Minutes of the Trustees Finance and Audit Committee Meeting
October 7, 2011 Johnson Trustees Room 8am to 9am
Chairman Evelyn Arana-Ortiz
A meeting of the Trustees Finance and Audit Committee was held at the Boston Public Library, Trustees Room, Johnson Building, on Thursday, October 7, 2011 at 8:00 a.m.
Present at the meeting were: Chairman Evelyn Arana-Ortiz; Trustees Zamawa Arenas and Byron Rushing; Boston Public Library staff: Sean Nelson, Chief Financial Officer; Edward Maheigan, Budget and Procurement Manager; Sean Monahan, Supervisor of Accounting; David A. Dilulis of O’Connor & Drew P.C.; Michael Black, New England Pension Consultants; and Nancy Grilk, Clerk of the Board.
The Chair noted that she received apologies from Trustee Donna M. DePrisco, as well as Mr. Ray Sullivan and Mr. Anthony Jordan who were unable to attend due to prior commitments.
Ms. Arana-Ortiz, Chairman of the Finance and Audit Committee (Committee) presiding.
The Chair addressed the first item of business, pertaining to the Minutes of the Trustees Finance and Audit Committee Meeting held on September 22, 2011. On a motion made and duly seconded, the Minutes of the Trustees Finance and Audit Committee meeting held on September 22, 2011 were approved and subsequently posted on the Boston Public Library’s web site a www.bpl.org.
The Chair reviewed the meeting agenda and called on Mr. Michael Black of New England Pension Consultants (NEPC) to review the September 22, 2011 presentation and discuss the performance of The Boston Company, BPL’s large cap, active fund manager, and future options. Committee members reviewed the Boston Company’s US Large Cap Value presentation. Mr. Black noted that The Boston Company’s past three years performance has been disappointing. NEPC negotiated a lowered fee scheduled with The Boston Company on behalf of the BPL along with two options; a flat fee reduction; or, a performance based fee structure option. NEPC presented three options for the Committee to review relative to The Boston Company: maintain The Boston Company with a reduced fee schedule; execute a manager search for a replacement for The Boston Company; or roll the assets into a SSGA socially screened fund. The Committee reviewed The Boston Company’s performance relative to other large cap fund manager peers. The Committee discussed the benefits of the performance based fee structure based in the short term while executing a manager search in the meantime, and re-evaluating The Boston Company’s performance over the next two to three months and proceeds from there. Looking at the cyclical performance of The Boston Company, Mr. Black noted that selling now brings a risk of selling low and buying high. He observed that the performance based fee structure provides an opportunity for The Boston Company to improve performance, and for NEPC to prepare a manager’s search book in the event it does not improve performance. The Committee discussed NEPC’s access and vetting process for large cap managers. NEPC recommends that the Committee accept the performance based fee structure, with NEPC executing a manager search over the next two to three months while evaluating The Boston Company’s performance starting with the initiation of the management fee, and that NEPC reports back to the Committee in early 2012. Committee discussion followed on fund reallocation with the addition of diversified assets, and determined that the current scenario with The Boston Company will initiate compliance with the Committee’s strategy to diversify the BPL’s investment portfolio. The Committee discussed the option of mirroring the City of Boston’s investment strategies which has performed slightly better than the BPL.
The Chair made a recommendation to the Committee that at the November 15, 2011 Trustees meeting, the Committee reports on immediate the Committee’s immediate actions, with the next step to invite the Trustees to a Trustees Finance and Audit Committee meeting with an agenda item to discuss future investment strategies and invite NEPC and Mr. Richard DePiano of the City of Boston Trust Office to participate.
On a motion duly made and seconded, it was
VOTED: “to accept The Boston Company’s “Option 2 Performance-based fee; 0.20% flat fee + 20% of the alpha, capped at 1.5% annual fee” with New England Pension Consultants executing a large cap management replacement search in the time frame of January 2012.”
The Chair moved to the next agenda item of Review and Approval of the FY2011 Draft Audited Financials and called on Mr. David Dilulis of O’Connor & Drew P.C. who distributed the Boston Public Library, October 7, 2011 document containing information on Required Communications of Auditor’s Responsibilities under Government Auditing Standards (GASS), adoption of GASB 54, Financial Statement Fraud Risks, and Financial Highlights. Mr. Dilulis reported that the audit was clean and straight forward. The Committee members expressed their support for the additional level of detail required under the new GASB 54 requirements. Mr. Dilulis confirmed that with supporting documentation, subcategories of reporting can be changed from year to year. Discussion followed with the recommendation to change a line in the “committed” category and remove one from “unassigned”.
On a motion duly made and seconded, it was
VOTED: “to approve the Final FY2011 Audited Financials and submit to the City of Boston, with approval conditional on approval by the Trustees Finance and Audit Committee Chairman of a reclassification of the committed funds as discussed prior to submission to the City of Boston”.
Mr. Dilulis reviewed the auditor’s responsibilities under the fraud section.
The Chair turned to Mr. Sean Nelson for the BPL Fiscal Updates agenda item. Mr. Ed
Maheigan reported on the annual approval of the EBSCO contract for supplying Periodicals and Serials and serving subscriptions for the branch libraries, and clarified that the source of funding for this contract is entirely derived from City of Boston funds.
On a motion duly made and seconded, it was:
VOTED: “that, without public advertising, there be entered into with the EBSCO Subscription Services, 30 Park Road, Tinton Falls, NJ 07724 a contract for (1) supplying periodicals and serials for the period commencing January 1, 2012 and ending December 31, 2012 and (2) servicing the subscriptions for the individual items throughout the year as specified in the Specifications, and subject to the terms, agreements, and conditions set forth in said contract, at a total cost not to exceed one hundred sixty one thousand one hundred forty eight dollars and no cents ($161,148.00).
Contract amounts for prior years are as follows:
The Committee set Monday, November 7, 2011 at 8:00 a.m. for the next Trustees Finance and Audit Committee Meeting in the Johnson Trustees Room. A meeting to discuss the BPL investment policies will be scheduled as a separate meeting in November/December, with the Trustees invited to attend. The Management Letter will be taken up at a January 2012 Committee meeting yet to be scheduled.
There being no further business, the Trustees Finance and Audit Committee adjourned at 10:00 a.m.
Clerk of the Board
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