are working and in place. the management audit includes compliance as part of the audit. for example, puc's lessee compliance -- complying with terms of the lease. examples are operations, processes, and controls to make sure the lease is being properly managed, that the city is receiving funds owed, and that the risk is being managed. management audits look beyond the comparison with lease terms and include taking into account economies and efficiencies. construction audits are a mix of compliance audits, management audits, and benchmarking in comparison to industry standards, best practices, and construction management. as i stated earlier, our non- audit services can include whistleblower investigations.

due to confidentiality, we do not provide those details to the public. and most other types of non- audit services also have internal memorandums for internal support. in addition to the audits that have already had three audits in process scheduled to be issued for this year. in particular, the cast-received audit is part of our city-wide risk assessment with the controller's office is conducting its views of various departments. internal memorandums are issued to the department with findings simply to protect the city as a whole when we discovered cache control weaknesses.

csa and puc have collaborated and agree upon a limited and specific set of tests to run, and an internal memorandum will be issued for this review to protect the puc in case we discover critical i.t. system weaknesses we would not want to reveal to the public. finally, csa will have a fourth audit this year on another query i, which will be the santa clara gravel and sand lease on it, and this will be completed in fiscal year 2012. i will discuss the findings, recommendations, and in fact, and i would like to note that overallnotecsa has found that the puc facilitates the audit process well, is receptive to the findings, and that in general, the view the findings as opportunities for improvement.

for sunol and crystal springs golf course, we conducted two separate compliance management audits, and our objective was to determine whether sunol and crystal springs golf courses properly paid men and whether the puc adequately managed the leases -- whether they properly paid rent. both sunol and crystal springs submitted rent payments late, but sfpuc did not assess or collect late charges totaling $77,320. they did not assess or collect late charges from sunol totaling $5,000 and from crystal springs, totaling $72,320. bothsunol and -- both sunol and

crystal springs did not comply with some significant lease terms including not paying rent timely and not submitting audits timely. there were other smaller findings, but these were the most significant. sfpuc did not repair the annual accounting required by the leases. sunol is required to pay base rent of 41,000 $667,000 each month. if there revenues exceed a threshold, it would be required to pay each quarter additional rent based on percentages of revenue. at the end of the year, the sfpuc is required to perform annual counting that calculates the final rent due. in other words, they need to reconcile what was paid and what was due on the revenue for the year. if a percentage read in only

some quarters, the credit is due to sunol. currently, the puc requirement the puc retain access read, which causes them to maintain accounting that carries over each year. rather than at the end of each annual year doing the final reconciliation and then releasing the credit backed, it is carried through the term of the lease. we recommended that puc modify the lease sell an annual two level reconciliation of brent occurs each year so that a red settlement is made each year -- a bent -- a rent supplement is made each year. puc should require sunol and crystal springs to submit annual reports timely.

supervisor campos: if i could do a follow-up on that -- in your performance audit, was there a reason why this was not being done? was it a lack of understanding of what the requirements of the lease were? >> [inaudible] supervisor campos: you mentioned some deficiencies, not collecting some of the late payments. >> [inaudible] >> hello, supervisors. i'm the audit manager of these two audits and another one coming up. what i can tell you is that there are several deficiencies we are talking about that the puc did not do. looking back and seeing what their responses were for several of them, for late payments, there is a particular problem, which is that puc has a billing system that allows it to

identify late charges only on one date at the end of the month, but they told us that because all leases have late payment periods due by the 15th of the month, they decided for that. because their system would only allow them to track on the 15th of the month, that was because of that problem. we will need to get an update on what their most recent actions were on that, but they had considered trying to find out whether this system could be modified or whether they needed to do other things to fix the problem. some other aspects of the lease -- the real estate was not familiar with some of the precise this -- preciseness of the requirements and were not aware that something was required. though they have some tools to track major lease terms, some of

those lease terms slipped. supervisor campos: i'm surprised to hear that sunol did not report gross revenues to the puc on a quarterly basis. depending on what those revenues are, there may be a change in what is paid. >> correct. supervisor campos: how do you know what you are owed at the puc if you do not get the statements? >> i could not have stated it any better. >> that is the result of this finding. >> drilling down a bit more on that, i think the point is that puc's property manager felt that they would get a true look at the end of the year, and they could settle it with the cpa audit that was submitted, make sure everything was done right, so did -- they did not place an emphasis on making sure they got quarterly reports. supervisor campos: [inaudible]

i'm wondering if it is happening with this lease, how many leases do we have potentially where something like this could be a problem? anyway, that is something when we turn to puc, so you can continue. >> our next key recommendation is that we would like puc to consider amending the leases so they are easier to manage by having an annual reconciliation of rent due and paid rather than accounting for written credits. the impact was that puc intends to collect balances due or late charges from sunol and crystal springs golf courses. it requires the approval of puc

's commission and the board of supervisors. the puc sets it could modify the terms for an annual reconciliation if the lease rates to be modified for other reasons. the sfpuc has proposed a staffing reorganization of the real estate services division, which has been approved in the budget. originally, the organization was overseen by external affairs, and it has been proposed to be overseen by the general manager's office of puc. our next audit was -- supervisor campos: before you move, one of the things that struck me in the report on this audit was that on page seven, you indicate that while sunol retain most of the records necessary for the audit, it did not retain some supporting documentation for its revenues. in light of that, i'm wondering how complete is the information that we have?

to be able to know that we are getting from sunol everything we are supposed to be getting, we have to have the documentation as complete as possible. given that some documentation was not retained by them, i'm wondering what your level of comfort is in terms of what might be missing. >> sure. i think the way to characterize this is this is fairly detailed documentation. the golf cashiers cashcount -- cash count sheet is where they compare. the fact that they had some shortages that were not dealt with properly and they had to be identified, chances are those are a very minor amount. regarding the bank deposit slips, you do have bank statements that you can use as another way of verifying. as far as gift certificates,

again, it is a relatively small amount, and we do recognize the gift certificates when they are purchased, and they have a way of tracking the here and in the end, our analytical review steps major these were not the results of significant under reporting. on top of that, if i remember right, and i think i do, because they did not exceed the percentage rent to pay percentage rent -- they paid the base rent -- they would have had to have had a significant amount more of revenue in order to get up to the percentage rent. it would have taken a whole lot for them to pay more rent to the city. does that help? supervisor campos: yes, before you move on to the next audit, colleagues, questions on the sunol audit? ok, please continue. >> our next audit is

administration of six grant leases. the objective of this audit was to determine whether the sfpuc adequately manage its 14 leases the exceeded or nearly succeeded $100,000 in annual rent to the puc. our key findings in general -- sfpuc real estate adequately administrative the leases we reviewed, including collecting payments totaling $2 million. however, it did not properly administered the leases in some important respects. puc did not ensure that proper insurance coverage was obtained. three tenants did not have the insurance coverage required by their leases. puc did not collect the total required security deposits from tenants for 11 of the 14 leases or 79%. this amounted to $118,590 in

uncollected security deposits. puc did not properly assessed late payments, and in some instances, waived late payment penalties. the billing system does not provide for assessing late payment penalties, as we discussed earlier, when the due date is earlier than the 15th of the month. real estate sometimes weighed late payment penalties, even though the least did not allow this practice. the audit found that three tenants paid their rent after the 15th of the month for a total of nine months, for which the puc did not collect a late charge. late charges total $6,223, including $4,602 that the real estate waived. our key recommendations were to ensure tenants obtain required insurance, pay require

deposits, and assess penalties when tenants pay rent late. the impact -- the puc intended to perform a thorough review of insurance clauses and its leases and to ensure tenants are in compliance with agreements. the puc had already begun the collection process and expected to be completed by october 10, 2010. the real estate services was going to consider not requiring security deposit increases in conjunction with annual rent increases to streamline the administration of the deposits, and the puc intended to collaborate with this information technology services unit to determine if the property management system can be changed to be able to assess late payment penalties for the varying schedules of one rent is due, according to the leases -- when rent is due, according to

the leases. supervisor campos: to the extent of the concern that we are not verifying that the tenants obtained the required insurance coverage, is there a risk management function within puc that is supposed to do the dodo -- to do that? why is that an issue? i do not know if in your findings you found what the issue was. >> let me try to give you a background and see if this helps. i'm not an expert in this at all. when contracts are being drafted and insurance requirements being identified, it goes to risk-management in some or all of its pieces to try to identify that the proper interest pieces are being included in release -- in the lease. >> all of our contracts -- every contract has some level of insurance needed, and it is the

response ability of the department to adequately insure that those in assurances -- that those are presented and renewed properly, so it is purely an oversight function and monitoring function. supervisor campos: ok. supervisor farrell. supervisor farrell: i guess, maybe, since we have not heard from the puc since the audit has been issued, maybe we could talk about some of the steps issued since then to address these. >> assistant general manager for the puc. we have been fortunate with the diligence of the controller's office, as always. the general manager and i both requested a number of these audits about two or three years ago when we first arrived. their findings were concerns that we also had. what they've found is that the work product and level of

service we have been providing in this department is unacceptable, and, frankly, there is no excuse for some of these findings. 105 findings and recommendations in our real estate audits alone. our other audits that have been performed show in many ways glowing results, so we have taken these to part, and -- taken the state hear -- taken these to heart and are going over what we can do to correct them. to help put this into context and part of the reason both the general manager and i believe is just unacceptable work product -- we have 141 leases. we have five full-time real property officers. that is about one a day to be looking at and reviewing in particular going over.

even if the system cannot do it, you look at your receives every month and track what you have either on a piece of paper, and xl spreadsheet. the tools are available. in addition to that, we have implemented an sfpuc tracking of all of our insurance coverages and are working with the insurance department to make sure that compliance is done, but it requires that the department do it. i will tell you that we are very serious with all of our follow up findings with this audit as well as others. we need mostly with the department head. the general manager is also brief. we are very diligent about meeting our six-month, 12- month, and 24-month follow-up because we have to report back

to the controller's office of what progress we have made on each of those recommendations. we have heard them, and we are taking it very seriously. supervisor farrell: if i could summarize, i know we are going to hear some other audits, but what has been happening, in your mind, is this one of the biggest causes of concern i in your work so far? >> it really is. we report quarterly to our commission. by way of comparison, the good work that the controller's office does and the city services auditor, we are overseen by 10 bodies. the irs, the budget analyst, city services auditor, the revenue bond oversight committee, the rating agencies for our bonds, north american and electricity reliability corp. we track every single audit and

review going on. just to put this in perspective, we completed 18 audits, including the six, over the last 12 months. we have nine in progress right now, and we have 16 plan already an upcoming. we meet monthly with the controller's office to go through all of our risk assessments and follow up items, and we appreciate the good work. supervisor farrell: i do not envy you for having all those bodies oversee, but i commend you for taking a crack at what is on a new division that you seem to be in -- that you see as an issue. >> thank you. you will see our report that the commission, and we have a traffic signal light system for anything from the initial findings as well as the

quarterly progress being made for every single item. supervisor campos: if i may, just adding to what supervisor farrell is saying, i think that the puc should be committed. first of all, for actively thinking about the areas where maybe an outside look might be needed. and for then working with the controller's office to take that look. i think that that is the approach you want to see, so thank you. and thank you to the general manager for doing that and for being proactive in how you are doing it. none of these things that i have heard are insurmountable. it is just a question of paying attention to them and making sure that not only do you address the specific concern, but you have in place systems that allow you to make sure it does not happen going forward. >> that is one of the things noted as well by the rating agencies. they see this audit committee as

well as our nine other oversight committees, and they know we have transparency in reporting to our commission every quarter. that is part of the reason we rate so highly as a strong investment grade credit. because we have financial transparency and internal controls. supervisor campos: great. thank you. while we continue with the -- why don't we continue with the controller's office? >> i will continue with the key recommendations. ensure that sunol and crystal springs pay the correct event do and collect if they pay late. the puc should require them to submit an annual cpa report and make sure that report is timely. continue to manage leases.

the impact -- the pc intends to collect balances due or late charges from both of their golf courses. they have not amended the leases sell an annual recommendation is required because it requires puc commission and board of supervisors. and the puc has proposed a real staffing of their organization. we will continue on, and i apologize for that, with administration of fixed rent. the objection of this audit was to -- the objective of the audit was to determine whether the pc adequately -- [inaudible] >> i apologize. supervisor campos: it is easy to get confused. >> sorry about that. supervisor campos: no problem.

>> actually, we finished, so we will go to waste water warehouse and inventory management. i apologize for losing my place. supervisor campos: no problem. >> the major focus of the waste water enterprise is the development of its sewer system improvement plan and it is a long-term capital plan that provides strategies and policies for the future of the city's sewer systems. due to the significance of this improvement plan, its management of materials, it supplies to execute the plan is vitally important. the objective was to assess the waste water enterprise's inventory process and controls over its physical count, inventory issues, and receipts, purchases, organization, and security. inventory audits are important. managing the acquisition, storage, and distribution of inventory is critical to controlling costs, operational efficiency, and mission readiness. proper inventory accountability requires that detailed records

of acquired inventory be maintained and that this inventory be properly reported in the inventories financial management records. physical controls and accountability reduce the risk of undetected death and loss, unexpected shortages of critical items, and unnecessary purchases of items already on hand -- the risk of undetected theft. waste water treatment is performed at southeast oceanside, treasure island, and north point. treasure island and north point are small storerooms that do not issue inventory, and the total inventory held at southeast and oceanside plant was 3.6 million at june 30, 2009, and consists

of items such as pipes, lumber, replacement parts, and supplies. overall, the waste water enterprise made some improvements to their inventory processes and controls since the prior audit done by the budget analysts office in 2004. for example, subsequent to the eye, it completed a policy and procedures manual and also our audit test accounts revealed a 93% inventory accuracy rate. the key findings reflected that the waste water enterprise was not fully utilizing its asset management system, which is known as maximo. to track inventory items, analyze purchases, reporting, and electronically issue inventory. the audit also found that a large amount of inventory had not been used in five years or more, which results in higher

inventory carrying costs and risk of obsolete inventory. waste water enterprise also did not have a complete record of its tools and did not have an adequate tool checkout system. tools are items less than $5,000 that are not part of the inventory but are used at various craft shops. examples -- electrical shock, plumbing shop. these are that-sensitive items that should be tracked and managed -- deaths -- theft- sensitive items that should be tracked and manage. we also recommended creating a board or committee to periodically review inventory

for obsolete items. fact of our audit -- waste water in a price accepted our recommendation for more efficient processes and responded with a plan of action to track all inventory items and use electronic processes when feasible -- the impact of our audit. the puc is undergoing a significant upgrade, which will affect warehouse practices. it includes a new tool module to facilitate tracking tool inventory. >> and so our final -- our next audit, csa conducted an audit of the puc's board leases with hanson, which is located in sunol. the puc ownsis