Ad-Hoc Stadium Audit Committee - Regular Meeting

Okay, so this meeting will be recorded. The Zoom application will notify you that this meeting is being recorded. Please press continue on the Zoom application to stay in the meeting. If you would like to speak on an agenda item or doing public presentation, please raise your hand on the Zoom applications or press star nine on your phone. Please only raise your hand while the item you're seeking to speak on is being presented. Staff will enable speaking at the appropriate time. Go ahead, Cal.

All right. Then we can take a roll call.

All right.

Councilman Hardy. Here. Councilmember Chauvin. I don't think he's online, right?

No.

Yeah. Okay. He's absent and I'm here. And with that, if we can get the motion to approve the consent calendar.

Yes, I'd like to make a motion to approve the minutes that are on the consent calendar.

I'll second that. All those in favor say aye. Aye. Any opposed? Abstentions? Motion carries.

Is there anybody in Mizzou?

There's one person.

Oh, we should ask for.

We don't.

All right. All right.

So we'll move on to our item. For review of the Santa Clara Stadium Authority Fiscal Year 2035-2036 Annual Financial Statements, Audit, Results, Competition. By Clinton, Larson, Allen.

I'll say a few words and then I'll turn it over to our auditor. Kenley is acting as the city manager, committee members and chair. What we have before you is the stadium authority financial statements for fiscal year 2526. This year is the first year for Clifton Lawrence. Larson and Allen, CLA. As you may recall, we've had KPMG on since the inception of the stadium, went through a process, and CLA was onboarded for this first engagement of financial statements. I wanted to introduce Brianne and Ricky from CLA. They were heavily involved with staff with their financial audit, and I turned it over to them for presentations.

Do you guys want to? Hey, well, thank you very much for having us today. Like you said, my name is Brianne Weiss. I'm a partner at Clifton Larson Allen. And with me is Ricky Heidner, senior. And Ricky did all of the work, all the good things that happened. The audit is because of Ricky. All the bad things were because of me, undoubtedly. But we're very happy today to be here to present the results of our audit. So. Thank you. Real quick agenda here. We're going to go through the audit scope and the process, touch a little bit on the opinions and the results, discuss the remaining steps to finalizations for the audit, since it is a draft version in this package, go through some key financial highlights, and then talk a little bit forward-looking about what's coming down the pipeline with some GASB standards. So the audit scope, as you are aware, was an independent auditor's report on the financial statements, an independent auditor's report on the debt compliance. That debt compliance opinion is a negative assurance is the way that it's phrased, meaning that we don't say you are compliant. We would just say if something came up that appeared noncompliant, as well as the agreed upon procedures report over the shared stadium expenses. And lastly, there will be a formal governance letter that we will submit to you that will supplement this discussion. The audit process, as you're probably aware, is a risk-based approach, and we do look at all material items. I've identified a couple here that I think are of significance. The first is internal controls. As part of an audit, we are required to test internal controls, specifically controls over management override. which is a deemed significant risk in the auditing standards. It's not an indication of anything specific at the stadium that's a risk. It just exists at every entity. And what it really means is that no matter how good the internal control structure is and how good your approvals are, if management comes in over the top and does something, it could result in a material misstatement of the financial status. We performed procedures, including reviewing the internal control process, as well as some risk-based approaches to identify any issues like that, and we didn't uncover any. We spent an obscene amount of time on revenue recognition, and I really appreciate everybody here at this table for walking us through many phone calls about the revenue process. So we went through that in great detail to understand the different revenue sources and make sure that the revenue was recognized in accordance with relevant GASB standards. No issues noted in that process. We also spend an obscene amount of time on your leases. You have some very significant leases, and so we spend a lot of time looking at those, making sure we understand how those interact. I didn't mean that to be funny. It was funny. Because I suspect she may have also spent an obscene amount of time on her thesis.

She felt your pain.

So we looked at those in accordance with the relevant guidance, particularly GASB 87. Of course, we looked at the debt and the covenants, and that was critical for issuing that debt compliance document. or letter that we mentioned. We also looked at the expenses, both the shared expenses that were part of the AUP and then the remaining expenses, no identified issues there. We also spent extra little bit of time on the SBL revenues to make sure that we understood kind of that whole process start to finish. I think that maybe that was a pain point if I were maybe to say in the, in the past. So we spent a lot of time there. I think that, yeah, Everybody's done a really great job with that. I didn't have any major issues or concerns. And so I think that maybe we're past that hurdle. And then, of course, looked at the capital assets of the organization. This is obviously a capital heavy organization. So looked at those as we went through the audit.

Now, this is the big daddy of them all, this page here.

What was the results? So on the financial statements, the financial statement audit is unmodified. That is a clean opinion. It's a good thing, a very good thing. Your debt compliance opinion, there's no noncompliance identified. Again, like I mentioned, the negative shirts. We don't say that you are compliant. We just say nothing came up to identify any noncompliance. And the agreed upon procedures, there are no discrepancies that we noted in our completion of those procedures. And as you would expect with those excellent audit results or those opinions, moving on to the audit results side, there were no internal control material weaknesses that we identified. Again, no noncompliance, no uncorrected or corrected adjustments. And I'd like to just pause on the corrected and uncorrected adjustments because it is a little unusual to have no corrected or uncorrected adjustments. Because I think that Ricky can attest to this. It's pretty common as you go through an audit to identify things and just not to get all audit nerd on everybody, but You know, when we're going through an audit, we set materiality and then we have a lower threshold that's called a clearly trivial and anything over that clearly trivial gets identified as a potential adjustment. So you can have adjustments that are relatively small compared to your materiality. So whenever I see an entity that has no uncorrected or corrected adjustments, I really think that's a testament to management and how well they execute things on every single day. right because that just means every day you guys are doing your job you're looking at things you're making sure things are done right so i think it's really just a testament to how well management does um and so i think you guys should should be proud of yourselves for that i just say we should be handing out gold it feels like there should be a celebratory lunch for it you know a water bottle would be nice Okay, so what do we need to do to finish here? Obviously, we need this body to approve it. And then there's an administrative item of signing the representation letter, which I know is already in process. So both of those are expected to occur shortly. I don't anticipate any delays with any of those. So I'm going to talk a couple, I'm going to go through some key financial highlights for you. If you were so interested in following along with where these are in the financial statements, if you were to flip to that tab, I'll go through the page numbers, which are noted here for your information. So page four is management's discussion and analysis, lovingly referred to as the MD&A. And this is a set requirement by government auditing standards of what it dictates what must be included and what cannot be included. So it's not necessarily free form for management to choose what they want. But it's meant to give an overview of the financial statements and provide really an analytical discussion of changes from previous years. So it's very helpful for the users of the statements. We, as the auditor, do not issue an opinion on the management discussion analysis. We review it to make sure it's consistent with the information we identified during the audit, which we felt it was. Moving on to page nine, this begins the basic financial statements. It's with your statement of net position, previously referred to as your balance sheet, but it has changed its format to show the net position. And this reports your assets and your liabilities and essentially your equity of the organization in accordance with the requirements of government standards.

That's a good question. Yes. When it says lease liability, is that like the risk of that lease?

No, Gatsby 87 requires how that's computed. It's essentially the present value of future lease payments.

Okay.

Any other questions? I do love questions. It gets monotonous with me talking the whole thing. I did read through this very carefully. Were you struggling to sleep at night?

I did hear it was a cure for insomnia. Yes, I did. I tell everybody that.

Next on page 10, this is the statement of revenues, expenses, and changes in that position. Effectively, your income statement or your P&L, which outlines your revenues, obviously, and your expenses for the organization and your income. The next page, page 11, cash is king. This is your statement of cash flows. I'm not going to go through this, but this just effectively walks through where the cash went during the year. Beginning on page 12 starts the notes to the financial statements, and the notes are a very important component of the audited financial statements, and they are something that is audited by us. They provide additional context and discussion of relevant items. There's, well, I would think all the notes are important, and I would be wrong to say anything otherwise. We have identified a couple here that I think are of utmost importance. Footnote 1, which is just the organization and the reporting entity, which is a critical component of what is included in these financial statements. Footnote 4, which discusses the capital assets of the organization, effectively rolls forward the balance from one year to the next to show the activity. And that is all the way on page, yeah, I should have noted that, page 23. Okay. So you can see the additions, reductions, and any transfers from capital or from construction progress into depreciable assets. The other item to consider, the other note that's important is the long-term debt summary, which is in footnote five, which goes through the debt of the organization. Discusses both the nature of the debt and any significant activity or covenants as a requirement of the debt. And moving forward, footnote six is the leases. And this discusses, again, the leases of the organization, which also, given the way that the organization operates and the significance of the leases that happen, the operations, it's another really important item. You can see your question about the leases. It should say in here that it's effectively the present value of the future payments. And then footnote seven, commitments and contingencies. This is just a footnote to discuss any things down the line that may be commitments of the organizations or concentrations of risk that would be relevant for the users of the financial statements.

I did have one question. Yes. Still awake when I got to the end. And it said management has evaluated subsequent events through September XX 2020. Was there a reason why that was flagged and there wasn't a date specifically? Great question. I'm impressed you made it this far.

This date will need to be the same date as the date of the audit opinion. So when that gets finalized, we will update this date to coincide with that. And that's why it's highlighted. Gotcha.

It's a good question. As far as like the asset stuff, I know that those weren't done to it right over the last year and after two years. Does that get incorporated in there at all or not?

Yeah, it does. As the activity is performed on the stadium to improve it, whatnot, those activities are evaluated to determine if they extend the life of the asset. And if they do, then they are part of the capital asset. If they're just repairs and maintenance, then they're expensed.

Okay.

Yeah. Okay, so now that we've gone through the statements, I thought we could talk a little bit kind of about some key information from there that we don't need to go through this anymore. High level, the assets exceeded the liabilities and the deferred inflows by $209 million, an increase of $30 million, which is really the income of the year. Total assets were $1.4 billion, with, again, the stadium being the largest asset at $647 million. And total liabilities were $660 million, made up, again, mostly of the debt and the lease liability, as noted here.

Okay. That is, of course, the book value of the stadium, not the reconstruction value.

Right. Great point. Great point.

All right. So before I jump to this next slide, sorry about that. I just wanted to note that the total net position of the authority is positive, which continues to be an important metric. One area that tends to be a focus is the unrestricted net position, which right now is a deficit position. But I don't think that that should be of great concern because of the way that the GASB requires things to be reported. But just for your information, that is a metric that sometimes people can look at. Moving on to the operations, operating revenues exceeded operating expenses by $23 million. It was your non-operating net income that got you from the $23 to the $30 million. The total revenues for the organization was $89 million, with non-NFL events generating $24 million each. in revenue and contributing $8.1 million to the net income number, if you will, after reduction of $16 million in related expenses. Total operating expenses were $65 million, including, as you can see, $13.1 in Manco shared expenses, $5.3 million in other Manco expenses, and $3.5 million in rent payments to the city. All things relatively consistent with previous years. I will pause there for any additional questions or commentary.

I remember asking the last audit we had, G-A-F-B, it seems to me it was a standard something or other. I don't remember what it meant.

What does GASB stand for? Is that the question? Yeah. GASB stands for Government Accounting Standards Board, and it is effectively the government wing of the FASB who sets the standards for for-profit companies.

Just as a standard practice, the first time you use an acronym. Yes, define it. Define it and then put the letters right after it. Great point. And then use it.

And it's like, I love it. GASB so dearly. I forget that it's an acronym, but that's a great point. We all do.

Every industry is notorious. Or there are shortcuts.

Yes. And that appears on page 12.

Yeah, I think I remembered seeing it once, but when you call it out that way, I would just. Fair. Absolutely. We might have someone from the, well, from our residents who actually cares.

Everybody cares. They just know you're doing a great job and just need to show up, right? Yes. On the public.

Yeah.

Okay, so moving on to the GASB standards, as I mentioned, it is the standard setting body that updates the requirements for the financial statements. So implemented in 2026, which is this year, was only one, GASB 102, go to the next slide if you don't mind, thank you, about certain risk disclosures. And this requirement is that within your financial statements, within the notes, you need to disclose if there's any concentrations of risk. in the organization. And while the organization does have concentrations of risk, there are no what was deemed triggering events. And so you wouldn't need to disclose anything unless there was a triggering event that existed. So management continues to evaluate that and ensure that any disclosures that need to be reported are. But there were no additional disclosures reported this year. But in 2027 and beyond, we don't have it quite so easy. So moving GASB 103 will be the next standard that gets implemented next year. This is a relatively significant standard in some ways. There's a lot of changes that it requires, but they're all pretty minor changes. But it's just the volume of the changes that is really something to be considered. So we continue to work with management to ensure that the statements are presented in accordance with these. So they don't really affect the way anything is processed or the processes that exist. It's really purely a financial reporting standard and will change some of the language in the report.

The second item, what would it be? Would we be kind of flagged on that? They're unusual, but they're infrequent things. I mean, things happen not consistently with a lot of things or, you know.

Definition of unusual or. The old category for this was, help me out here, extraordinary items is what it used to be called. And I think there was different practices and how that was used. Some people thought things were extraordinary quite often and some people thought they were never extraordinary. So they changed the definition to make it a little bit more structured and use the terms unusual and infrequent. I wouldn't anticipate that that is something that would be significant. Okay.

Can I just ask a question? Yes. So in terms of the minor changes, are we anticipating that the cumulative effect of any of those minor changes would result in any kind of substantial difference in how we report or communicate the financials of the stadium authority?

I wouldn't think so.

I don't think so. You know, it's a lot of things like changing from extraordinary items to unusual and infrequent. It's changing terminologies, moving some stuff around that was previously non-operating into like capital subsidies and things like that. So it's a lot of just terminology change. So I wouldn't anticipate it would either individually or collectively change. um cause any concerns but you can certainly go through you know kind of a mock of here's what it was here's maybe a red line version of what it might look like um but ultimately i think they're all pretty minor okay i appreciate that from a legal point of view that we need to yeah Okay, so continuing on Gatsby 104, this would also be required to be implemented next year. And this relates to just adding additional clarity and additional disclosures of the capital assets. We actually talked a little bit about this today. So we think this list will have a decent impact just because you have a lot of capital assets. But ultimately, I think it's just presenting it in a clear way for the reader. Again, it doesn't change anything. It's just adding additional categories to that disclosure.

What does ABP stand for?

Private purpose.

Public-private.

Public-private.

Partnerships.

Public-private partnerships. Another situation. I think this might be the last slide here, but we have the implementation guide 2501. This will also be effective in 27, except for one question, which is effective immediately. Love when they do that. But this just provides an implementation guide isn't necessarily as authoritative as a standard is, but it provides clarification and context about implementing things. So you can see it provides guidance on cash flow reporting, the subsidies, like I mentioned, which is a change of 1.03, lease terms and modifications when these are relevant, and how you deal with any accounting changes or error actions in previous financial statements. I don't think that this will be a significant impact on the authority. Again, it's usually just a clarification for questions that have come up in practice. And, oh, I was wrong. GASB 105, subsequent events. This is effective in 2028 and just goes through, again, it clarifies. There's already a standard about subsequent events in the current GASB, but it updates and makes that a little bit more clear as to what is deemed a recognized subsequent event versus a non-recognized subsequent event. Similar to the extraordinary items things, people were maybe having a little bit of discrepancy in how those were viewed. So they tried to issue this to GASB. make that a little bit more consistent among organizations. Because as you might imagine from the terminology, a recognized subsequent event means it's something that you record in your financial statements. A non-recognized subsequent event is just something that you disclose. So in that note where we say subsequent events are evaluated through September 2025, if there was something to disclose, that's where it would be, a non-recognized event. And that... Finally, concludes the presentation. But I'm more than happy, Ricky and I are both more than happy to answer any questions or provide any additional clarity should there be anything to ask.

Any comments? As I said, I go through the slides first and then go through and read the words first and then go back. So I... It's a better way to make certain the slides make sense to me. Yes. So I appreciate that. And like I said, there were just a few things where I had to look up the letters.

GPT. What does this?

So I'm not certain as I said, if there were a public member who cared, don't hope for, but making certain we just disclose that. Sure.

Absolutely.

That just helps. Yep. I'm going to say thank you, Ken and team.

It's nice to have nothing to report. As I said, I like it when my presentations are boring.

I think there's a lot of people in the community and maybe on the council who from Microsoft, especially when it comes to items of the stadium. So I think this just shows that the team is really, you know, keeping us not only... in right order, but just making sure that we have the information. So, you know, it seems like everything was done. There was no information that was inaccessible and any clarifications the team was there to help with that.

Yeah, I can't say enough good things about the team and not just because they're in the room with me, but, um, No, I mean, everything was provided, you know, really timely. And what I always say is it's not just about providing it timely. It's about providing it accurately. And I think, you know, both of those were done here. And so, again, I really think that that's a testament to how hard the team works every day. And the no uncorrected or corrected adjustments, I think, showcase that. But no, everybody was super helpful and helpful. I think there's always a little hesitation, right, in year one of a new audit firm, right? How's it going to go? But I think we worked really good together and had a, like, really good communication and questions were answered and both accurately and timely and just really appreciate the collaboration. An audit is a partnership, and this was a great one.

Great to hear.

Well, I think that's a big asset for our city and liability.

Is there any comment?

I just want to thank the staff and thank CLA for the presentation, the first year of engagement, always difficult to kind of get acquainted, but great team across the board. And with that, our recommendation, I think it's just a note file and recommended for staff council approval, which is end.

I shall do note and file report.

HAB-Masyn Moyer- Does except but um yeah I think it's except.

HAB-Masyn Moyer- It except. HAB-Masyn Moyer- Place stadium authority. HAB-Masyn Moyer- Yeah, statements and recommendation.

HAB-Masyn Moyer- There you go. HAB-Masyn Moyer- Okay, and I second that any HAB-Masyn Moyer- Any questions they HAB-Masyn Moyer- All those who are saying aye. HAB-Masyn Moyer- Aye. HAB-Masyn Moyer- Any opposed any abstentions that motion carries to the zero with a HAB-Masyn Moyer- I feel like I'm talking to myself. HAB-Masyn Moyer- Remember, so I'll be not sure.

With that, we have come to the end of our agenda. That's a good way to finish the week. Start the long weekend. Wonderful.

Thank you.

Thank you.

Thank you. Thank you for making the trip here.