Audit flags undercharged Lakeside subleases, unpermitted structures and insurance shortfalls

Auditors reviewed the city's interlocal sublease arrangement with the City of Dallas covering parcels adjacent to Lake Ray Hubbard and found multiple compliance issues, low fees and poor collection timeliness.

"As of 2026, 32 are subleased to residents, and they're allowed to use and occupy the land for any lawful purpose," Erin Penny reported. The audit recited the sublease terms: a $750 initial rental payment and a $50 annual rental. Auditors said the city collected approximately $4,400 in initial and annual rental payments over calendar years 2024–25 and that only about 4% of payments were received on or before the due date during their sample period. The report notes administrative and cross-departmental resource requirements relative to managing the program and recommends re-evaluating fees to offset administrative costs and issuing earlier annual reminder letters.

Auditors also identified compliance gaps: two parcels appear to be used without an active sublease, and two subleased parcels have structures or improvements without city permits; auditors used satellite imagery to identify several improvements. On insurance, auditors reviewed active subleases and found five parcels with no insurance on file, many expired policies and 23 policies that risk management deemed noncompliant with sublease criteria. Internal Audit recommended working with risk management and the city attorney to reevaluate insurance criteria, consider higher initial and annual payments for new or extended subleases, and pursue retroactive permits or new subleases where necessary. Management said it is evaluating which department will manage the program going forward and will send annual notification letters to encourage compliance.