City and County of San Francisco
Office of the Controller – City Services Auditor
Board of Supervisors:The Airport’s Investment in SFO Enterprises, Inc. Will Result in Losses of $667,000 and May Increase Up to $1.5 MillionJanuary 22, 2007
Purpose of the Audit
At the request of the Board of Supervisors of the City and County of San Francisco, we conducted afinancial review of the City’s investment in SFO Enterprises, Inc.
HighlightsThe Airport’s Investment in SFOE Will Result in a Loss
The San Francisco Airport Department (Airport) will lose at least$667,000 from its investments in the private, for-profit corporation, SFOEnterprises, Inc., (SFOE). The Airport is now closing the operations of SFOE, and SFOE’s financial position consists of the following:
Recorded assets of $1,523,732, including a receivable of $787,200,which is contingent upon future events, from the sale of SFOHonduras, a subsidiary of SFOE.
Recorded and unrecorded liabilities of $2,190,719. Recordedliabilities include $1,087,559 owed to the Airport for prior consultingservices to SFOE. Unrecorded liabilities consist of unbilled costs of
760,673 that the Airport did not allocate to SFOE.If SFOE does not collect the receivable from the sale of its subsidiary,the Airport’s loss will increase to $1.5 million.
The Airport Could Have Better Managed Its Relationship With SFOE
The Airport did not consider potential internal control weaknesses whenit assigned some of its upper management staff as officers of SFOE andthen assigned some of the same staff to manage the agreement onbehalf of the Airport. This may have resulted in such questionableactions where the Airport:
Provided services to SFOE before it had any formal agreements withSFOE and was 18 months late in formalizing the repaymentagreement with SFOE to pay for past services.
Did not consistently identify all its costs related to SFOE, as well asits other international services projects.
Did not always follow city rules in conducting work for SFOE.
The audit report includes sixrecommendations for theAirport to properly account for the closure of SFOE, and tomanage outside contracts,including the following:
Retain SFOE’s liability of $1,087,559, plus interest,on the Airport’s booksuntil SFOE receives theremaining proceeds of thesale of SFO Honduras or the receivable becomesuncollectible.
Collect from SFOE anyamounts received fromthe proceeds of the saleof SFO Honduras, inaddition to any remainingcash in its bank accountsto reduce the debt owedto the Airport.
Formally enter agreements with outsideagencies before providingany services.
Ensure that its employeesadhere to the Controller’stravel policies even whenthey are working asconsultants for privatecompanies