established at different times. each one has a different term and requirement. two of the leases are mixed use leases, which require per acre, rent, and royalty. some of the way the terms differ is whether brent, royalty, or both are due. royalty rates, deductions allowed, and payment due dates. this audit was a long, and as you can tell, it's complex for several reasons. the duration of the leases, multiple leases with various terms, staffing turnover, difficulty in obtaining data, and the inherent complex technical changes in mining. we looked at the various leases during the period of july 2004 through june 2008 and the puc's management of these leases.

our findings over the audit period, the puc has collected $6.8 million under the mission valley leases. up to $634,000 and underpayment, potential underpayments, and other recoveries. due to the complexity of the leases and the data availability, we broke this finding down to three categories. immediate revenue recovery, potential revenue recovery, and lost revenue recovery. immediate recovery was $154,904 that was identified for immediate recovery. this is tenant rent owed. hanson did not comply with this lease. one out of four tested had

misreported the royalty rates. potential recovery -- 479,000 plus and we are pending further information, such as supporting documentation from hanson and input from the city attorney. the majority of the potential recovery amount is based on the auditor's review of the tell a royalty payment, documentation during which it identified a number of issues with the methodology used to calculate royalties. in this particular area, we found that there were a lot of numbers that did not match. their methodology was not consistent. we did a lot of in-depth review and it was very difficult to ascertain what they should be

paying. the other significant portion of this amount $200,000 is based on a term that requires hanson to reimburse. hanson has potentially understated gross revenues under the lease by 2.25% and may need to reimburse the puc for audit costs. with regards to lost revenue recovery, there was $2 million that was identified by the auditors. in other words, the puc cannot collect this amount and this total is based on the following. two of the lease is technically required both brent and royalty. however, in the case of one of those cases, only some rent was ever collected under that lease. the result was $1.78 million in lost revenue to the puc.

the puc has raised concern that the intent of the original parties was never to collect both rents and royalties under this lease. this was evident early on. based on discussions with the deputy city attorney, it's the auditor's opinion that a technical reading of the lease includes both rent and royalty. further consideration would be needed in determining intent and is unlikely that the city could not collect any rent owed under the -- due to the puc's early interpretation of how it has handled the lease. the puc also put another one of its leases, which expired in 1998, in holdover status. however, because it only had a royalty payment term and the mine was an active, the puc has not received any compensation for the land and over 10 years, even though the laiseasee

continues to use the land as storage. from this business perspective, it is receiving a good royalty rate and the rent for mission valley route. according to the puc, this is an issue of needing to do a better job of amending and combining its lease is going forward. as the auditors, we looked at each of those separately. the audit also found that the puc real estate division did not properly managed its leases. it did not monitor compliance with all lease terms, tenant rent, deductions, and did not have an adequate system. it had an unsort of will spread sheet and not all these

provisions were included. the way in which they were managing the tools and did not allow for good management of its leases. our key recommendation was collect amounts owed and determine if hanson should reimburse the puc for audit costs. the impact -- the puc may collect $634,000 from hanson. it will ensure that all payments are received. the puc has proposed a staffing rework for real estate services. our final audit with the puc in this time period is the construction of tesla.

due to the audit shop personnel lack of experience, we chose to bring in a consultant to assist with this. according to audit standards, when we look at doing an audit, we look at collectively, do we have the expertise and experience to conduct the required audit? if not, then we bring in a consultant to assist with us and to be part of the team. in this team, we brought them in, this consulting team. along with them, we had two audit staff that worked with this organization. we selected one construction project that is a regional construction project and is currently in process. it is using the system, the tesla waters treatment facility.

one used the older or more manual system, which was the east-west transition name. the contract was awarded and is $81.4 billion design-build contract. the objectives of the audit were to determine if each of the contractors complied with their construction contracts and to evaluate the puc's management of the two construction contracts. in terms of findings, we had a positive finding. there were no exceptions found. in other words, we found that the contractor complied with their contracts and the puc did a good job managing the state of construction projects. the puc employed construction management best practices on both projects. both with and without the new system. with the manual system and with

the new system, they had great practices. the audit found that the project and contract oversight -- the puc staff and contractors identified a couple minor areas within the cmis system that could be improved. for example, there is some redundancy and duplicative efforts in the policy regarding records. reporting needs are not been addressed for all levels of management and staff. there is contracting processing backlogs. the need to designate one computer solely for cmis and the labor-intensive they that is slowing processing. there's no current link between progress payments made and rent reported -- rent recorded. for example, are city-wide

accounting system. cmis user groups do not occur consistently, which would increase the understanding and usability of cmis overall. our recommendations, not use a change orders in lieu of issuing rfp's. the puc paid 16% more than the original contract, which the original contract amount was $19.9 million. this was for phase two being added to the contract. although this is a high increase, the auditors found that all appropriate reviews occurred and contract modifications were approved. the decisions made were well documented and reported on threw out the duration. the puc should determine if cmis rates applicable to the other water system improvement

programs. the impact -- the puc employ good project management practices on these projects and the puc has reestablished its cmis users group. and just for note, for 11-12, we are already in the progress of planning our audit with the puc. a couple that have been noted is the asset management performance audit that we are considering and another audit of the water system improvement. we are completed. thank you very much. supervisor campos: thank you very much for your presentation. colleagues, i do not know if you have any questions for the comptroller -- controller's

office. why don't we let the puc provide additional comments. we know you are working with the comptroller -- controller's office. >> i would like to point out our gratitude to the office and the city services auditor. this speaks well for the city and county and our financial transparency and our willingness and ability to report things when they do not go so well, as well as when they are going well. that gives the public and our lot of fighters ability to see a great deal of confidence in the institution. the puc takes all the findings very seriously. we highlighted a great deal and discussed some areas of real estate that are not going well. we have put mitigation measures into place. we are also fully implementing our upgrades with the maximo. we went live on monday with 7.0

, as well as our peril system, the 311 system. that's good news to report. as i mentioned before, we are overseen, including this body, about 10 different entities and bodies, and we will continue to do our quarterly reporting to the commission showing where we are doing well, as well as where we need to do better. absent are real estate department, things are going very well at the puc. i'm pleased to report that things are on track. we are spending between $10 million to $40 million per week on the water system improvement system. we have borrowed money at record low rates. we have walked those in at fixed rates. there's a lot to be proud of for the puc. supervisor campos:

supervisors, any comments? supervisor chiu: just one question. i think it is very clear that the puc is already moving to address these issues. in terms of a time line, maybe it makes sense for the controller's office and the puc to come back to this committee in the future to talk about where things are in terms of responding to the concerns that have been identified. i do not know what would be a good time line in terms of making sure you have sufficient time to address all of the recommendations. >> we meet monthly and go through every one of those items internally with staff. then we were poured out quarterly, and in the till, to our own commission. it is whatever the will of this body is, we will make sure we do that. >> maybe we can work with your office.

your office and my office. we can bring you back in the next few months so not only the committee, but the public has the benefit of hearing about the steps that will have been taken by that point to address these issues. >> thank you. supervisor campos: thank you very much. thank you to the controller's office. yes? you wanted to add something. >> yes, traditionally, we do a six month, twelvemonth, and two- year follow up where the departments provide an action plan. we have a unique relationship with the puc. yes, we do meet once a month, but we do have this standard protocol. supervisor campos: maybe we can come back after six months and see where it is. >> that would be fine. supervisor campos: we can coordinate in terms of the exact timing. i think it makes sense to do it

after six months. that will have given them some time to implement some of the changes. >> thank you. supervisor campos: thank you very much. thank you, again, to the puc and to the controller's office for your good work and very thorough presentation. colleagues, any other questions? why don't we open it up to public comment? is there any member of the public who would like to speak? seeing none, public comment is closed three colleagues, why don't we continue this to the call of the chair so we can bring it back? we have a motion by supervisor farrell. without objection. madam clark, do we have any further business? >> no, mr. chairman. supervisor campos: great. enjoy your weekend. have a good time.

supervisor campos: good more jim -- morning and welcome to the thursday, march 10, meeting of the board of supervisors government audit and oversight committee. i am joined by the committee vice chair, supervisor farrell, as well as a committee member board president david chiu.

madam clerk, do we have any announcements? >> yes, mr. chairman. please turn off cell phones. if you wish to speak during public comment, please fill out a speaker card and place it to the left of the podium. completed speaker cards and parts of documents are to be included as part of the file and submitted to the clerk. items discussed today will appear before the board on march 15 unless otherwise stated. supervisor chiu: -- supervisor campos: thank you very much. please call item 1. >> item 1, motion approving the budget and legislative analyst services were planned for 2010. supervisor campos: thank you. -- work plan for 2010. supervisor campos: thank you. this item basically approves the work plan for the coming year, allocating hours for the calendar year 2011. it authorizes the budget and legislative analyst to reallocate up to 10% of the

hours, based on the board of supervisors service needs, and it also requires board of supervisors approval if there is such a reallocation. this item would then go before the board of supervisors for approval. if we have anyone from the budget analyst who would like to present. >> good morning. supervisor campos gave a good overview of what this motion would do. under our contract with -- the budget and legislative analyst contract, we are simple -- required to submit performance goals. we did provide a letter to accompany this motion that lays out our performance goals for the year. at the end of the year, we would get a performance evaluation by

members of the board of supervisors. i can walk through the goals if you would like, just briefly. the goals cover our main areas of work, which are our legislative analysis, which is our report we give each week to the budget and finance and sometimes the government audit and oversight committee on the fiscal impact of legislation pending before the board. we do performance audits, and special projects as well as individual requests from members of the board of supervisors, analyzing specific schools, programs, or city departments. and we do a annual budget review of the city's general fund. our goals are associated with that. in terms of legislative reports, our goals include providing the reports to the committee in a timely manner. members of the committee or

members of the board at their request. continuing to improve and revise to make the innovation meaningful and accessible. continue to identify policy issues, not only through the actual content of the legislation itself but issues raised by the legislation that may not appear immediately before the board. and continue to work on new legislative reports. we want to continue to work with the committee to provide the topics and do projects that are meaningful to the members of the board and address significant issues before the city. to continue to keep the committee, the government audit and oversight committee, and keep the board of supervisors apprised of any status reports. and present their report in a manner that meets the objectives of the study.