Ad-Hoc Stadium Audit Committee - Regular Meeting

Excellent. Thank you. Ken Lee, please.

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Thank you so much, Kim. Alright. Call to order. Roll call. Council member Gonzales. Present. Council member Chahal. Yes. Erin Hardy, chair. All present. Wonderful. Thank you so much. Alright. First is public presentations. This is a public meeting. You consent calendar first, Oh, that's that would help if I could read today. Yes. You're right. Yes. Do the consent calendar, the action on the audit committee meetings, minutes of June 12.

Move to approve. Second. Okay.

Moved by council member Gonzales, seconded by council member Chahal. All in favor? Aye. Thank you. That passes unanimously.

Just for the record, we don't have any public comment with that. Okay. The second calendar. Correct?

Let me let me double check.

Perfect. Thank you.

K. I do not see anyone from the public in this meeting. Is there anyone online?

No. There's nobody online. It's only the, auditors.

Okay. Very good. Thank you.

Sorry. But it is a public meeting, so we need to ask for that. Thank you so much. We have general business. We have one item. Overview of Santa Clara Stadium Authority fiscal year twenty twenty four to twenty twenty five annual financial statements and audit results presentation by KPMG.

So I'll I'll chair Hardy, I'll start it off. Ken Lee, Stadium Authority treasurer, and good morning. And first of I just wanna, thank you for just your flexibility in scheduling. You know, the this audit is, it's still, very fresh and in the works, and and so I just appreciate your accommodations to meet this morning. We do have tight timelines just based on our our lender agreements to to get the to work, before you.

So in I do have a short presentation, and then I'll kick it over to the KPMG just to provide some context of our, our audit. So in your packets, there is a staff presentation. We'll also I think Marissa is bringing it up as well. So by way of agenda and so in your packet here, there's I'll talk about just the audit a little bit, the key financial highlights and and sections of the draft financial statements, and then we'll kick it over to to KPMG. And so on slide three,

if you can go

Just for the public or anybody who watches this, all of these presentations were also online.

They, they were posted with the packet. They were made available for the public. Absolutely. Great great clarification. So, this is an audit, of the stadium authority's financial reports, processes, internal controls, and then shared expenses that we have with Manco.

It's an audit, that is an independent evaluation. We have KPMG who's, been on contract, to provide this audit. And their goal during that evaluation is that the financial reports and reporting processes meet a reasonable assurance standard. That means that the statements are accurate, complete. There's not it's not an absolute guarantee that every that there were no human errors or that every or miscommunications that could lead to mistake.

Through the audit procedures, auditors determine if controls or processes are in place, and and KPMG will talk about their findings and talk about their their audit in in more detail during the presentation. Next slide. Just overview. The the Stadium Authority financial statements are required by our credit agreement. There's a requirement before the, I think, September 29 to provide the opinion letter from the auditors.

So that's why we're here before you in audit committee, and, hopefully, upon that, KPMG can issue their, opinion letter. These are financial statements that cover fiscal year 2425. So that's 04/01/2024 through 03/31/2025, and we always do a comparative two year look at that so you'll see that. And our goal as staff is is to achieve an unmodified or clean opinion expressed by the auditors. And, absolutely, all these reports will be, available on the state of authority's website.

Next slide. So digging in a little bit to the financial performance on a, just some reminder, these these are statements on an accounting basis. I know, typically, staff and I also present to the board on on a budgetary basis. So just wanna note that this is on a accounting and a financial basis. The Stadium Authority's net position was 179,200,000.0.

That's an increase of 25,600,000.0, and we'll talk about the activities that contributed to that. Debt payments during the fiscal year totaled $20,300,000, and of that 9.1 was principal, so our long term debt. Slide six. During the fiscal year, there were 10, National Football League NFL games, eight large ticketed non NFL events, and 67 smaller events or the private events. As a result of those, events, Stadium Authority recognized 83,300,000 in operating revenue, 62,000,000 in expenses.

Revenues were largely from several activities, 23.8 from non NFL events, 13.6 net non NFL event revenue of 10.2. 13.6 were expenses, sorry, for net, non NFL revenue of 10.2. MANCO did provide a year end documents on June 30, and and, typically, that's when our engagement with KPMG kinda begins. So that leads us to, today. On page seven, statement and net positions, you'll see total assets, $1,400,000,000, the the building, the stadium itself being the largest asset with a carrying value of 653,900,000.0.

Liabilities, $685,000,000, that's partially due to debt and also unearned revenue. So with the stadium builder's licenses, to the extent we sold those in the beginning, we defer that revenue or that's unearned from an accounting standpoint over the life of those SBLs. Slide eight, operating revenue. So this tells you about the activities during the fiscal year. Charges for services, $41,100,000.

That includes the the non NFL event revenues I talked about. 14.6 from NFL ticket surcharge. That's the, 10% that's applied to your NFL tickets. 1,400,000.0 in non NFL event ticket surcharge, that's largely the the $4 or so, and some events have a different amount applied to each ticket for non NFL events. Then 816,000 through STR revenue.

That's the, we get a percentage of the private, transactions from SBL so that that if you're a owner of an SBL and you wanna transact that in a private market, we get a percentage of that. And then our senior youth fees, 279. Our rent and license lights licensing revenues, 42,300,000.0, largely our lease revenue from from the stadium. SPL revenue. So, typically, you know, as we amortize another year of of stadium activity, we're recognizing, SPL revenues that were collected previously.

Naming rights, revenue recognition, and then, we have adjustments based on our government accounting, GASB 87, that's included in the documents. Slide nine on the expense side, 62,000,000 in expense. I'll just highlight the largest of which is material services and supplies, 36,300,000.0. That was expenses on the non NFL events. This on the expense side, a shared stadium expenses of 8.4, insurance, and then, the marketing and and servicing of our SBLs.

I do wanna highlight, the third bullet here. Selling, general, and administrative expenses, 2,300,000.0. That's largely your your CSA staff, my staff, all the like, roughly 30 to 40 FTE that it touches throughout, the city, and then depreciation recognition of that, 18,600,000. And then slide 10, just a couple of notes. I know that the the financial statements is a is a long document.

We we did wanna highlight a few things on on page 12, which are the notes. This financial statement does include a a re a prior period correction of an error, and so we worked with our KPMG team, to determine how, defaulted SBLs, which, so just for example, when we sell an SBL and those payments cease or they stop, typically, the the accounting treatment, you know, in the past has been recognizing that over the life of the SBL. So there has been a reinterpretation of how that should be booked, and so we are recognizing those revenues forward. So that actually helps our net position. So if if you've defaulted and we've received the cash that on a accounting standard standard, we wanna we wanna recognize that.

So it brings it up. So it helps you Right away. Yeah. Right away. Correct. And then we typically have our our notes on in our financial statements. So we do have details here around our debt issuance. So if anyone's interested in our progress made toward our debt, we do have we've made considerable progress, and and we have our term a debt outstanding. So we do have a lot of details, and that's that could be found in note five of the financial statements. And so with that, I'll pause and and maybe we'll turn it over to KPMG if that's okay with the chair.

I wanted to introduce, I think Jamie's gonna lead the the discussion, and then we do have, KPMG staff, Alex and Ryan, as well online. So, Jamie, I'll turn it over to you for your presentation.

Thank you. Thank you for that. And everybody can hear me okay off mute here?

Yes.

Perfect. Alright. So, yeah, thanks again, for being flexible with us as we wrap up this audit and and rescheduling. Again, you know, it's I know it's important to the organization that, we get this done here in in order to meet, covenants and requirements, in issuing the report. Myself, Alex, and Ryan here will be breaking up, this presentation.

And here, we'll be going through the audit results and our conclusions for fiscal year ending March 31. And, we do understand that there may be a few members to the audit committee. So with that, we were going to do a brief overview of a couple of key points in regards to our audit process, what our audit means, a little bit about how we assess of what's significant for testing and overall responsibilities in regards to the audit. So we have a few slides to kick it off before we get into the required communication for the committee. And Ryan will jump in and handle those few slides here just to, again, to give the committee here a background and refresher on, what the audit is all about.

So, Ryan, you wanna take it over there for a few?

Yeah. Great. Thanks, Jamie. So, yeah, as Jamie noted, we'll start here with a quick overview of the audit process. And so to start with here, this is taken directly from the standard. So this is the purpose of the financial statement on it. And I'm not just gonna read the standard verbatim, but we'll highlight a few few key items here. The first one is as we perform the audit, our duty is to, give an opinion on whether the financial statements are presented fairly in material respects. So, essentially, that what management has put together to present on their financial financial statements, is it presented fairly from what an investor might deem, to change their position? So we'll get into materiality a little bit later.

But just wanted to give that first highlight there. And the second one here is based on the opinion we're providing reasonable assurance. This is not absolute assurance, which means that we're not looking at everything at the company. This is reasonable based on the items that we looked at, based on the risk assessment, and based on the samples that we selected, which will get into sampling a little bit further as well. So here's looking at materiality in the context of the audit.

So, again, materiality is an amount that essentially this would influence an investor's decision in the company. For example, if something was off by a dollar at, Santa Clara Stadium Authority, that likely would not impact a company's or an investor's decisions on the company. But if it was off by a billion dollars, that absolutely would. Right? And so we're finding something between that will allow it to this would influence the investors' decisions as it relates to them making decisions with the company.

And so as we do this, we have both qualitative and quantitative aspects on this. So this is a calculation based on certain metrics of the company, including revenue, taking into consideration assets, profit, or loss before taxes, those sorts of items, and then qualitative assessments too of what is the company centered around, what is the focus, all of those items. So those come together to merge to help create materiality amount that will be during the year here. Any questions on materiality before going on to the next slide?

I don't see any, when you mentioned a million to $1 Yes. I I think that's kind of obvious. Is it within a $100 or with 10 within 10? What is your floor of concern? If you see changes more than a $100, things off?

Yeah. So the Yes.

So the way that materiality is put together is you have the materiality overall, which is looking at the financial statements as a whole. Then you have what's called performance materiality, which is going to look more further at the certain captions or accounts for the testing that we're doing. And there's a third item called the posting threshold. The posting threshold is where within our tests, if we identify an amount that is above that posting threshold, we will discuss that with management and wanna further understand, do they want to correct this amount, or do they want to pass on this amount? When something is between that posting threshold and that materiality or performance materiality threshold, management could elect to perhaps not correct it, which we'll get into a few later in this presentation where there were items that were between that amount that were passed on for correction, essentially.

And we don't typically share the materiality amount with the company, but I would say it's, definitely over a million dollars.

Yeah. And and the it it what we can share is that, the materiality, as Ryan mentioned, we take certain qualitative and quantitative factors. And so the quantitative factors are gonna be looking at the financial statements that are presented to us and amounts. And so we use benchmarks, financial benchmarks based on the industry. So a governmental entity that performs a business type activity basis.

And we would be looking at either total assets, total revenues, or a net position factor. And that can change between the years, and we use a percentage base. So let's say 5% of total revenues or 5% of total assets. And so that's gonna be kind of overall as Ryan mentioned, our materiality, which is the highest level in dollar amount that we're looking at when we're doing the audit. And that's for us to assess the financials as a whole of, you know, what's really big picture significant, based on that dollar amount.

And then we break it down to another level of determining performance materiality, which is typically a percentage of that initial benchmark that we calculated. And that is where we do our testing at. So when we look at the financial statements and we break down and look at all of the financial statement line items, what is significant, what has a risk of material misstatement, and what is above that threshold. So that's kind of our first run through of scoping of the financials. And then, again, that third one Ryan mentioned, our audit posting is when we get into the testing of each of those significant financial statement captions, let's say revenue or licensing revenue, and we identify an error in our sampling or in our analytic work, and it's above that, posting threshold, then we're required to present it to management to make that determination.

So there is an initial quantitative, amount to answer your question, and it's a percentage of a financial position, on the financials.

Thank you. I appreciate that. Council member Chahal, you had a question?

Thank you, Chahal. Yeah. I know this is annual audit, which is not a deep dive forensic audit as such, and you do the sampling. So a question is, let's say staff or a board member wants to explore or add a sampling request, can you do that, basically, when you're when you're while you're doing the audit?

Yes. So if management or a board member, you know, those of governance has an inquiry into a specific business process and says, hey. I want to you are are you testing this revenue account? We can answer that and tell you how we test it under the auditing standards and the requirements of what we you know, how we have to perform the audit. And if we're not testing a specific account, let's say we've determined that there's no risk in the account account, so we don't need to test it or the account may not be material.

If there was an overall concern or inquiry from someone within the organization, we would assess that within our risk assessment and can expand procedures on that. Now we wouldn't report on it separately. It would be a part of our scoping and our testing in regards to the financial statements as a whole. But, if there was something out there within the business process of where management or the organization feels we need to do a bit more deeper dive into, we can do we do and can do that. Yeah.

Thanks. And and I would just comment, we do have KPMG on contract also to do additional sampling as a part of the board's direction several years ago around shared expenses. So after this audit's done, there's a engagement that's in in what we call an AUP. It's a defined kind of procedure. And so they do some additional sampling around shared expenses, and they've done that for the last so I

see. Yeah.

That follows up on the the comment I had. I was curious if it was random sampling or weighted, and it sounds like it's been random until we find something specific that's been requested, and then it's more we wait on that.

Yeah. So so the AUP is a separate audit from this financial statement audit. KPMG has their methodology on on how they sample and how they, select items for the financial statement audit. Because, you know, the board raised some concerns around shared expenses, we did want to do some additional sampling several years ago, and that's why we have that kinda separate carved out in in our contract with them.

You. Appreciate that. Please continue.

Alright. So here, really topical, going straight into sampling. So this kinda discusses our sampling approach that we'll have here. Obviously, as auditors, we can't go in and test every single transaction that took place during the year. So we'll perform statistical sampling, that goes in and will give us again, we're not looking at a 100%.

We'll look at based on the dollar amount of the accounts and the risk associated with set accounts. It will statistically select samples for us through our tool, and then we will test based on those. And so, again, you're not looking at every single item. It's a statistical approach that's saying, you know, if these items are clean or maybe there's a small error within them, how does that project onto the population and you go from there? And then as it relates to I'm sorry.

Sorry. Ryan, I I probably would also add you that's our sampling method. However, not every account we sample. There are other audit approaches, to testing and getting, reasonable assurance over an account, and that would be analytic testing. And so we do do our fair share of, substantive analytic testing, and there's various analytic tools that we use, even manual, predictive analytics that we use.

So not every account is sampled. We do perform analytics on certain line items. So but but sampling, again, is and statistical sampling is the method that we would use if we determine that an analytic is not the more efficient approach.

Alright. So now we're going to the sponsor I'm sorry?

I said I appreciate that, clarification that was not necessarily as clear in the report. Thank you. And

as it relates to responsibilities, each of us has differing responsibilities from management to those charged with governance, which would be the board, to us here at KPMG. As it relates to management, their responsibilities are to communicate with those charged with governments at the board as well as the responsibility of preparing the financial statements. Right? At the end of the day, KPMG is auditing financial statements prepared by management. So just because there's an audit, it doesn't alleviate the responsibility of management to present those financial statements fairly.

Then for those charged with governments, obviously, you all oversee the company, help set the tone at the top, and then establish, the cadence to prevent, deter, and detect fraud as well. And then for our responsibilities, we're have gonna have clear communication with all of these parties here. We will, present our opinion on the financial statements, and then promote, again, key for communication and presenting, our findings on the financial statements. Any questions on responsibilities between the three groups here?

I think we're good. You may continue.

Great. And then as it relates to independence, obviously, as auditors, we need to be independent in both fact and appearance from the company. With a company like this, it is easier to track the independence versus one that might have, let's say, a large multinational corporation where there could be differing firms that are working with the team and all of that. But in this sense here, we obviously wanna be independent in both fact and appearance for the services we provide to, the company, to the city of Santa Clara, as well as our interactions and those that are on the team to not have, relationships that might impair independence with those at the company or working with the board or anything like that. And I'll pass it to Jamie here for an audit results overview.

Alright. Thanks, Ryan. K. So we'll get into the required communications here. So the auditing standards do require that we make certain communication to those of governance, so being this audit committee.

And this slide right here is a general overview of key matters and results that we identified, and we'll get into more detail here on all of these. And I'd say that the most key thing here is the outstanding matters. So we, are wrapping up test work. So we are not 100% pencils down. We have a few things to wrap up here in order for us to be able to put our signature on the report and release the report to management.

And those things are listed here. We're wrapping up some completeness and accuracy test work regarding the SBL default, recognition in the prior year, error that, was mentioned earlier. I we'll get into a bit more on that, management's representation letter that we get signed that kinda overall concludes the audit in regards to a prior year correction of an error. So as mentioned earlier, when you look at the financials that you have there in your packet and handout, the financial statements are comparative statements, and that is, required under the government auditing standards. So we have the current year, numbers that we're performing the current year audit over, and you've got the comparative prior year.

So if during our audit procedures of the current year, we identify an error that relates to prior year and has an overall significant and material financial impact on the prior year numbers that are in the report, we then have to go through what we call a correction of a prior year error, meaning that we have to assess what is the full impact, the the dollar impact, and then record that through. Essentially, call it a restatement of the prior period numbers to correct them and have that presented properly in the report and then process through, of course, the the same corrections or similar applicable corrections on the current year 2025. So what that means is that it there's a footnote in here, and we'll get into that in a bit. But it describes that we've identified and worked with management, identified a prior year error that has to be flown through and corrected through the earliest period on the financials, meaning the prior period, to properly present this report. So when we have that situation, we are required to have our national office do a consultation, with us, on the matter, and that means that they're gonna look at the accounting, the error, the accounting, the correction, and the overall conclusion.

So we involve our national practice, who are overall at a national level, the technical group on, prior year errors. So we will get you know, we need to finish up the the work and the consultation with them. And then, the partner, as well as manager reviews of Alex and Ryan here in wrapping up that matter. And then the final conclusion, of the internal controls over financial reporting regarding, the prior year error and any other audit adjustments, that were, determined, in our audit process. Also here, you'll note that the audit reports, we will plan to issue, once everything is, corrected and and, materially corrected here on the on the report.

We will plan to issue a unmodified audit report, which is a clean opinion. And we plan to do that here by next week as that I know that that is the the deadline that we're pushing against here. So planning to issue our report here by Monday of next week. There are there isn't a deficiency that we'll get into a bit more detail, a significant deficiency related to that prior correction of an error. And we have a few uncorrected and corrected audit adjustments to go through in a bit more detail.

So if we go to the next slide and then the next one here, we'll get into here the required communication. So, again, the auditing standards require us to, make certain communications of our audit results to this committee. Here's a list of all of these. I kinda think of it as of a table of contents here. And I won't go through all of them in detail, but how we presented this slide is a check mark means that we're gonna further discuss that here in more detail.

And then an x means that there's no matters to report. And I think the key things that this committee, would wanna see or hear from us is that we do not identify noncompliance with laws and regulations. We do not have any disagreements with management or difficulties in the performance of our audit. So those are some of the key things there in regards to we don't need to get you know, we don't need to get into anything further. And then the others other items here noted with the check marks, we'll we'll jump right in here and talk about in a bit more detail.

The next slide is just to wrap up those communications. And as I mentioned earlier, we have a consultation regards to the prior year correction of an error. And then in regards to, illegal acts or fraud, during our audit test work and process, we did not identify any actual or suspected fraud involving management employees or those associated with the organization. However, I would note that our audit is not designed to detect fraud. We are required to present to this committee if we did identify any fraud and do fraud inquiries and do fraud risk assessment through the course of our audit.

However, if we did identify fraud, we would then have to pivot. We would have to adjust our risk assessments and our audit procedures, for that fraud impact and discuss that here with the committee as well as management. And then, just a last couple of items here, written communications. As I mentioned earlier, we got the management representation letter. We get an engagement letter every year.

And then Ryan had spoke of independence that there is nothing that we've identified would impact our independence. And we'll wrap up here, with the presentation on inquiries. The next slide here will jump right into identified, but uncorrected audit misstatements. So these are, these are differences or errors that we've identified throughout our audit work that, we presented to management, and management has determined to pass on correcting them. That means they have not been, reported and corrected through the financials.

And when management does that, which is is fine to do, we look at the amounts and we determined, would the uncorrection uncorrected adjustment materially mistake the financials? And all of these would not, of course. If they would materially mistake, we would, of course, push back and, talk through, you know, how to, you know, again, properly, report those through. So these are three prior period adjustments. The first two here are reclasses, which means really just there are two line items that have a classification, difference and reporting of a number that's kinda gotta flip between the two.

So they really don't have any impact on financial results. The first one is just a reclass, adjustment between the presentation of restricted and unrestricted in the net position of the organization. It was 2,800,000.0 in net. And then these the it says AM three here. So number three, we've, this is how we order them within our our file, the numbering system.

But the next one here is a prior period cash flow reclassification. So on the statement, the of cash cash flows here, we've identified, again, a couple of line items that have a, have a reclass adjustment between two of the line items. So the first one being 495,000 between the rents and licensing financial statement line item on the cash flow and the payments to supplier line item. And then similarly, the next item for 336,000, again, a, reclass of a number between the receipts from customers versus the rents and licensing received line item. Again, that this number number of this adjustment right here has no effect on the operation of activities, in the cash flow statement.

The third, item you're gonna see here labeled as a m four is regarding an SBL revenue, the amount of 191,000 that was related to 2023 recorded in 2024. So it's an out of period adjustment, but overall, does not have an ending impact on the ending net position, within the statements here as of 03/31/2025. So it's really a cleanup of an a matter there. So these three items here do not have any impact on the overall ending net position of the financial statements. The next slide There's

a question. One question. Chuck Baker, please. Yeah. Just I Chuck Baker, assistant city manager. My question is around the definition of material because we're hearing it's not material. It is material. What how do you define understanding in this instance that didn't materially affect an outcome in terms of net cash position. It's more of a recognition of the classification or the period. But what is there a tight definition on material?

Right. No. That's a great question.

That question was asked before you

Oh, sorry.

Okay. Sorry.

I'm late.

And then oh.

I'll get it later.

I'll I'll tell him what you answered. Oh, And I

Yeah. I I I won't go into the definition materiality again, but where I think it is good to clarify for this is that these are we are required to present to this committee any adjustment that is over that audit posting threshold that we've identified. So that's what we're required to present. Now if the organization has an error, that is an audit adjustment that we present here. For example, the 191,000 here, now that's over our audit posting threshold, but that is not over the materiality threshold that we've we've identified for the financial statement.

So it's below those you know, it's in between those two levels. Now if something was above the materiality level, which we'll get into here on the corrected items, that then we've determined it your management needs to correct that because that would materially affect the financials. But we're required to communicate to this committee anything we've identified over that very low level of audit posting threshold.

Thank you.

Okay. So the next slide here, we'll get into the corrected audit, misstatements. Again, similarly, these are things that our team, throughout our audit process and our all of our audit test work, we've identified as a difference or an error that needs to be corrected. And this first one here, it it looks like three different adjustments. We consolidate this all into to one adjustment, per se, or maybe maybe we kinda talk about it in two different two two adjustments.

But this is the adjustment related to the prior year correction of an error regarding the the stadium building license license and the defaults. So, as it was kind of introed in here, earlier in the meeting, throughout our audit test work, we determined and we saw within our sampling of the SBL revenue that there were there was an item or two in our sample that we identified as being default, meaning it had defaulted in prior year. And when we looked into this, we saw that management had assessed many years ago that the defaults, were not, not either a material impact within the year or were yeah. Overall, do not have a material impact within a given year. When we looked at it, we saw that the defaults that are sitting in deferred revenue go back to the beginning of the stadium opening.

So after initial construction and the licensees are sold, if there was a default, let's say, in year one of the stadium being open and the individual defaulted and did not renew their license, then that means that that default needs to be fully or sorry. That amount of advanced fee and payment for the license needs to be recognized upon the default. So we saw that when we're looking at what's hanging in there in deferred revenue waiting to be recognized over the life of the remaining life of the stadium, we saw that there were licenses that had been defaulted many years ago and and continue to be every year accumulating up and not being properly recognized in the applicable year. So we worked with management to get a you know, kinda go back to, you know, many, many years back, day one, you know, year one of the stadium, look at the defaults for every year, look at how they've been recognized every year, what is still sitting in the deferred revenue for the current year and calculate the amount that relates to the opening balance sheet of the financials here, meaning, 04/01/2024. So getting that corrected and getting 2024, the year of 2024 corrected, again, because these are comparative statements, and then correcting, of course, what needs to be corrected in the, numbers for 2025.

And so that was one item that had come up and probably, you know, again, I think management would would contest here that that that is a significant amount of work to go back for, you know, twelve, fourteen years and and kind of figuring out the roll forward effect to get it all cleaned up for the current year. Because as you can imagine, in certain years, it's true per management's assessment, The defaults, are immaterial in certain years, but there are certain years that they can be material. And, of course, after the pandemic, and in a year of which the 49ers, let's say, are not playing well, or or or whatnot, then the, default rate gets a bit higher. Right? So pandemic, other circumstances of the season can lead to defaults being higher in a given year.

And so when we came through with the final number here, the overall, impact you'll see is about 23,000,000 in the beginning net position. So that means deferred revenue of 23,000,000 needs to be recognized in the current year or sorry. Needs to be recognized as of the prior period. So the 23,000,000 is the prior period error, and then we've got, you'll see here about a 116,000 that was corrected here in rolling forward here into the 2025 period. So, and, actually, the the prior period with the two numbers there is the 23,000,000 plus the 840,000.

So we're looking at about two twenty four million is the overall prior period effect, that was being corrected in the current financial statements. So I know I said a lot there. I don't know. You know, this was kind of the the biggest thing that led up to, you know, us having to do a lot more work and, you know, the the delay of the meeting here. So I'll pause for a minute and see if there's any questions in regards to, to this, adjustment.

Yeah. Council member Chafal, please.

So we fixed the previous year's defaults. But when we resell that particular license, how do we correlate that? Do we fix that? Let's say we we defaulted in, say, 2020 for a particular number, and we sold within 2020, we resold those SPL licenses because we do resell these defaults. Right? How do we account for that? Because that has to be accounted for also.

Right. So the resell of the license, the the license are when they go for resale are fair valued, and they are again, it it starts over. The accounting starts over for that particular license.

So the fair value as rep?

Yep. Yep. So it'll be again, the contract's very similar. They're fair valued, and they're fair valued based on the life of the license, and the bill and the stadium. And so then advanced payment is put, you know, put to cash, put in deferred revenue, and then recognized through the life of the stadium. And then if that individual defaults, then we're in the situation again recognizing what was advanced paid and doing it again.

And that's the probably the reason because we already used, resold that that has to be unearned, has to be booked in that particular year, basically. That's what we're trying to fix. Right?

Right. Right.

Oh, got it.

Thank you. So it it just seems an accounting reality, not a mismanagement. Well Correct.

Right. And we'll get into the deficiency, but, yep, organizations, can determine non GAAP policies is what we call them. So management in the organization can say, hey. We know this is how we're supposed to account for something. However, it may take too much effort and time to really get an exact precise number, and we feel that it's not going to be material based on our understanding of of you know, for exam for here, the defaults, our understanding of the defaults and the amounts in a given year, they're not material.

So we're going to pass on the GAAP accounting and, and not look at them or estimate them or whatever it may be. But in a given year, with an org within any organization, when you look at a non GAAP accounting and a non GAAP practice, management does need to look at all their non GAAP practices and assess if anything's changed in the year that then we were you know, then would mean that that non GAAP practice is now material. So there still is an overall responsibility of management to be looking at all their non GAAP practices every year and assessing, are they material this year or could they may be material in the future? And, you know, doing various, you know, high level analysis to assess that. And if the answer is yes, you know, then you probably should reverse that non GAAP practice and start, you know, thinking through how to estimate that number better or account for it better.

So so it's kind of a year by year thing that, you know, again, management and the organization has definitely has the options of, you know, looking at something and determining that it's not significant, and they'll pass on it. But, again, it is also it is also good for the organization, for management to be looking at those every year in big picture assessing if it's gonna be a material impact in the current year or in future years.

Thank you. Council member Gonzalez Just

a quick question. This deferred accounting, basically, this is money that was, like, utilized in some fashion. It's just that the accounting of it was not approved. Correct?

Yeah. So this is money that was We've

got 24 extra million dollars somewhere. No. No.

No. This is money that was received, but because the life of the SBL's thirty years, like, from an accounting standpoint, we're required to not recognize that revenue until the year that one year passes that we've recognized. So so with the defaulted revenue, you know, wanna acknowledge that, you know, we we had an interpretation or thought that that was required to be amortized, continue to be amortized over the thirty years. With this clarification and finding, it will change our processes internally, with regards to how we, treat those in the future and how we, book book those and account for those.

And then the net effect is less revenue. Right? Book. Right?

Well, the the from an accounting standpoint, the net effect is is because you're now recognizing what we previously had on our net position is higher from assets liabilities. So by finance one position's higher? Our net position's higher. Yeah. Net position's higher Yeah.

In terms of just it doesn't reflect

Your unearned yeah. Your unearned revenue is lower.

Your unearned revenue. Yeah.

It's the kicking the can down the road. Yes. Okay. There's understanding here. Please continue.

Okay. Yeah. It's great.

One minor Great. I might add to this here is also these numbers, will like to change by about a 180 k just from some discussions we have with management on Friday after submitting these slides. So they are very close to accurate, but they will slightly change just based on one assessment that we were talking with management on Friday.

K. The next statement here, just to continue on with a a few other, uncorrect or sorry, corrected audit misstatements. Here, we have, sorry. My slide just, you know, wiggled out there. Okay.

So we have, some cash flow classification matters very similar to what I had mentioned earlier, and these are in regards to that deferred SBL revenue. So, again, this is just take looking at the cash flow statements within the cash flow, operations and an amount being adjusted between two line items. So being the receipts from customers and the rents, and licensing fees there. So just a classification that, does not have a overall net impact on the cash flow, but but it's a correction there.

And, Jamie, is this GAAP or non GAAP? Like, when you with with the the the the notion of, like, interpretation, understanding there's this non GAAP kind of stuff we're we're figuring out and interpreting differently. Is this recommendation to to make it a different classification? Is that gap, nigh gap? How is that determined from your from your standpoint?

Right. So these are the the correction of all this regarding to the SBLs is is moving it to a gap presentation. It's cleaning it up for gap under gap in in the general accepted, you know, accounting, practices that, you know, correcting it to where it is gap. Because when we looked at it, we determined, hey. That that 24,000,000, that is material to the financial position and the financials prior year and current year.

So it's too material that we can't pass on it. So, again, it's accumulated over many years, but we we are, you know, presenting to management to correct it, to clean it up. And then going forward for management to do an assessment every year of you know, again, is there a material impact on the defaults in the current year? Should an adjustment be made or estimated at least, for the recognition of the defaults in the current year. So moving it from a non GAAP assessment into a a proper GAAP assessment.

So it looks like it was just we put it in the wrong bucket. We put the wrong label on it. So that's why there's no changes. It's just an accounting. Correct?

Right. For here on the cash flow statement, it's just that it was recorded into a GL line item, differently than than what it should be in.

Got it.

Okay. See no questions here. Please continue.

And there is one additional corrected Oh. Statement that will be on here as well. That was another Friday afternoon discussion that we had with management where, essentially, it was 1,100,000.0 in a gross up related to construction and progress or CIP, where, essentially, the additions presented on the financial statements was 1,100,000.0 higher, and the, the disposals was 1,100,000.0 lower. So the ending number was correct, and the beginning number was correct. But the activity within was essentially showing 1,100,000.0 in both directions above where it should have been.

And so that's something that management has since corrected on the financial statements as well. And so we'll send an updated deck when we finalize all procedures and all of that too, but you'll see that added to the final final deck that we send out when we, provide our opinion as well. Alright. And then getting into the significant deficiency here. Jamie had discussed it prior, but, essentially, this significant deficiency stems from management maintaining and, assessing their non GAAPs yearly.

And so our recommendation would be for management to continue to assess these non gaps, because in discovering this through our procedures this year, it was assessed that, again, the SPL revenue was not tracked and should be tracked going forward, essentially. So then if you look at significant accounting policies and practices, this is essentially a summary of what you'll see in note two of the financial statements. So I won't dive into these, but this is just listing out those significant accounting policies that management calls out in their financial statements. And then when we look at the significant financial statement disclosures, the one that we've added here is, again, that prior period correction of the error. And so, again, we've talked about this plenty, so just calling it out here as a significant disclosure within the financials.

And then for related parties, obviously, Santa Clara Stadium Authority works with the city to offer up Levi's Stadium for those that wanna attend a football game or other events. And so we've listed out that some of those related parties that are here are the ground lease and then those shared staff expenses and wages. And, obviously, we'll have the AUP that will be performed after this audit They'll go into a little bit more further detail on those shared expenses. And we'll close it out here with the required inquiry, and Jamie can let you take us home.

Yep. Here we have, required inquiry slides. So, we won't go through these, every bullet, but, really, what this slide is here for is, throughout the course of the audit, we have these inquiries with management, and we are required to have these type of inquiries with those of governance here. So, going through overall, you know, are there any as we wrap up the audit and before we sign off on the audit, are there any concerns of the organization of the committee? Any further questions?

Anything that had been excuse me. That's been presented to you in regards to fraud or complaints that we need to be aware of before we wrap up the audit to ensure that we've properly risk assessed and and completed test work over areas in regards to something may may have come up even more recently. And then also just for us to discuss openly if there's any other, areas of where you feel there's not proper oversight or maybe that controls or processes have changed that, that you've been made aware of that we need to, again, make sure that our audit procedures are sufficient over those areas. So this kinda really goes back to that first question of if if the committee or anyone within the organization, you know, had a concern, that we need to address within the audit. You know, before we sign off again, let's talk about that here, and and have some good discussion about what we need to do about it.

Thank you. I had one note that you had mentioned at the beginning that there was a higher cost, overall cost of about approximately 25,000,000 and said that you would address that later on, and I didn't necessarily hear that addressed.

The the 25,000,000, was the prior year correction of the year related to the the SBL, defaults.

Okay. And and that's you just didn't tie a bow around that, but that was the difference.

Right. Right. So it was the $2,424,000,000 apologies if I said '25. But yeah. So it's the twenty four million related to the prior period and the then the the current year, amount as well. So that that's the that's the prior year correction.

Okay. And that is the correction that we've been looking at in detail. But the overall, that's why it showed up as a difference in our revenue. Correct?

Showed as a difference cost.

Sorry.

It the difference is a difference in your, net position. So the revenue being recognized in the current period. It it and I I just wanna make sure I I can answer your question correctly because the the matter that we're speaking of, is in regards to the revenue, not cost. So it's revenue being correctly presented that was, again, been hanging out there in deferred revenue in prior years. So a noncash matter may be more of an accounting true up matter.

It was the revenue change, and that's why I changed our net position.

Correct. Yep. Alright.

Chuck, please.

Yeah. Again, sorry I was late, and apologize if this question's already been asked. But haven't been here about a year and a half. Sounds like there's a discovery in this year that there's a change in how unearned revenue is advertised and recognized. You're saying it should recognize when the default occurred.

My question is regarding the previous audits and financial statements. Was I understand it was wreck you you discovered it this year, but how did how did this policy sort of continue for the last nine or ten years being that it was advertised instead of recognized and fought and gear of? Were you guy was KPMG looking at that, or how did how did it happen this year, maybe not the years before?

Yeah. That that's a great question. So yes. So first off, you know, again, management asserts, you know, certain things to us throughout the year. Default being at you know, again, that defaults following a non GAAP policy.

You know, when we look at the impact of every year individually, the impact over the most recent years in individual year has not been of a material number. However, again, many years back, there was probably a material number here or, you know, in a particular year, and that the accumulation is what led to the adjustment this year. How it was identified this year was within our sampling of our SBL revenue and our SBL, samples. We came across a default amount, further inquired, hey. What's, you know, what's going on with this default policy?

What's happening here? And then, you know, after digging into it a little bit more, looking at the impact of the current year and, you know, kinda looking as it's been accumulating over the years that that's kinda how the whole matter came to be for the current period. So, you know, again, it's it's just a nature of an accumulation of probably a policy that was set in management's understanding of a policy fourteen years ago and looking at it every year, and then there was just some certain years where it's more impactful than others that were hanging out there.

Everybody's council member,

Thank you. And, one of the bullet says the of the related parties, anything or its significant concerns regarding the relationships or transaction with the related parties. And I know this one topic I'm trying to take up is post thirty first March twenty twenty five. Basically, We had a contract with Fanatics for non NFL merchandise, and there was something was pointed out that Fanatics have some equity participation from NFL headquarters, and we need to know about the non NFL. So would you be now that it has been pointed out, although there's no revenue generation on that, there is zero the contract is in standing, like, has been canceled for time being.

But would you KPMG will look into that type of, issue when you come to the '25, '26, audit?

So, every year is a part of the audit for related party work. There is a requirement, you know, again, under the auditing standards that, we get an understanding of all of the related parties and how the related party transactions are being accounted for. The two key things under the auditing standards is is the related party transaction and arm's links transaction, meaning that the transaction is, taking place as it would between nonrelated parties. There's no, adjustment discounts occurred, fair market value adjustments, etcetera, because you are related parties. So because the accounting standards say and the auditing standards say that if there is a related party transaction where it's not at fair market value, it's not arm's length, then you have to disclose that within your financial statements if it is material.

So we're looking again at things and transactions that are material and impactful on the financial statements as a whole. Mhmm. So if that were to occur, then you would have to disclose that in the financials.

I I may add to that. I think this matter is still with the FPPC on this one. I'm just pre giving you some

Heads up.

Add some, but the matter is still with FPPC, and we didn't get any rep any no revenue has passed on that one, basically. I you know, adhere to what that PPC says. Thank you for your comments too.

Yes. Far as Sorry. As far as access to the information that you needed, was there any issue getting the information needed or or doing any of sampling, any of the tests or things that you have to to conduct? Were all parties really willing and able to provide the information you required?

Yes. I'm I'm not aware of any of of any pushback or, you know, on our end as being able to get information per se. Now some of the information that the organization, the authority gets is from Manco. And so I I know that that's where man the authority management is working with Manco's accounting to get some information. The default information and the back history of the default information was one of those things.

And so I know that took a a bit of effort of management to be able to track down and get all of the information that they needed in order to perform the calculation that we could then audit. So I know that that was a lot of work to get through and probably unexpected on Mann Co's side as well to have to kinda look into the history. But, from from the audit, from our side, there was not any pushback or hold up of information. It just some of it probably just took a little bit longer than we'd all like, but but but there was no pushback or hold up in that manner.

Thank you.

Thank you. Council member Chaha?

If I can follow-up on that. I know you answered from the auditor point of view. My question to staff, I know it's now we have a online transparent accounting system. Jamie was talking about few years back, like, there was some information gap receiving that. How is it now currently from month to month, day to day, quarter to quarter? Are we getting all the, expenses and all the proofs of, documented proofs on our accounting package, by saying.

Yeah. So thank you for the question, council member. So if I could just couple comments on different but related topics. I think when it comes to the defaults and SPLs, yes, when we're we're dealing with going back since the inception of time, it's a lot of information for us to kind of weave through, dig through. We also realized some of that information that, you know, Manco had that we didn't have.

And so that will change as we go forward when we receive quarterly and monthly information around SVLs and defaults, the information that we're gonna ask of Manco for us so that we have some of that information so that we can account for that correctly going forward. So so it will change what we ask Manko. More more generally speaking, you know, with the new financial management system that was put in place, we have a weekly coordination meetings between our accounting staff and their accounting staff. There is a collaborative partnership with regards to information. Now there are times in the years when we're doing sampling and we're doing testing that, you know, ebbs and flows in terms of busyness.

So we we you know, they ask us for kind of a calendar of when some of those sampling and testing occur. So we we are working together to determine the most efficient method for our staff to go in there and test on a monthly basis. And then when we have questions, how we feed those questions to them, you know, in in a way that doesn't disrupt them too much. So we're still trying to work on on getting that more efficient kind of partnership, but but we do have the information. We we do receive responses when we do, look at, items and and their questions to come up.

Thank you.

So I wanna add to that one. That's just a shared expense and non NFL events expenses and revenues. We don't have access to their SBL data. So SBL transactions, the

things that we're talking about defaults are managed by Manco in their own Arctic system, their ticketing systems. So all the datas we're getting is from Manco that we're kinda working with them on that piece. Yeah.

Which is why when when we're dealing with fourteen years of history, really depending on Manco, hey. Can you give us a download out of your SBL sales system? And and so that's something we'll follow-up with them on just being able to have access to some of that data on a regular basis so that we can report out.

But currently, the shared expenses, toxic risk, we are all getting, at least since we had a shared financial management symptoms is that we are very good on that one. Okay.

Sounds like you get to slosh through a lot of years.

Yeah. It's it's it's I just wanna acknowledge staff. It's it's been a lot of hours and a lot of back and forth to to get the data to to and including KPMG staff to to get this to where it's at. It's still not done, but but very close, and so just wanted to thank staff and and KPMG on on on that work.

Well and that's when I come up to there's a recommendation to accept this, the financial statement and the report. I guess this is more for counsel. By by accepting this, we know that there's some things that are not finished in that. Is that still acceptable for us to not file the report?

So so the comment I I will make is and we've done this with past audit committees is we will outline and highlight any changes, from when the audit committee hears these documents. For example, I think Ryan brought up one one adjustment Friday afternoon, which was after the publishing of this document. So we will make sure that the report to counsel includes some of those changes and items in there. And then, of course, if if anything else comes up between it's now and when it's wrapped up, we'll point that out. And and on that note, I do wanna make a clarification.

I know the staff's recommendation had this as a note and file on October 7. I would recommend amending that to October 7 or the soonest possible date upon completion of the audit because there's a little bit of uncertainty in terms of

For ASAP?

Yeah. For ASAP. Yeah. Okay.

And that would and it and as she said, do we need to make a note that it would highlight any changes from after this early? Okay.

Like, if it's

Actually, think that's a part of our process already. Okay. So it'll

because there were several changes alluded to, and I was making notes. So that was my concern. Alright. Thank you for the report. Very detailed as always, which we appreciate. And this is important. We have a fiduciary responsibility to get this right, all of us in this room. So

And accepts the Santa Clara Stadium Authority fiscal year 2425 annual financial statements are recommended. At the Stadium Authority Board, note, and file as soon as possible.

K.

Second.

Second. I have a recommendation, a motion, and a second. All in favor?

Aye. That

passes unanimously. Thank you so much for your time.

Thank you.

If I always look to see if there's anyone online or anyone in the public to make any comments, and I do not see any. So we will adjourn this meeting. Thank you so much. Appreciate your time. You're welcome.

Thank you. Thank you, everyone.

I want a.

Oh, yeah. Yeah.

Chuck, I just had a Thank Luke. I asked the same