Audit reveals Hansen's lease compliance issues costing PUC $634,000 in potential recoveries

A recent audit of San Francisco County's Mission Valley Rock leases has uncovered significant financial discrepancies, revealing potential underpayments totaling up to $634,000 from Hansen, the leaseholder. The audit, which examined compliance from July 2004 to June 2008, highlighted a complex web of lease agreements that include mixed-use terms requiring both rent and royalties.

Key findings indicate that Hansen misreported royalty rates in 25% of the months tested, leading to immediate revenue recovery needs of $154,904. Additionally, the audit identified $479,000 in potential recoveries pending further documentation from Hansen and input from the city attorney. A notable concern arose from a lease requiring Hansen to reimburse audit costs if gross revenues were understated by more than 2%. The audit found that Hansen potentially understated revenues by 2.52%, which could trigger this reimbursement.

The audit also flagged $2 million in lost revenue, primarily due to a lease that only partially collected rent, despite requiring both rent and royalties. The Public Utilities Commission (PUC) expressed concerns that the original intent of the lease was not to collect both payments, complicating the recovery process.

Moreover, the PUC's management of its leases was criticized for inadequate oversight, including failure to verify royalty payments and assess late charges. The audit revealed that the PUC's lease management tools were insufficient, with unorganized spreadsheets for over 400 leases.

In response to these findings, the PUC is taking steps to enhance its lease management practices, including proposed staffing reorganizations and improved oversight measures. The potential recovery of funds and the implementation of better management strategies could significantly impact the PUC's financial health moving forward.