Sanitation Fees Residential Billings and Service Agreement Compliancetc.. ~ MliAMI BEACH
BUDGET AND PERFORMANCE IMPROVEMENT
Internal Audit Division
TO:
FROM:
DATE:
Kathie G. Brooks, Interim City Manag~~
James J. Sutter, Internal Auditor ~./-""
November 29, 2012 "
INTERNAL AUDIT REPORT
AUDIT:
PERIOD:
Sanitation Fees Residential Billing and Service Agreement Compliance Audit
October 1, 2009 through February 28, 2011
This report is the result of a regularly scheduled audit of the residential Sanitation fees billed by
the City's Finance Department and the corresponding monthly payments remitted to the City
Commission approved residential waste haulers between October 1, 2009 and February 28,
2011. In addition, selected provisions of the City's current signed service agreement with the
current residential waste hauler, Choice Environmental Services, were also tested and reported
upon.
INTRODUCTION
City Code sections 90-97(a) and (b) state "Each dwelling or commercial establishment in the
City is required to have a solid waste collection service, and garbage facilities approved by the
City Manager. All solid waste generated by single family residences and multifamily residences
of eight units or less shall be collected, conveyed and disposed of by a single family waste
contractor(s)."
The City issued Request For Proposals No. 48-03/04 in an effort to obtain competitive bids from
interested companies. Upon completion of the procurement process, the City Commission
ratified Resolution No. 2004-25768 authorizing Waste Management Inc. of Florida (WMI) to
collect and dispose of residential solid waste, yard trash and bulk waste, as well as to operate
the City's Green Waste Facility. This resolution also included a signed service agreement
detailing the pertinent terms for the three year period ending on December 31, 2007. The City
Commission subsequently authorized two additional one year renewal options through
December 31, 2009 per Resolution Nos. 2007-26682 and 2008-26967 respectively.
Accordingly, Request For Proposals No. 60-08/09 was issued with an opening date of
November 30, 2009 while WMI continued to operate as the City's residential waste hauler on a
month-to-month-basis because the lengthy selection and negotiation process continued past
December 31, 2009. Ultimately, Resolution No. 2010-27421 was adopted authorizing Choice
Environmental Services (Choice) for the collection and disposal of the City's residential solid
waste, yard trash and bulk waste, as well as to operate the Green Waste Facility. The
accompanying signed service agreement commenced on September 1, 2010 was for five years
with the City having the sole discretion to continue the same terms and conditions for up to
three consecutive one year terms. It covered a multitude of items including required services,
payment and billing terms, performance bonds and complaint resolution among others.
The City's Sanitation Division provided Choice with a master listing of all residential addresses
in which to provide initial waste service. Afterwards, they are to notify the residential waste
hauler of any additions or deletions to this list by email. Additions may include new construction
or multi-family residences (up to eight units) switching to City service and vice versa for
We are committed to providing excellent public service and safely to all who live, work, and play in our vibrant, tropical, historic community.
Internal Audit Report
Sanitation Fees Residential Billing and Service Agreement Compliance Audit
November 29, 2012
deletions. The City's Finance Department also receives an email so that the customers' utility
bills can also be adjusted accordingly in the Eden System's Utility Billing Module.
The City remits $23.99 per month per waste unit serviced to Choice which is $1.58 per unit less
than the rate previously charged by WMI. Meanwhile, the Finance Department's Utility Billing
Section charges waste customers $39.86 for single family and $35.43 for multiple family
residences on their individual monthly utility bills per City Ordinance No. 201 0-3699 which is
similarly $1.58 per unit less than previous rates charged.
The residential waste haulers typically provide the City with an invoice near the first of the
month for their provided services. After being reviewed and approved by the Sanitation Division
Director and designated staff, the invoice is forwarded to the Finance Department's Accounts
Payable Section for payment by City check. The following table shows the dollar amounts
collected from residential waste customers through City generated utility bills during the audit
period and compares it to the amounts paid to the applicable residential waste haulers:
10/01/09-10/01/10-02/28/11 Total
09/30/10 (5 months)
Billing Revenues $3,430,047 $1,041,094 $4,471,141
Amounts Paid to Waste Hauler ($1,947,373) ($776,796) ($2,724, 169)
Difference $1,482,674 $264,298 $1,746,972
OVERALL OPINION
Overall, the amounts billed for residential waste and correspondingly paid to the authorized
hauler(s) while approved are not compared to units billed by the Eden system which may cause
the possibility that errors could go undetected for an extended period of time. Internal controls
need to be strengthened and consistently performed to help ensure that City revenues are
maximized. Additionally, the current residential waste hauler, Choice Environmental Services,
appears to be essentially complying with the terms in the signed service agreement but better
monitoring by the City's Sanitation Division is needed to help ensure that this trend continues
throughout the term. A summary of the deficiencies found during testing are listed as follows:
• Residential waste haulers' submitted invoices were not reconciled to the Eden System's
Utility Billing Module records to ensure the accuracy of· billed waste units. Internal
Audit's subsequent analysis of February 2011 found that Choice Environmental Services
billed the City for forty-five more waste units than was charged to the corresponding City
residents for the utility accounts identified in Exhibit A at the end of this audit report.
• The accuracy of the Eden System created report of billed waste units for selected utility
accounts is questionable as a listing warranting further investigation has been forwarded
to the City's Sanitation Division.
• Although testing did not discover any variances, the informal process by which
residential waste customers switch to City billed service could result in undetected
omissions.
• Choice Environmental Service's signed service agreement and its relevant terms was
not entered into the Eden System's Contract Management module. The current
residential waste hauler did not timely obtain and submit the required performance bond
as well as their insurance coverage to the City's Risk Manager for approval.
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Sanitation Fees Residential Billing and Service Agreement Compliance Audit
November 29, 2012
• Requested applicable Sanitation and Finance policies and procedures concerning
current residential waste operations and billings were not received.
• General ledger account 435-0430-000334 entitled "Incinerator'' is misnamed as it was
used to record the City's payments to residential waste haulers during the audit period.
PURPOSE
The purpose of this audit was to determine whether the City's Sanitation Division accurately
monitored and recorded the number of active monthly residential waste accounts being
serviced; whether submitted monthly residential waste hauler invoices were accurately
calculated, properly reviewed and timely paid; whether tested residential utility bills' waste
charges were correct; whether the current residential waste hauler complied with tested service
agreement provisions; and whether tested transactions were accurately recorded in the City's
Financial System.
SCOPE
1. Confirm that comprehensive updated policies and procedures exist, are known to staff
and are properly followed.
2. Confirm that the internal control process implemented including a proper segregation of
duties is adequate.
3. Confirm that required documentation submitted to the City's Sanitation Division by
Choice Environmental Services was accurately prepared, complete and delivered timely.
4. Confirm that added residential waste customers were promptly communicated to the
waste hauler for service and were timely billed by the City's Finance Department.
5. Confirm that residential waste customers were billed at the rates approved by the City
Commission.
6. Confirm that submitted residential waste hauler invoices were reviewed for accuracy and
reconciled to the number of waste accounts billed by the City's Finance Department
before payment was made.
7. Confirm that Choice Environmental Services timely remitted the required $15,000
payment to the City's International Baccalaureate Program and $10,400 toward the
purchase of litter cans by the designated dates in the signed service agreement.
8. Confirm that Choice Environmental Services has maintained the required performance
bond and insurance coverage.
9. Confirm that Choice Environmental Services is accurately charging tested transactions
at the City's Green Waste Facility.
10. Confirm that tested transactions entered into the City's Financial System were correct.
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Sanitation Fees Residential Billing and Service Agreement Compliance Audit
November 29, 2012
11. Confirm that Choice Environmental Services complied with selected provisions in their
submitted response to Request for Proposal No. 60-08/09 that are either not covered or
are more stringent than those listed in their signed service agreement.
FINDINGS, RECOMMENDATIONS, AND MANAGEMENT RESPONSES
1. Finding -Choice Environmental Services February 2011 Submitted Invoice Contained
Forty-Five More Waste Units than Billed by the City's Utility Billing Module
The City's Information Technology Division generates an Eden System report that is
provided to the City's residential waste hauler prior to the inception of their service
agreement of all relevant service locations and the corresponding number of waste units.
Afterwards, the hauler receives periodic emails of any service additions or deletions from
designated Sanitation Division employees. The total number of units serviced is to be
billed to the City at month's end multiplied by the current per unit rate to determine the
amount due.
The residential waste haulers submitted a simplistic one page invoice during each month
of the audit period listing the total number of units serviced, the total amount due, the
total amount past due, etc. as there was no other supporting documentation provided.
Inquiries with Sanitation Division personnel found that they did not monitor or reconcile
the actual number of the waste hauler's residential customers with the amounts reported
on the submitted invoices during the audit period. Instead, the received invoices were
approved and paid as long as the number of residential customers was reasonable when
compared to the previous month.
One of the City's risk exposures is that Choice Environmental Services (Choice) is
picking up the resident's garbage and the City is not billing the customer. The best way
to prevent this scenario from reoccurring would be by maintaining accurate master
listings and comparing them periodically to the waste hauler's reports with any
differences investigated.
Conversely, the customer would most likely complain if Choice was not picking up
his/her garbage but the City was billing them, as well as their actual waste hauler.
Therefore, it is unlikely that this scenario would exist where the City would over bill and it
go unnoticed.
Per Internal Audit's request, the Information Technology Division created an Eden
System report of all residential waste units billed by the City as of March 3, 2011. Next,
an Excel report listing all Choice's residential 6,487 waste units serviced for February
2011 was requested and received. These two reports were then compared to discover
thirty-one utility accounts where Choice billed the City for 45 more waste units than was
billed as shown in Exhibit A at the end of this audit report.
Recommendation
A designated Sanitation Division employee should be responsible for maintaining an
accurate up-to-date master listing of all residential waste units. This listing should be
reconciled at least quarterly to the Information Technology Division's Eden System
generated report of all waste units actually billed to residential customers with any found
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November 29, 2012
differences further investigated and corrected.
Also, the residential waste hauler should submit an Excel report of all their serviced
addresses and waste units to the City with their monthly invoices. These reports should
also be compared at least quarterly to the Sanitation Division's master listing to help
ensure that the City is being properly invoiced by the residential waste hauler. Again, any
identified differences should be investigated until resolved.
The differences identified in Exhibit A should be further reviewed by Choice and the City's
Sanitation Division until a consensus is reached as to the appropriate number of waste
units for the listed utility accounts. If any City residents were found to have been billed
incorrectly, then adjustments should be made so that any owed monies are subsequently
added to the customer's next invoice while conversely any overpaid monies are credited.
Similar adjustments (if applicable) should also be performed for the City's next payment of
Choice's submitted monthly invoice.
Management's Response
Sanitation:
The Sanitation Division contacted Choice Environmental requesting that they submit
their monthly invoices with an Excel spreadsheet of all City residential accounts serviced
on Miami Beach. The contractor agreed and attached the requested spreadsheet along
with their next monthly billing. Furthermore, the Sanitation Coordinator created a SOP
(Standard Operating Procedure) for residential waste service.
Finance:
After updating their master listing of all residential waste units, the Sanitation Division will
send a list to the Finance Department Utility Billing Section of adjustments that should be
applied to customer accounts that were billed incorrectly. Upon receipt of the requested
adjustments from the Sanitation Division, the Utility Billing Section will immediately apply
these adjustments to the customer accounts.
2. Finding -The Eden System Report's Listed Number of Waste Units May Not be
Accurate Thereby Affecting Billing Amounts
The City's previous residential waste hauler (Waste Management of Florida, Inc.)
submitted 6,407 waste units consistently from October 2009 through September 2010.
As mentioned in finding #1, this number was not verified but it was most likely
understated. In preparation for the conversion to Choice, the City's Information
Technology Division created an Eden System report showing that there were 6,426
waste units in July 2010 after the Sanitation Division removed the corresponding waste
units for the "mwst" or miscellaneous waste and "ws-rOO" or City waste collection fee
codes which were included despite not being billed to the customer.
Internal Audit's review of Information Technology's March 3, 2011 Eden System report
discovered the following questionable items concerning the number of listed waste units
thereby warranting further investigation:
• Thirty-three customer utility accounts were identified where the number of waste
units was zero meaning that the customer was not billed for waste. Of these,
there were other entries with waste units for eleven of these accounts meaning
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Sanitation Fees Residential Billing and Service Agreement Compliance Audit
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that they were billed waste but not for the remaining twenty-two. These utility
accounts with zero waste units could indicate that Choice is picking up the
residents' garbage, billing the City and receiving compensation but the Finance
Department's Utility Billing Section is not invoicing the customer and not being
paid.
• Two customer utility accounts numbered 519385-00 and 515619-00 were found
to have been billed 1.5 units each. These two were the only ones on the list to
not be billed in whole numbers.
• Forty-seven waste units were associated with the "mwst" and "ws-rOO" fee codes
but were not billed to customers. Their inclusion in this report unnecessarily
complicates the reconciliation process and going forward they need to be
omitted.
An email containing a listing of these utility accounts described in the bullet points above
was sent to the City's Code Compliance Division to investigate and determine the actual
number of waste units. However, no information has been received to date.
Recommendation
The City's Code Compliance Division should perform the necessary site visits with the
coordination of the Finance Department to determine the actual number of waste units
for the reviewed service addresses. The two addresses with 1.5 waste units should be
changed to equal the applicable whole number (either 1 or 2) as fractions should not be
used. Finally, the Information Technology Division should only capture the "ws-res",
"ws-dup" and "ws-apt" fee codes in the future as the "mwst" and "ws-rOO" fee codes are
not billed.
Management's Responses
Code Compliance:
The designated Code Compliance Division officers are in the process of reviewing the
list to determine the appropriate number of waste units to bill. In addition, Code
Compliance has opted to expand its analysis to comprehensively include all City
addresses thereby writing any warranted violations. Once this analysis is completed we
will promptly notify Sanitation and Finance so that the appropriate actions can be taken.
Finance:
Upon completion of their site visits, the Code Compliance Division will send the actual
count of the number of waste units to be billed to the Utility Billing Section of the Finance
Department. The Utility Billing Section will immediately correct the customer accounts to
properly reflect the actual number of waste units.
The Utility Billing Section, in conjunction with the Information Technology Division, will
remove the recommended fee codes from the referenced report. The revised report,
with the number of units billed, will be sent to the Sanitation Division on a monthly basis
in order to reconcile invoices received by Choice.
3. Finding -The Informal Process by Which Residential Waste Customers are Added to
City Billed Service Could Result in Undetected Omissions
Residential waste customers can be added to City billed service if their contract with
their current waste hauler (one of the three companies approved by the City
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Commission) has expired and there are no outstanding balances owed. Upon
confirming that these conditions are satisfied, the Sanitation Division is to notify the
Finance Department's Utility Billing Section via email to begin charging the
corresponding customer. A second email is also to be sent to Choice informing them of
the need to begin servicing the customer's address.
Internal Audit requested and received emails from Sanitation Division employees of
residential customers who desired to switch to City billed waste during the audit period.
Although testing performed on ten customers' addresses did not discover any incorrect
billings, confusion existed as it was subsequently determined that two tested customers
decided not to switch and not all the corresponding documentation was provided. There
is no formalized process by which Sanitation and/or Finance personnel are notified of
changes and Internal Audit opines that errors could occur and go undetected as there is
no monthly reconciliation process performed (see finding #1).
Recommendation
To help avoid uncertainty as to when to add customers to City billed service, the process
should be more formalized with emails explicitly requesting the conversion from the
Sanitation Division Director or his designee notifying all relevant parties. Furthermore,
the completion of monthly reconciliations of the number of waste units billed and
serviced by designated Sanitation Division personnel should also be performed and
would serve as an effective compensating internal control.
Management's Responses
Finance:
The Finance Department Utility Billing Section keeps copies of all email correspondence
received from the Sanitation Division requesting changes to the number waste units to
be billed. On a go-forward basis, these email communications will be electronically
attached to the customer accounts.
4. Finding -The Eden System's Contract Management Module Was Not Utilized Thereby
Potentially Contributing to the Residential Waste Hauler's Lack of Compliance with the
Performance Bond and Insurance Requirements
The City's five year service agreement with Choice had not yet been entered into the
Eden System's Contract Management module as of the conclusion of this audit. The
usage of this module can provide such benefits as centralizing pertinent contract
information, measuring vendor performance, etc.
For example, it could have been used to help ensure compliance with service agreement
sections 6.12 (equipment), 20 (performance bond) and 21 (insurance). Testing found
the following shortcomings:
a. Section 6.12 of the signed service agreement requires Choice to provide a listing of
the equipment used on Miami Beach within thirty days following the September 1,
2010 commencement date or by October 1, 2010. Internal Audit requested this list
from the Sanitation Division but nothing was provided as they had apparently not
received it. Consequently, the listing was requested and received via email from the
residential waste hauler on March 21, 2011 where it was found to only contain three
new trucks when the deployment of four is required.
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Sanitation Fees Residential Billing and Service Agreement Compliance Audit
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b. Choice did not obtain and submit the required performance bond City's Chief
Financial Officer for approval by the required September 1, 2010 commencement
date. Instead, the $1,000,000 performance bond was obtained on March 11, 2011
following Internal Audit's request for its submittal and 191 days after its stated due
date.
c. Choice was required to deliver their insurance policies or certificates to the City's
Risk Manager upon execution of this agreement but no evidence was provided
thereof. Yet, they were promptly provided upon Internal Audit's request where hence
they were reviewed and approved by the City's Risk Manager.
Recommendation
Sanitation Division personnel should enter Choice's service agreement and its relevant
terms into the Eden System's Contract Management module where it can be used to
help ensure compliance with listed requirements.
Management's Response
Sanitation:
Sanitation Division personnel attended a training with Procurement on the Contract
Management module in order to ensure that all the contracts that impact our division
such as the residential contractor are in compliance. The Procurement Division has
entered this agreement into the Eden System's Contract Management module.
5. Finding -Policies and Procedures Not Furnished
Neither the Finance Department nor the Sanitation Division had created policies and
procedures concerning the addition and deletion of residential waste accounts. In
addition, policies and procedures need to be created for the reconciliation of residential
waste units addressed in finding #1 once the process and staff's roles are finalized.
Recommendation
,Operating policies and procedures should be completed as soon as possible to
descriptively outline current operations. Policies and procedures serve both as a
benchmark to measure individuals' performance and as an instruction manual in the
event that employees' change.
Management's Response
Sanitation:
The Sanitation Division has recently completed residential waste service policies and
procedures.
Finance:
The Finance Department Utility Billing Section will add to their policies and procedures
guidelines for the addition and deletion of residential waste units.
6. Finding -General Ledger Account 435-0430-000334 Needs to be Renamed to Better
Describe Entries
The Finance Department properly recorded all City payments to the residential waste
haulers during the audit period in general ledger account 435-0430-000334. However,
the account is misnamed "Incinerator" which does not accurately depict its entries.
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Sanitation Fees Residential Billing and Service Agreement Compliance Audit
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Recommendation
The Finance Department should rename general ledger account 435-0430-000334 to
more accurately describe its entries.
Management's Response
Finance:
A general ledger account name change was made to "Residential Solid Waste -Bulk.
EXIT CONFERENCE
An exit meeting was held to discuss the audit report and solicit management responses noted
above from affected City personnel. Attendees included Sanitation Division Director AI Zamora,
Assistant Finance Director Georgina Echert, Financial Analyst Ill Raul Soria, Internal Auditor
James Sutter and Senior Auditor Mark Coolidge. The audit report was subsequently sent to
Choice Environmental Services for their review. All parties were in agreement as to the
contents of this report. Management responses were solicited and are included above.
JJS:MC:mc:CD:cd
Audit performed by Senior Auditor Mark Coolidge and Field Agent Carmin Dufour
F:\OBPI\$AUD\INTERNAL AUDIT FILES\DOC10-11\REPORTS -FINAL\SANITATION FEES RESIDENTIAL
BILLING RPT.docx
cc: Jorge Gomez, Assistant City Manager
Fred Beckmann, Public Works Director
Alberto Zamora, Sanitation Director
Patricia Walker, Chief Financial Officer
John Lawson, Operations Manager-Choice Environmental Services
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Sanitation Fees Residential Billing and Service Agreement Compliance Audit
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EXHIBIT A
COMPAIRSON OF BILLED AND SERVICED RESIDENTIAL CUSTOMERS
2 3
NO. OF NO. OF NO. OF
WASTE WASTE WASTE
UTB UNITS UNITS UNITS
ACCOUNT SERVICE SERVICED BILLED DIFFERENCE
NUMBER ADDRESS BY CHOICE BYCMB (1 -2)
516648-00 1797 MARSEILLE DR 2 1 1
521177-00 1973 MARSEILLE DR 4 0 4
576824-00 213 ZOE WAY 1 0 1
515650-00 215 PALM AVE 1 0 1
513657-00 235 82ND ST 4 2 2
515733-00 2374 N BAY RD 1 0 1
069880-00 4500 POST AVE 2 1
056432-00 4764 PINE TREE DR 2 1 1
513190-00 537 ESPANOLA WAY 2 1 1
521344-00 601 75TH ST 8 4 4
576805-00 6111 W LAGUNA DR 0 1
513836-00 660 83RD ST 8 4 4
576876-01 6652 SHEFFIELD LN 2 1
508346-00 6985 ABBOTT AVE 12 6 6
521127-00 710 82ND ST 1 4 -3
519631-00 7135 RUE GRANVILLE 0 1
504946-00 7306 GARY AVE 0 1 -1
507352-00 751 86TH ST 4 2 2
520532-00 755 83RD ST 4 0 4
521235-00 7921 ABBOTT AVE 12 6 6
117937-00 7 402 GARY AVE 0 1 -1
508908-01 7444 GARY AVE 0 1 -1
507864-02 7 45 LENOX AVE 3 -2
521335-01 81181STST 0 4 -4
510918-00 887 80TH ST 8 4 4
520079-00 925 MARSEILLE DR 0 1
520023-00 926 15TH ST 4 2 2
520460-01 930 10TH ST 9 8 1
516363-00 940 17TH ST 1 0
519548-00 950 79TH TER 8 4 4
516019-00 980 79TH TER 4 2 2
108 63 45
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