to really creating powerful tool
captain
so from the standpoint of from a staffing standpoint as as you develop
the ability to use my calpers
dated within it
to start with
better identify a quick were quickly identify areas that you could look at
uh... is that can have
staffing application
in the future with words will
you need fewer
uh... waters as you develop that particular process that's question one
and then questioned two in this
this uh... goes to
what priya was saying
regarding uh... at the time
what's the uh... what is the planner comes this information get out generally
because
you having an individual person
in one location
you know might not create
uh... that kind of feeling but certainly media attention and press does
uh... so i wonder how that would how you plan on uh... addressing that issue
well for the first question as as i said did
the data analytics and business intelligence is still really starting
but i think over time
if we were able to exceed more efficiencies in and not have people have
to go out to the field it may be that we would
ultimately in the future
need fewer field auditors and have more people doing data analytics it would
also require some uh... ita support so
i believe i ti would probably
say they need more recesses to support the business uh... intelligence
going for it
as far as
getting the word out we do have a and what our staff go to the uh... employer
forum every year into the presentation on
he our process
and they're also had been
a number of
articles
in the second of the year
los angeles times regarding our clients
the fines yeah
set answer
young and i think in particular boost boost meteoric also i was going to get
in maseri into the details could you
personal situations involving all groups like that
but what they did what they do use
day i would think impacting your reputation
of calpers that were doing the right job that we're we're doing exposed to be
doing in that we're trying to make sure it's a fair level playing field
thank you yet actually built a statistic the checked other point that i want make
which is that i
really think we need to have a strong
communication plan around this uh... i wanna make sure that
feels one-sided also that we send it really strong signal that we are
doubling down we're focusing even more intently on
uh... appropriate compliance with the lion with our regulations and on that we
are not going to tolerate span
you know certainly significant preaches and we're going to
find even
even inadvertent
okay and there's a strong consensus that yes we want to see
and we go to the finance committee it will
convey the risk committees
interests in that biceps objection
if not respond bond to
the next uh...
kathleen here
ninety-day report
on-site
until i won my domains also
to conclude until it will bring our resource uh... request back in the mid
year budget process
u_n_ spirits or the okay
thank you very much
thank you thank you thank you
good morning mister caring committee members kathy mai proper staff
today l percent nine ninety gave reporters in newly-appointed chief
officer of risk compliance and ethics that item six a
enjoying calpers team on april twenty third and fourth the following
objectives implemented tactical plan to address time sensitive issues
build relationships with management in key stakeholders
communicate a vision and direction for the office of enterprise risk management
they conducted initial organizational analysis of risk and compliance programs
highlights of activities it's a pretty cheap here these objectives include
initiate strategic planning activities for the newly-formed office of
enterprise risk management
weaving gauge program staff in these activities and currently finalizing
vision and mission statements in creating a service catalogue for our
customers
recruit and hire the chief compliance officer in the assistant division
division chief to leave the enterprise complaints division
filling these two leadership positions as critical to setting town in building
a robust compliance program
courtney the personal trading regulations process with stakeholders
and the contracting process for the platform
to meet the implementation timeline
and developed and implemented the enterprise policy library that provides
a single site for staff to *** calpers policies and procedures
during this period mail so conducted in initial organizational assessment of the
risk and compliance management programs
as compared to five key components of ineffective risk management structure
the five key components are as follows restraints parents in
risk appetite and strategies
managerial processes governments and culture
buck all curses initiate many elements within the key components their
opportunities for the organization
to build an enhancer structure as we make sure the risk management program
to ensure successful implementation enterprise risk management road map will
be developed in collaboration with vested stake holders
with a target completion date of june thirty twenty thirteen
the plan will provide for maturity assessments of the programs
risk appetite development governments system evaluations
and steps to begin building your risk intelligent culture
enclosing i have to the following observations
insuring in advancing the health and financial sustainability of the
organization is both challenging and complex in our current higher
calpers is commitment to effectively implement enterprise risk management
has been demonstrated by action of the board executive by creating a program
dedicated to this activity
and the formation of the risk an audit committee
as a risk management industry continues to mature
new models will emerge and we will continue to research best practices for
application calpers
however
and effective risk the interpreter for calpers is one that is purposely
designed for our organization
to support a treatment of polls and objectives
ineffective program for calpers loan ball every aspect of our organization
require multilayered approach
through integration an embedding other calpers designed risk management
framework we can build you risk intelligent culture
i look forward to working with all of you to achieve this feature stay for
calpers and those we sir
thank you mister chairman
that concludes my report
any comments questions
okay dl
risk exposure
caning still help me
so at this time i percent agenda item sixty there were six as your report
these reports are designed for by the committee with an overview of the
calpers risk landscape
the most significant risk calpers are identified in part as a sales trade in
the heat map which is attachment one of your package
the wrist landscape has remained relatively stable since the last
reporting period
mantri continues to focus on these risking his updated the mitigation
strategies and the toppers report which is attachment to him
in october we will hold a risk for traffic present new reporting options to
the committee
to enhance reporting on risk exposures management strategies
and monitoring activity
that concludes my report
any questions comments
uh... were bondar succeed larry
morning mister member of the committee larry johnson copper staff
this is an information item the risk assessment uh... plan that is before you
today it was actually presented at the last committee meeting but uh...
we requested to bring it back with some additional scope detail for each of the
risk assessments that are
in the plan
uh... weeded out line in general in some of them more detailed uh... scopes that
we will be focusing on
uh... as we perform these risk assessments as noted in the plan
the purpose of this plan is really to give the comedian and management of view
of events that could prevent uh...
them from accomplishing their objectives
it also lets the committee know our areas of focus this next year
the ratings that were shown in the enterprise wrist ash board that you just
looked at were actually based on an enterprise-wide risk assessment
uh... that identified approximately a hundred and fifty risk
and it was it was performed using what we call a top-down approach working with
senior management to assess
those risks
those restaurant an aggregated into uh... various domains and categorized on
the enterprise risk dashboard
the risk assessments in this plan will enable us to enhance an invalid and
validate each of those risk the lanes
and take a what we call now a bottom-up approach
through this process of working with the vision of our staff
the goal of each risk assessment is to identify evaluate and manage risk
staff will be respond to will be asked to respond to risk surveys and they
participate in facilitated risk self assessments
the question is will focus on the achievement of the uh... business
objectives and whether there is adequate people processes and technologies in
place in order to achieve the objectives
will identify the risk and then assess whether calpers is prepared to respond
if a risk is realized
we've already began implementing this risk assessment plan
the results of the risk assessments will be reported to the committee on the
enterprise wrist dashboard
and those wrist that arm uh... deemed to be significant
will be explicitly identified in the top risk report that's also provided to the
committee
this concludes my uh... presentation and a happy to answer any questions
many questions comments
uh... country priya
let's go
did you want to speak
com yes
was of a quick question the areas that um... mentions under scope to be
determined how soon do you people have some information about those areas of
scope
such
uh...
ph to
animated pass and i don't mean instrument
there's a few places in
yet couple a couple of those that uh...
where we where uh... typically what happens is uh... we weakened we hold
meetings with management of the areas and in this case
so the first time that the opposite enterprise risk management uh... will be
really looking out the asset liability uh... component and and uh...
so we'll work with the chief actuary ended chief investment officer
on developing a detailed scope before the compound begins and it will be
provided as part of the final report uh...
for reference
i think you m
over silent thank you for bringing this back with the stepped detail right after
this class
meeting and i preset your
uh... continuing to work on this except
i'm still trying to understand i'm still trying to get my arms around all this
and trying to understand what the process looks like and
what are we trying to get out and how does that differ from out of time
complaining i mean how does everything has everything worked together how do
they have their distinct roles
and sell into what can i ask in the briefing is whether
moving forward we can think about
wetter what it what differentiates
had that that i did divers right at the risk assessment for cancer service from
the one for integrated asset liability management what kind of questions are
you going to ask what is it
what can it achanak centre still trying to understand so i guess bam
sc clearly there's some key things that you do for every risk assessment year
always going to
interviewer surveyed the at affected air you know the the the relevant uh...
staff in that area and you're always going to do
uh...
liggett africans and whatever
so those buildings are fairly standard routine but then what
what with school risk if we can get a little deeper and maybe at some point
will all be so control of it that we will need to do that anymore breed open
still trying to just
get my arms around what does the risk assessment look like i know you're going
to work sucks though
hopefully that will help
me also uh...
left back thank you
thank you mrs chair
i am a specific question on the this uh...
management export
under
financial reporting investment accounting
writes the has been allocate
comment on
on that place
ruston calpers staff
that that's a gated
wrists to take a look at what happens is for the last since i will say fifteen or
sixteen years calpers under the as a public pension fund
is under gadsby
and for the last fifteen to sixteen years we've received on excellence in
finance reporting award from there
government finance officers association
what we've done recently with the new final initiative and this is the
introduction for the c_s_o_ within calpers
as we've elevated the bar week we've moved it and we want to raise it we want
to be more like the private sector
fall under some fans be and uh... serbians off the rolls
so what you see there is a development of moving to a higher level of finance
reporting on a position of uh... you currently are not
act right now
so as we move forward with the initiative refining the quite a few
things that we want to work on
uh... life out those important to move it from yellow to orange because we're
dive deeper into things like investment accounting
uh... investment expenses have reported types of policies that we need
so without that explains why move from yellow to orange particular
so i think that uh... dashboard to really important i think there are great
tool not only internally within management but also
in the interaction between the board
management
uh... on this particular dashboard i think that lasted discussion
uh... regarding on the financials theis in is uh... instructive because
when i see you weary
really is used to use to highlight in a meeting
where the changes are occurring
and particularly if the changes was going from
uh... safer color to uh... more risky
i note that in this dashboard uh... we have a mayday and all of this state
seems like it's
quite a length of time between those two
assessment times is that
projected to be the normal work
is it going to be a shorter period of time between them
the because really what might think
what we all want to pay attention to is the changes
uh... because that's where the risk is
and uh... so to the extent that every time this was brought up
it's almost automatic that anything just changed
these skies
uh... but that
that range idle questions
yet and
thank you for pointing that out and observing that than what we're trying to
do is just point out the prior period reporting verses the current period in
and uh...
that was the last period it was brought to the committee so it's based on the
committee schedule
on however we do update that
uh... every other month
uh... we meet with the executive staff to review it at our what we call our
executive a staffer becky executive this committee meeting
and uh... end so we look at that
frequently
uh... it just so happens that this period because of the uh... board
offsite but it was a more extended period the generally it's every other
month updated to the committee
thank mister
any other comments
i would like to add one thing chip inviting to mr jones questions
i think it's important to again look at the trend line that's next to the
investment county which has a point downwards
uh... the reason that's important i believe it is we have a executives of
steering committee assistant at the annual office actuary in final office
and each one of the issues is that we looked at we actually have a project
wrapped around it
so we're making progress towards achieving reaching the fans of the
entire days off see where we want to be
uh... but i think it's important for the committee to look at the trend line also
not only just colors
squad
going
yet steph everything they want to have before
but if not um...
public comment
not aware of any
it if
which case we are adjourned
we will have a closed session no probably
ten minutes