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HomeMy WebLinkAboutOIG No. 25-24 Waste Management of Florida Inc.TO: FROM: DATE: PROJECT: PERIOD: I0R G'« Joseph M.Centorino,Inspector General Honorable Mayor and Members of the City Commission Joseph Centorino,Inspector General December 29,2025 Waste Management of Florida Inc.(Non-Exclusive Franchise Contractor)Audit Final Report January 1,2022,through December 31,2024 OIG No.:25-24 This report presents the findings of an audit conducted by the City of Miami Beach Office of the Inspector General (OIG}regarding the Non-Exclusive Franchise Waste Contractor Agreement between the City of Miami Beach and Waste Management of Florida,Inc.The audit also encompasses the associated Service Agreement,intended to operate concurrently with the franchise agreement. BACKGROUND Chapter 90,Article IV,Private Waste Contractors,of the Gity Code allows the City to have Non- Exclusive Franchise Waste Contractor Agreements and Service Agreements with multiple waste contractors.These contractors provide waste collection and recycling services for Commercial establishments,industrial uses,hotels,rooming houses,and multi-family residences of nine (9) dwelling units or more in the City of Miami Beach.According to the Non-Exclusive Franchise Waste Contractor Agreement,the waste contractor is granted the franchise and must undertake and perform each obligation outlined in the Agreement.The "Service Agreement"covers additional solid waste collection,disposal,and recycling services at certain City-owned facilities and properties.The Service Agreement is intended to have a term that runs concurrently with the terms of the Non-Exclusive Franchise Waste Contractor Agreement. The City of Miami Beach currently has two waste haulers:Waste Management,Inc.of Florida and Waste Connections of Florida,Inc.(formerly Progressive Waste Solutions of FL,Inc.).The initial contract commenced on October 1,2019,with a three-year renewal term set to terminate on September 30,2022.The contractors and the City have also agreed to the terms outlined in the concurrent Service Agreements. On July 20,2022,the City Commission accepted a recommendation from the City Finance and Economic Resiliency Committee,as stated in Resolution 2022-32228,to extend the contract on a month-to-month basis for a period not to exceed twelve (12)months,from September 30,2022, to September 30,2023.Additionally,as approved by Resolution 2023-32617,the agreement term was extended on a month-to-month basis until the solicitation process for the new Request for Qualification (RFQ)is completed and a new contract is executed. Page 1 of 9 Section 90-221 of the City Code requires that each franchise waste contractor pay the City a franchise fee consisting of a percentage of the contractor's total monthly gross receipts established by resolution of the City Commission.Currently,the franchise fee paid to the City by its franchise waste contractors is 20%of said gross receipts.An additional 2%Public Right-of- Way fee and a 2%Sustainability Fee are applicable for a total fee assessment of 24%of gross receipts.Gross receipts reported and fees paid by the contractor during the audit period were as follows: Gross Receipts:2022 2023 2024 TOTAL Waste Collection $16,452,675.79 $16,629,805.89 $16,742,082.18 $49,824,563.86 Fees Paid: Sanitation Franchise Fees $3,290,535.16 $3,325,961.18 $3,348,416.44 $9,964,912.78 Sustainability Initiative Fees $359,712.93 $363,589.23 $362,455.38 $1,085,757.54 Right-of-Way Fees $298,243.27 $300,221.15 $298,833.35 $897,297.77 Total Fees Paid $3,948,491.35 $3,989,771.56 $4,009,705.17 $11,947,968.08 SUMMARY The OIG Auditor examined all payments recorded during the audit period to determine whether the franchise fee transactions were correctly calculated,timely,and completely remitted to the City. SCOPE,OBJECTIVES,AND METHODOLOGY The primary scope of this audit was to determine whether the Franchisee adhered to specific terms of the Non-Exclusive Franchise Waste Contractor Agreement and the Service Agreement for additional solid waste collection services.Additionally,it aimed to verify that Waste Management accurately calculated and paid the City 24%of all gross receipts collected by the contractor for solid waste collection and disposal within the City pursuant to those agreements, which do not include taxes and gross receipts from servicing Rolloff and portable containers that collect construction and demolition (C&D)debris. Objectives The objectives of this audit were to identify: •Whether the franchisee transactions were accurately calculated and remitted to the City. •Whether the waste hauler contractor maintains a compliant Certificate of Insurance. •Whether proper controls are in place to ensure the integrity,reliability,and accuracy of franchise fee calculations,records,and data. e Whether franchise fees and additional fees have been collected and paid to the City promptly and sufficiently. •Whether the Finance Department bills any late fees,if applicable. •Whether there has been adequate documentation to support the franchisee's calculations of exempt revenue. •Other audit procedures as deemed necessary. Methodology Page 2 of 9 •Reviewed applicable sections of the Non-Exclusive Franchise Waste Contractor Agreement and the Service Agreement for additional Solid Waste Collection Services. •Interviewed and made inquiries of staff to gain an understanding of internal controls, assess control risk,and plan audit procedures. •Performed substantive testing consistent with the audit objectives,including,but not limited to,examination of applicable transactions and records. •Drew conclusions based on the results of testing with corresponding recommendations and obtained auditee responses and corrective action plans;and •Performed other audit procedures as deemed necessary. Findings,Recommendations,and Management Responses 1.UNCOLLECTED LATE FEES The Auditor reviewed all payments recorded in Munis,the current City enterprise resource planning system,to ensure that franchise fees were paid on time and by established deadlines.The test included a review of the monthly 20%franchise fee and the 2% sustainable initiative fee,both of which are due monthly. Condition: The auditor identified eleven late franchise fee payments during the audit period,with delays ranging from 1 to 11 days.This resulted in total uncollected fees,interest,and penalties of $44,511,which includes $36,583 in delinquency fees (10%penalty)and $7,928 in interest. Criteria According to Section 5 (Franchise Consideration)of the non-exclusive agreement,the franchise fee must be paid monthly per Section 90-223 of the City Code.This section states that the franchise fee is due to the finance department on or before the last day of each month,covering gross receipts from the previous month. Section 90-225 outlines the penalties for failing to pay the franchise fee.If a contractor does not pay the full fee by the last day of the month,the following penalties will apply: a.Original Delinquency:A penalty of 10%of the delinquent fee. b.Continued Delinquency:If the contractor does not remit the franchise fee within 30 days of the initial delinquency,an additional penalty of 10%will be applied for each subsequent 30-day period,up to a maximum of 50%. c.Interest:The contractor will also incur interest on the unpaid franchise fee at the highest legal rate permitted by law. Cause Neither the Finance Department nor the Sanitation Division billed the franchisee (contractor)for late payments,yet the franchise contractor did not submit monthly payments on time. Effect This pattern affects the City of Miami Beach's cash flow and may raise concerns about the adequacy of the Sanitation Division's enforcement of contractual obligations. Page 3 of 9 Recommendations The Sanitation Division team should calculate applicable late fees and issue contractor bills for any deficiencies.For the future it is recommended that the Sanitation Division implement stricter billing practices or establish a clear policy regarding late payments to ensure compliance and accountability among contractors. Waste Management Response WM reviewed all 36 payments during the audit period and each of the payments were remitted within the time period specified by the parties'agreement.See the attached payment report which shows the date each payment was sent.WM requests that this issue be deemed resolved and all late fees and penalties be removed.WM does have the ability to pay via ACH and would recommend to the City of Miami Beach that if they have the capability to receive those type of payments WM can work with the City to get this payment structure setup to avoid any delays caused by the postal service. OIG Reply After receiving responses from Waste Management,the OIG auditor re-reviewed the information provided,including the postal stamp on the envelopes,and adjusted the amount due for late fees to $32,720.This amount comprises $26,350 in delinquency fees and $6,370 in interest.The OIG acknowledges that the payment report is a spreadsheet file without other supporting documentation or source records,and without such evidence for each payment,the OIG cannot rely upon this report for substantive evidence that the payment was received by the City on a specific date. Sanitation Division Response We agree with the audit recommendations provided by the OIG.The Sanitation Division will meet with the Finance Department to discuss implementation of late fees being added based on the contractual agreement. Implementation Date:June 30,2026 2.SUSTAINABLE INITIATIVES FEES OVERCHARGED The auditor compared the gross receipts from the monthly Sanitation Franchise Fee report remitted to the City with the gross receipts reported under the Sustainable Initiative Fee report and the Franchise Fee schedule to identify any discrepancies and validate compliance with Section 5 of the Franchise Consideration for the Non-exclusive Franchise Waste Contractor. Condition The auditor found a $4,463,313 difference between the gross receipts from sustainable initiatives fees and those from Franchise fees.Further analysis showed that this difference is related to the inclusion of gross receipts from the "temporary"roll-offs',which are not covered under the franchise agreement.2 1 As per Sec.90-2,Rolloff container means a metal container,compacted or open,approved by the city manager,that is designed and used by C&D haulers for the collection and disposal of construction and demolition debris;large quantities of trash,and/or bulky waste;but not garbage or commercial refuse. 2 The Contractor refers to the temporary roll-offs as the roll-off containers used for collecting construction and demolition debris. Page 4 of 9 As a result,Waste Management roll-off clients were incorrectly billed 2%for Sustainable Initiative fees,resulting in a total overpayment to the City of $89,266. Criteria Section 5 of the Non-exclusive Franchise Waste Contractor Agreement states that the gross receipts from servicing roll-off containers are not included under the franchise fee due to the City.Roll-offs are subject to different requirements and fees,as set forth in Section 90-278 of the City Code,which does not include sustainable initiatives fees. Cause Waste Management was unaware of the requirements of the Agreement and of the City Code related to gross receipts.The Sanitation Division did not validate that the amount collected was accurate and remitted in compliance with Section 5 of the Agreement. Effect This situation exposes the City to potential financial adjustments,undermines the accuracy of revenue reporting and the integrity of contract administration,and increases the risk of future errors due to inadequate oversight and a lack of contractor awareness. Ultimately,this scenario could diminish confidence in the City's internal controls and its capacity to enforce contractual and regulatory requirements effectively. Recommendation The Sanitation Division should review the monthly and annual gross receipts reports for accuracy and compliance with the terms of the agreement.Also,the Sanitation Division should communicate and educate all Sanitation Waste Hauler contractors if errors are noted. Waste Management Response WM reviewed its franchise fee calculation worksheet and confirmed that we had been including the Temporary Roll-off amounts in our 2%Sustainability Initiative Fee amount. We have corrected that effective October 2025 submittal and will calculate any 2025 overpayment impact to include in that franchise fee payment package. Sanitation Division Response We agree with the audit recommendations provided by the OIG.The Sanitation Division will have discussions with the Finance Department over current procedures and develop a streamlined process. Implementation Date:June 30,2026 3.RIGHT OF WAY FEES UNDERBILLED The auditor compared the gross receipts from the monthly sanitation Franchise Fee reports submitted to the City with the monthly gross receipts reported under the right-of- way fee report,also filed monthly,and the Franchise Fee schedule to identify any discrepancies and validate compliance with Section 5 of the Franchise Consideration for the Non-exclusive Franchise Waste Contractor Agreement. Condition Page 5 of 9 The auditor found a $4,959,675 difference between the gross receipts from right-of-way fees and those reported from total Franchise fees collected,with Franchise fees exceeding right-of-way fees by that amount.Further analysis revealed that this difference was related to the improper exclusion of gross receipts from the "permanent"roll-offs3 used for garbage collection,which should be covered under the Franchise Agreement.They differ from the "temporary roll-offs used for the removal of construction debris,which are subject to different requirements and fees,as set forth in Section 90-278 of the City Code.As a result,Waste Management miscalculated the total gross receipts for right-of-way fees, resulting in an underpayment of $99,193.50 to the City. Criteria Section 5,Franchise Consideration,of the Non-exclusive Franchise Waste Contractor Agreement states that,"...In addition to monthly payment of the franchise fee,and in accordance with the franchisee's proposal in response to the RFQ,the Franchisee shall (during the term herein)also pay an annual amount equal to two percent (2%)of its total annual Gross Receipts,to be applied by the City towards the establishment, implementation,and operation of a public right of way cleaning program,which shall be operated through the City's Sanitation Division..." Cause Waste Management was unaware of the requirements of the Agreement and of the City Code related to the right-of-way.The Sanitation Division did not validate the amount collected and remitted in compliance with Section 5 of the Agreement. Effect This situation exposes the City to potential financial adjustments,undermines the accuracy of revenue reporting and the integrity of contract administration,and increases the risk of future errors due to inadequate oversight and a lack of contractor awareness. Ultimately,this scenario could diminish confidence in the City's internal controls and its capacity to enforce contractual and regulatory requirements effectively. Recommendation The Sanitation Division should calculate the difference in right-of-way fees and bill Waste Management accordingly.The Sanitation Division should also review the monthly and annual gross receipts reports to ensure accuracy and compliance with City Code. Furthermore,if any errors are identified,the Sanitation Division should communicate with and educate all Sanitation Waste Hauler contractors. Waste Management Response WM reviewed its franchise fee calculation worksheet and confirmed that we had not been including the Permanent Roll-off (Garbage Collection -MSW)amounts in our 2%Right of Way Fee amount.We have corrected that effective the October 2025 submittal and will calculate any 2025 impact to include in that franchise fee payment package. Sanitation Division Response We agree with the audit recommendations provided by the OIG.The Sanitation Division 3 The Contractor refers to the Permanent roll-offs as the roll-off containers used in hotels and condominiums to store garbage. Page 6 of 9 will have discussions with the Finance Department over current procedures and develop a streamlined process. Implementation Date:June 30,2026 4.NON-COMPLIANT CONTAMINATION AUDITS The auditor requested the 2022,2023,and 2024 Contamination Audits for its review and to determine if they are in compliance with the Service Agreement. Condition The documentation received did not comply with the requirements established in the Agreement.The amounts of recycling and contamination rates were not quantified. Additionally,the auditor was unable to validate whether the contractor sent letters to customers with excess contamination rates.The list of the non-compliant accounts was not sent to the City nor provided to the auditor for evaluation. Criteria Exhibit A #15 of the Service Agreement states,"Each Contractor shall carry out a waste contamination audit ("Contamination Audit")once a year for their recycling accounts,using vehicles designated only for collection within the limits of the City of Miami Beach.Each Contamination Audit shall quantify the amount of recycling generated,as well as contamination rates.Each contractor shall provide written notices to customers that have excess amounts of contamination and provide a list of non-compliant accounts to the City on a monthly basis." While it is standard industry practice for recycling revenues to be exempted from Franchise Fees,the auditor could not identify any section in the State Statute,the City Code,or the Agreement that explicitly states that recycling is exempt. Cause The Sanitation Division team lacks a formalized process for reviewing contamination audits to ensure compliance with the terms of the agreement. Effect This situation raises concerns that revenues received by the contractor for waste collection,subject to a fee,may have been unreported,thereby reducing the revenues paid to the City.There is insufficient documentation to substantiate the accuracy of recycling activities for which no fees are remitted to the City.Rather than providing the information required under the Service Agreement to document the amount of recycling generated,the contractor acknowledged in its contamination reports for all three audited years that "no data was collected on recyclable commodity percentages from the material." Recommendation The Sanitation Division should implement a formal review and validation process for annual Contamination Audits submitted by contractors.This process should include verifying that audits meet all contractual requirements such as quantifying contamination rates,including supporting documentation,and listing non-compliant accounts. Waste Management Response Page 7 of 9 WM disagrees with the Inspector General's position.Contamination audits were conducted annually solely to determine the quantity of contaminated recyclable material in the overall loads delivered.The purpose of the contamination audits is not to determine the percentage composition of each type of recyclable material;instead,a composition study would have to be performed to obtain that data regarding the percentage of each individual commodity.The reports submitted included tonnages collected in the samples and the amount of contaminated material following ASTM protocol.As a contamination audit rather than a composition study,there is no requirement to determine the relative percentage of each individual commodity.Additionally,WM submits monthly reports to the City with lists of excessively contaminated recycling,a partial sample of which from July 2025 is copied below.Listed customers are also advised of the excessive contamination. With respect to the implication that the City is entitled to franchise fees on commercial recycling,we disagree based on the following: 1."Gross Receipts"as defined in the Agreement include fees from "solid waste collection and disposal",not Recyclable Materials or Recovered Materials: "Gross Receipts"as refend tu lerein slall mnem the entire auut of the fees collected by the ontrato;(whether wholly orpartially collected for solid waste collcction and disposal within the City,but excluding any sales tax,or other ta.govemental impost:on,assessment, charge or expense ofanykind,collected bythe Franchisee from the account holder and required by law to be remitted to the taxing or other governmental authonty,and further excluding tees from servicing talloff ad nurtublc container. 2.FS 403.7046 precludes municipalities from assessing franchise fees on Recovered Materials. OIG Reply According to the service agreement,Each Contractor shall carry out a waste contamination audit once a year for their recycling accounts,using vehicles designated only for collection within the limits of the City of Miami Beach.Each Contamination Audit shall quantify the amount of recycling generated,as well as the contamination rates.Each contractor should provide written notices to customers who have excess amounts of contamination and provide a list ofnon-compliant accounts to the City on a monthly basis. Waste Management did not quantify the amounts of recycling and contamination and did not provide evidence that letters were sent to customers with excess contamination rates. Additionally,the list of non-compliant accounts was not provided to the auditor for evaluation.The attachment provided by the Contractor was not included in the final report because it contains private and confidential information. The contamination audit is a valuable source for evaluating the reasonableness of the recycling amounts excluded by the contractor on each reporting period.The contamination audit should include the annual volume of contaminated recyclable materials received, compared to the overall volume of recycled materials collected,as well as other compliance requirements stated above related to recycling waste contamination by customers.In this instance,the OIG has determined that the data provided by the contractor was not in compliance with the existing agreement between the City and the Page 8 of 9 contractor. The OIG has no dispute about the taxability of revenue from recycling activities,given existing City policy;however,the volume of recycled material and the amount of recycling- exempt gross receipts must be adequately documented. Sanitation Division Response We agree with the audit recommendations provided by the OIG.The Sanitation Division will ensure that waste haulers will provide the annual contamination audit report.The Sanitation Department will discuss with the Finance and Legal Departments how franchise fees apply to recycling loads that become contaminated and are disposed of as trash. Implementation Date:June 30,2026 cc:Eric Carpenter,City Manager John Norris,Public Works Director David Martinez,Assistant City Manager Jason Greene,Chief Financial Officer Jason Neal,Government Affairs Director,WM of Florida Stephen Zelitt,Senior Financial Analyst,WM of Florida OFFICE OF THE INSPECTOR GENERAL,City of Miami Beach 1130 Washington Avenue,6 Foor,Miami Beach,FL 33139 Tel:305.673.7020 •Fax:305.675.0420 •Hotline:786.897.1111 Email:CityofMiamiBeachOIG@miamibeachfl.gov Website:www.mbinspectorgeneral.com Page 9 of 9