Agenda packet — Audit Committee, September 17, 2024

City of Santa Clara
Meeting Agenda
Audit Committee
CMO Sparacino Conference
Room
1500 Warburton Avenue
Santa Clara, CA 95050
9:00 AMTuesday, September 17, 2024
The City of Santa Clara is conducting the Audit Committee meetings in a hybrid manner (in-person and continues to have methods for the public to participate remotely).

Join from a PC, Mac, iPad, iPhone or Android device:

Please click this URL to join: https://santaclaraca.zoom.us/j/99199624617 Webinar ID: 991 9962 4617
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CALL TO ORDER AND ROLL CALL

CONSENT CALENDAR

1.A Action on Audit Committee Minutes of February 28, 202424-886 Approve the Audit Committee minutes of February 28,
2024.

Recommendation:

1.B Action on Audit Committee Minutes of March 21, 202424-919 Approve the Audit Committee minutes of March 21,
2024.

Recommendation:

1.C Action on Audit Committee Minutes of September 3, 202424-887 Approve the Audit Committee minutes of September
3, 2024.

Recommendation:

PUBLIC PRESENTATIONS
[This item is reserved for persons to address the body on any matter not on the agenda that is within the subject matter jurisdiction of the body. The law does not permit action on, or extended discussion of, any item not on the agenda except under special circumstances. The governing body, or staff, may briefly respond to statements made or questions posed, and appropriate body may request staff to report back at a subsequent meeting.]

GENERAL BUSINESS

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Audit Committee Meeting Agenda September 17, 2024

2. Overview of Santa Clara Stadium Authority Fiscal Year 2023/24 Annual Financial Statements and Audit Results
24-888
Accept the Santa Clara Stadium Authority Fiscal Year
2023/24 Annual Financial Statements and
recommend that the Stadium Authority note and file
the report at the September 24, 2024 Joint Council
and Authorities Concurrent and Stadium Authority
meeting.

Recommendation:

3. Action to Accept Report of Whistleblower Hotline Activity for Fiscal Year 2023-24
24-895
Accept the report on the Whistleblower Hotline activity for Fiscal Year 2023-24.

Recommendation:

4. Status Update on the Proposed 2024-2025 Audit Work Plan24-917 Note and file staff update.Recommendation:

ADJOURNMENT
Future Audit Committee Meetings will be scheduled at a later date.

MEETING DISCLOSURES

Page 2 of 3 ends

Audit Committee Meeting Agenda September 17, 2024
The time limit within which to commence any lawsuit or legal challenge to any quasi-adjudicative decision made by the City is governed by Section 1094.6 of the Code of Civil Procedure, unless a shorter limitation period is specified by any other provision. Under Section 1094.6, any lawsuit or legal challenge to any quasi-adjudicative decision made by the City must be filed no later than the 90th day following the date on which such decision becomes final. Any lawsuit or legal challenge, which is not filed within that 90-day period, will be barred. If a person wishes to challenge the nature of the above section in court, they may be limited to raising only those issues they or someone else raised at the meeting described in this notice, or in written correspondence delivered to the City of Santa Clara, at or prior to the meeting. In addition, judicial challenge may be limited or barred where the interested party has not sought and exhausted all available administrative remedies.

If a member of the public submits a speaker card for any agenda items, their name will appear in the Minutes. If no speaker card is submitted, the Minutes will reflect "Public Speaker."
In accordance with the requirements of Title II of the Americans with Disabilities Act of 1990 ("ADA"), the City of Santa Clara will not discriminate against qualified individuals with disabilities on the basis of disability in its services, programs, or activities, and will ensure that all existing facilities will be made accessible to the maximum extent feasible. The City of Santa Clara will generally, upon request, provide appropriate aids and services leading to effective communication for qualified persons with disabilities including those with speech, hearing, or vision impairments so they can participate equally in the City’s programs, services, and activities. The City of Santa Clara will make all reasonable modifications to policies and programs to ensure that people with disabilities have an equal opportunity to enjoy all of its programs, services, and activities.

Agendas and other written materials distributed during a public meeting that are public record will be made available by the City in an appropriate alternative format.

Contact the City Clerk’s Office at 1 408-615-2220 with your request for an alternative format copy of the agenda or other written materials.

Individuals who require an auxiliary aid or service for effective communication, or any other disability-related modification of policies or procedures, or other accommodation, in order to participate in a program, service, or activity of the City of Santa Clara, should contact the City’s ADA Coordinator at 408-615-3000 as soon as possible but no later than 48 hours before the scheduled event.

Page 3 of 3 ends

City of Santa Clara
Agenda Report
1500 Warburton Avenue
Santa Clara, CA 95050
santaclaraca.gov
@SantaClaraCity
24-886 Agenda Date: 9/17/2024

REPORT TO AUDIT COMMITTEE

SUBJECT
Action on Audit Committee Minutes of February 28, 2024

RECOMMENDATION
Approve the Audit Committee minutes of February 28, 2024.

City of Santa Clara Printed on 9/13/2024Page 1 of 1
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City of Santa Clara
Meeting Minutes
Audit Committee
Draft
11:00 AM Hybrid Meeting
Council Conference Room/Virtual
City Hall - East Wing
1500 Warburton Avenue
Santa Clara, CA 95050
02/28/2024
The City of Santa Clara is conducting the Audit Committee meetings in a hybrid manner (in-person and continues to have methods for the public to participate remotely).

Join from a PC, Mac, iPad, iPhone or Android device:

Please click this URL to join: https://santaclaraca.zoom.us/j/99199624617 Webinar ID: 991 9962 4617
Or join by phone:

US: +1 669 900 6833

CALL TO ORDER AND ROLL CALL
Chair Watanabe called the meeting to order at 11:05 AM.

Kathy Watanabe, Suds Jain, and Kevin ParkPresent 3 -

CONSENT CALENDAR

1. 24-162 Audit Committee Minutes
Recommendation: Approve the Audit Committee minutes of November 27, 2023.

A motion was made by Member Jain, seconded by Member Park, to approve the Audit Committee minutes of November 27, 2023. The motion carried by the following vote:

Aye: Watanabe, Jain, and Park3 -

PUBLIC PRESENTATIONS
None.

GENERAL BUSINESS

Page 1 ends

02/28/2024Audit Committee Meeting Minutes

2. 24-163 Overview of the Single Audit Report for Fiscal Year Ended June 30, 2023 Recommendation: Accept the Single Audit Report for Fiscal Year Ended June 30, 2023 and recommend that the reports are forwarded to note and file to the full Council at the March 19, 2024 Council and Authorities Concurrent meeting.

Director of Finance, Kenn Lee, gave a short introduction.

Auditor Grace Zhang, Maze & Associates, gave a PowerPoint presentation.

Committee Members' questions and comments followed.

Auditor Zhang, Housing & Community Services Division Manager, Adam Marcus, Assistant Director of Community Development, Reena Brillot, and Assistant Finance Director, Linh Lam, addressed the Committee Members' questions.

A motion was made by Member Jain, seconded by Member Park, to accept the Single Audit Report for Fiscal Year Ended June 30, 2023 and recommend that the reports are forwarded to note and file to the full Council at the March 19, 2024 Council and Authorities Concurrent meeting. The motion carried by the following vote:

Aye: Watanabe, Jain, and Park3 -

ADJOURNMENT
Chair Watanabe adjourned the meeting at 11:35 AM.

A motion was made by Member Jain, seconded by Member Park, to adjourn the meeting. The motion carried by the following vote:

Aye: Watanabe, Jain, and Park3 -
Future Audit Committee Meetings will be scheduled at a later date.

MEETING DISCLOSURES

Page 2 ends

02/28/2024Audit Committee Meeting Minutes
The time limit within which to commence any lawsuit or legal challenge to any quasi-adjudicative decision made by the City is governed by Section 1094.6 of the Code of Civil Procedure, unless a shorter limitation period is specified by any other provision. Under Section 1094.6, any lawsuit or legal challenge to any quasi-adjudicative decision made by the City must be filed no later than the 90th day following the date on which such decision becomes final. Any lawsuit or legal challenge, which is not filed within that 90-day period, will be barred. If a person wishes to challenge the nature of the above section in court, they may be limited to raising only those issues they or someone else raised at the meeting described in this notice, or in written correspondence delivered to the City of Santa Clara, at or prior to the meeting. In addition, judicial challenge may be limited or barred where the interested party has not sought and exhausted all available administrative remedies.

Agendas and other written materials distributed during a public meeting that are public record will be made available by the City in an appropriate alternative format.

Contact the City Clerk’s Office at 1 408-615-2220 with your request for an alternative format copy of the agenda or other written materials.

Page 3 ends

City of Santa Clara
Agenda Report
1500 Warburton Avenue
Santa Clara, CA 95050
santaclaraca.gov
@SantaClaraCity
24-919 Agenda Date: 9/17/2024

REPORT TO AUDIT COMMITTEE

SUBJECT
Action on Audit Committee Minutes of March 21, 2024

RECOMMENDATION
Approve the Audit Committee minutes of March 21, 2024.

City of Santa Clara Printed on 9/13/2024Page 1 of 1
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City of Santa Clara
Meeting Minutes
Audit Committee
Draft
9:00 AM Hybrid Meeting
Council Conference Room/Virtual
City Hall - East Wing
1500 Warburton Avenue
Santa Clara, CA 95050
03/21/2024
The City of Santa Clara is conducting the Audit Committee meetings in a hybrid manner (in-person and continues to have methods for the public to participate remotely).

Join from a PC, Mac, iPad, iPhone or Android device:

Please click this URL to join: https://santaclaraca.zoom.us/j/99199624617 Webinar ID: 991 9962 4617
Or join by phone:

US: +1 669 900 6833

CALL TO ORDER AND ROLL CALL
Chair Watanabe called the meeting to order at 9:11 AM.

Chair Kathy Watanabe, Member Suds Jain, and Member Kevin ParkPresent 3 -

CONSENT CALENDAR

1. 24-303 Audit Committee Minutes
Recommendation: Approve the Audit Committee minutes of November 15, 2023.

A motion was made by Member Park, seconded by Member Jain, to approve the Audit Committee Minutes of November 15, 2023.

Aye: Chair Watanabe, Member Jain, and Member Park3 -

PUBLIC PRESENTATIONS
None

GENERAL BUSINESS

Page 1 ends

03/21/2024Audit Committee Meeting Minutes

2. 24-299 Overview of the Annual Citywide Risk Assessment and Proposed 2024-2025 Audit Work Plan
Recommendation: Accept the results of the citywide risk assessment report from Baker Tilly US, LLP and approve the prioritized proposed 2024-2025 audit work plan, and recommend that these reports be forwarded for note and file to the full Council at a future Joint Council and Authorities Concurrent and Stadium Authority Meeting.

Auditor, Chiemi Perry, Baker Tilly US, LLP, gave a Powerpoint presentation.

Audit Manager, David Noce, and Auditor Perry addressed the Committee Members’ questions.

Chair Watanabe stepped out at 9:38 AM and returned at 9:39 AM.

Committee Members’ questions and comments continued.

A motion was made by Member Jain, seconded by Member Park, to do audit on PCARDS, Public Safety overtime, and to see if SVP is amendable to pay for SVP cybersecurity, and request a budget amendment to add additional funds for a Parks and Recreation audit.

Aye: Member Jain, and Member Park2 -
Nay: Chair Watanabe1 -

ADJOURNMENT
The meeting was adjourned at 10:26 AM.

Future Audit Committee Meetings will be scheduled at a later date.

MEETING DISCLOSURES

Page 2 ends

03/21/2024Audit Committee Meeting Minutes
The time limit within which to commence any lawsuit or legal challenge to any quasi-adjudicative decision made by the City is governed by Section 1094.6 of the Code of Civil Procedure, unless a shorter limitation period is specified by any other provision. Under Section 1094.6, any lawsuit or legal challenge to any quasi-adjudicative decision made by the City must be filed no later than the 90th day following the date on which such decision becomes final. Any lawsuit or legal challenge, which is not filed within that 90-day period, will be barred. If a person wishes to challenge the nature of the above section in court, they may be limited to raising only those issues they or someone else raised at the meeting described in this notice, or in written correspondence delivered to the City of Santa Clara, at or prior to the meeting. In addition, judicial challenge may be limited or barred where the interested party has not sought and exhausted all available administrative remedies.

Agendas and other written materials distributed during a public meeting that are public record will be made available by the City in an appropriate alternative format.

Contact the City Clerk’s Office at 1 408-615-2220 with your request for an alternative format copy of the agenda or other written materials.

Page 3 ends

City of Santa Clara
Agenda Report
1500 Warburton Avenue
Santa Clara, CA 95050
santaclaraca.gov
@SantaClaraCity
24-887 Agenda Date: 9/17/2024

REPORT TO AUDIT COMMITTEE

SUBJECT
Action on Audit Committee Minutes of September 3, 2024

RECOMMENDATION
Approve the Audit Committee minutes of September 3, 2024.

City of Santa Clara Printed on 9/13/2024Page 1 of 1
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City of Santa Clara
Meeting Minutes
Audit Committee
Draft
9:00 AM Hybrid Meeting
Council Conference Room/Virtual
City Hall - East Wing
1500 Warburton Avenue
Santa Clara, CA 95050
09/03/2024
The City of Santa Clara is conducting the Audit Committee meetings in a hybrid manner (in-person and continues to have methods for the public to participate remotely).

Join from a PC, Mac, iPad, iPhone or Android device:

Please click this URL to join: https://santaclaraca.zoom.us/j/99199624617 Webinar ID: 991 9962 4617
Or join by phone:

US: +1 669 900 6833

CALL TO ORDER AND ROLL CALL
Chair Watanabe called the meeting to order at 9:07 AM.

Chair Kathy Watanabe, Member Suds Jain, and Member Kevin ParkPresent 3 -

CONSENT CALENDAR

1. 24-797 Audit Committee Minutes
Recommendation: Approve the Audit Committee minutes of February 28, 2024.

Item was deferred and no action can be taken until the next Audit Committee Meeting.

PUBLIC PRESENTATIONS

GENERAL BUSINESS

Page 1 ends

09/03/2024Audit Committee Meeting Minutes

2. 24-798 Overview of Santa Clara Stadium Authority Fiscal Year 2023/24 Annual Financial Statements and Audit Results Presentation by KPMG, LLP Recommendation: Accept the Santa Clara Stadium Authority Fiscal Year 2023/24 Annual Financial Statements and recommend that the Stadium Authority note and file the report at the September 10, 2024 Joint Council and Authorities Concurrent and Stadium Authority meeting.

Treasurer, Kenn Lee gave a PowerPoint presentation.

Committee Members' questions and comments followed.

Treasurer Lee addressed the Committee Members' questions.

Auditors, Jamie Cavin and Alex Pfeiffer, KPMG, LLP gave an introduction and PowerPoint presentation.

Committee Members' questions and comments throughout KPMG's presentation.

Treasurer Lee, Executive Director Jovan Grogan, Auditor Cavin, and Assistant Finance Director, Linh Lam addressed the Committee Members' questions.

Chief Assistant City Attorney, Sujata Reuter stated to that no action can be taken on the two items and will be deferred until the next meeting.

Item was deferred and no action can be taken until the next Audit Committee Meeting.

ADJOURNMENT
Chair Watanabe adjourned the meeting at 10:15 AM.

Future Audit Committee Meetings will be scheduled at a later date.

MEETING DISCLOSURES

Page 2 ends

09/03/2024Audit Committee Meeting Minutes
The time limit within which to commence any lawsuit or legal challenge to any quasi-adjudicative decision made by the City is governed by Section 1094.6 of the Code of Civil Procedure, unless a shorter limitation period is specified by any other provision. Under Section 1094.6, any lawsuit or legal challenge to any quasi-adjudicative decision made by the City must be filed no later than the 90th day following the date on which such decision becomes final. Any lawsuit or legal challenge, which is not filed within that 90-day period, will be barred. If a person wishes to challenge the nature of the above section in court, they may be limited to raising only those issues they or someone else raised at the meeting described in this notice, or in written correspondence delivered to the City of Santa Clara, at or prior to the meeting. In addition, judicial challenge may be limited or barred where the interested party has not sought and exhausted all available administrative remedies.

Agendas and other written materials distributed during a public meeting that are public record will be made available by the City in an appropriate alternative format.

Contact the City Clerk’s Office at 1 408-615-2220 with your request for an alternative format copy of the agenda or other written materials.

Page 3 ends

City of Santa Clara
Agenda Report
1500 Warburton Avenue
Santa Clara, CA 95050
santaclaraca.gov
@SantaClaraCity
24-888 Agenda Date: 9/17/2024

REPORT TO AUDIT COMMITTEE

SUBJECT
Overview of Santa Clara Stadium Authority Fiscal Year 2023/24 Annual Financial Statements and Audit Results

BACKGROUND
The Santa Clara Stadium Authority (Stadium Authority), the Stadium Funding Trust, and Goldman Sachs Bank USA entered into a Credit Agreement on June 19, 2013. Section 5.1(a) of the Credit Agreement requires that the Stadium Authority Annual Financial Statements be audited by independent certified public accountants within 180 days after the end of each fiscal year. On June 25, 2021, the Stadium Authority entered into a professional services agreement with KPMG, LLP (KPMG) to perform the annual financial audit of the Stadium Authority’s Fiscal Year 2023/24 Annual Financial Statements.

The Annual Financial Statements include: (1) the Independent Auditors’ Report which describes the auditors’ responsibility and their opinion of the Financial Statements, (2) Management’s Discussion and Analysis which provides an overall review of the Stadium Authority’s financial activities, (3) the Basic Financial Statements, and (4) the Notes to the Financial Statements which have additional information pertaining to the Stadium Authority’s operations and financial position.

The Financial Statements being discussed with this report cover the Stadium Authority’s 2023/24 fiscal year, which runs from April 1, 2023 to March 31, 2024.

DISCUSSION
The role of the audit committee is to provide oversight of the Stadium Authority’s financial reporting processes, internal controls and independent auditors. On September 3, 2024 Jaime Cavin, Managing Director, and Alexander Pfeiffer, Manager, from KPMG presented the Stadium Authority audit results to the audit committee providing a brief overview of the audit. This included their audit report, financial statement disclosures, internal control related matters and other items.

Stadium Authority staff also provided an overview of the Stadium Authority Fiscal Year 2023/24 Annual Financial Statements including year-over-year comparison of the Stadium Authority financial position. During the presentation the audit committee suggested that a reference to note 8 be added to the Statements of Revenues, Expenses, and Changes in Net Position and this suggestion was incorporated to the draft financial statements.

At the September 3, 2024 Audit Committee Meeting, there was discussion of a correction that was made to the prior year financial statements related to the implementation of Governmental Accounting Standards Board (GASB) Statement 87, Leases. Subsequent to the meeting, KPMG and staff revisited the GASB literature and received additional guidance from the technical topic team that City of Santa Clara Printed on 9/13/2024Page 1 of 3
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24-888 Agenda Date: 9/17/2024
an adjustment is needed to the original correction entry regarding the deferred rent liability. The correction entry is to remove the deferred rent liability through the prior year’s Net Position instead of reducing the Right to Use asset on the Statement of Net Position. The net impact of this adjustment resulted in a net increase of $6.2 million to Net Position and a net increase of $6.2 million to the Right to Use asset on the Statement of Net Position.

A link to the September 3, 2024 Audit Committee Meeting materials and video presentation can be found here: City of Santa Clara - Audit Committee (legistar.com) < https://gcc02.safelinks.protection.outlook.com/?url=https%3A%2F%2Fsantaclara.legistar.com% 2FDepartmentDetail.aspx%3FID%3D36951%26GUID%3D201B575A-D5E4-4BB4-A15C- AA25E44460A8&data=05%7C02%7CTCook%40santaclaraca.gov%
7C2581f7cbf0994b72024f08dccc40f79a%7C28ea354810694e81aa0b6e4b3271a5cb%7C0%7C0% 7C638609826594668284%7CUnknown%
7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0% 3D%7C0%7C%7C%7C&sdata=cwOI1O6PZPdusNYfnhShuWbyrM9Blr9s4%2FgGgOynZxs% 3D&reserved=0>.

ENVIRONMENTAL REVIEW
The action being considered does not constitute a “project” within the meaning of the California Environment Quality Act (“CEQA”) pursuant to CEQA Guidelines section 15378(a)(4) in that it is a fiscal activity that does not involve any commitment to any specific project which may result in a potential significant impact on the environment.

FISCAL IMPACT
Costs associated with the preparation of this report are included in the Stadium Authority Operating Budget.

COORDINATION
This report has been coordinated with the Stadium Authority Counsel’s Office.

PUBLIC CONTACT
Public contact was made by posting the Audit Committee 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 protected] < mailto:[email protected]> or at the public information desk at any City of Santa Clara public library.

RECOMMENDATION
Accept the Santa Clara Stadium Authority Fiscal Year 2023/24 Annual Financial Statements and recommend that the Stadium Authority note and file the report at the September 24, 2024 Joint Council and Authorities Concurrent and Stadium Authority meeting.

Reviewed by: Kenn Lee, Treasurer
Approved by: Jovan D. Grogan, Executive Director
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24-888 Agenda Date: 9/17/2024

ATTACHMENTS

1. FY 2023/24 Santa Clara Stadium Authority Financial Statements Draft City of Santa Clara Printed on 9/13/2024Page 3 of 3
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Draft

DRAFT 9/13/2024 11:41 AM 645885L-2A_SantaClaraStadiumAuthority_FS.docx

SANTA CLARA STADIUM AUTHORITY
(a Component Unit of the City of Santa Clara, California) Financial Statements
March 31, 2024 and 2023
(With Independent Auditors’ Report Thereon)

Draft

DRAFT 9/13/2024 11:41 AM 645885L-2A_SantaClaraStadiumAuthority_FS.docx

SANTA CLARA STADIUM AUTHORITY
(a Component Unit of the City of Santa Clara, California) Table of Contents
Page
Independent Auditors’ Report 1
Management’s Discussion and Analysis (Unaudited) 3
Basic Financial Statements:

Statements of Net Position 8
Statements of Revenues, Expenses, and Changes in Net Position 9 Statements of Cash Flows 10
Notes to Financial Statements 11
Draft

DRAFT 9/13/2024 11:41 AM 645885L-2A_SantaClaraStadiumAuthority_FS.docx Independent Auditors’ Report
The Board of Directors
Santa Clara Stadium Authority:

Report on the Audit of the Financial Statements
Opinion
We have audited the financial statements of the Santa Clara Stadium Authority (the Stadium Authority), a component unit of the City of Santa Clara, as of and for the years ended March 31, 2024 and 2023, and the related notes to the financial statements, which collectively comprise the Stadium Authority’s basic financial statements for the years then ended as listed in the table of contents.

In our opinion, the accompanying financial statements referred to above present fairly, in all material respects, the financial position of the Stadium Authority as of March 31, 2024 and 2023, and the changes in its financial position and its cash flows for the years then ended in accordance with U.S. generally accepted accounting principles.

Basis for Opinion
We conducted our audits in accordance with auditing standards generally accepted in the United States of America (GAAS) and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Stadium Authority and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Responsibilities of Management for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with U.S. generally accepted accounting principles, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Stadium Authority’s ability to continue as a going concern for twelve months beyond the financial statement date, including any currently known information that may raise substantial doubt shortly thereafter.

Auditors’ Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS and Government Auditing Standards will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a Draft

2 DRAFT 9/13/2024 11:41 AM 645885L-2A_SantaClaraStadiumAuthority_FS.docx substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.

In performing an audit in accordance with GAAS and Government Auditing Standards, we:
• Exercise professional judgment and maintain professional skepticism throughout the audit. • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Stadium Authority’s internal control. Accordingly, no such opinion is expressed. • Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements. • Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Stadium Authority’s ability to continue as a going concern for a reasonable period of time.

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control related matters that we identified during the audit.

Required Supplementary Information
U.S. generally accepted accounting principles require that the management’s discussion and analysis be presented to supplement the basic financial statements. Such information is the responsibility of management and, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with GAAS, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated ________ __, ____ on our consideration of the Stadium Authority’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, and other matters.

The purpose of that report is solely to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the Stadium Authority’s internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Stadium Authority’s internal control over financial reporting and compliance.

Sacramento, California
Date
~(signed) KPMG LLP~
Draft

SANTA CLARA STADIUM AUTHORITY
(a Component Unit of the City of Santa Clara, California) Management’s Discussion and Analysis (Unaudited)
March 31, 2024 and 2023
3 (Continued)
DRAFT 9/13/2024 11:41 AM 645885L-2A_SantaClaraStadiumAuthority_FS.docx The management’s discussion and analysis of the Santa Clara Stadium Authority (Stadium Authority) provides an overall review of the Stadium Authority’s financial activities for the fiscal years ended March 31, 2024 and 2023. The intent of this discussion and analysis is to look at the Stadium Authority’s financial performance as a whole. Readers should review the discussion and analysis in conjunction with the basic financial statements, including the notes to the basic financial statements to enhance their understanding of the Stadium Authority’s financial performance.

The Stadium Authority has elected to provide comparative financial statements to better assist the reader. The Stadium Authority’s fiscal year runs from April 1 through March 31 to conform to the fiscal year of the Stadium Funding Trust (FinanceCo). The Stadium Authority is a component unit of the City of Santa Clara, California (City) whose fiscal year is July 1 through June 30.

The Stadium Authority exists as a public body, separate and distinct from the City. It was established to provide for development and operation of Levi’s Stadium.

Financial Highlights
Key financial highlights for the fiscal year ended March 31, 2024 are as follows:
• The carrying value of Levi’s Stadium, net of depreciation, is $670,543,336. • During the fiscal year, there were twelve National Football League (NFL) games, seven ticketed Non-NFL events, and fifty-three smaller special events held at Levi’s Stadium. • The Stadium Authority recognized $81,107,805 in operating revenue and $79,659,943 in operating expenses.
• The revenues from the Non-NFL events were $24,935,722 and the related expenses were $16,669,037 resulting in net Non-NFL event profit of $8,266,685.
• Debt service payments during the fiscal year totaled $28,683,618. Overall remaining outstanding debt was reduced by $16,606,911.
• The assets of the Stadium Authority exceeded its liabilities by $129,654,706 due to income from the operation of Levi’s Stadium.
• The City received $495,000 for stadium ground rent. Additionally, the City is required to be fully reimbursed for all of its administration and public safety costs by either the Stadium Authority for Non-NFL events or Forty Niners SC Stadium Company LLC (StadCo) for NFL events.

Overview of the Financial Statements
This annual report consists of a series of financial statements and the notes to those statements. These statements are organized so the reader can understand the Stadium Authority as a financial whole. The basic financial statements provide both a short-term and long-term view of the Stadium Authority’s financial activities and financial position.

The basic financial statements comprise the statements of net position, the statements of revenues, expenses, and changes in net position, the statements of cash flows, and the notes to the financial statements. The statements of net position provide information about the financial position of the Stadium Authority as a whole, including all of its long-term liabilities on the full accrual basis. The statements of revenues, expenses, and Draft

SANTA CLARA STADIUM AUTHORITY
(a Component Unit of the City of Santa Clara, California) Management’s Discussion and Analysis (Unaudited)
March 31, 2024 and 2023
4 (Continued)
DRAFT 9/13/2024 11:41 AM 645885L-2A_SantaClaraStadiumAuthority_FS.docx changes in net position provide information about all revenue and expenses. The statements of cash flows provide information about cash activities for the period.

During the fiscal year ended March 31, 2023, the Stadium Authority implemented Governmental Accounting Standards Board (GASB) Statement No. 87 (GASB 87), Leases, which requires the Stadium Authority to recognize leases receivable and deferred inflows of resources related to lease arrangements where the Stadium Authority is a lessor. Further, the Stadium Authority is required to recognize a lease liability and an intangible right-to-use leased asset for lease arrangements where the Stadium Authority is a lessee.

Financial Analysis of the Stadium Authority as a Whole
The Stadium Authority’s net position at March 31, 2024, March 31, 2023, and March 31, 2022 is as follows:

F Y 2024 F Y 2023
increase increase
F Y 2024 F Y 2023 F Y 2022 ( decrease) (decrease)
A ssets:

Capital assets $ 678,569,448 689, 075,880 702,507,201 (10,506,432) (13,431,321) Other assets 765,846,369 755, 730,577 755,573,350 10,115,792 157,227 Total assets $ 1,444,415,817 1, 444,806,457 1,458,080,551 (390,640) (13,274,094) Liabilities:

Current unearned revenue $ 16,900,628 16, 374,980 15,076,480 525,648 1,298,500 Other current liabilities 37,184,066 22, 962,052 27,177,126 14,222,014 (4,215,074) Long-term unearned revenue 431,418,058 432, 484,579 425,271,742 (1,066,521) 7,212,837 Other long-term liabilities 250,689,036 259, 136,843 290,000,476 (8,447,807) (30,863,633) Total liabilities $ 736,191,788 730, 958,454 757,525,824 5,233,334 (26,567,370) Deferred inflows of resources:

Deferred inflows leases related 578,569,323 595, 586,067 612,602,812 (17,016,744) (17,016,745) Total deferred inflows of resources $ 578,569,323 595, 586,067 612,602,812 (17,016,744) (17,016,745) Net position:

Net investment in capital assets $ 456,438,951 449, 951,997 422,193,509 6,486,954 27,758,488 Restricted for:

Debt service 12,298,802 20, 844,381 21,453,314 (8,545,579) (608,933) Capital projects and other agreements 81,938,065 52, 822,516 47,055,671 29,115,549 5,766,845 Unrestricted deficit (421,021,112) (405,356,958) ( 402,750,579) (15,664,154) (2,606,379) Total net position $ 129,654,706 118, 261,936 87,951,915 11,392,770 30,310,021

Fiscal Year 2023-24 Analysis
Capital assets decreased when compared to the prior year by $10,506,432 due to annual depreciation, partially offset by equipment and buildings additions. Other assets increased when compared to the prior year by $10,115,792. This was due to increases in cash deposits from excess revenue distributions at year-end and naming rights accounts receivable resulting from a naming rights agreement extension offset by a reduction in lease receivables. Liabilities increased by $5,233,334 compared to the prior year. This is primarily due to the recognition of public safety costs and performance-base rent (notes 7 and 8), partially offset by decreases in long-term debt and unearned Stadium Builder License (SBL) revenue. Total net position for the Stadium Authority, as a whole, increased between March 31, 2023 and March 31, 2024 to $129,654,706. This increase of $11,392,770 is primarily due to a decrease in long-term liabilities and deferred inflows of lease resources.

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SANTA CLARA STADIUM AUTHORITY
(a Component Unit of the City of Santa Clara, California) Management’s Discussion and Analysis (Unaudited)
March 31, 2024 and 2023
5 (Continued)
DRAFT 9/13/2024 11:41 AM 645885L-2A_SantaClaraStadiumAuthority_FS.docx Fiscal Year 2022-23 Analysis
Capital assets decreased when compared to the prior year by $13,431,321 due to annual depreciation, partially offset by equipment and building additions. Other assets increased when compared to the prior year by $157,227. This was due mainly to the implementation of GASB 87 for leases, offset by increases in accounts receivables for Non-NFL event revenues and cash deposit from excess revenue distributions at year-end.

Liabilities decreased by $26,567,370 compared to the prior year. The decrease was due to principal prepayment of long-term debt and implementation of GASB 87 for leases, partly offset by an increase in unearned SBL revenue due to collection of SBL principal that is amortized over the life of the SBL. Total net position for the Stadium Authority, as a whole, increased between March 31, 2022 and March 31, 2023 to $118,261,936. This increase of $30,310,021 is primarily due to the payoff of the StadCo Subordinated Loan that financed the construction of the Stadium as well as decreases in other long-term liabilities and deferred inflows of lease resources.

The Stadium Authority’s revenues, expenses, and changes in net position for the fiscal years ended March 31, 2024, March 31, 2023, and March 31, 2022 are as follows:

F Y 2024 F Y 2023
increase increase
F Y 2024 F Y 2023 F Y 2022 (decrease) (decrease)
Operating revenues $ 81,107,805 71,693,423 51,123,882 9,414,382 20,569,541 Operating expenses (79,659,943) (48,086,779) (50,656,419) (31,573,164) 2,569,640 Operating income 1,447,862 23,606,644 467,463 (22,158,782) 23,139,181 Nonoperating revenues 18,819,490 18,775,223 17,108,002 44,267 1,667,221 Nonoperating expenses (12,342,207) (14,198,663) (14,949,670) 1,856,456 751,007 Income before contributions
and other revenues 7,925,145 28,183,204 2,625,795 (20,258,059) 25,557,409 Contributions and other revenues 3,467,625 2,126,817 1,085,574 1,340,808 1,041,243 Increase in net position 11,392,770 30,310,021 3,711,369 (18,917,251) 26,598,652 Total net position – beginning of fiscal
period 118,261,936 87,951,915 84,240,546 30,310,021 3,711,369 Total net position – end of fiscal period $ 129,654,706 118,261,936 87,951,915 11,392,770 30,310,021

Fiscal Year 2023-24 Analysis
Stadium Authority operating revenues increased by $9,414,382 when compared with the prior year. This was mainly due to increases in revenue from ticketed Non-NFL events, rents and licenses and NFL ticket surcharge. The operating expenses increased by $31,573,164 compared to the prior year. This increase is primarily due to the 2024 Settlement Agreement (note 8), which resulted in an increase in buffet costs, performance-based rent and public safety costs. Non-NFL event expenses also increased due to larger ticketed Non-NFL events.

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SANTA CLARA STADIUM AUTHORITY
(a Component Unit of the City of Santa Clara, California) Management’s Discussion and Analysis (Unaudited)
March 31, 2024 and 2023
6 (Continued)
DRAFT 9/13/2024 11:41 AM 645885L-2A_SantaClaraStadiumAuthority_FS.docx Nonoperating revenues increased by $44,267 mainly due to an increase in interest revenue offset by a decrease in miscellaneous other revenue. Nonoperating expenses decreased by $1,856,456 due to a decrease in interest expense resulting from lower debt balances.

Contributions and other revenues were $3,467,625, an increase of $1,340,808 over the prior fiscal year. These represent special hotel tax revenues collected to pay the CFD Advance Loan.

Fiscal Year 2022-23 Analysis
Stadium Authority operating revenues increased by $20,569,541 when compared with the prior year. This was mainly due to the implementation of GASB 87 and increases in rents and licenses, and charges for services from NFL Games, ticketed Non-NFL events and smaller special events being held. The operating expenses decreased by $2,569,640 compared to the prior year. This decrease is primarily due to higher Stadium Manager expenses and Non-NFL events expenses offsets by zero settlement expense true-up. The Stadium Authority recognized additional expenses for the unpaid shared stadium expenses and other expenses in fiscal year 2021-22 as part of a previous August 31, 2022 settlement agreement.

Nonoperating revenues increased by $1,667,221 mainly due to the implementation of GASB 87. Nonoperating expenses decreased by $751,007 mainly due to a decrease in interest expense.

Contributions and other revenues were $2,126,817, an increase of $1,041,243 over the prior fiscal year. These represent special hotel tax revenues collected to pay the CFD Advance Loan.

Capital Assets
The capital assets of the Stadium Authority are those which are used in the performance of the Stadium Authority’s functions, including but not limited to infrastructure-related assets. These assets do not include StadCo’s tenant improvements. At March 31, 2024, capital assets totaled $678,569,448.

Further detail may be found in note 4 to the financial statements.

Debt Administration
At March 31, 2024, the Stadium Authority had total debt outstanding of $228,667,826, as shown in detail in note 5 to the financial statements. Stadium Authority’s debt comprised Stadium Funding Trust Term A loan of $199,956,240 and the CFD Advance Loan of $28,711,586.

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SANTA CLARA STADIUM AUTHORITY
(a Component Unit of the City of Santa Clara, California) Management’s Discussion and Analysis (Unaudited)
March 31, 2024 and 2023
7 DRAFT 9/13/2024 11:41 AM 645885L-2A_SantaClaraStadiumAuthority_FS.docx Economic and Financial Overview
Over the last few years, the local economy continued to improve during the recovery from COVID-19.

Unemployment rates are near prepandemic rates and there continues to be commercial and residential development, including several projects in the vicinity of Levi’s Stadium. Large ticketed and small-scale Non-NFL events have recovered and are producing higher net revenues than prepandemic levels. The past few years have also seen increases in hotel nights resulting in increases to Community Facilities District (CFD) taxes that flow to the Stadium Authority to pay down debt. Major financial factors impacting the Stadium Authority are:
• In May 2013, a Naming Rights Agreement with Levi Strauss & Co. (Levi’s) was approved naming the Stadium “Levi’s Stadium” for a term of 20 years. In January 2024, the First Amendment to Naming Rights Agreement with Levi’s was approved extending the initial term an additional 10 years. The naming rights agreement and its first amendment calls for Levi’s to pay a total of $273.1 million to the Stadium Authority over the 30-year period. The agreement requires the Stadium Authority to hold at least 36 “Major Events” (with 25,000+ attendees) every three contract years. The Second Amendment to the Stadium Management Agreement states that Forty Niners Stadium Management Company, LLC (ManagementCo) would pay the Stadium Authority as liquidated damages the amount owed by the Stadium Authority to Levi’s in the event the required number of events is not met. As of March 31, 2024, the Stadium Authority has received $69.7 million in naming rights revenue.
• Stadium Builders Licenses (SBLs) entitle the license holder to priority rights to buy tickets for events at Levi’s Stadium. The total value of the currently active SBL holders’ licenses is $555 million. Through March 31, 2024, $558.1 million in SBL principal payments have been collected since inception. This is due in part to a number of SBL holders paying off or prepaying a large portion of their SBL, and defaulted SBLs being resold at full price. In addition to SBL collections, the Stadium Authority has collected $70.8 million in interest from license holders who financed their SBLs since inception. • The Stadium Authority collected $24.8 million in lease revenue during the NFL season and $8.3 million net revenue associated with hosting Non-NFL events for the fiscal year ended March 31, 2024. • The Stadium Authority collects a 10% surcharge on the price of admission to all regular season NFL games and a $4 per ticket surcharge for all ticketed Non-NFL events. There were ten regular season NFL games held at Levi’s Stadium and two play-off games during fiscal year March 31, 2024, which resulted in $12.7 million in NFL ticket surcharge revenues. The Stadium Authority also recognized $1.6 million in Non-NFL event ticket surcharge revenues from the eight ticketed events held at the Stadium.

Contacting the Stadium Authority’s Financial Management This financial report is designed to provide our residents, taxpayers, investors, and creditors with a general overview of the Stadium Authority’s finances and to demonstrate the Stadium Authority’s accountability for the money it receives. If you have any questions about this report or need additional financial information, contact the City of Santa Clara Finance Department at 1500 Warburton Avenue, Santa Clara, CA 95050-3796.

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SANTA CLARA STADIUM AUTHORITY
(a Component Unit of the City of Santa Clara, California) Statements of Net Position
March 31, 2024 and 2023
Assets 2024 2023
Current assets:

Cash $ 18, 485,558 11,286,692
Restricted cash 78,573,023 54,725,592
Restricted cash with fiscal agent 15,909,843 24,265,375 Accounts receivable 19,453,027 20,094,954
Lease receivable 11,926,763 11,669,804
Total current assets 144,348,214 122,042,417
Capital assets:

Buildings, net 670,543,336 683,106,548
Machinery and equipment, net 3,823,782 3,873,939
Construction in progress 4,202,330 2,095,393
Total capital assets 678,569,448 689,075,880
Right-to-use leased assets 27,136,529 27,934,663
Long-term restricted cash with fiscal agent 11,536,235 11,536,235 Long-term lease receivable 582,290,499 594,217,262
Long-term accounts receivable 534,892 —
Total noncurrent assets 1,300,067,603 1,322,764,040
Total assets $ 1,444,415,817 1,444,806,457
Liabilities
Current liabilities:

Accounts payable and accrued liabilities $ 23,637,965 1,357,581 Interest payable 5,773,075 6,002,575
Due to other City of Santa Clara funds 473,130 142,896 Term A loan payable, current portion 7,299,896 15,459,000 Unearned revenue, current portion 16,900,628 16,374,980 Total current liabilities 54,084,694 39,337,032
Lease liability 29,321,106 29,321,106
Term A loan payable 192,656,344 199,956,240
CFD advance loan payable 28,711,586 29,859,497
Unearned revenue 431,418,058 432,484,579
Total noncurrent liabilities 682,107,094 691,621,422
Total liabilities $ 736,191,788 730,958,454
Deferred Inflows of Resources
Deferred inflows leases related $ 578,569,323 595,586,067 Total deferred inflows of resources $ 578,569,323 595,586,067 Net Position
Net investment in capital assets $ 456,438,951 449,951,997 Restricted for:

Debt service 12, 298,802 20,844,381
Capital projects and other agreements 81,938,065 52,822,516 Unrestricted deficit (421,021,112) (405,356,958)
Total net position $ 129,654,706 118,261,936
See accompanying notes to financial statements.
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SANTA CLARA STADIUM AUTHORITY
(a Component Unit of the City of Santa Clara, California) Statements of Revenues, Expenses, and Changes in Net Position Years ended March 31, 2024 and 2023
2024 2023
Operating revenues:

Charges for services $ 40,611,283 33,161,155
Rents and licensing 40,496,522 38,532,268
81,107,805 71,693,423
Operating expenses:

Leases 7,574,722 250,000
Materials, services, and supplies (note 3a and 8) 51,815,537 28,308,133 Selling, general, and administrative expenses 2,033,263 1,522,695 Depreciation 18,236,421 18,005,951
79,659,943 48,086,779
Operating income 1,447,862 23,606,644
Nonoperating revenues (expenses):

Interest revenue 18,819,490 18,157,312
Other revenue — 617,911
Interest expense (12,342,207) (14,198,663)
Income before contributions and other revenues 7,925,145 28,183,204 Contributions and other revenues:

Contribution from Community Facilities District 3,467,625 2,126,817 Change in net position 11,392,770 30,310,021
Net position – beginning of period 118,261,936 87,951,915 Net position – end of period $ 129,654,706 118,261,936 See accompanying notes to financial statements.
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SANTA CLARA STADIUM AUTHORITY
(a Component Unit of the City of Santa Clara, California) Statements of Cash Flows
Years ended March 31, 2024 and 2023
2024 2023
Cash flows from operating activities:

Receipts from customers $ 41,368,043 32,312,422
Payments to suppliers (38,995,500) (29,604,398)
Rents and licensing received 47,106,805 49,487,986
Net cash provided by operating activities 49,479,348 52,196,010 Cash flows from noncapital financing activities:

Net borrowings from other City of Santa Clara funds 330,234 629,529 Net cash provided by noncapital financing 330,234 629,529 Cash flows from capital and related financing activities:

Contribution from Community Facilities District 2,840,331 2,248,478 Acquisition and construction of capital assets (7,079,493) (3,108,564) Principal payments on capital debt (16,615,923) (35,038,955) Interest paid on capital debt (12,067,695) (13,918,397) Net cash used in capital and related financing (32,922,780) (49,817,438) Cash flows from investing activity:

Interest and dividends 5,803,963 4,503,381
Net cash provided by investing activity 5,803,963 4,503,381 Net increase in cash and restricted cash 22,690,765 7,511,482 Cash and restricted cash, beginning of period 101,813,894 94,302,412 Cash and restricted cash, end of period $ 124,504,659 101,813,894 Reconciliation of operating income to cash provided by operating activities:

Operating income $ 1,447,862 23,606,644
Depreciation 18,236,421 18,005,951
Lease revenues 7,250,256 7,285,255
Change in operating assets and liabilities:

Accounts receivable 657,660 (5,689,607)
Accounts payable and accrued liabilities 22,428,022 (539,569) Prepaid expenses — 1,015,999
Unearned revenue (540,873) 8,511,337
Net cash provided by operating activities $ 49,479,348 52,196,010 Noncash operating and capital financing activities:

Equipment purchases included in accounts payable and accrued expense $ (147,638) 667,933 See accompanying notes to financial statements.
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SANTA CLARA STADIUM AUTHORITY
(a Component Unit of the City of Santa Clara, California) Notes to Financial Statements
March 31, 2024 and 2023
11 (Continued)
DRAFT 9/13/2024 11:41 AM 645885L-2A_SantaClaraStadiumAuthority_FS.docx (1) Organization and Reporting Entity
(a) Organization
On June 8, 2010, residents of Santa Clara voted to adopt Measure J, the Santa Clara Stadium Taxpayer Protection and Economic Progress Act, resulting in the approval to construct a new 68,500-seat football stadium (the Stadium) to be leased to the San Francisco 49ers (49ers). In addition, Measure J called for the creation of the Santa Clara Stadium Authority to own, develop, construct, operate, and maintain the Stadium project. The City of Santa Clara, California (City) and the City of Santa Clara Redevelopment Agency (Agency) entered into a Joint Exercise of Powers Agreement (JPA Agreement) establishing the Santa Clara Stadium Authority (Stadium Authority). The JPA Agreement was later amended to add the Bayshore North Project Enhancement Authority as a member of the Stadium Authority. On June 28, 2011, the Governor signed into law Assembly Bill No. X1 26 (ABX1 26), which called for the dissolution of Redevelopment Agencies throughout the State. The California State Supreme Court upheld ABX1 26, and as a result, on February 1, 2012, all California Redevelopment Agencies were dissolved. The Successor Agency of the City of Santa Clara (Successor Agency) then assumed the obligations of the Agency under the JPA Agreement. (b) Financial Reporting Entity
As defined by US generally accepted accounting principles (GAAP), the financial reporting entity consists of a primary government, as well as its component units, which are legally separate organizations for which the elected officials of the primary government are financially accountable.

Financial accountability is defined as:
1) Appointment of a voting majority of the component unit’s board and either (a) the ability to impose will by the primary government or (b) the possibility that the component unit will provide a financial benefit to or impose a financial burden on the primary government; or 2) Fiscal dependency on the primary government.

Based upon the application of these criteria, the Stadium Authority has no component units. However, the Stadium Authority is a component unit of the City due to the Mayor and City Council serving as the Board of the Stadium Authority and therefore meeting the financial accountability criteria. The City Manager serves as the Executive Director. The debt which was incurred for the construction of the Stadium is the responsibility of the Stadium Authority. The City is not a party to the debt nor has the City guaranteed such debt.
(2) Summary of Significant Accounting Policies
(a) Basis of Presentation
The financial statements of the Stadium Authority have been prepared in conformity with GAAP, as applied to governmental units. The Governmental Accounting Standards Board (GASB) is the accepted standard setting body for establishing government accounting and financial reporting principles. The Stadium Authority is included as an enterprise fund in the City’s Annual Financial Report, and therefore, these financial statements do not purport to represent the financial position and changes in financial position of the City.

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SANTA CLARA STADIUM AUTHORITY
(a Component Unit of the City of Santa Clara, California) Notes to Financial Statements
March 31, 2024 and 2023
12 (Continued)
DRAFT 9/13/2024 11:41 AM 645885L-2A_SantaClaraStadiumAuthority_FS.docx (b) Basis of Accounting and Measurement Focus
The Stadium Authority reports its activities as a business-type activity. The financial statements include statements of net position, statements of revenues, expenses, and changes in net position, and statements of cash flows, and are accounted for using the “economic resources” measurement focus and the accrual basis of accounting. Accordingly, all assets and liabilities (whether current or noncurrent) are included on the statements of net position. Reported net position is segregated into three categories – net investment in capital assets, restricted, and unrestricted. The statements of revenues, expenses, and changes in net position present increases (revenues) and decreases (expenses) in total net position. Under the accrual basis of accounting, revenues are recognized in the period in which they are earned while expenses are recognized in the period in which a liability is incurred.

Operating revenues are those revenues that are generated from the primary operations of the Stadium Authority. All other revenues are reported as nonoperating. Operating expenses are those expenses that are essential to the primary operations of the fund. All other expenses are reported as nonoperating expenses.
(c) Year-End
An amendment was made to the JPA Agreement on November 13, 2012 in part to change the fiscal year of the Stadium Authority from a July 1 through June 30 fiscal year to an April 1 through March 31 fiscal year to conform with the fiscal year of Stadium Funding Trust. (d) Cash, Restricted Cash, and Restricted Cash with Fiscal Agent The Stadium Authority’s cash is not pooled with the City but is held in separate bank and trust accounts.
(i) Composition of Cash, Restricted Cash, and Restricted Cash with Fiscal Agent Cash, restricted cash, and restricted cash with fiscal agent at March 31, 2024 and 2023 consist of cash deposits in banks.

Restricted cash includes revenue that has not yet been transferred to Stadium Funding Trust accounts. On the fifteenth of the following month, all revenue is swept into the Stadium Funding Trust accounts as required by the Deposit and Disbursement Agreement and becomes restricted cash with fiscal agent. It also includes cash dedicated to construction and the capital expenditure, operating, and renovation/demolition reserve accounts.

Restricted cash with fiscal agent consists of stadium deposits pledged to a syndicate of lenders and deposits for stadium construction. The application of these deposits is restricted to fund stadium construction and Stadium Authority operations and debt service. (ii) Investments Authorized by Debt Agreements
Stadium Authority maintains required amount of cash and investments with trustees or fiscal agents under the terms of certain debt issues. These funds are unexpended bond proceeds or are pledged reserves to be used if Stadium Authority fails to meet its obligations under these debt Draft

SANTA CLARA STADIUM AUTHORITY
(a Component Unit of the City of Santa Clara, California) Notes to Financial Statements
March 31, 2024 and 2023
13 (Continued)
DRAFT 9/13/2024 11:41 AM 645885L-2A_SantaClaraStadiumAuthority_FS.docx issues. The California Government Code 53601 (L) allows these funds to be invested in accordance with the statutory provisions governing the issuance of those bonds, indebtedness, other arrangements, or certificates of participation in accordance with the ordinance, resolution, indenture, or agreement of the local agency providing for the issuance. (iii) Custodial Credit Risk
Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, a government will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. Under California Government Code Section 53651, depending on specific types of eligible securities, a bank must deposit eligible securities posted as collateral with its agent having a fair value of 105% to 150% of the Stadium Authority’s cash on deposit. All of the deposits are either insured by the Federal Depository Insurance Corporation (FDIC) or collateralized with pledged securities held in the trust department of the financial institutions.
(e) Accounts Receivable
Accounts receivable are recorded in the Stadium Authority’s accounts at the amounts that are contractually due. Accounts receivable include payments due from ManagementCo as a result of the operations of non-National Football League (NFL) events held at the Stadium and the overpayment of stadium manager expenses. Naming Rights revenue due from Levi’s Strauss & Co., special tax proceeds collected by the Community Facilities District (CFD) and not yet paid to Stadium Authority pursuant to the CFD Reimbursement Agreement, and other miscellaneous receivables are also included as accounts receivable in the statements of net position. (f) Capital Assets
Capital assets are valued at historical cost or estimated historical cost if actual historical cost is not available. Contributed capital assets are valued at their estimated fair value on the date contributed.

Depreciation is recorded on a straight-line basis over the estimated useful lives of the assets with a value over $5,000 and is charged as an expense against operations.

Useful lives
(years )
Buildings 20–50
Machinery and equipment 2–25

The cost of maintenance, repairs, minor replacements, and renewals are charged to operations as incurred. Major replacements, renewals, and betterments are capitalized. Sales and retirements of depreciable property are recorded by removing the related cost and accumulated depreciation from the accounts. Gains or losses on sales and retirements of property are reflected in the statements of revenues, expenses, and changes in net position.

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SANTA CLARA STADIUM AUTHORITY
(a Component Unit of the City of Santa Clara, California) Notes to Financial Statements
March 31, 2024 and 2023
14 (Continued)
DRAFT 9/13/2024 11:41 AM 645885L-2A_SantaClaraStadiumAuthority_FS.docx (g) Unearned Revenue and Revenue Recognition
Stadium Builder License (SBL) proceeds and payments received for other license agreements are initially recorded as unearned revenue and are recognized as revenue over the term of the contracts.

Rental income is recognized as revenue based on GASB 87 over the term of the Stadium Lease (note 2(k)).

Non-NFL event revenue, NFL ticket surcharge, Non-NFL ticket surcharge, and other operating revenues are recognized as they are earned.
(h) Risk Management
Per the terms of the Stadium Lease, during operations, the Forty Niners SC Stadium Company LLC (StadCo) procures insurance and the Stadium Authority pays a proportionate share to StadCo. (i) Income Taxes
The Stadium Authority falls under the purview of Internal Revenue Code, Section 115 and corresponding California Revenue and Taxation Code provisions. As such, the Stadium Authority is not subject to federal or state income taxes.
(j) Use of Estimates
The preparation of financial statements in conformity with US generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
(k) Lease Agreements
The Stadium Authority implemented GASB 87, Leases, during the year ended March 31, 2023. The objective of this Statement is to better meet the information needs of financial statement users by improving accounting and financial reporting for leases by governments. This Statement requires recognition of certain lease assets and liabilities for leases that previously were classified as operating leases and recognized as inflows of resources or outflows of resources based on the payment provisions of the contract. It establishes a single model for lease accounting based on the foundational principle that leases are financings of the right to use an underlying asset. Under this Statement, a lessee is required to recognize a lease liability and an intangible right-to-use lease asset, and a lessor is required to recognize a lease receivable and a deferred inflow of resources, thereby enhancing the relevance and consistency of information about governments’ leasing activities.

Lessee – The Stadium Authority is a lessee for a noncancelable ground lease. The Stadium Authority recognizes any lease liability with an initial and individual value of $100,000, and an intangible right‐to‐ use lease asset (lease asset) in the statement of net position financial statements.

At the commencement of a lease, the Stadium Authority initially measures the lease liability at the present value of payments expected to be made during the lease term. Subsequently, the lease liability is reduced by the principal portion of lease payments made. The lease asset is initially measured as Draft

SANTA CLARA STADIUM AUTHORITY
(a Component Unit of the City of Santa Clara, California) Notes to Financial Statements
March 31, 2024 and 2023
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DRAFT 9/13/2024 11:41 AM 645885L-2A_SantaClaraStadiumAuthority_FS.docx the initial amount of the lease liability, adjusted for lease payments made at or before the lease commencement date, plus certain initial direct costs. Subsequently, the lease asset is amortized on a straight‐line basis over its useful life.

Key estimates and judgments related to leases include how the Stadium Authority determines (1) the discount rate it uses to discount the expected lease payments to present value, (2) lease term, and (3) lease payments as follows:
• The Stadium Authority uses the interest rate charged by the lessor as the discount rate. When the interest rate charged by the lessor is not provided, the Stadium Authority generally uses its estimated incremental borrowing rate as the discount rate for leases. The Stadium Authority used a

2.18% discount rate for the expected lease payments to present value. • The lease term includes the noncancelable period of the lease. • Lease payments included in the measurement of the lease liability are composed of fixed payments and purchase option price that the Stadium Authority is reasonably certain to exercise.

The Stadium Authority monitors changes in circumstances that would require a remeasurement of its lease and will remeasure the lease asset and liability if certain changes occur that are expected to significantly affect the amount of the lease liability. The Stadium Authority has the Ground Lease with the City (note 6). As of March 31, 2024, the balances related to the lease liability and right-to-use were $29.3 million and $27.1 million respectively. The lease has remaining terms of 35 years as of April 1, 2023. As of March 31, 2023 and March 31, 2024, the Stadium Authority recognized $798 thousand in lease amortization expense and $652 thousand in interest expense related to this lease.

A summary of lease liability activity during the year ended March 31, 2024 is as follows:

March 31, March 31,
2023 Additions Reductions 2024
Lease liability $ 29,321,106 — — 29,321,106
Total lease liability $ 29,321,106 — — 29,321,106

A summary of lease liability activity during the year ended March 31, 2023 is as follows:

March 31, March 31,
2022 A
dditions Reductions 2023
Lease liability $ 29,321,106 — — 29,321,106
Total lease liability $ 29,321,106 — — 29,321,106

Draft

SANTA CLARA STADIUM AUTHORITY
(a Component Unit of the City of Santa Clara, California) Notes to Financial Statements
March 31, 2024 and 2023
16 (Continued)
DRAFT 9/13/2024 11:41 AM 645885L-2A_SantaClaraStadiumAuthority_FS.docx Right-to-use leased assets for the years ended March 31, 2024 is as follows:

March 31, March 31,
2023 Additions Reductions 2024
Right-to-use leased assets
being depreciated:

Land $ 29,530,929 — — 29,530,929
Total right-to-use
leased assets 29,530,929 — — 29,530,929
Less accumulated depreciation for:

Land (1,596,266) (798,134) — (2,394,400)
Total accumulated
depreciation (1,596,266) (798,134) — (2,394,400)
Total right-to-use
leased assets,
net $ 27,934,663 (798,134) — 27,136,529

Right-to-use leased assets for the years ended March 31, 2023 is as follows:

March 31, March 31,
2022 Additions Reductions 2023
Right-to-use leased assets
being depreciated:

Land $ 29,530,929 — — 29,530,929
Total right-to-use
leased assets 29,530,929 — — 29,530,929
Less accumulated depreciation for:

Land (798,133) (798,133) — (1,596,266)
Total accumulated
depreciation (798,133) (798,133) — (1,596,266)
Total right-to-use
leased assets,
net $ 28,732,796 (798,133) — 27,934,663

Draft

SANTA CLARA STADIUM AUTHORITY
(a Component Unit of the City of Santa Clara, California) Notes to Financial Statements
March 31, 2024 and 2023
17 (Continued)
DRAFT 9/13/2024 11:41 AM 645885L-2A_SantaClaraStadiumAuthority_FS.docx Future principal and interest payments on the lease liability are as follows as of March 31, 2024:

Principal Interes t
Year ending March 31:
2025 $ 6,542 993,458
2026 354,518 645,482
2027 362,325 637,675
2028 370,303 629,697
2029 378,456 621,544
2030–2034 2,543,522 2,956,478
2035–2039 3,358,669 2,641,331
2040–2044 4,267,600 2,232,400
2045–2049 5,281,106 1,718,894
2050–2054 6,411,217 1,088,783
2054–2058 5,986,848 333,152
Total $ 29,321,106 14,498,894

Lessor – The Stadium Authority is a lessor for noncancelable leases of land and building. The Stadium Authority recognizes a lease receivable and a deferred inflow of resources in the financial statements.

At the commencement of a lease, the Stadium Authority initially measures the lease receivable at the present value of payments expected to be received during the lease term. Subsequently, the lease receivable is reduced by the principal portion of lease payments received. The deferred inflow of resources is initially measured as the initial amount of the lease receivable, adjusted for lease payments received at or before the lease commencement date. Subsequently, the deferred inflow of resources is recognized as revenue on a straight-line basis over the life of the lease term.

Key estimates and judgments include how the Stadium Authority determines (1) the discount rate it uses to discount the expected lease receipts to present value, (2) lease term, and (3) lease receipts as follows:
• The Stadium Authority uses its estimated incremental borrowing rate as the discount rate for leases. The Stadium Authority used a 2.18% discount rate for the expected lease payments to present value.
• The lease term includes the noncancelable period of the lease. • Lease receipts included in the measurement of the lease receivable comprises fixed payments from the lessee.

The Stadium Authority monitors changes in circumstances that would require a remeasurement of its lease and will remeasure the lease receivable and deferred inflows of resources if certain changes occur that are expected to significantly affect the amount of the lease receivable. The Stadium Authority has the Stadium Lease with StadCo (note 6). As of March 31, 2024, the balances related to Draft

SANTA CLARA STADIUM AUTHORITY
(a Component Unit of the City of Santa Clara, California) Notes to Financial Statements
March 31, 2024 and 2023
18 (Continued)
DRAFT 9/13/2024 11:41 AM 645885L-2A_SantaClaraStadiumAuthority_FS.docx the lease receivable and deferred inflow of resources were $594.2 million and $578.6 million, respectively. As of March 31, 2023, the lease receivable and deferred inflow of resources were $605.9 million and $595.6 million, respectively. The lease has remaining terms of 35 years as of April 1, 2023. As of March 31, 2024, the Stadium Authority recognized $17.0 million in lease revenue under rents and licensing revenue category and $13.1 million in interest revenue. Similarly, as of March 31, 2023, the Stadium Authority also recognized $17.0 million in lease revenue under rents and licensing revenue category and $13.3 million in interest revenue.

A summary of lease receivable activity during the year ended March 31, 2024 is as follows:

March 31, March 31,
2023 A
dditions Reductions 2024
Lease receivable $ 605,887,066 — (11,669,804) 594,217,262 Total lease
receivable $ 605, 887,066 — (11,669,804) 594,217,262

A summary of lease receivable activity during the year ended March 31, 2023 is as follows:

March 31, March 31,
2022 A
dditions Reductions 2023
Lease receivable $ 617,305,447 — (11,418,381) 605,887,066 Total lease
receivable $ 617, 305,447 — (11,418,381) 605,887,066

A summary of deferred inflows of resources activity during the year ended March 31, 2024 is as follows:

March 31, March 31,
2023 Additions Reductions 2024
Deferred inflows leases
related $ 595,586,067 — (17,016,744) 578,569,323
Total deferred
inflows leases
related $ 595,586,067 — (17,016,744) 578,569,323

Draft

SANTA CLARA STADIUM AUTHORITY
(a Component Unit of the City of Santa Clara, California) Notes to Financial Statements
March 31, 2024 and 2023
19 (Continued)
DRAFT 9/13/2024 11:41 AM 645885L-2A_SantaClaraStadiumAuthority_FS.docx A summary of deferred inflows of resources activity during the year ended March 31, 2023 is as follows:

March 31, March 31,
2022 Additions R eductions 2023
Deferred inflows leases
related $ 612,602,812 — (17,016,745) 595,586,067
Total deferred
inflows leases
related $ 612,602,812 — ( 17,016,745) 595,586,067

Future principal and interest receipts from the lease receivable are as follows as of March 31, 2024:

Principal Interes t
Year ending March 31:
2025 $ 11,926,763 12,835,237
2026 12,189,380 12,572,620
2027 12,457,780 12,304,220
2028 12,732,090 12,029,910
2029 13,012,439 11,749,561
2030–2034 69,488,321 54,321,679
2035–2039 77,483,097 46,326,903
2040–2044 86,397,688 37,412,312
2045–2049 96,337,921 27,472,079
2050–2054 107,421,800 16,388,200
2054–2058 94,769,983 4,278,017
Total $ 594,217,262 247,690,738

(l) Prior Period Correction of an Error
During the financial reporting process for March 31, 2024, the Stadium Authority reviewed the accounting and reporting for the GASB 87, Leases, implementation for the ground lease and the stadium lease as of April 1, 2022 and identified errors related to the accumulated deferred rent liability and interest expense and interest revenue calculations as of March 31, 2023. The Stadium Authority determine these to be immaterial corrections of prior year errors and has restated the March 31, 2023 applicable accounts. The beginning net position for fiscal year 2022-23 was increased by $8.2 million from $79.8 million to $88.0 million.

Draft

SANTA CLARA STADIUM AUTHORITY
(a Component Unit of the City of Santa Clara, California) Notes to Financial Statements
March 31, 2024 and 2023
20 (Continued)
DRAFT 9/13/2024 11:41 AM 645885L-2A_SantaClaraStadiumAuthority_FS.docx The statements of net position for fiscal year 2022-23 was adjusted as follows:

FY 2023
previously G ASB 87 FY 2023
reported correction as corrected
Current assets:

Accounts receivable $ 18,994,260 1,100,694 20,094,954 Total change in assets $ 1,100,694
Current liabilities:

Interest payable $ 5,948,285 54,290 6,002,575
Deferred rent, current portion 495,000 (495,000) —
Noncurrent liabilities:

Deferred rent 7,149,723 (7,149,723) —
Total change in liabilities (7,590,433)
Net position:

Unrestricted deficit (414,048,085) 8,691,127 (405,356,958) Total changes in liabilities
and net position $ 1,100,694

Draft

SANTA CLARA STADIUM AUTHORITY
(a Component Unit of the City of Santa Clara, California) Notes to Financial Statements
March 31, 2024 and 2023
21 (Continued)
DRAFT 9/13/2024 11:41 AM 645885L-2A_SantaClaraStadiumAuthority_FS.docx The statements of revenues, expenses and changes in net position for fiscal year 2022-23 was adjusted as follows:

FY 2023
previously GASB 87 FY 2023
reported correction as corrected
Operating revenues:

Rents and licensing $ 38,992,268 (460,000) 38,532,268
Operating expenses:

Leases 1,229,044 (979,044) 250,000
Total change
in operating income 519,044
Nonoperating revenues (expenses):

Interest revenue 17,530,057 627,255 18,157,312
Interest expense (13,550,322) (648,341) (14,198,663)
Total change in net position 497,958
Net position – beginning of period 79,758,746 8,193,169 87,951,915 Net position – end of period $ 109,570,809 8,691,127 130,192,832

(3) Stadium Development
(a) Transaction Overview
During fiscal year 2011-12, the Stadium Authority and StadCo entered into a series of agreements in connection with the construction of the Stadium. The Stadium was constructed and is owned by the Stadium Authority; certain tenant improvement components are owned by StadCo. Construction on the Stadium began in April 2012 and it was substantially completed in July 2014, in time for the 2014 NFL season.

The City owns the land on which the Stadium was constructed. The City has leased the land to the Stadium Authority under a ground lease, and the Stadium Authority has leased the Stadium to StadCo for the six-month period from August through January (the NFL season) of each year, for an initial lease term of 40 years. The Stadium Lease commenced in August 2014 upon substantial completion of construction.

The Stadium Authority retained a design-build firm to complete the design and construction of the Stadium pursuant to a guaranteed maximum price contract. The Stadium Authority was generally responsible for amounts due to the design-builder, except that StadCo was responsible for payment of costs of tenant improvements. StadCo acted as construction agent for the Stadium Authority, with primary responsibility for administering the design-build contract.

Draft

SANTA CLARA STADIUM AUTHORITY
(a Component Unit of the City of Santa Clara, California) Notes to Financial Statements
March 31, 2024 and 2023
22 (Continued)
DRAFT 9/13/2024 11:41 AM 645885L-2A_SantaClaraStadiumAuthority_FS.docx The Stadium Authority and StadCo have engaged ManagementCo, an affiliate of StadCo, to manage the Stadium on a year-round basis. The Stadium Management Agreement has an initial term of 25 years, plus a 15-year renewal option. The Stadium Authority pays ManagementCo for services related to its operations on behalf of the Stadium Authority. For the years ended March 31, 2024 and 2023, ManagementCo charged the Stadium Authority $8.6 million and $8.1 million in shared expenses, and $8.5 million and $7.4 million in other operating and management expenses, respectively. (b) Construction Funding
Funding for construction of the Stadium, excluding tenant improvements funded by StadCo, falls into three major categories: an initial construction loan from a bank syndicate, which was refinanced during 2013 as described below; funding from the StadCo Subordinated Loan; and construction period and other revenues.
(i) Stadium Construction Loan Facility
The initial financing included a delayed draw term loan facility (the Construction Facility) provided by a syndicate of banks (the Lenders) to Stadium Funding Trust (FinanceCo). FinanceCo, a Delaware statutory trust, entered into the Construction Facility with the Lenders and then issued a loan facility to the Stadium Authority in the amount of $450 million (the Authority Loan). The Construction Facility had a maturity date of September 1, 2015. In June 2013, FinanceCo and the Stadium Authority refinanced the Construction Facility, resulting in FinanceCo paying off the Construction Facility and entering into a new debt structure that includes 26-year fixed rate notes and a delayed draw 5-year loan facility. FinanceCo then issued a new loan facility to the Stadium Authority in the amount of $450 million. The Stadium Authority’s loan facilities are discussed in note 5.
(ii) StadCo Subordinated Loan
In March 2012, StadCo agreed to loan the Stadium Authority up to $500 million (the Subloan) to be used for the construction of Levi’s Stadium. During the refinance process in June 2013, the interest rate on the Subloan was fixed and part of the then outstanding Subloan was paid down. The Subloan is discussed in note 5.
(iii) Construction Period and Other Revenues
Certain revenues were collected by the Stadium Authority while the Stadium was under construction. These construction period and other revenues primarily consist of SBL and naming rights revenues collected by the Stadium Authority.

Draft

SANTA CLARA STADIUM AUTHORITY
(a Component Unit of the City of Santa Clara, California) Notes to Financial Statements
March 31, 2024 and 2023
23 (Continued)
DRAFT 9/13/2024 11:41 AM 645885L-2A_SantaClaraStadiumAuthority_FS.docx (4) Capital Assets
Capital asset activity for the year ended March 31, 2024 is as follows:

Balance Balance
Mar
ch 31, March 31,
2023 Additions Reductions 2024
Nondepreciable assets:

Construction in progress $ 2,095,393 7,029,295 (4,922,358) 4,202,330 Total nondepreciable
assets 2,095,393 7,029,295 (4,922,358) 4,202,330
Capital assets being depreciated:

Buildings 826,227,884 3,963,548 — 830,191,432
Machinery and equipment 6,141,531 861,370 — 7,002,901
Less accumulated depreciation for:

Buildings (143,121,336) (16,526,760) — (159,648,096)
Machinery and equipment (2,267,592) (911,527) — (3,179,119) Net depreciable assets 686,980,487 (12,613,369) — 674,367,118 Net capital assets $ 689,075,880 (5,584,074) (4,922,358) 678,569,448 Capi
tal asset activity for the year ended March 31, 2023 is as follows:

Balance Balance
March 31, March 31,
2022 Additions Reductions 2023
Nondepreciable assets:

Construction in progress $ 468,766 1,754,706 (128,079) 2,095,393 Total nondepreciable
assets 468,766 1,754,706 (128,079) 2,095,393
Capital assets being depreciated:

Buildings 826,227,884 — — 826,227,884
Machinery and equipment 3,991,661 2,149,870 — 6,141,531 Less accumulated depreciation for:

Buildings (126,594,576) (16,526,760) — (143,121,336)
Machinery and equipment (1,586,534) (681,058) — (2,267,592) Net depreciable assets 702,038,435 (15,057,948) — 686,980,487 Net capital assets $ 702,507,201 (13,303,242) (128,079) 689,075,880 Draft

SANTA CLARA STADIUM AUTHORITY
(a Component Unit of the City of Santa Clara, California) Notes to Financial Statements
March 31, 2024 and 2023
24 (Continued)
DRAFT 9/13/2024 11:41 AM 645885L-2A_SantaClaraStadiumAuthority_FS.docx (5) Long- Term Debt
(a) Long- Term Debt Summary
Changes in long-term debt for the year ended March 31, 2024 consisted of the following:

Outstanding Outstanding
as of as of Amounts due
Issue Due Interest March 31, March 31, within one
Type of indebtedness date date rates 2023 Additions Reductions 2024 year Business type activity debt:

Stadium Funding Trust loan
Term A loan 06/19/13 04/01/39 5.00 % $ 215,415,240 — (15,459,000) 199,956,240 7,299,896 StadCo CFD Advance 04/01/13 12/31/54 5.73 29,859,497 — (1,147,911) 28,711,586 — StadCo Subordinated Loan 03/28/12 03/31/43 5.50 — — — — — Total $ 245,274,737 — (16,606,911) 228,667,826 7,299,896

Changes in long-term debt for the year ended March 31, 2023 consisted of the following:

Outstanding Outstanding
as of as of Amounts due
Issue Due Interest March 31, March 31, within one
Type of indebtedness date date rates 2022 Additions Reductions 2023 year Business type activity debt:

Stadium Funding Trust loan
Term A loan 06/19/13 04/01/39 5.00 % $ 230,138,239 — (14,722,999) 215,415,240 15,459,000 StadCo CFD Advance 04/01/13 12/31/54 5.73 30,374,503 — (515,006) 29,859,497 — StadCo Subordinated Loan 03/28/12 03/31/43 5.50 19,800,950 — (19,800,950) — — Total $ 280,313,692 — (35,038,955) 245,274,737 15,459,000

(b) Stadium Funding Trust Loan
The Restated Credit Agreement by and among FinanceCo, the Stadium Authority and Goldman Sachs Bank was entered into on June 19, 2013. FinanceCo agreed to loan the Stadium Authority up to $450 million. Under the Restated Credit Agreement, the loan from FinanceCo consists of the Term A Loan and the Term B Loan. On March 31, 2016, the Stadium Authority paid the remaining amount due on the Term B Loan.
(i) Term A Loan
The Term A Loan was made in the amount of $282.8 million. This loan bears interest at a fixed rate of 5%, payable semiannually, with annual principal payments due beginning in April 2018. It has a maturity date in 2039 and is subject to certain prepayment premiums. The loan was fully drawn at closing. As of March 31, 2024 and 2023, $200.0 million and $215.4 million was outstanding, respectively. Debt service on this loan is secured by a pledge of available SBL revenues of Stadium Authority.

Draft

SANTA CLARA STADIUM AUTHORITY
(a Component Unit of the City of Santa Clara, California) Notes to Financial Statements
March 31, 2024 and 2023
25 (Continued)
DRAFT 9/13/2024 11:41 AM 645885L-2A_SantaClaraStadiumAuthority_FS.docx In the event of default under the loan agreement, FinanceCo has the right, upon written notice to the Stadium Authority, to accelerate and declare the Stadium Authority’s obligation to repay the related loan to FinanceCo to be immediately due and payable. (c) StadCo CFD Advance
In May 2010, the City completed the proceedings to establish CFD for the purpose of financing certain publicly owned facilities and public services associated with the Stadium.

On June 11, 2013, the CFD, the Stadium Authority, and StadCo entered into a Reimbursement Agreement under which the CFD would agree to reimburse the Stadium Authority for costs of the publicly owned facilities and public services constructed for the Stadium. The reimbursement can only be made from the special tax generated by the CFD, as and when received by the CFD.

StadCo has agreed to advance to the Stadium Authority funds to pay for the CFD Infrastructure (StadCo CFD Advance). To evidence the Stadium Authority’s obligation to repay the StadCo CFD Advance, the Stadium Authority and StadCo also executed a note on June 11, 2013. The StadCo CFD Advance has a maximum principal of $38 million and an interest rate of 5.73%.

During the year ended March 31, 2024, as the special CFD tax was submitted to the Stadium Authority, a number of payments were made on the StadCo CFD Advance. StadCo CFD Advance payments were made midway through each quarter. The interest that accrued between the last StadCo CFD Advance payment and the end of the year is added to principal. The Stadium Authority made $1.7 million in interest and $1.2 million in principal payments. As of March 31, 2024 and 2023, $28.7 million and $29.9 million was outstanding, respectively. (d) StadCo Subordinated Loan
The Restated StadCo Obligations Agreement dated as of June 19, 2013 was entered into by and between StadCo and the Stadium Authority as part of the take-out financing process. Under the Restated StadCo Obligations Agreement, StadCo will loan the Stadium Authority an amount not to exceed $500 million with a fixed 5.50% interest rate. Required principal repayments started in March 2016 and the Stadium Authority may prepay the loan at any time. Debt service on this loan is secured by a pledge of available Stadium Authority revenues on a basis subordinate to outstanding senior loans, if any.

As of March 31, 2024 and 2023, there was no balance outstanding.

In the event of default under the loan agreement, StadCo has the right, upon written notice to the Stadium Authority, to accelerate and declare the Stadium Authority’s obligation to repay the related loan to StadCo to be immediately due and payable.
(e) Management Company Revolving Loan
The Management Company Revolving Loan dated as of March 28, 2012 was entered into by and between the Stadium Authority and ManagementCo. The Management Company Revolving Loan provides borrowing to the Stadium Authority in an amount not to exceed $25 million through the earlier of the end of the term of the Stadium Lease or the expiration of the Stadium Management Agreement, Draft

SANTA CLARA STADIUM AUTHORITY
(a Component Unit of the City of Santa Clara, California) Notes to Financial Statements
March 31, 2024 and 2023
26 (Continued)
DRAFT 9/13/2024 11:41 AM 645885L-2A_SantaClaraStadiumAuthority_FS.docx with interest at the prime rate payable quarterly. The Management Company Revolving Loan may be used solely for the purpose of enabling the Stadium Authority to pay Covered Stadium Authority Operating Expenses (as defined in the agreement) to the extent, and only to the extent, that funds are not otherwise available.

As of March 31, 2024 and 2023, there was no balance outstanding. (f) Pledge of Future Revenues
The pledge of future revenues ends upon repayment of the $200.0 million in outstanding principal on the Term A which is scheduled to occur in fiscal year 2039-40. For fiscal year 2023-24, revenues including operating revenues and nonoperating interest earnings amounted to $99.9 million and operating costs including operating expenses, but not interest, depreciation, or amortization amounted to $61.4 million. Net revenues available for debt service amounted to $38.5 million, which represented a coverage ratio of 5.27 on the $7.3 million of debt service to be paid in the coming year. (g) Long- Term Debt Maturities
Future principal and interest amounts due on long-term debt are as follows as of March 31, 2024:

Principal Interes t
Year ending March 31:
2025 $ 7,299,896 11, 277,991
2026 7,838,094 10,886,086
2027 8,404,934 10,465,840
2028 9,001,865 10,015,747
2029 9,630,410 9,534,226
T
hereafter 186,492,627 86,553,218
Total $ 228,667,826 138,733,108

(6) Leases
(a) Ground Lease
On February 28, 2012, the Stadium Authority entered into a lease (the Ground Lease) with the City whereby the City leases the Stadium site to the Stadium Authority. The Ground Lease was amended on June 19, 2013.

The Ground Lease has an initial term of 40 years. The first lease year commenced on the first day following the substantial completion of construction (August 1, 2014) and ended on the next following March 31. The subsequent lease years will start on April 1 and end on the following March 31. The Stadium Authority will have five successive extension options, each four years in duration, which would commence following the initial term expiration date.

The Ground Lease provides that the City will receive a fixed ground rent (Fixed Ground Rent) of $180 thousand for the first year of Stadium operations payable by the Stadium Authority. Beginning in Draft

SANTA CLARA STADIUM AUTHORITY
(a Component Unit of the City of Santa Clara, California) Notes to Financial Statements
March 31, 2024 and 2023
27 (Continued)
DRAFT 9/13/2024 11:41 AM 645885L-2A_SantaClaraStadiumAuthority_FS.docx the second year of Stadium operations and annually thereafter through the tenth year of Stadium operations, the Fixed Ground Rent will increase annually by $35 thousand. Beginning in the 11th year of Stadium operations, Fixed Ground Rent will be increased to equal $1 million, and thereafter will be increased by $100 thousand every five years through the end of the initial term of the Ground Lease. If the term of the Ground Lease is extended, then, during the first extension term, the Fixed Ground Rent will equal $1.58 million; and if and to the extent the Ground Lease is further extended, the Fixed Ground Rent will be increased by $80 thousand every four years thereafter through the expiration of the term of the Ground Lease. Stadium Authority paid the City $495 thousand and $460 thousand in ground rent in each of the fiscal years ended March 31, 2024 and 2023.

Future minimum payments due under the lease are as follows:

Leas e
payments
Year ending March 31:
2025 $ 1,000,000
2026 1,000,000
2027 1,000,000
2028 1,000,000
2029 1,000,000
Thereafter 32,500,000
Total $ 37,500,000

The Ground Lease also provides that the City will receive a performance-based rent equal to 50% of the net income from Non-NFL events, less certain credits including 50% of the Fixed Ground Rent, payable by the Stadium Authority. If certain of the credits are not used within the year incurred or the next five succeeding years, the credits will expire. The Stadium Authority reported a net Non-NFL event profit of $8.3 million and $8.8 million in each of the fiscal years ended March 31, 2024 and 2023, which triggers a performance-based rent payment to the City. However, in the prior fiscal year the Stadium Authority did not pay the City any performance-based rent because there remained disputes and pending arbitration with StadCo as to potential credits that needed to be deducted from a performance-based rent amount due public safety costs in excess of a disputed threshold (note 7). The 2024 Settlement Agreement will resolve those disputes (note 8). The $7.3 million in performance-based rent due to the City for both fiscal years were accrued in fiscal year ended March 31, 2024. However, the payment to the City will not occur until the Final Effective Date of the 2024 Settlement Agreement. (b) Stadium Lease
On March 28, 2012, the Stadium Authority entered into a lease with StadCo whereby the Stadium Authority leases the Stadium to StadCo. On June 19, 2013, the same parties entered into an Amended and Restated Stadium Lease Agreement (the Stadium Lease).

Draft

SANTA CLARA STADIUM AUTHORITY
(a Component Unit of the City of Santa Clara, California) Notes to Financial Statements
March 31, 2024 and 2023
28 (Continued)
DRAFT 9/13/2024 11:41 AM 645885L-2A_SantaClaraStadiumAuthority_FS.docx The Stadium Lease has an initial term of 40 years commencing on the first day following the substantial completion of construction (August 1, 2014) and includes five successive options to extend the term by four years each. The Stadium Lease is divided into two seasons:
• The Tenant Season, which includes the NFL season (including preseason, regular season, and postseason NFL games) and runs from August 1 through January 31; and • The Stadium Authority Season, which runs from February 1 through July 31.

Pursuant to the Stadium Lease, the Stadium Authority and StadCo will be entitled to receive and collect separate revenues. Initially, rent payable by StadCo to the Stadium Authority was $24.5 million per year. This amount was established pursuant to the Stadium Lease in connection with the take-out financing, which occurred on June 19, 2013. The Stadium Lease allowed for one opportunity to adjust the rent if operating or debt service expenses are either more or less than projected in determining the initial rent. Based on the changes to the projected operating and debt service expenses, the provisions for a one-time rent adjustment were triggered. At the Stadium Authority Board (Board) meeting held on March 22, 2016, the Board disagreed with StadCo’s position to reduce the rent amount, and instead passed a motion to pursue the informal dispute resolution procedures and to proceed to the arbitration process if necessary. Thereafter, on May 3, 2016, StadCo filed for arbitration with the Stadium Authority.

On June 18, 2018, the arbitrator entered an Arbitration Award in favor of the Stadium Authority and against StadCo. This award adjusted the facility rent from $24.5 million to $24.8 million, an increase of $262 thousand. This increase is retroactive to the first lease year resulting in a total amount owed to the Stadium Authority of $1.3 million for the first five lease years, through March 31, 2020. In addition to the adjustment to the facility rent, the Stadium Authority was entitled to reimbursement of its legal fees, determined by the arbitrator to be $2.3 million. The lease also provides for a fair market rent adjustment in year 33.

The Stadium Authority received $24.8 million in stadium rent from StadCo in each of the fiscal years ended March 31, 2024 and 2023.

The Stadium Authority may elect to expand the Tenant Season to consist of the entire lease year, from April 1 through the next succeeding March 31 (Stadium Authority Put Right), by delivering written notice to StadCo. The Stadium Authority Put Right may be exercised at any time during lease year 13, or at any time that the Management Company Revolving Loan balance exceeds $20 million. The expansion of the Tenant Season will be effective as of the applicable Tenant Season Expansion Date as set forth in the Stadium Lease. Effective from and after the Tenant Season Expansion Date, and continuing through the remainder of the Stadium Lease term, the Tenant Season will consist of the entire lease year.
(7) Contingencies
(a) Asset Retirement Obligation
Pursuant to the Ground Lease, the Stadium Authority may be required to demolish the Stadium and other improvements at the end of the lease term, upon written notice from the City. Pursuant to the Stadium Lease, the Stadium Authority will establish reserves to fund the cost of demolishing the Draft

SANTA CLARA STADIUM AUTHORITY
(a Component Unit of the City of Santa Clara, California) Notes to Financial Statements
March 31, 2024 and 2023
29 (Continued)
DRAFT 9/13/2024 11:41 AM 645885L-2A_SantaClaraStadiumAuthority_FS.docx stadium at the end of the lease term. While such reserves are projected to cover the entire demolition cost, StadCo will be responsible for funding any shortfall. (b) Historical Complementary SBL Buffet Costs
On April 30, 2020, the Stadium Authority received an invoice in the amount of $4.4 million for previously unbilled “complimentary” buffet costs associated with certain SBL holders for the NFL seasons from 2014 thru 2018. On May 13, 2020, the Stadium Authority issued a response letter disputing the newly billed costs citing that the costs were not presented in a reasonable manner relative to the financial planning and reporting requirements of the Lease Agreement and Stadium Management Agreement, and there was no justification for delaying presentment and demand for payment. The invoices presented also lacked sufficient supporting documentations in order to confirm the validity of the costs and charges under the Lease Agreement terms. StadCo and ManagementCo initiated arbitration proceedings to collect the buffet costs and dispute the Stadium Authority’s position, and Stadium Authority filed cross-claims.

In fiscal year 2021-22, ManagementCo invoiced an additional $902 thousand in new buffet costs to the Stadium Authority through the fiscal year 2021-22 Non-NFL events’ net loss. ManagementCo also issued a certificate of loan to the Stadium Authority under the Management Company Revolving Loan for the buffet amount and subsequently paid off the loan through the year-end excess cash distribution.

Stadium Authority objected to and disputed ManagementCo’s unauthorized payment of these buffet costs through the Revolving Loan, and also the payment of that loan through year-end excess cash.

Pursuant to the parties’ August 31, 2022 Settlement Agreement, ManagementCo’s prior draw under the Revolving Loan would be treated as a timely Stadium Authority payment, under protest, and with a full reservation of Stadium Authority’s rights and claims. The Stadium Authority had recorded a receivable from ManagementCo for the loan draw on the buffet costs as of March 31, 2023.

ManagementCo also reported $1.2 million and $1.3 million in buffet costs to be charged to the Stadium Authority for the fiscal years 2022-23 and 2023-24, respectively. The Stadium Authority had not recorded a liability for this cost because the dispute was outstanding and in pending arbitration.

The parties’ 2024 Settlement Agreement resolved the buffet arbitration (note 8). Upon the Final Effective Date of the May 2024 Settlement Agreement, first, the parties agreed that the $902 thousand that was drawn from the Management Company Revolving Loan for fiscal year 2021-22 buffet costs would be treated as Stadium Authority’s reimbursement of those costs. Therefore, the Stadium Authority reversed the corresponding receivable from Management Co and recorded a $902 thousand complementary buffet operating expense in fiscal year ended March 31, 2024. Second, StadCo waived all other buffet expenses from fiscal year 2014-15 through 2023-24, and the parties confirmed that those were no longer an obligation of the Stadium Authority and that the reimbursement of those expenses was deemed fully satisfied for said lease years. (c) Historical NFL Public Safety Costs
In June 2019, StadCo filed an Arbitration Demand regarding alleged amounts due from the Stadium Authority under the public safety costs terms of the Stadium Lease, for fiscal year 2017-18. According to the Stadium Lease, StadCo is required to reimburse the City for the costs incurred for providing public safety services for NFL events that exceed the revenue from off-site parking permit fees. The Draft

SANTA CLARA STADIUM AUTHORITY
(a Component Unit of the City of Santa Clara, California) Notes to Financial Statements
March 31, 2024 and 2023
30 (Continued)
DRAFT 9/13/2024 11:41 AM 645885L-2A_SantaClaraStadiumAuthority_FS.docx Stadium Lease contains a provision that creates a “threshold” on the amount of public safety costs that StadCo must pay for each of the NFL seasons. If the total public safety costs exceed the threshold, then the Stadium Lease requires the Stadium Authority to reimburse StadCo the costs above the threshold or provide to StadCo a credit for those amounts in the form of rent credits. The Stadium Lease includes an obligation for StadCo to negotiate a threshold increase in good faith if the total costs amounts are over the threshold for three consecutive years. The Stadium Authority invoked the good faith negotiation process after costs exceeded the threshold for three seasons, which was in advance of the incurred public safety costs for fiscal year 2017-18. StadCo filed several amended Arbitration Demands and formal demand letters for public safety costs damages for the subsequent NFL seasons and fiscal years 2019-20, 2021-22, 2022-23, and 2023-24, and Stadium Authority filed related responses cross-claims in that arbitration.

The Ground Lease contains provisions that provide, in the event that public safety costs exceed the threshold and those amounts are not paid by Stadium Authority’s Discretionary Fund, Stadium Authority is entitled to deduct credits from Stadium Authority’s performance-based rent payments to the City. Both the performance-based rent credit from the City and rent credit from the Stadium Authority expire in the next five succeeding years if not used within the year incurred. The public safety costs, threshold amount and calculations, and credits were part of the PSC arbitration with StadCo.

The 2024 Settlement Agreement will resolve the public safety cost arbitration (note 8). Upon the Final Effective Date, the parties agreed that approximately $14.8 million of NFL public safety costs over the threshold are owed to StadCo by the Stadium Authority related to fiscal years 2017-18 through 2023-24. This number was approximate in the 2024 Settlement Agreement because, at the time that settlement was signed, the final FY 2023-24 actual NFL public safety costs had not been finalized. Per the 2024 Settlement Agreement, this specific past-due amount of public safety costs will be paid over time and it will not be considered or treated as “Credited Public Safety Costs” that affect performance-based rent and rent calculations going forward. This allows the Stadium Authority to pay the City the full performance-based rent owed for fiscal years 2022-23 and 2023-24 (note 6). Now that the FY 2023-24 NFL public safety costs have been finalized, the Stadium Authority has recorded a $14.7 million “Public Safety Cost 2024 Outstanding Balance” payable and operating expense as of March 31, 2024.

Draft

SANTA CLARA STADIUM AUTHORITY
(a Component Unit of the City of Santa Clara, California) Notes to Financial Statements
March 31, 2024 and 2023
31 DRAFT 9/13/2024 11:41 AM 645885L-2A_SantaClaraStadiumAuthority_FS.docx (8) Subsequent Events
On May 23, 2024, the Stadium Authority, the City, StadCo, and ManagementCo entered into the 2024 Settlement Agreement that resolved pending arbitration and disputes regarding the complementary SBL buffet costs and NFL public safety cost arbitration, as well as other miscellaneous terms and matters. The 2024 Settlement Agreement includes amendments to the Ground Lease and Stadium Lease. Those lease amendments, which have already been signed and approved by Stadium Authority Board, City Council, StadCo, and ManagementCo, need to be approved by the NFL and the Lenders. Once the NFL and Lenders approve the lease amendments, the 2024 Settlement Agreement will have a Final Effective Date, and the settlement terms can be implemented. To date, the NFL has approved the lease amendments. As part of the settlement, the Stadium Authority agreed to recognize the $902 thousand complementary SBL buffet expense for fiscal year 2021-22 and $14.7 million of NFL public safety costs over the threshold for fiscal years 2017-18 through 2023-24. The settlement of the NFL public safety cost disputes will also allow for the payment of the performance-based rent from the Stadium Authority to the City in the amount of $7.3 million for fiscal years 2022-23 and 2023-24 after the Final Effective Date of the 2024 Settlement Agreements.

City of Santa Clara
Agenda Report
1500 Warburton Avenue
Santa Clara, CA 95050
santaclaraca.gov
@SantaClaraCity
24-895 Agenda Date: 9/17/2024

REPORT TO AUDIT COMMITTEE

SUBJECT
Action to Accept Report of Whistleblower Hotline Activity for Fiscal Year 2023-24

BACKGROUND
Per Section 909 of the City Charter, and SCCC Section 2.29.010, the City Auditor’s duties and responsibilities include conducting in-depth financial and performance audits, overseeing the City’s performance management system, auditing and approving all bills, invoices, payrolls, demands or charges against the City government before payment and, with the advice of the City Attorney, making reports to the City Council as to the regularity, legality and correctness of such claims, demands or charges. The City Auditor’s Office conducts its work under the auditing standards prescribed by the Institute of Internal Auditors (IIA). The IIA International Standards for the Professional Practice of Internal Auditing (Standards) requires the City Auditor to periodically report to the Audit Committee on the internal audit activity’s performance relative to the Audit Work Plan.

DISCUSSION
In January 2022, the City Council approved the City’s first Fraud, Waste, and Abuse Policy (Fraud Policy). The policy defines unacceptable behaviors, assigns oversight responsibility, and provides direction for reporting suspected fraud. Together with the City’s Code of Ethics and Values, a fraud policy raises awareness and helps the City set a tone of oversight and commitment to combating fraud and corruption.

With the acceptance of the policy, and pursuant to California Government Code Section 53087.6, the City Council authorized the use of a whistleblower hotline that allows for anonymous reporting of suspected fraud, waste, unethical or illicit activity. After a competitive procurement process, the City Auditor’s Office implemented a third-party whistleblower hotline “Speak Up Santa Clara” in September 2022. As part of the Fraud Policy, the Auditor’s office reports to the Audit Committee a summary of all claims received. If a claim is substantiated, an additional report will be issued and presented to both the Audit Committee and City Council.

ENVIRONMENTAL REVIEW
The action being considered does not constitute a “project”within the meaning of the California Environment Quality Act (“CEQA”)pursuant to CEQA Guidelines section 15378(a)(4) in that it is a fiscal activity that does not involve any commitment to any specific project which may result in a potential significant impact on the environment.

FISCAL IMPACT
Costs associated with the preparation of this report were included in the City’sFY 2024/25 Adopted Operating Budget.

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COORDINATION
This report has been coordinated with the City Attorney’s Office.

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 [email protected] <mailto:[email protected]> or at the public information desk at any City of Santa Clara public library.

RECOMMENDATION
Accept the report on the Whistleblower Hotline activity for Fiscal Year 2023-24.

Reviewed and Approved by: David Noce, Audit Manager

ATTACHMENTS

1. Report of Whistleblower Activity for Fiscal Year 2023-24 City of Santa Clara Printed on 9/13/2024Page 2 of 2
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Whistleblower Hotline Report – Fiscal Year 2023-24

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About the Whistleblower Hotline:

The City Auditor ’s Office administers the City’s Whistleblower Hotline program. The primary objective of the Hotline is to provide a means for a ny City employee to confidentially report any activity or conduct related to , or involving City personnel, resources, or operations for which he or she suspects instances of fraud, waste, or abuse.

The City’s Hotline is operated as approved by its Fraud, W aste, and Abuse Policy pursuant to California Government Code §53087.6. The Statute defines fraud, waste, or abuse as “any activity by a local agency or employee that is undertaken in the performance of the employee’s official duties, including activities deemed to be outside the scope of his or her employment, that is in violation of any local, state, or federal law or regulation relating to corruption, malfeasance, bribery, theft of government property, fraudulent claims, fraud, coercion, conversion, mal icious prosecution, misuse of government property, or willful omission to perform duty, is economically wasteful, or involves gross misconduct.”

The Statute also requires that investigations conducted pursuant to its authority be confidential, except to issue any report of an investigation that has been substantiated, or to release any findings resulting from a completed investigation that are deemed necessary to serve the interests of the public. In any event, the identity of the individual or individuals reporting the improper government activity, and the subject employee or employees, shall be kept confidential.

An independent third-party provider accepts hotline allegations from employees through an online reporting module available on the City’s CSI or via web address of the provider.

Whistleblowers can choose to remain anonymous and all information provided via the hotline will remain confidential. The Auditor’s Office can investigate claims, or they can be turned over to another City department for investigation.

On the following pages, Table 1 summarizes the types of claims received during Fiscal Year 2023-24 while Table 2 summarizes the status of the hotline investigations including the incident type, claim number, date the report was received, a general description of the report, claim status, and final resolution date.

City of
Santa Clara
The Center of What's Possible

Whistleblower Hotline Report – Fiscal Year 2023-24 (continued)

Page 2 of 2 ends

Table 1:

Reported Cases Qtr 1 Qtr 2 Qtr 3 Qtr 4
City Auditor Investigations
Abuse - - - -
Waste - - - -
Fraud - - - -
Subtotal City Auditor Investigations - - - - Other City Department Investigations
Abuse - - - -
Waste - - - -
Fraud - - - -
Subtotal Other City Department Investigations - - - - Reports not in Purview of Hotline - 1 - 1 Total Reports Received in Purview of Hotline - - - - Reports Received in Fiscal Year 2023-24

Table 2:

No. Incident Type Report # Date Received Status/Outcome Res. Date Allegtion/Outcome
1 Reports not in the purview of the hotline 0001aa23 11/19/2023 Referred 11/21/2023 2 Reports not in the purview of the hotline 0001aa24 5/21/2024 Referred 5/24/2024 Status of Auditor Hotline Investigations
Reported irregularities related to matters within the purview of the Human Resources Department and therefore were referred to that department in accordance with the City Fraud, Waste, & Abuse Policy.

Reported irregularities related to matters within the purview of the Human Resources Department and therefore were referred to that department in accordance with the City Fraud, Waste, & Abuse Policy.

City of Santa Clara
Agenda Report
1500 Warburton Avenue
Santa Clara, CA 95050
santaclaraca.gov
@SantaClaraCity
24-917 Agenda Date: 9/17/2024

REPORT TO AUDIT COMMITTEE

SUBJECT
Update on the Proposed 2024-2025 Audit Work Plan

BACKGROUND
Per Section 909 of the City Charter and Chapter 2.29 of the City Code, the City Auditor’s duties and responsibilities include conducting in-depth financial and performance audits, overseeing the City’s performance management system, auditing and approving all bills, invoices, payrolls, demands or charges against the City government before payment and, with the advice of the City Attorney, making reports to the City Council as to the regularity, legality and correctness of such claims, demands or charges. The City Auditor’s Office conducts its work under the auditing standards prescribed by the Institute of Internal Auditors (IIA). The IIA International Standards for the Professional Practice of Internal Auditing (Standards) requires the City Auditor’s Office to “establish a risk-based plan to determine the priorities of the internal audit activity, consistent with the organization’s goals” and consider the input from senior management and a governing board.

DISCUSSION
On March 21, 2024, the committee reviewed and approved the 2024-2025 Audit Work Plan. Staff will give an update on the status of the current work being performed.

FISCAL IMPACT
Costs associated with the preparation of this report are included in the City’s FY 2024/25 Adopted Operating Budget.

COORDINATION
This report has been coordinated with the City Manager’s Office and City Attorney’s Office.

City of Santa Clara Printed on 9/13/2024Page 1 of 2
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24-917 Agenda Date: 9/17/2024

RECOMMENDATION
Note and file staff update.

Reviewed and Approved by: David Noce, Audit Manager

ATTACHMENTS

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1 March 21, 2024
City of Santa Clara
City Auditor’s Office
Citywide Risk Assessment and Proposed 2024 - 2025
Audit Work Plan
(t bakerti lly

Contents
Baker Tilly US, LLP, trading as Baker Tilly, is an independent member of Baker Tilly International. Baker Tilly International Limited is an English company. Baker Tilly International provides no professional services to clients. Each member firm is a separate and independent legal entity, and each describes itself as such.

Baker Tilly US, LLP is not Baker Tilly International’s agent and does not have the authority to bind Baker Tilly International or act on Baker Tilly International’s behalf. None of Baker Tilly International, Baker Tilly US, LLP nor any of the other member firms of Baker Tilly International has any liability for each other’s acts or omissions. The name Baker Tilly and its associated logo is used under license from Baker Tilly International Limited.

INTRODUCTION ............................................................................................................. 1 RISK ASSESSMENT APPROACH ................................................................................. 3 SURVEY RESULTS ........................................................................................................ 4 RISK ASSESSMENT RESULTS ..................................................................................... 6 PROPOSED 2024 - 2025 AUDIT PLAN ........................................................................ 12 APPENDICES ............................................................................................................... 14

1 Introduction
Overview
Background
The California Government Code Section 1236 requires all cities that conduct audit activities to conduct their work under the general and specified standards prescribed by the Institute of Internal Auditors (IIA) or the Government Auditing Standards (GAO) issued by the Comptroller General of the United States, as appropriate. The internal audit function will govern itself by adherence to the mandatory elements of the International Standards for the Professional Practice of Internal Auditing (the Standards). According to the IIA Standard 2010, the head of internal audit function “must establish a risk-based plan to determine the priorities of the internal audit activity, consistent with the organization’s goals” and consider the input from senior management and a governing board.

The City Auditor’s Office (CAO) engaged Baker Tilly US, LLP (Baker Tilly) in 2022 to conduct a citywide risk assessment and prepare an annual audit work plan for five years. The purpose of the internal audit function’s risk assessment is to develop an audit plan that assigns internal audit resources to the activities that add the most value to the City of Santa Clara (the City). The risk assessment process involves identifying and measuring risks associated with the audit universe (a list of specific departments, functions, processes, programs, etc. that can be subject to an audit, i.e. auditable units). Risk is defined as “the possibility of an event or condition occurring that will have an impact on the ability of an organization to achieve its objectives.” 1

Audit Planning
This report summarizes Baker Tilly’s risk assessment methodology, analysis, and results. The 2024–2025 audit plan proposed in this report is based on the results of this risk assessment. The risk assessment involved collaboration with City Council and senior leadership from 14 main departments across the organization.

In conducting the 2023 risk assessment, we performed the following:
 Updated an understanding of the City’s environment, businesses, and objectives  Met with members of City Council and the Senior Leadership Team representing the major operations and administrative functions of the City
 Reviewed key documentation such as the City Council Priority Matrix, the annual budget documents, financial statements, departmental strategic plans, and prior audit reports  Conducted a risk assessment survey to gain additional insight from the City employees  Evaluated the results of interviews and documentation reviews and considered industry factors to identify areas of risk to the City

In developing the 2024–2025 Audit Plan, we considered the following:
 Risk assessment – Internal audit activities to target high and moderate risk areas based on the results of the risk assessment
 Adding value – Internal audit activities to add value through independent and objective analysis  City Council – The CAO reports to the City Council and seeks input on audit priorities  Coverage and other audits – Consideration of prior and other audits as well as pervasiveness of the process or control to ensure audit coverage and to avoid duplication of efforts  Scheduling – Consideration of the timing of an audit and other on-going initiatives in order to avoid putting an undue burden on City staff that may exacerbate the risk at hand or other interrelated risks

1 Rick A, Wright Jr., CIA, “The Internal Auditor’s Guide to Risk Assessment” The Institute of Internal Auditors Research Foundation (IIARF), 2018 (G bakertilly

2 INTRODUCTION

Organizational Strengths
Through the risk assessment, we observed certain strengths of the City. Key strengths include:
 Dedication to the citizens and business community
 High value on financial stability and public safety
 Focus on excellence and affordability
 Highly professional and dedicated management and staff

Risk Assessment Process Considerations
The starting point of the internal auditing is to conduct a risk assessment that is the basis for determining the internal audit activities. However, it is not a one-size-fits-all process. The scope and complexity of risk assessment are affected by various factors such as the maturity level of the internal audit function’s products and services, the organization’s enterprise risk management (ERM) efforts, coordination with other monitoring and risk management functions, and the stakeholders’ expectations. The best practice is to focus on risks related to the achievement of the organization’s strategies and objectives. The internal audit risk assessment needs to be conducted at least annually, and internal auditors should monitor the environment for changes and emerging risks.

In addition to the annual macro-level risk assessment, the internal audit function is required to perform an engagement-level risk assessment when starting each audit listed in the approved audit plan. The IIA Standard 2200 states, “Internal auditors must develop and document a plan for each engagement, including the engagement’s objectives, scope, timing, and resource allocations. The plan must consider the organization’s strategies, objectives, and risks relevant to the engagement.”

Risk assessment can also be conducted as part of risk management as one of the essential elements of organizational governance. The ERM is defined as “the culture, capabilities, and practices, integrated with strategy-setting and performance, that organizations rely on to manage risk in creating, preserving, and realizing value.”2 The ERM is more than having a list of all the risks for an organization. The COSO’s ERM principles covering governance to monitoring (including defining risk appetite and implementing risk responses), apply to all levels and functions of an organization although management has overall responsibility for managing risks and a governing body has an oversight role. The internal audit function may leverage ERM information, if available, for efficiency and quality of its risk assessment.

Fraud Considerations
While managing fraud risks is management’s responsibility, internal auditors should consider probability of significant errors, fraud, or noncompliance in exercising due professional care, according to the IIA Standard 1220.A1. For this annual macro-level risk assessment, only general fraud schemes, including the schemes listed in the professional publication and common cyber-attacks, were considered as described in Appendix B. A comprehensive citywide fraud risk assessment is scheduled to be conducted in 20243, and the results will be used as the City’s fraud risk baseline and considered for the future audit planning.

Like the engagement-level risk assessment described above, the IIA Standard (2210.A2) requires internal auditors to “consider the probability of significant errors, fraud, noncompliance, and other exposures when developing the engagement objectives.” Therefore, while we only considered general fraud schemes during this annual risk assessment, potential fraud schemes are considered in detail when an audit is commenced.

2 “COSO Enterprise Risk Management-Integrating with Strategy and Performance”, The Committee of Sponsoring Organizations of the Treadway Commission (COSO), 2017
3 Item #18, Audit Status Report as of September 30, 2023, File #23-1283, https://santaclara.legistar.com/LegislationDetail.aspx?ID=6411701&GUID=8514483F-4EE0-49F9-BFD0-B61222F98093&Options=&Search=

3 Risk Assessment Approach
Baker Tilly’s risk assessment approach consisted of four phases as illustrated in the graphic below.

2023 RISK ASSESSMENT PHASES
Planning
 Prepared risk assessment survey questions and the online survey tool.  Scheduled the interviews with City Council members and Senior Leadership Team (SLT) members
Information
Gathering
 Reviewed the key documents such as Council Priority Matrix, the biennial budget documents, the annual comprehensive financial report, departmental strategic plans, audit reports, the information on the City’s website and other relevant documents.  Distributed a link to the online survey to the selected 56 City’s employees including SLT members who were not scheduled to be interviewed. The survey responses were downloaded in Excel spreadsheet.
 Interviewed all City Councilmembers and some of the City’s managers including SLT members (11 individuals) to identify the events and conditions that may affect the achievement of objectives
 Updated the risk assessment matrix with the information gathered Analysis
 Analyzed the survey responses
 Scored the auditable units (listed in Appendix A) in the risk matrix based on the likelihood and the impact4 of potential adverse events
o Each of the auditable units received scores for various risk factors related to the likelihood or impact (defined in Appendix B)
o Risk factor scores were summed to create a single score for the auditable unit  Identified potential internal audit activities for the auditable units with high risk scores Reporting  Summarized the approach and results of the risk assessment

Baker Tilly conducted the first risk assessment in 2022 by interviewing all City Council members and SLT members and reviewing the key documents and data. The Year 2 risk assessment was conducted as described above to update the first risk assessment. Our risk assessment process primarily measured inherent risk (the risk before mitigating controls/factors are applied) in the City’s current environment.

In Year 3, no risk assessment will be conducted in accordance with the contract. However, the existing audit plan will be evaluated based on discussions with City audit staff and amended if necessary. For the fourth year, a full risk assessment and a survey will be conducted.

4 Likelihood is the possibility that an event will occur. Impact is the extent to which an event might affect an organization. (G bakertilly
Phase I Phase II Phase Ill Phase IV
Planning Information Analysis Reporting
gathering
ra .. % RI
Ongoing project management and collaboration

4 Survey Results
The Baker Tilly team conducted an online risk assessment survey to gather management’s insights for all City departments and received 38 responses (67.9% response rate). The survey questions are listed in Appendix C.

Changes over the past 12 months
All organizations are subject to changing environments that can influence risk to organizations. The COSO 5 Internal Control – Integrated Framework 6 highlights the influence of change in one of the 17 principles. Principle 9 states, “the organization identifies and assesses changes that could significantly impact the system of internal control.” The survey participants were asked to select all significant changes for their team or department during the last 12 months.

Policies and Procedures
Policies and procedures provide a roadmap for
daily operations to ensure compliance with
laws and regulations, give guidance for
decision-making, and establish the standards
and internal controls.

The survey participants were also asked to
select the current state of the policies and
procedures necessary to perform their job
responsibilities.

5 The Committee of Sponsoring Organizations of the Treadway Commission (COSO) is sponsored jointly by five major professional associations headquartered in the United States: the American Accounting Association (AAA), the American Institute of Certified Public Accountants (AICPA), Financial Executives International (FEI), the Institute of Internal Auditors (IIA), and Institute of Management Accountants (IMA). https://www.coso.org/
6 Internal Control – Integrated Framework provides principles-based guidance for designing and implementing effective internal controls.

This framework has become the most widely used internal control framework in the U.S. https://www.coso.org/guidance-on-ic Changes for team or department # of Response
New/additional staff 25
New workflows or business processes 24
Change in workload 21
Unfilled positions 20
Change in compliance requirements 14
Change in organizational structure 13
New vendors and contractors 12
Change in culture 10
New or significant changes in information technology systems 10 New software 9
Change in goals/objectives/performance measures 8
Significant changes in processes or controls 6
Change in any risks previously identified for your team/department 6 Workforce reduction 5
Increased undesirable performance or instances 2
Change in compliance requirements 1
Other 1
<G bakertilly
P&P are adequate and
up-to-date
21%
P&P are adequate but not
updated regularly
26%

5 SURVEY RESULTS
Barriers to meeting goals and objectives in FY2024
The COSO Enterprise Risk Management—Integrating with Strategy and Performance7 provides insight into the links between strategy, risk, and performance through 20 principles. Principle 10 states, “the organization identifies risk that impacts the performance of strategy and business objectives.”
The survey participants were asked about their team/department’s periodic reporting on significant goals and compliance requirements to monitor the performance. The pie chart shows the results.

The survey participants were also asked what can possibly prevent their team/department from meeting its goals and objectives in 2024. The results are summarized below.

Top risk areas selected by the survey participants
The survey participants were asked to select and rank the top five risk areas from 31 risk areas listed in the survey. Based on the number of selection and the ranking given by them, the top 15 risk areas were identified.

For the risks they selected:
 81.6% of the participants think the City management is aware of the risk, but more efforts are needed to help mitigate the risks.  10.5% of the participants think the City management is either not aware of the risks or has not developed sufficient activities to help mitigate the risks.
 7.9% of the participants think the City management is aware of the risks and has implemented activities to help mitigate the risks.

7 Enterprise Risk Management—Integrating with Strategy and Performance addresses the need for organizations to improve their approach to managing risk to meet the demands of an evolving business environment. https://www.coso.org/guidance-erm Rank Risk Area
1 Succession Planning
2 Human Capital Management
3 Reputation
4 Resource Allocation
5 Governance
6 Compliance Management
7 Economy
8 Security
9 Efficiency
10 Strategic Change
11 Procurement/Sourcing
12 Technologies
13 Communication
14 Leadership and Authority
15 Regulatory
Staffing constraints
Inefficiency in process and/or communication
Technology issue
Financial constraints
Limited ski I ls/know ledge/experience/training
Ambiguity in roles and responsibilities
State/Federal regulations
Community pressure
Lack of (or ineffective) internal controls
Other
-
..
0 5 10

PERFORMANCE MONITORING
15 20 25 30 35

6 Risk Assessment Results
Citywide Key Risk Areas
Baker Tilly conducted interviews with members of the City Council and a few members of the Senior Leadership Team and reviewed the survey responses from the selected City employees. Baker Tilly asked them to describe the areas they view to be the top five risks facing the City overall, regardless as to whether it is specific to their area of focus/department or not. The following is a list of risk themes identified in those interviews and survey responses:
Strategic Workforce Planning
Resource Management
Organizational Governance
Compliance and Legal Risks
Information Technology
Strategic Workforce Planning
Succession Planning – As the City experienced turnover in key leadership positions in recent years, many of interviewees and survey respondents expressed a concern on the City’s planning to ensure that there are highly qualified people for leadership positions for the coming years. They expect many individuals with managerial positions to retire over the next several years. A robust citywide succession planning helps the City identify, develop, and train future leaders strategically and retain qualified employees while retention and recruitment continue to be challenging. Staff Development – Human capital management is critical to the effectiveness of the City’s operations.

It requires investment in the workforce by enhancing employees’ skills with on-going training and education and monitoring their performance regularly. On-going training should include sharing institutional knowledge through cross-training and documented policies and procedures. Regular performance monitoring against well-designed and well-defined performance measures helps the development of employees and alignment of their performance with the City’s goals. Successful staff development can result in higher productivity, increased morale, and better retention rates.

Resource Management
Resource Allocation – Efficient resource allocation is important for the City to operate effectively. Some survey respondents mentioned redundancies in a process and responsibilities of staff while others noted multiple hats employees were in order to keep up with the workload and inadequate resources to meet the compliance requirements. As the City continues to change its population, environment, infrastructure, services, and complexity, it needs to continue to monitor and adjust the allocation of the City’s limited resources to provide an acceptable level of services to its citizens and comply with various laws and regulations. Careful strategic planning and prioritization of resource allocation is pivotal for driving economic growth and promoting social welfare.
Funding – The City faces difficult budget reductions necessary to bring the budget into balance. As a result, some essential accounts, programs, and capital projects remain unfunded.

Governance
Leadership – Effective local government governing body and officers must think and act strategically and collaborate with a network of community entities and institutions at the national, state, and local level. Operating in an environment where there are numerous stakeholders and key partners can strain the governance system and impair the ability to meet citizens’ needs and organizational objectives. A city’s reputation comes from perceptions of effective government that is affected by leadership. (G bakertilly

7 RISK ASSESSMENT RESULTS

Compliance/Legal
Compliance with Laws, Regulations, and Contracts – The City has a complex regulatory compliance environment, in which the City must comply with numerous laws and regulations, local ordinances, contracts and grant agreements, and policies and procedures. The survey respondents noted adequate resources to maintain compliance with changing requirements. Failure to track and update relevant laws and regulations may lead to external audit findings, fines, reputational harm and other negative outcomes.
Litigation – The City has been involved in multiple lawsuits and settlements in recent years.

Information Technology
Cybersecurity – Ransomware and malware attacks are growing threats facing all municipal governments. These cyberattacks may result in significant financial losses, costly service disruption, and loss of information. The City faces similar threats on a daily basis and seeks to ensure that its information security practices and controls mitigate these risks. Some survey respondents, however, mentioned inadequate resources to improve security measures.

Department Descriptions and Key Risk Areas
When identifying risks for the City, Baker Tilly considered each department and associated risks. The concerns listed by the interviewees included limited staffing and succession planning, specific accounts or programs with limited or no funding, aged infrastructure, lawsuits, and drought. Based on these concerns, departments’ functions, and their inherent risks, Baker Tilly identified the auditable risk areas for each department. Below is an overview of the City’s departments and their key risk areas.

City Attorney’s Office
The City Attorney’s Office provides hearing and trial counsel services and other legal advisory services such as
review/negotiation of contracts, preparation of resolutions and ordinances, attendance to all meetings of the City Council, and response to legal inquiries.

Key Risk Areas
Case management
Conflict of interest monitoring
City Clerk’s Office
The Elected City Clerk administers City elections. The Assistant City Clerk is responsible for various day-to-day operations, including attending and maintaining records of City Council and public meetings; complying with Records Retention Schedule; responding to Public Records Act requests, and administering campaign and disclosure laws.

Key Risk Areas
Public Records Act compliance
Records retention program

City Manager’s Office
The City Manager’s Office supports the City Council with policy decision making, provides direction and support to all City departments, and is responsible for strategic planning, citywide emergency preparedness, economic development, community outreach and engagement, property management, special
projects, and implementation of Council direction. It also provides general administration for citywide programs, citywide strategic programs and initiatives (such as sustainability), convention center, and stadium operations.

Key Risk Areas
Property management
Convention center operation
Stadium operation
Business continuity plan for the City
departments

8 RISK ASSESSMENT RESULTS
Community Development Department
The Community Development Department’s primary objectives are maintenance of the General Plan, proactive land use planning to meet the future needs of the community, delivery of professional services such as development review and permitting and inspection services, and administration of programs related to affordable housing.

Key Risk Areas
Building permitting & inspection
Housing inspection
Development projects review
Code enforcement
Affordable housing program
Electronic Utility Department
The Electric Utility Department (Silicon Valley Power, or SVP) owns power generation facilities, has investments in joint ventures that produce electric power, and trades power on the open market. SVP delivers electricity to the residents and businesses and provides diverse services such as dispatch services to all City departments, outdoor Wi-Fi services, dark fiber leasing service, and energy efficiency programs.

Key Risk Areas
Power Purchase Agreements
Safety program
Compliance program
Procurement and contract management
Work Order and Asset Management
Cybersecurity
Construction project controls
Finance Department
The Finance Department administers the City’s financial affairs.

Departmental functions include budget; general accounting; financial reporting; collection of taxes, fees, special assessments, and utility charges; investment; procurement; the City Warehouse operations; and debt management.

Key Risk Areas
Procurement Card Administration
Vendor master file
Timesheet processing
Utility billing and collection process
Investment management
Warehouse/inventory management
Fire Department
The Fire Department provides fire and emergency services and organized into Administration and six divisions: Field Operations (first responders providing immediate services); Emergency Medical Services (first responder medical services); Community Risk Reduction (fire prevention activities and hazardous materials regulation by providing plan review and inspection services); Training (State and Federal certification programs);
Administrative (grant management, payroll processing, budget development, etc.); Office of Emergency Services (emergency preparedness activities and disaster management plans).

Key Risk Areas
Overtime
Field inspection services
Training
Emergency medical services
Human Resources Department
The Human Resources Department is responsible for Benefits, Compensation, Recruitment, Testing, Classification, Employee and Labor Relations, Equal Employment Opportunity, Workers Compensation/Safety, and Employee development. The
department also negotiates the Memorandum of Understanding agreements with bargaining units.

Key Risk Areas
Staff development and succession
planning for the City departments
Workers' Compensation and Safety
Employee records management

Information Technology Department
The Information Technology Department's IT service provider provides most IT services including enterprise computing (City data centers and network), service desk, end-user support,

Key Risk Areas
- Cybersecurity Assessment

9 RISK ASSESSMENT RESULTS
application management, configuration and maintenance of over 150 applications, and security services (including security incident and event management). The City IT employees are responsible for IT governance and budget.
- Managed Service Provider (MSP)
contract management
- Application portfolio management
- Data management
Library Department
The Library Department has three libraries throughout the City and also provides Bookmobile service. It offers physical and digital collection of books/movies/music, technology and information access, literacy instruction, and programming such as young adults activities. The Library Department establishes partnerships with community organizations to leverage
resources.

Key Risk Areas
Memorandum of Understanding with the
Santa Clara Library Foundation &
Friends
Fee collection
Purchasing
Parks and Recreation Department
The Parks and Recreation Department consists of the Parks Division (planning, development, operation, maintenance and rehabilitation of City parks); the Recreation Division (classes and programs); the Cemetery Division (maintaining 33,000 interment sites), and the Senior Nutrition Program Division (a meals program). The Department offers the public with facility rentals, community services, cultural programs, and special events.

Key Risk Areas
Park infrastructure
Park revenue
Police Department
The Police Department is broken down into four divisions. The Field Operations Division is comprised of uniformed personnel that respond to calls for service and initiate proactive contacts.

The Investigations Division, which includes the Records Unit, handle follow-up investigations and bring cases forth for criminal prosecution. The Special Operations Division oversees law enforcement services for any major event within the city, including Levi’s Stadium. The Administrative Services Division encompasses the department’s Training Unit, School and
Community Services, and 911-Comunucations Center.

Key Risk Areas
Overtime
Body-worn camera
Use of force policies
Evidence processing and storage
Case management
Department of Public Works
The Department of Public Works is responsible for design, construction, and maintenance of the City infrastructure. The five divisions for engineering services are Administration, Traffic, Design, Land and Property Development, and Field services divisions. Operation and maintenance is provided by Facilities Services, Streets, and Feet Management divisions.

Key Risk Areas
Construction project controls
The Americans with Disabilities Act
(ADA) compliance
Maintenance service requests
Grant management
Water and Sewer Utilities Department
The Water and Sewer Utilities Department provides planning, design, construction, maintenance, and operation of the City’s water distribution system, sewer collection system, and recycled water system. The City jointly owns the San Jose-Santa Clara Regional Wastewater Facility.

Key Risk Areas
Construction project controls
Water conservation and sustainability
programs
Rate setting practices
Work order and asset management

10 RISK ASSESSMENT RESULTS

Overall Risk Scoring Distribution
Baker Tilly structured the audit universe based on the department/division/program from the budget document and management’s feedback, which resulted in 127 auditable units ( Appendix A). We scored them based on the information gathered for each risk factor related to the likelihood, impact, or fraud. Appendix B lists the risk factors, definitions, and scoring method. The maximum score for an auditable unit is 30. The following chart shows the distribution of overall risk scoring.

Baker Tilly rated the auditable units as follows:
 High Risk – Scores 16 and above
 Moderate Risk – Scores more than 9 and less than 16
 Low Risk – Scores below 9
Listed in the following page are the auditable units with a score over 14.5 based on our scoring. The list includes 29 functions rated as high risk (with a score between 16 and 30) and 13 functions rated as moderate risk (with a score between 14.5 and 16). The auditable units with the highest risks do not automatically listed in the new audit plan because some audits may have been already completed or currently being conducted 8, timing of an audit will not be ideal due to a change being/that will be implemented by a department in a coming year, and so on. In determining the audit activities to be performed in 2024 and 2025, we further reviewed specific risks and functional areas and considered risk-based priorities as well as other factors such as requirements by law or regulation, timing of activities, special projects, and requests from City Council and management. The proposed audit plan is included in the next section of this report.

8 As noted on page 3 of this report, scoring/rating is based on inherent risks (the risk before mitigating controls/factors are applied), which result in some audit units’ repeated appearance in the top risk group unless risk scoring changes due to new events and/or a change to the conditions.
-Scores 5 5-10 10-15 15-20 > 20

11 Already audited
Department Function Risk Area Total Risk
Score
Electric Utility Utility Operations - Substation Maintenance Cybersecurity / Work order and asset management / Construction project controls / Safety program 23.2 Electric Utility Utility Operations - Transmission & Distribution Cybersecurity / Work order and asset management / Construction project controls / Safety program 23.2 Electric Utility Utility Operations - Generation Cybersecurity / Work order and asset management / Construction project controls / Safety program 23.0 Police Field Operations - General Patrol Overtime / Body-worn camera management / Use of force policies 22.7 Electric Utility Utility Operations - Power System Controls Cybersecurity / Work order and asset management 22.0 Electric Utility Utility Operations - SVP Systems Support Cybersecurity 21.8 Fire Field Operations Overtime 20.1
Police Administrative Services - Departmental Support Evidence processing and storage 19.8 Public Works Streets Maintenance service requests / Grant management 19.7 Police Investigations - Records Case management 19.5
City Manager's Office Convention Center Convention center operation 19.2 Community Development Building - Field Inspection Building inspection process 19.1 Community Development Building - Permit Services Building permitting process 18.7 Parks & Recreation Parks Park operations (Infrastructure and revenue) 18.4 Finance General Accounting Payroll (including timesheet processing) / Vendor master file 18.1 City Manager's Office Stadium Operations Stadium operation 17.7 Public Works Engineering - Traffic Grant management / Administration of the Shared Mobility Permit Program 17.5 Electric Utility Resource Planning & Engagement - Resource Management Power Purchase Agreements / Energy wholesale trading risk management 17.3 Police Administrative Services - Administration Record management 17.3 Human Resources Employee Benefits and Records - Workers' Compensation & Safety Safety program 17.2 Information Technology Contract Services Cybersecurity / Managed Service Provider (MSP) contract management 17.2 Community Development Building - Plan Review Building permitting process 17.1 Police Administrative Services - 911 Dispatch/Communications 911 Dispatch operations 16.8 Police Field Operations - Traffic Traffic enforcement 16.8 Electric Utility Utility Operations - Electric Compliance Compliance program 16.7 Human Resources Recruitment, Classification and Staff Development - Selection & Classification Citywide succession planning and staff development/ Employee records management 16.6 Library Administration Memorandum of Understanding (MOU) with the Santa Clara Library Foundation & Friends 16.3 Water and Sewer Utilities Water Construction,Maintenance,Operations - Water Construction Construction project controls 16.3 Water and Sewer Utilities Water Construction,Maintenance,Operations - Water System Operations Rate setting practices 16.2 Information Technology Enterprise Services - Application Services Application portfolio management / Data classification / Payment Card Industry Data Security Standard (PCI DSS) compliance 15.8
Police Administrative Services - Professional Standards Training 15.8 City Manager's Office Citywide Strategic Programs & Initiative Property management / Santa Clara Tourism Improvement District (SCTID) 15.7 City Manager's Office Leadership and Management Services - Day to Day Operations Business Continuity / Enterprise Risk Management 15.6 Finance Purchasing Procurement process (including procurement card administration) 15.5 Public Works Engineering - Field Services Construction project control / ADA Compliance 15.4 Water and Sewer Utilities Water Engineering - Water Resources Water conservation and sustainability programs 15.2 Community Development Building - Code Enforcement Code enforcement 15.1 Water and Sewer Utilities Sewer - System Maintenance Work order process and asset management 15.0 City Clerk's Office Assistant City Clerk - Public Information/Legislation Records Management Public Records Act process efficiency and effectiveness / Record management and retention program 14.8
Electric Utility Resource Planning & Engagement - Greenhouse Gas Program Renewable energy program 14.7 Police Investigations - General Investigation Case management 14.6 Finance Municipal Services - Utility Billing Services Utility billing and collection process 14.6 <G bakertilly
lnclooea in the Proposed Audit Plan
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12 Proposed 2024 - 2025 Audit Plan
Summary
The projects included in the approved 2023-2024 audit plan were originally selected from the auditable units that were rated as High or Moderate as a result of the first risk assessment in 2022. The selection was made based on some factors such as risk rating, the pervasiveness of the process or control, the audit coverage, the timing of projects, and the value-adding activities that help the City enhance the ability to manage risks, strengthen accountability, and improve efficiency and effectiveness. Based on the CAO budget for the audit plan execution, two audits listed in the approved audit plan were initiated in 2023.

The proposed 2024-2025 audit plan was prepared by updating the 2023-2024 audit plan based on new information obtained on the listed projects and the results of the Year 2 risk assessment. The proposed audits and CAO projects for 2024 through 2025 are listed in the next page and include the following:
 Citywide processes: Succession Planning & Staff Development Review; Record Management and Retention
 Finance: Purchasing Process Review
 Compliance: Overtime Review; SVP Compliance Program Review; Review of Library Memorandum of Understanding with the Santa Clara Library Foundation & Friends  Operations: SVP Safety Program Review; Park Operation Review  Efficiency and effectiveness improvement: Code Enforcement Review  Capital assets: Construction Project Control Assessment; Work Order Process and Asset Management  CAO project: Follow-up on prior’ audits’ corrective actions

The preliminary audit objectives are described for each audit listed. These objectives and scope of each audit activity will be further defined based on the result of an audit planning risk assessment process performed at the beginning of each activity.

The proposed 2024-2025 audit plan consists of a variety of projects for a 24-month period to provide multiple project options to adjust the timing of audits among departments and divisions. It also incorporates time for follow-up on the corrective actions identified by management for the completed audits. The completion of the audit plan depends on the availability of the budget for a contractor to execute it. The audit plan will be updated annually based on the results of an annual risk assessment. However, amendments to the approved audit plan may be proposed during a year in response to changes in the City’s environment such as organizational structure, operations, risks, systems, and controls.

(G bakertilly

13 Proposed Audit Plan for 2024 - 2025

Department Project Title Preliminary Audit Objectives Estimated Hours
Human Resources / Citywide Citywide succession planning and staff development
• Determine whether adequate policies and procedures are in place for developing and maintaining a citywide succession plan to ensure continuity in key positions for all departments. • Determine whether the City provides adequate personal professional development training to staff to ensure that qualified staff are prepared to assume increased responsibilities when necessary. 300
Finance Department Purchasing
• Determine whether adequate controls are in place and working effectively to ensure that the appropriate vendors are selected in a timely manner and monitored properly to achieve desired objectives. • Determine whether procurement cards are administered to ensure that only the authorized users can make purchases in accordance with the requirements and guidelines.
• Determine whether internal controls over procurement card transactions are in place and working effectively to prevent and detect errors and irregularities, including duplicate, unauthorized, or improper transactions. 450
Police Department
Fire Department
Electric Utility Department Safety program
• Determine whether the Electric Utility Department has adequate mechanisms in place to identify and mitigate the safety hazards at workplace.
• Determine whether the Electric Utility Department's internal controls are working effectively to ensure a safe workplace. 400
Parks & Recreation Department Park operation • Determine whether the internal controls over the maintenance of parks are working effectively to ensure safety. • Determine whether the internal controls over fee collection are working effectively. 360 Department of Public Works Construction project control assessment Determine whether internal controls over construction projects are adequate and working effectively. 360 Community Development Department Code Enforcement Assess the efficiency and effectiveness of the code enforcement process. 350 Electric Utility Department Compliance program
• Determine whether the Electric Utility Department had adequate mechanisms in place to keep track of all federal, state, and other compliance requirements..
• Determine whether the Electric Utility Department assess risks associated with each compliance requirement and monitor the compliance status to ensure that the requirements are met. 300
Library Department Memorandum of Understanding (MOU) with the Santa Clara Library Foundation & Friends
Determine whether the internal controls to monitor the compliance with the MOU requirements are in place and working effectively 240
Water and Sewer Utilities Department Work order process and asset management Determine whether the internal controls over the work order process are adequate and working effectively. 420 City Clerk's Office Record management and retention program • Determine whether citywide record management and retention policies and procedures are properly established in accordance with laws and regulations.
• Determine whether internal controls are working effectively to ensure compliance with the record management and retention policies and procedures.
300
Community Development Department
Electric Utility Department Follow-up on corrective actions Follow up on previous audit reports to ensure corrective actions included in management responses in each completed audit report. 80
Public safety personnel overtime
• Determine whether adequate policies and procedures are in place to ensure the appropriate usage of overtime for the public safety personnel.
• Determine whether the overtime practices, including recording and reporting, comply with the City's policies and procedures. 360
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14 Appendix A: Resumes

Appendices

(9 baker,tilly

15 Appendix A: Audit Universe
City Attorney’s Office
Administration
Litigation
City Clerk’s Office
Assistant City Clerk - Council/Administration Support
Assistant City Clerk - Public Information/Legislation Records Management Assistant City Clerk - Political Reform Act
Elected City Clerk - Election
City Manager’s Office
City Council Support - Policy Support for Decision Making City Council Support - Intergovernmental Relations & Advocacy Leadership and Management Services - Day to Day Operations Leadership and Management Services - Strategic Planning Leadership and Management Services - Community Outreach & Engagement Citywide Programs
Stadium Operations
Citywide Strategic Programs & Initiative
Convention Center
Community Development Department
Planning- Development Review
Planning- Advanced Planning
Planning- Historical Preservation
Planning- Code Enforcement
Building - Plan Review
Building - Permit Services
Building - Field Inspection
Building - Code Enforcement
Housing Inspection
Housing and Community Services - Federal State Grant
Housing and Community Services - Neighborhood Conservation and Improvement Program Housing and Community Services - Tenant Based Rental Assistance Program (Funded by HUD HOME) Housing and Community Services - Below Market Rate Rental Program (BMR) Housing and Community Services - Below Market Rate Purchase Program (BMP) Housing and Community Services - Community Development Housing Successor Fund Housing and Community Services - Housing Development Lending (Various Funds) Electronic Utility Department
Administrative and Financial Services
Resource Planning & Engagement - Risk Management
Customer Develop. & Project Man. - Key Accounts
Customer Develop. & Project Man. - Fiber Program
Customer Develop. & Project Man. - SVP Engineering
Resource Planning & Engagement - Public Benefits
Resource Planning & Engagement - SVP Electric Vehicle Program Resource Planning & Engagement - Greenhouse Gas Program Resource Planning & Engagement - Resource Management
Resource Planning & Engagement – LCRE Program
Utility Operations - Electric Compliance
Utility Operations - SVP Systems Support
Utility Operations - Power System Controls
Utility Operations - Communications & Meter Technical Support Utility Operations - Substation Maintenance
Utility Operations - Transmission & Distribution
Utility Operations - Generation
Finance Department
General Accounting
Citywide Fiscal Planning & Administration
Budget & Financial Analysis
Municipal Services - Utility Billing Services
Municipal Services - Revenue Receipt-Cashiering
Municipal Services - Business Certificate

16 Municipal Services - Field Service
Municipal Services – Administration
Municipal Services - Contact Center/Communication
Purchasing
Purchasing - Warehouse
Fire Department
Administration
Community Risk Reduction - Development Services
Community Risk Reduction - Non-Development Services
Community Risk Reduction - Administration/Investigation/Education Community Risk Reduction - Certified United Program Agency (CUPA) Emergency Medical Services
Field Operations
Office of Emergency Services
Training
Human Resources Department
Employee Benefits and Records – Compensation
Employee Benefits and Records - Workers' Compensation & Safety Recruitment, Classification and Staff Development - Selection and Classification Recruitment, Classification and Staff Development - Labor Relations Information Technology Department
Enterprise Services - Application Services
Enterprise Services - IT Web Services
Enterprise Services - GIS Services
Infrastructure and Support
Contract Services
Telecommunication Services
Library Department
Administration
Adult Services
Branch Services - Mission Library
Branch Services - Northside Branch
Branch Services - Bookmobile & Mobile Library Services
Customer Services
Facilities
Technical and Technology Services
Youth Services
Parks and Recreation Department
Administration
Parks
Recreation
Cemetery
Police Department
Administrative Services - Administration
Administrative Services - Professional Standards
Administrative Services - Departmental Support
Administrative Services - Community Services
Administrative Services - 911 Dispatch/Communications
Field Operations - General Patrol
Field Operations – Traffic
Field Operations - Emergency Response/Temporary Holding Facility Investigations - General Investigation
Investigations - Special Enforcement Team
Investigations – Records
Special Operations – General
Special Operations - Specialized Teams
Special Operations - Reserves
Department of Public Works
Engineering – Traffic
Engineering – Design
Engineering - Land and Property Development
Engineering - Field Services

17 Facility Services
Fleet Management
Streets
Water and Sewer Utilities Department
Recycled Water Program - System Maintenance
Recycled Water Program - Storm Pump Maintenance
Sewer - System Administration
Sewer - System Maintenance
Sewer – Operations
Sewer - San Jose-Santa Clara Water Pollution Control Plant Sewer - Storm Pump Maintenance
Solar Utility - System Maintenance
Water Engineering - Admin Design
Water Engineering - Water Quality
Water Engineering - Water Resources
Water Construction, Maintenance, Operations - Water System Maintenance Water Construction, Maintenance, Operations - Water Construction Water Construction, Maintenance, Operations - Water System Operations

18 Appendix B: Risk Factor Definitions

Factor Definition WeightMagnitudeA measure of materiality based on pervasiveness or volume of dollars or transactions; Scores based on the budgeted expenditure amountExtreme - 5: $50M or moreMaterial - 4: $10M or more; Less than $50MSignificant - 3: $3M or more; Less than $10MModerate - 2: $1M or more; Less than 3MInconsequential - 1: Less than $1MAdded 1 to the magnitude of the Information Technology Department due to the pervasive nature of its work30%Customer / Resident ExperienceNegative experience by customers and residents, such as perceived or actual safety concerns and unsatisfactory services, impacts negatively on the reputation / credibility of the organizationExtreme - 5: Direct impact on health and safetyMaterial - 4: Direct impact on transparencySignificant - 3: Direct impact on customer satisfaction/City's reputationModerate - 2: Indirect impact on customer satisfaction/City's reputationInconsequential - 1: Immaterial impact on reputation / credibility35%Achievement of Organizational GoalsThe greater the effect that a department or process has on the organization meeting strategic objectives and goals, the greater the related risksExtreme - 5: Directly relates to the City Council PrioritiesMaterial - 4: Supports the function/process directly related to the City Council Priorities Significant - 3: Has performance/workload measures related to City Council Priorities Moderate - 2: Somewhat relates to the City Council PrioritiesInconsequential - 1: Does not relate to City's City Council Priorities35%100%ComplexityA measure of the difficulty in performing a process or function. As a process or function becomes more complex, the greater the opportunity for errors5 - Very high complexity4 - High complexity3 - Medium complexity2 - Low complexity1 - Very low complexity25%Policies and ProceduresPolicies and Procedures are a complete set of written instructions that guide personnel in the successful execution of their duties and the duties of the office for which they work. If the policies and procedures are adequate and up-to-date, a risk is lower5 - No or little written P&P4 - Some written P&P3 - Basic P&P requiring improvements2 - Adequate but outdated P&P1 - Adequate and up-to-date P&P or Not Applicable10%Regulatory ComplianceMeasures the existence of and potential noncompliance with, government regulations and other applicable laws, standards, and policies/procedures5 - Requirements to meet more than a few laws/regulations and professional standards specific to the division's responsibilities 3 - Requirements to meet one or two laws/regulations and professional standards specific to he division's responsibilities 1 - No requirement to meet any laws/regulations or professional standards specific to he division's responsibilities 25%MonitoringConsider the existence of monitoring activities, including the results of last audits by Internal Auditor, External Auditor, Regulators, etc. and other known deficiencies5 - Overall, there is no mechanism to monitor the status of performance goals/compliance requirements 3 - For only some of significant performance goals/compliance requirements, there is a periodic reporting process to ensure performance goals/compliance requirements are met1 - For all significant performance goals/compliance requirements, there is a periodic reporting process to ensure performance goals/compliance requirements are met10%Specific RisksConsider the existence of specific risk events/conditions and their significance5 - Identified risk event(s)/condition(s) seem to significantly affect the likelihood3 - Identified risk event(s)/condition(s) seem to have some impact on the likelihood1 - No or very minor risk event(s)/condition(s) have been identified30%100%Fraud SchemesConsider the susceptibility to fraud, which is the opportunity for employees/vendors/customers/fraudsters to misappropriate resources or defraud the organization*5 - High Risk3 - Moderate Risk1 - Low Risk100%100%HIGHEST TOTAL SCORE 30* Considered fraud schemes listed in the Fraud Tree provided in the “Occupational Fraud 2022: A report to the Nations” by Association of Certified Fraud Examiners. Also considered are cyber fraud schemes.

Impact Factors (the effect on the organization) HIGHEST TOTAL SCORE FOR IMPACT: 5Likelihood Factors (the probability of the risk occurring) HIGHEST TOTAL SCORE FOR LIKELIHOOD: 5Other Risk FactorHIGHEST TOTAL SCORE FOR OTHER: 5

19 Appendix C: Survey Questions
The City Auditor’s Office is conducting the 2023 Risk Assessment to identify and prioritize risks in order to update the annual audit plan. As part of our 2023 Risk Assessment, we are conducting a survey. This survey is used primarily to collect information related to changes in operations, emerging issues and risks the City faces, and to gather your perspective on key risks faced by your department. Your candid responses would be greatly appreciated to assess the risks that prevent the City of Santa Clara from achieving its mission, goals, and objectives.

1. Please provide your name, title, department, and email address:
 Name
 Title
 Department
o Mayor and City Council Offices
o City Attorney’s Office
o City Clerk’s Office
o City Manager’s Office
o Community Development
o Electric Utility
o Finance
o Fire
o Human Resources
o Information Technology
o Library
o Parks and Recreation
o Police
o Public Works
o Water and Sewer Utilities
 Email address

2. Describe any significant changes for your team or department during last 12 months. Click on all that apply.  New software
 New workflows or business processes
 Significant changes in processes or controls
 New or significant changes in information technology systems  Change in organizational structure
 Change in culture
 Workforce reduction
 Unfilled positions
 New/additional staff
 New vendors and contractors
 Change in workload
 Change in compliance requirements (due to changes in policies, contracts, laws, or regulations)  Change in goals, objectives, or performance measures
 Increased undesirable performance or instances (such as injuries, complaints, customer dissatisfaction, etc.)  Change in any risks previously identified for your team/department  Other (please specify)

3. Describe the complexity of the key processes in your team or department:

Complexity is a measure of the difficulty in performing a process or function. As a process or function becomes more complex, the greater the opportunity for errors.
 Very high complexity
 High complexity

20  Medium complexity
 Low complexity
 Very low complexity
Please provide any comment related to complexity, if any.

4. Are there adequate and up-to-date documented policies and procedures to perform your job responsibilities?  Yes, documented policies and procedures are adequate and up-to-date  Documented policies and procedures are adequate but not updated regularly  Documented policies and procedures need improvement
No – Please describe how the responsibilities and requirements are communicated in a clear and consistent manner.

5. Please select the compliance requirements with applicable Federal/State/Local laws and regulations and professional standards (e.g. CEQA, NERC, OSHA, EMT licensure/certification, California Data Privacy, HIPAA, GAAP) for each of divisions/functions of your department listed below:
 More than a few laws/regulations and/or professional standards specific to the division's responsibilities need to be met
 One or two laws/regulations and/or professional standards specific to the division's responsibilities need to be met  No requirement to meet any laws/regulations or professional standards specific to the division's responsibilities

6. Describe what can possibly prevent your team/department from meeting its goals and objectives in 2024.

Select all that apply.
 Financial constraints
 Staffing constraints
 Limited skills, knowledge, experience, training
 Technology issue
 Inefficiency in process and/or communication
 Ambiguity in roles and responsibilities
 Lack of, or ineffective, internal controls
 Community pressure
 State/Federal regulations
 Other (please specify)

7. Describe the activities to monitor the achievement of the goals in your team or department:

Example – Periodic reporting, periodic meetings, spot checks by management, periodic audits by external organizations such as consultants and the Federal government, etc.  For all significant performance goals/compliance requirements, there is a periodic reporting process to ensure performance goals/compliance requirements are met
 For only some of significant performance goals/compliance requirements, there is a periodic reporting process to ensure performance goals/compliance requirements are met  Overall, there is no mechanism to monitor the status of performance goals/compliance requirements Please provide comments related to monitoring the achievement of your department’s goals, if any.

To help us identify potential risks, please list your team/department’s Strengths, Weaknesses, Opportunities, and Threats (SWOT) for achieving its missions, goals, and objectives. Typically, strengths and weaknesses are internal aspects of team/department/organization, while opportunities and threats are found externally.

8. Describe up to three STRENGTHS of your team or department:

21 Strengths refer to the resources or capabilities that help the team/department accomplish its mission and serve the public. These can be things like competitive advantages, available resources, engaged community, strong balance sheet, utilized technology and so on.

9. Describe up to three WEAKNESSES of your team or department:

Weaknesses refer to the areas where the team/department needs to improve to accomplish its mission. These can include things like deficiencies in resources and capabilities, inefficient use of available technologies, barriers or inability to collaborate among different departments, lack of effective communication, mission or direction, high levels of debt, financial or human resources constraints and so on.

10. Describe up to three OPPORTUNITIES for your team or department:

Opportunities are any area where the team/department can grow. They are often related to the organization’s strengths. Outside factors that affect the organization in a favorable way can include things like; offering more products or services to citizens, lower costs through new technology and so on.

11. Describe up to three THREATS for your team or department:

Threats include the local or national economy, laws and regulations and any other external issue that can harm or affect the team/department successfully meeting goals. Common threats include things like rising costs for housing/living, increasing competition, tight labor supply, billing rates and so on.

12. Using the risks listed in the risk framework below, please select what you consider to be the top five enterprise risks to the City of Santa Clara.

Environmental (factors external to the organization)
• Reputation - The opinions and perceptions of the public and customers toward the organization. • Regulatory - Laws and standards, which the organization must comply with in its operations. • Citizen Demands - The effect that current citizens demands have on the decisions made by management for aligning tactical plans with the business strategy and the allocation of resources.
• Economy - The effect that current external conditions have on the decisions made by management for aligning tactical plans with the business strategy and the allocation of resources.
• Legal - The potential for an unforeseen event to cause civil or criminal litigation for the organization or its elected leaders, directors, officers, and employees.
• Technologies - The evolution of technology both within and outside of the organization’s industry.

Strategy (planning and decision-making)
• Strategic Change - The ability of the organization to modify its processes in order to either align with its current strategy and business model or to achieve a different strategic goal.
• Investments - The portfolio of both intangible and tangible investments held by the organization, and the implications of these assets on the resources, financial viability, and operations of the organization. The effect on liquidity the ability of current assets to meet current liabilities when due.
• Planning and Budgeting - Details of the organization’s goals and the financial management necessary to achieving those goals. • Financial - The goals of the organization in terms of the structure of its assets and liabilities, including the financing capability based on its credit worthiness, the ability to receive credit and the use of credit lines to achieve its business objectives. • Inter-government Relations - The relationship of the organization with other government agencies that have regulatory and oversight responsibilities and shared services or citizens.
• Compliance Management - The continuous monitoring of the organization’s ability to operate within regulatory requirements and community standards.
• Resource Allocation – The process for assigning and managing assets that support the organizations strategic goals.

Organization (attributes of departments)
• Governance - The role, composition, and major activities of the governing body of the organization in providing direction and oversight for the organization

22 • Empowerment and Values - The ability of senior members of the organization to effectively delegate power or authority to other members of the organization.
• Communication - The methods of communication commonly used in the organization and the effectiveness of this communication on the operations of the organization.
• Ethics and Code of Conduct - The set of rules outlining the ethical practices expected of management and employees of the organization.
• Leadership and Authority - The members of the organization who hold power and their ability to exercise this power effectively. • Organizational Structure - The configuration of units and workflows to align the behavior of the units to the higher-level goals of the organization.
• Succession Planning - The planning and processes to ensure that there are highly qualified people in key leadership positions today and in the future.
• Human Capital Management - The set of practices an organization uses for recruiting, managing, developing, and optimizing employees, including performance management (The process of creating expectations for performance, monitoring progress, and measuring the results) and training (The ability for employees to gain and develop necessary tools to ensure effective operations). • Safety - The organization strives to provide a safe working environment by effectively mitigating the risks to the safety of its employees.

Process and Operations (functional effectiveness and policies and procedures) Externa • Contracts - Contracts are adequately structured to address and mitigate risks. • Efficiency - Processes are up-to-date and efficient, resulting in efficient operations and output. • Accounting - The timely and accurate tracking of the financial position of the organization. • Payroll - The policies, processes, and systems in place to ensure that employee compensation is reliable, timely, and accurate. • Fraud - The organization uses internal controls to prevent and/or detect fraud. • Procurement/Sourcing – The ability to acquire the necessary goods and services for operation and the process of vetting, selecting and managing supplier, vendors and contractors.
• Human Resources - The knowledge, skills and experiences, and resources among personnel, which allow for the execution of the organization’s business plan and achievement of its critical success factors. • Information Systems - The facilities, systems, and connectivity in place to support data processing. • Vendor Management - The need for the organization to continuously monitor the quality and reliability of vendors it uses in the course of its business.
• Change Management - Management adapts appropriately to the evolution of the processes and operations of the organization.

Information (data governance)
• Data Integrity - Data used for making management decisions, recording information, and reporting financial activity is accurate, complete, and reliable.
• Access - The right to view or manipulate data is carefully granted and monitored to prevent the mishandling of data • Retention - The policies used by the organization to determine document retention in terms of the form of documents, how these documents are stored, and for how long these should be maintained. • Availability - Relevant critical information is available when needed in order to maintain the organization’s critical operations and processes, including when a disaster or unplanned disruption occurs • Privacy - Organization policies are in place to ensure the correct treatment of sensitive information held by the organization. • Security – Any event that could result in the compromise of organizational data. (I.e. unauthorized use, loss, damage, disclosure or modification of organizational data).

23 13. Please use the click and drag feature to rank the five enterprise risks that you selected into a priority order, with #1 being the highest.

14. Please describe why you selected them as the top five risks.

15. How well does the City of Santa Clara manage activities to mitigate these risks?  Well – the City management is aware of the risk and has implemented activities to help mitigate this risk  Somewhat well – the City management is aware of this risk, but more effort/activities are needed to help mitigate this risk
 Not well – the City management is either not aware of this risk or hasn’t developed sufficient activities to help mitigate this risk

16. OPTIONAL: Are there any other risks that could affect operations that were not included in the risk framework?

17. Please list any potential internal audit activities you recommend based on the risks you identified. The projects can be consultative/advisory in nature, or provide assurance:
 Advisory and related client service activities, the nature and scope of which are agreed to by the client and which are intended to add value and improve an organization’s governance, risk management, and control processes without the internal auditor assuming management responsibility.  Assurance – an objective examination of evidence for the purpose of providing an independent assessment on governance, risk management, and control processes for the organization.

Audit CommitteeSeptember 17, 2024

Audit Committee
September 17, 2024