Either the Ascendents know something we don't, they're horrible at information gathering or there's some oversight either in the writing or on what I understood.
When I raised the issue a few pages up, it was suggested that it was deliberate disinformation to freak out Felicity. A problem, IMO, with that hypothesis is that as far as we see Felicity wasn't there yet to hear that line. We also see Kali concerned about what happens if they see the sanctuary, suggesting that she thinks something illegal is going on there--and there isn't, unless you count sheltering Nia, but nobody knows her identity at this point.
But yes, I think it's a hole in the writing. There are, from memory, five elves in the Sanctuary. Four of them are fully documented, in addition to three more (Lin, Jin, and Maria) who live in the Hotel proper--so there's just no issue with the numbers. Cira and Hana are there illegally, so if someone were checking papers and taking DNA MC would have a problem, but the "count noses" that they're doing with the drone sees fewer elves than are actually registered there. It'd probably be considered weird to have bought an elf and just have her live in this separate building doing nothing, but "weird" isn't illegal.
Felicity is the best explanation I've heard, but I still don't think it's very convincing.