REPORT TO STADIUM AUTHORITY BOARD
SUBJECT
Title
Action on an Agreement with KPMG LLP to provide auditing services for the Santa Clara Stadium Authority
Report
BOARD PILLAR
Ensure Compliance with Measure J and Manage Levi’s Stadium
BACKGROUND
The Credit Agreement, entered into between the Santa Clara Stadium Authority (Stadium Authority), Stadium Funding Trust (FinanceCo), and Goldman Sachs Bank USA on March 28, 2012, requires that the Stadium Authority file audited annual financial statements within 180 days after the end of each fiscal year. It further requires that the financial statements be audited by a nationally recognized independent certified public accounting (CPA) firm (also known as the "Big Four") selected by the Stadium Authority.
Section 8.3.3 of the Amended and Restated Stadium Lease Agreement (Stadium Lease) between the Stadium Authority and Forty Niners SC Stadium Company LLC (StadCo) dated June 19, 2013 requires the Stadium Authority to furnish (or cause the Stadium Manager to furnish) to the Tenant a Statement of Operations within 90 days following each lease year. The Statement of Operations shall be prepared by a qualified, third party independent certified public accountant selected by Landlord and approved by Tenant, of the following: Stadium Authority Revenue, Tenant's Proportionate Share, Shared Stadium Expenses, the amount of Tenant's payments for Estimated Shared Stadium Expenses, Stadium Authority Expenses, Capital Expenditures, Net Income from Non-NFL Events, and distributions to and from the Operating Expense Reserve, Stadium Capital Expenditure Reserve and Renovation/Demolition Reserve. This reporting requirement was also noted in the Harvey Rose Measure J Audit under audit finding item 1.I.
In addition, Section 8.6.3 of the Stadium Lease allow for the Stadium Authority to conduct an audit of the Stadium Records within 180 days following the Stadium Authority's receipt of any Annual Statement of Stadium from the Tenant. The Stadium Authority desires to have an independent CPA review of the Shared Stadium Expenses between the Stadium Authority and StadCo.
DISCUSSION
Staff issued a formal Request for Proposal (RFP) in June 2020 for the annual external audit services and the agreed upon procedures (AUP) on the Statement of Operations and Shared Stadium Expenses. The RFP specifically requested that the auditing firm performing the audit to verify the transaction balances against supporting source documents for all items selected for testing based on the firms’ audit procedures. The Stadium Authority wants to ensure that all the recorded transactions have proper source documentation and are fully supported. To ensure that the accounting firms received the RFP, staff contacted each of the Big Four accounting firms to determine if they would be interested in submitting a proposal for audit services. Staff also extended the RFP due date by two more weeks to provide firms with more time to respond. All of the firms respectively declined except for KPMG LLP (KPMG).
Staff recommends that the Stadium Authority enter into a five-year contract with KPMG for audit services. Staff also recommends retaining KPMG to perform certain AUP to satisfy both the Statement of Operations requirement and Shared Expenses review. This work is in addition to the annual financial statement audit. The engagement letters containing the specific procedures to be performed for these services are attached within the agreement.
ENVIRONMENTAL REVIEW
The action being considered does not constitute a "project" within the meaning of a California Environmental Quality Act ("CEQA") pursuant to the CEQA Guidelines section 15378(a) as it has no potential for resulting in either a direct physical change in the environment, or a reasonably foreseeable indirect physical change in the environment.
FISCAL IMPACT
The proposed Agreement is for a five-year term. KPMG will conduct the external financial audit and both Agreed Upon Procedures in the fiscal year ending March 31, 2021 for a not to exceed amount of $142,120 with fixed contractual increases for the following fiscal years. The total cost of the contract over the five years will not exceed $754,554. The cost of the fiscal year 2020/21 audit is budgeted in the fiscal year 2021/22 Stadium Authority Operating Budget. Appropriations in future year will be requested and approved through the annual budget process.
COORDINATION
This report has been coordinated with the Stadium Authority Counsel and Executive Director.
PUBLIC CONTACT
Public contact was made by posting the Council agenda on the City’s official-notice bulletin board outside City Hall Council Chambers. A complete agenda packet is available on the City’s website and in the City Clerk’s Office at least 72 hours prior to a Regular Meeting and 24 hours prior to a Special Meeting. A hard copy of any agenda report may be requested by contacting the City Clerk’s Office at (408) 615-2220, email clerk@santaclaraca.gov <mailto:clerk@santaclaraca.gov>.
RECOMMENDATION
Recommendation
Approve and authorize the Executive Director to execute an agreement with KPMG LLP to provide auditing services for the Santa Clara Stadium Authority for FY 2020/21 through FY 2024/25 in the amount not-to-exceed $754,554.
Staff
Prepared by: David Noce, Audit Manager
Reviewed by: Kenn Lee, Treasurer
Approved by: Deanna J. Santana, Executive Director
ATTACHMENTS
1. Professional Services Agreement with KPMG LLP