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49ers submit various requested Levi’s Stadium documents to auditor

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We’ve got some dryyyyyyyyy audit talk for you.

The San Francisco 49ers have formally submitted documents requested by auditor Fred Brousseau, according to a memo sent by team CFO Scott Sabatino. The document submission comes a few days after Santa Clara mayor Lisa Gillmor said the 49ers were in breach of contract because of failure to submit requested documents. She threatened to have the city take control of Levi's Stadium from the 49ers management company if they did not comply.

Brousseau and his team requested various financial documents from the 49ers dating back to October 3. The most recent audit status update pointed to various areas where the auditors believe the 49ers failed to comply. This is what set off Mayor Gillmor, and in a report from NBC Bay Area, involved some comments from the auditor to the media about the situation.

The 49ers submitted the documents on Monday, and included a fairly pointed memo expressing dismay at some of the auditor’s actions. Here is the intro to the memo:

We want to preface our detailed comments on your memo by expressing our disappointment in the report to the Audit Ad Hoc Steering Committee and your comments to the press. In our experience, an audit is typically performed by a licensed Certified Public Accountant who is independent from the financial interests in the business being audited, and who is free to carry out their work in a fair and independent manner. Your comments to both the Committee and the press prior to completing the audit suggest that you are not acting in the capacity of an independent auditor but rather as a consultant to the Mayor, looking to give credence to her unfounded allegations of financial malfeasance on the part of the 49ers, all timed to coincide perfectly with the Mayor’s election season goals. Contrary to your comments to the press, no General Fund money or other City funds have been used for Stadium Authority Operations. All funds for Stadium Authority expenses have come from Stadium Authority revenues.

The audit is part of a review of stadium expenses and city money potentially spent on said expenses. Measure J, which got the ball rolling on building the stadium, includes a specific reference that the city does not cover many of these expenses.

Complaints about the potential misuse of public money were raised, and submitted to a grand jury. The grand jury released their report in June (here). It said they could not corroborate the claims, but it did feel there was reason to be concerned there was not sufficient oversight. The grand jury report said that when various managers were asked if Measure J was being followed, they said, "I don't know." The grand jury said a full audit was necessary to find out if Levi’s Stadium has been in full compliance with Measure J.

The audit began on August 3, 2016. Brousseau has submitted bi-weekly updates, with the most recent on October 27 marking the sixth such report. Each status update discusses activities and accomplishments during the period, issues and challenges during the period, potential audit issues identified, tasks to be completed during the next reporting period, pending matters, and other issues. You can view all six (and all future) status reports here.

The most recent status report, for the period of October 12-26 is what is at issue. In that update, Brousseau mentioned a handful of issues that had arisen. I have copied and pasted pertinent parts of Brousseau’s memo below, and that is followed by the 49ers memo response. I do not get access to the documents submitted, so we are left to wait on how the audit eventually turns out.

This is some dry stuff, so I’ll try and summarize as best I can. The lead auditor said numerous pertinent Stadium financial and operations documents had not been provided. Specifically, he said the auditors were told the operation and maintenance plan was incorporated into the annual budget, but the auditors could not find it in the budget materials presented. The 49ers CFO said in his memo that the document was provided to the city, but, “it was agreed at that time, at the suggestion of the City’s representatives, that the plan would not be made public, and updates would not be discussed publicly, because of the aspects of the plan relating to safety and security at the stadium.” The 49ers then said a copy would be made available.

I can’t really break this down much simpler, but basically, the auditor is missing certain documents, the 49ers offer explanations as to the status of each situation, and get some jabs in about the auditor’s misstatement of various facts. All in all, a fun time.

If you can stomach audit talk, go ahead and give these two sections a read.

Auditor status report - specific 49ers-related issues

  • 1(e)(ii): Various Stadium plan and budget documents required in the Stadium Lease and other agreements and that serve as foundations for certain Stadium Authority, 49ers entities and City revenues and expenses were requested. These included the Stadium Operations and Maintenance Plan, Capital Expenditure Plan, the Shared Expenses Budget, Stadium Parking Plans and others. These documents have reportedly not been separately prepared and/or provided to the Board. ManCo representatives stated they are largely incorporated in the annual Stadium Authority budget.
  • 2): [A] number of Stadium-related plans and budget documents required in Stadium Authority agreements with the 49ers entities that serve as the basis for operating procedures and certain SCSA, 49er entity and City revenues and expenses are not individually presented to the Stadium Authority Board or summarized in the Stadium Authority annual budget and financial status reports. Further, it now appears that at least some of these documents are not being individually produced and/or presented to the Stadium Authority Board to ensure detailed disclosure of all Stadium Authority costs
  • 2(a): The Stadium Operation and Maintenance Plan: The Lease Agreement requires that this plan be prepared by the Stadium Manager (ManCo). The Plan is to establish the “Required Condition” for the Stadium and “policies and procedures for operating and maintaining the Stadium Complex in accordance with good, sound and prudent engineering practices...” (Lease Article 7.1.1). ManCo reports that this information is incorporated in the annual Stadium Authority budget but none of the budget documents reviewed by the audit team to date provide the details required in the agreement. The absence of such a document leaves the Stadium Authority without a documented means of measuring the adequacy of current operation and maintenance efforts and costs.
  • 2(b): The Capital Expenditure Plan and Budget: The Stadium Lease Agreement calls for preparation of a draft capital expenditure plan for mutual approval by the Stadium Authority and the 49ers entities. It is to be adopted as part of the Stadium Operation and Maintenance Plan and is to include both a budget year and five year plan (Lease Article 10.4.1). As stated above, an Operation and Maintenance Plan, detailing the Required Condition of the Stadium, has reportedly not been produced so the Capital Expenditure Plan is not part of such a document. The annual Stadium Authority budgets presented to the Stadium Authority Board for Fiscal Years 2015 and 2016 did include a one-year capital budget, but not a five year plan. For Fiscal Year 2017, the budget also included a five-year capital plan.

2(c):The Annual Shared Stadium Expenses Budget: The Lease Agreement requires that the Shared Expenses budget detail costs to be shared by the Stadium Authority and the 49ers entities. These are the costs incurred for both NFL and non-NFL events such as landscaping services, stadium insurance and stadium management fees. Non-shared expenses are allocated between the parties depending on whether they are attributable to NFL or non-NFL events.

The 49ers memo in response pointed directly to the specific sections of Brousseau’s memo. I have included the points above as a point of reference for the 49ers memo content below.

49ers memo response

In contrast to your memo, ManCo provided you with information regarding the documents set forth in your request. As you note in point 1(e)(i) on page 2 of your memo, ManCo confirmed that there are no agreements or amendments to the existing agreements between the 49ers entities and the Stadium Authority other than those the audit team has already obtained, and which are readily available to you and the general public on the City’s website, thus providing the data on four of your document requests.

With respect to point 1(e)(ii), you misstate from our meeting that the Stadium Operations and Maintenance Plan, Capital Expenditure Plan, Shared Expenses Budget, and Stadium Parking Plan have “reportedly not been separately prepared and/or provided to the Board.”

We take issue with the statements in your report starting on page 3 under item 2 entitled “Absence of key plan and budget documents.” The reference to the absence of key documents is not only inappropriately premature given the ongoing status of your audit, but it is also wrong.

In 2(a) you misstate that ManCo reported to you that the Stadium Operations and Maintenance Plan was part of the annual budget. As we explained to you at our October 21, 2016 meeting, the Stadium Operations and Maintenance Plan was provided to your client in 2014. It was agreed at that time, at the suggestion of the City’s representatives, that the plan would not be made public, and updates would not be discussed publicly, because of the aspects of the plan relating to safety and security at the stadium. We have a copy available for your review.

As we explained to you at our meeting, the Shared Expenses Budget is included within the overall annual Stadium Authority Budget that is presented to and approved by the Board. This inclusion is required by the stadium lease. You acknowledged that the annual budget is within your possession and that you would not need any further documents in that respect. We also informed you that the Stadium Parking Plan was submitted in 2014 to the Director of Planning, as required under the agreements, and has not required updates, other than the separate notice provided this year that the agreement to use the golf course for parking had been terminated. Although your client should have provided you with the Stadium Parking Plan, we have made a copy available in the email to which this memorandum is attached. We anticipate that in the 2017 year, there will be some minor updates to the Stadium Parking Plan and those will be made in compliance with the applicable agreements.

You were correct in noting that the Stadium Authority keeps its own financial records and that we directed you to your client for that information. We did inform you that the parking agreements would need to be redacted but, in contrast to your report, we did not say that the concessions agreement needed to be redacted. We noted that the concessions agreement was approved by your client in a public meeting and that your client would have a copy but we are nonetheless providing a courtesy copy of that document in the email to which this memo is attached.

As you note, we offered on-site access to non-NFL event documents, just as access has been provided to the Stadium Authority staff and to the certified public accounting firm that has audited the Stadium Authority financial statements each year. We await contact from you regarding potential dates to have you come in to review the documents.

In 2(b), you accurately state the current Capital Expenditure Plan was approved by the Board. As we also discussed at our meeting and previously discussed with and understood by the City Manager and staff, all capital expenditures prior to this 2016-17 fiscal year had been included as part of the Stadium Development project. In addition, the cost allocation study completed by KPMG was not finalized until November 2015. The current five year capital expenditure plan was based on this final asset allocation. There was no five year capital expenditure plan applicable to prior years since all spending was through the stadium project and there was no final cost allocation available for developing a five year plan.

In 2(c), you again misstate that the Stadium Operations and Maintenance Plan has not been produced. Further, as we explained to you, the Annual Shared Expense budget is part of the annual budget that is presented and approved by the Board.