>> good afternoon, everyone. welcome to the regular meeting of the government audits and oversight committee. my name is supervisor farrell. i'm also joined by supervisor elsbernd. i would like to thank the members of sfgtv for the broadcast. do we have any announcements? >> please make sure to silence all cell phones and electronic devices. items at the upon today will appear on the may 22 agenda. during on the department's progress on implementation of audit recommendations by the comptroller -- controller. supervisor farrell: we have only

one item on the agenda today. >> good afternoon. i am tonia lediju, director of audits. we are here to speak about our audit follow-up for the last quarter. basically, the benefits for audit work is not only in the findings reported or the recommendations, but the benefits of auditing is the implementation of the recommendations that have come out of the process. by conducting audits -- audit follow ups, it helps the department in sure that they are the implementing the change as stated. it enhances accountability, and it also allows us to ultimately assess the value of our work. our office does two kinds of follow up work, regular and

field follow up. our regular procedures are done for all reports and memorandums. they are required to report on the implementation status at 6 months, one year, and two years. in the course of the follow-up process, we may select certain audits for field follow up. in that process, we go back into the department, gathered evidence, -- to gather evidence. factors that could qualify an audit as a high risk include large financial impacts, significant weaknesses that make the department vulnerable to fraud, safety and high risk of fraud. this follow-up process that we are using also fulfills the requirement of the san francisco charter, which requires the audit to report on plans for implementing the recommendations come at any cost or savings, that is reflected in

the department proposed budget, and if relevant, the basis for the department decided not to implement one of the recommendations. on this slide, we will talk about recommendation status and follow-up. after we received a response from the department, and nodded to reduce the response and based on the departments reported action, makes a determination about whether these actions would resolve the problem underlying the recommendation. open means the recommendation has not been fully implemented. contested means the department indicated it would not implement that recommendation. this could be due to lack of resources. the department believed that the previously existing process is sufficient. closed means of the department has fully implemented the recommendations, the department has implemented a sufficient alternative to the

recommendation, or the recommendation is no longer relevant. the recommendation could become a longer relevant because it is related to something specific to a software system or a contract. the fall of status is based on the department's responsiveness to our follow-up request. active means the department never provided the response to a follow up request. we will continue to follow up beyond our regular two-year cycle. open means the department provided the response. closed means all recommendations and have a status of closed. elapsed, we will present the outstanding recommendations to the committee. outstanding recommendations will also be considered in future audit work. for our regular follow-up

program, close does not mean that we attest to the recommendation being fully implemented or has done any investigation to verify the recommendation has been adequately resolved. we only a test of whether our recommendation was adequately resolved when we do a field follow up. our regular follow-up process is based on what the department reports it has done to implement our recommendations. over the next four slides, i will provide a summary of our regular follow-up activity for the last quarter, january through march. and then i will give an overview of our field follow up activities. i will discuss some high-risk audits in greater detail. these six follow-ups are considered open. we received responses to follow- up request on these audits, but there are still one or more outstanding recommendations that have a status of open or

contested. for four of these audits, the department are in process of implementing the outstanding recommendations. for more information about these audits, please see the summary document that is available by the door. it will also be posted to our website. those are airport commission, human-rights, fire department, public utilities, audits of crystal springs, and the arts commission. the two audits marked by an asterisk will be discussed in greater detail. this table shows the one act of audits. of the 49 recommendations, one was determined to be closed and two in process. associated risks for this audit is high. we have recovered $4,292 in subtenant rent.

however, it had not yet collected $120,852 of other funds do. -- due. there are some recommendations to investigate further potential lost revenue due to some of the issues uncovered by the audit. i apologize -- they have recovered 42,000. >> it has the date of november, 2010. we are talking a while ago? is this an ongoing -- >> we released the report in 2010. we are continuing to follow up on the work. supervisor farrell: thank you. >> this audit was a lease agreement. it is a rock quarry from the

least side. modern trends some of this provisions require specialized -- monitoring some of these provisions require specialized knowledge. puc is working with us to identify appropriate vendors. puc is here to discuss this audit for there. i do not know if you want to do the entire presentation. supervisor farrell: why don't we have puc, so we can deal with it issue by issue? >> good afternoon. i'm joined here today by my colleagues. i am the director of insurance and internal controls. we have taken these recommendations quite seriously

and we had implemented a series of actions to directly address the recommendations but management responses have been prepared and they are under current pending review. we would like to share some of our recent actions and successes in the past six months to resolving these findings. in the areas of personnel's skill sets, lease administration comic industry best practices, and lease administration software. regarding personal skill sets, we retrained existing staff on the software that we have in place and the analytical tools. this includes areas such as payment tracking, timely collections. for a lease administration, we have resolved late payment functionality in the legacy software. we now have the functionality to monitor late payments. we have been visiting the

management regarding their adherence to these provisions. we have been in consultation with the city's attorney's office. >> is there any dispute about the money that is owed? is it just a matter of collecting it? >> a little bit of both. there have been some disputes in terms of translating what exactly where the requirements for the leases. there were expired, up to a certain point. it is still left in discussing right now. if you would like some more in depth details -- regarding industry best practices and the policies and procedures, we did hire a lease administration console to look at the existing operational practices to see if they were in line with industry best practices. we have incorporated some of the recommendations, which have led to the development of a comprehensive manual. that is near finalization.

as part of that, we talked to a mining consultant about how exactly the monitored and audit a rock quarry operation. in order to fully understand information, you would require specialized expertise. we reached out to cities service auditor and we have been working and leveraging their existing auditor pool. supervisor farrell: ok. >> and finally, the lease administration software. we have a system called colonial and it is quite antiquated. it is not very flexible for some of the complex permits and leases that we have. we will be implementing a new software that is used by a lot of private and public agencies. it will give us the ability to monitor such complex provisions.

eventually, will replace the existing legacy system by the end of the calendar year. supervisor farrell: new software, great. i get it. we need a lot of that inner city government. mining consultant, i understand. the other stuff, about how to collect -- manuals are great, but let's collect the money that is owed to us. how comfortable do you feel going into the future about being able to do that effectively? this is billing practices. it happens every day all over the world. >> she has been working very closely with staff to ensure that these practices are being adhered to and being done in the division itself. those practices, everyone is aware. they are doing that. in regards to the audit, we still are in discussion with

management to collect the remaining amounts. we have also been in discussion with the city attorney's office to talk about how much of this is applicable,, time has passed, what is applicable and what is not. supervisor farrell: ok. colleagues, any questions? is there more? thank you very much. tonia, are you planning on moving to the next one? >> we are in close contact with puc. i am comfortable and confident that they will -- they are moving in the right direction as it relates to the everyday practice is. they are diligently trying to resolve the issues. supervisor farrell: great.

>> as it relates to this slide, this table represents the three follow-ups we have determined to be closed. for the audits of pg &e franchise fees, two recommendations were made. this issue is ongoing and parts of the current audit puc is actively working with the city attorney to address the issue. because the current audit will be subject to the same bed of the follow-up process, we have closed recommendations for this earlier audit. as a result, some of those issues are carrying forward in our current audit. we are working with the right organizations to move forward. and hopefully resolve some issues as we move forward.

for puc and dpw's recommendations, there were related to increasing communication of policies and procedures to contractors. for field follow ups, our office, we use a risc based approach to collect specific recommendations -- risk based approach to collect specific recommendations. we looked at the most prevalent or most high-risk of those particular recommendations. we gather evidence to determine if the department's implementation adequately resolve the problem underlying the recommendation. and then we issue a reporting on our findings. our field follow ups go to the same follow-up process as are other reports and memorandums for recommendations determined to be only partially

implemented. we will follow up at six months again, one year, and two years. we have in process of the public utilities commission, we're following up on an audit related to the parsons of water system improvement program. we selected 18 of the 26 recommendations for testing and expects to issue a follow-up memo in this quarter. at the office of citizen complaints, we are conducting a second field follow-up of the audits of the department. the original report had 45 recommendations directed at the occ, the police commission, the police department. in the previous follow-up, evaluation was issued in 2009. we tested eight recommendations and found four to be fully implemented. in our current follow-up evaluation, we are testing to of those recommendations. we find that they are partially implemented.

we will issue the memorandum in this quarter. we are also following up on a 2008 audit that cost multiple to -- across multiple departments regarding payment control. it included 12 recommendations across several departments. we are in the process of determining which recommendations we will include in the field fallout. we also -- follow up. we are working on our adult probation follow up work. case management included 31 recommendations. we are in the process of working with the department to select a sample of those recommendations. our field follow ups that we have completed, this is what this slide presents. it is that the mta, portsmouth plaza, and then the indirect late submission for central subway.

as you can see for portsmouth, there were 18 total recommendations, eight tested, -- six fully implemented, and two partially implemented. for central subway, we looked at 6, and they're all fully implemented. as it relates for the airport commission, we issued our audit report of the contractor in july of 2011. this audit have several findings with significant financial implications for the airport. of the 23 recommendations, 16 are open, one is contested, and six are closed. the over all the risk of opening contested recommendations is high. the airport and boys, but has not yet collected 366,000 -- the airport invoiced, but has not collected $366,000 in penalties.

although the airport is in the process of implementing recommendations to ensure that fox rent-a-car complies with the terms of its agreement, in some instances, the airport has not indicated to us how it intends to monitor compliance. the airport is in the process of implementing all 16 open recommendations. the contested recommendation was based on a finding that fox had been closing for some hours each day while the terms of the lease agreement required fox to remain open 24 hours a day. the department acknowledges that fox did closed between 1:00 p.m. at 4:00 a.m., contrary to the terms of the agreement. but did not intend to collect the penalties in the terms of the agreement. our response is, though the airport states that fox is

closure did not create an economic impact, it does not negate the fact that fox violated the terms of the contract. please contact violations are subject to penalties. in this case, those penalties amount to $219,000. there is a representative from the airport to discuss these issues. >supervisor farrell: we have the airport controller? >> good afternoon. thank you for giving the chance for us to explain what is going on. today, i also have staff from the airport deputy director of revenue development and management as well.

the airport has already implemented 15 items. the only open item is item number 4. we will explain to you in detail. on the contested item, number eight, we have our business rationale choosing not to -- not opening from the hours 1:00 a.m. to 4:00 a.m.. i would like to have cheryl to come up here and maybe to give the committee more information on these two open items. item #4 and item number eight. >> thank you. >> good afternoon. i will start with the contested item, which is that fox is not open between 1 and 4:00 for a

period of time. this audit spanned a couple of operating permits. and then they became a lessee of hours. there is a little nuance there, and i will tell you why i think it is a spirited they did violate -- like it is the nuance. they did violate their permits, and they have since corrected it. they are opened 24 hours a day. we have tenants come to us and asked for reduced hours. we do not want to force you to lose money or be inefficient, but you have to show us why it makes sense for you to open at 7:00 instead of 6:00. fox did not do this. they were closed without our permission. we declined to pass on these fees to them because the majority of their business does come through the reservation

system. have they shown a lack of sales, we will have allowed them to be closed. in 2009, we restarted all leases and our rental car center and we allowed a fox. they were a new entrant. traditionally, we have had just the big names in our center. we want to allow a new entrant in so we squeezed and made room for them. they are now in the rental car center, during three% of the business. we consider this a success -- doing 3% of the business. we consider this a success. in light of this, as our new smaller business in trend, -- and and, we passed on $261,000 in fines and fees as a result of this audit. we want to get their attention, but not to hit them harder than that. we think their bottom line is

probably in the $800,000 to $1 million range. we fell as the $261,000 in fees made the impression we wanted. they have turned the page. they change their operations. we are monitoring the more closely. this is why we decided that we would not pass it along. or this recommendation, i should say. if there were walk up sales between 1:00 and 4:00, they could have happened at any of the other rental car counters. no economic impact. but not collecting the fines, we did not collect that money, said that is an economic impact. we did not have a customer service impact, but an economic one. that was our rationale. supervisor farrell: ok.

>> item 4, these are find code for submitting their annual certified statements. -- fines owed for submitting their annual certified statements very late. all of our tenants have 90 days to supplement a state -- to submit a statement of sale. in many cases, we wind up owing the money because of these certified sales. for the last two years of their permit, they submitted their statements very late. for 2007 and 2008, the statement came in on an insufficient form. they were not acceptable. by the time the audit started, the permits had expired. we discussed with legal for how

long can we run these fees out for an agreement that is expired? we did not get to a clear answer with them. we decided to choose a reasonable answer and we thought that would be when the audit started, everything went into suspension at that point. the reports were not sufficient, and i told them, you are so late and these are not the right forms, let's let the audit run its course. maybe you'll get some guidance on how to get the format done properly. we started the late fees when the reports were due. to the point the audit started. and that wound up at 148 -- $146,000 in fines. this is part of that total fines of $261,000 that they did pay us. this year, the reports came in

on time. they have hired an auditor. today, everything is going along well with this company. it was not a good start. >> i have one quick summary to give you a big picture. all the 16 open items, 15 have already been implemented. that includes invoicing fox rent-a-car for the amount of money. this audit report, the finding was to collect $532,000. as of today, and since we have already taken action, we have already collected $262,000.

all the recommended $532,000. the airport has already implemented what has been recommended by the team. to close the presentation, i would like to say thank you to tonia and her team. they did a great job. we enjoyed the recommendations because that is a great help in terms of the airports improvements. thank you to the team and the gao committee. supervisor farrell: colleagues, any questions? thank you very much. tonia? let me just ask again, same question, going forward -- it seems like the fox of rent-a- car think it's a one-off that has been corrected.