Waste Management, Inc.(9, MI:AMIBEACH
BUDGET AND PERFORMANCE IMPROVEMENT
Internal Audit Division
TO:
FROM:
DATE:
Jimmy L. Morales, City Manag~e
James J. Sutter, Internal Auditor~
June 21, 2013
INTERNAL AUDIT REPORT
AUDIT:
PERIOD:
Waste Management, Inc. (Non-Exclusive Franchise Contractor)
June 2009 to December 2012
This report is the result of a regularly scheduled audit of the Franchise Service Agreement with
Waste Management, Inc. (Waste Mgmt) it includes any revenues reported for Franchise Waste,
Public Right-of-Way, Roll-offs and Sustainable Initiatives (Green initiatives).
INTRODUCTION
Chapter 90, Article IV Solid Waste of the City Code provides for the City to have Non-Exclusive
Franchise Waste Contractor Agreements and Service Agreements with five waste contractors.
These contractors provide waste collection and recycling services for Commercial and Residential
for multi-family residences with eight (8) or more units in the City of Miami Beach. According to the
Non-Exclusive Franchisee Waste Contractor Agreement, the waste contractor is granted the
franchise and is required to undertake and perform each and every obligation set forth in this
Agreement. The "Service Agreement" covers the provision of additional solid waste collection and
disposal and recycling services at certain City owned facilities and properties. The Service
Agreement is intended to have a term that will run concurrent with the terms of the Non-Exclusive
Franchise Waste Contractor Agreement.
The City Commission under resolution 2003-25385 renewed Waste Management and the other
waste contractor's franchise service agreement on October 15, 2003 for an additional five-year term
expiring September 30, 2008. Subsequently, the City Commission adopted Resolution (#2008-
26923) authorizing the further renewal of the City's existing four franchise waste contractors
including Waste Management for the collection and disposal of solid waste, to also included
recycling services. The waste contractors' renewal was for three years, commencing retroactively
on October 1, 2008 and ending on September 30, 2011.
For the past several years, the City had franchise waste contractor and service agreements with four
waste contractors to provide commercial service within its boundaries. On May 25, 2009 the City
Commission by resolution 2009-27020 approved a new waste contractor to be the fifth hauler. Out
of the five haulers, All Service of Florida and General Hauling were merged with other haulers.
Subsequently, leaving the City of Miami Beach with three haulers and they are Choice
Environmental, Waste Management and Waste Services of Florida.
Whereas, at the May 9, 2012 City Commission meeting, the City Commission determined that,
premised upon the contractors' agreement to provide the City with certain additional contributions,
which would be allocated by the City toward additional public waste collection and disposal,
recycling, and sustainability initiatives and programs, it would be in the City's best interest to not
issue the RFQ for a fourth hauler and, in the alternative, renew the three (3) existing franchise
agreements for an additional (1) year (with such renewal term commencing October 1, 2014, and
ending September 30, 2015;) and, further, condition such renewal upon the successful negotiation
of an amendment to the existing Service Agreement by and among the City and three(3)
We are committed to providing excellent public service and safety to all who live, work, and play in our vibrant, tropical, historic community.
Internal Audit Report
Waste Management, Inc. (Non-Exclusive Franchise Waste Contractor)
June 12, 2013
franchisees, to provide for additional, public benefits (in addition to what is already being provided
under such Agreement) (including, without limitations, additional monetary contributions to the City,
in the amount of $390,000 per year and $25,000 per year). It was approved as to form & language
& for execution on December 27, 2012.
Section 90-221 City Code 1964, 14A-16 (a) requires each franchise waste contractor to pay the City
a franchise fee consisting of a percentage of the licensee'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 ( 18%) of said gross receipts and the Public Right-of-way franchise fees (2% ).
BACKGROUND
Previously, Internal Audit conducted an audit of Waste Managementforthe period of October 2005
to May 2009. Our audit report dated September 21, 2009 produced no audit assessment. A review
of the company's invoices showed that franchise fees were charged and collected throughout the
audit period. Waste Management records showed that franchise fees were remitted timely to the
City of Miami Beach.
OVERALL OPINION
Waste Management of Florida remitted the correct amount of franchise fees for Commercial Waste,
and Roll-offs; based on the records provided in adherence to the City Code and Service Agreement.
The waste contractor properly and timely obtained an annual business tax receipt, submitted the
required certificate of liability insurance and timely submitted their annual Certified Public
Accountant (CPA) Statements of Gross Receipts to the City.
Waste Management reported to the City of Miami Beach $36,099,428.03 for Waste, Public Right-of-
Way, Roll-offs and Sustainable Initiative fees. The fees Waste Management remitted amounted to
$7,506,338.45 for the services performed within the city limits in compliance with the City Code. The
following table summarizes the total amount of gross receipts reported and related fees paid:
2009 2010 2011 2012 TOTAL (Jun.-Dec.) (Jan-Dec.) (Jan-Dec.) (Jan-Dec.)
Audited Gross $5,888,81 0.59 $10,309,459.60 $9,942,450.21 $9,958,707.63 $36,099,428.03 Receipts
18%
Franchise fee 1,006,301.73 1,793,479.67 1,732,626.27 1, 733,198.45 6,265,606.12
2%Public Right-of 111,811.30 199,275.52 192,514.03 192,577.61 696,178.46 Way
18% Roll-offs 53,684.18 62,223.05 57,014.77 59,368.92 232,290.92 Franchise fee paid
Total Franchise 1,171,797.21 2,054,978.24 1 ,982,155.07 1,985,144.98 7,194,075.50 fees paid
Sustainable
Green initiative $0.00 $47,153.38 $115,728.95 $149,380.61 312,262.95
Fees
Totals $1,171,797.21 $2,102,131.62 $2,097,884.02 $2,134,525.59 $7,506,338.45
Page 2 of 5
Internal Audit Report
Waste Management, Inc. (Non-Exclusive Franchise Waste Contractor)
June 12, 2013
Waste Management has not fully complied with the City Codes as it relates to reporting
requirements for waste contractors. The following items were noted during audit:
• Waste Management incorrectly charged their franchise waste customers having roll-offs
services a 2% Right of Way Fees for the Roll-offs portion which only applies to franchise fee
revenues.
• Waste Management did not comply with the City Code section requiring monthly report of
recyclable materials.
• Waste Management did not comply with the City Code section by delivering to the City's
Finance Department a detail monthly report stating customer names, service addresses,
account numbers and the actual amount of waste/solid waste and any recycles materials
collected from each customer. However, during the audit Waste Managementforwarded the
report.
PURPOSE
The purpose of this audit is to determine whether the franchise waste contractor reported all gross
receipts to the City, were correctly calculated, received timely and accurately recorded by the City,
and the contractor was in compliance with designated sections of the City Code and related
Ordinances.
SCOPE
1. Review the private waste contractor's books and records to confirm that their billings were
correct; their gross receipts were correctly calculated and support the monthly franchise fee
and public right-of-way payments submitted to the City.
2. Confirm that the private waste contractor timely sent the City the required reports in
adherence with the terms listed in the City Code.
3. Confirm that the private waste contractor is timely sending the required Monthly Report of
Gross Receipts along with their remittance to the City.
4. Confirm that the private waste contractor timely obtained their required annual City business
tax receipt.
5. Confirm that the private waste contractor timely submitted their annual Certified Public
Accountant (CPA) Statements of Gross Receipts to the City, and that amounts reported
therein agree with corresponding totals reported on the waste contractor's Monthly Reports
of Gross Receipts.
6. Confirm that the private waste contractor has obtained the required insurance in adherence
with Section 90-223 of the City Code and the signed service agreement.
7. Confirm that all monthly franchise and public right-of-way fee payments were timely and
correctly recorded in the City's Financial System.
8. Confirm that the private waste contractor has complied with the Sustainable Initiative
agreement. (Green Initiatives)
9. Confirm that the private contractors are purchasing recycling bins for the City.
Page 3 of 5
Internal Audit Report
Waste Management, Inc. (Non-Exclusive Franchise Waste Contractor)
June 12, 2013
FINDINGS, RECOMMENDATIONS AND MANAGEMENT RESPONSE
1. Finding -Fees and Requirement
Waste Management correctly charges the 18% permit fees for roll off services in accordance
to City Code Section 90-278. However, Waste Management incorrectly charged their
franchise waste customers having roll-offs services a 2% Right of Way Fees for the Roll-offs
portion which only applies franchise fee revenues toward the establishment implementation,
and operation of a public-right-of way cleaning program, to be established by the City and
operated through its Sanitation Department.
Recommendation( s)
Waste Management must comply with the designated sections of the City Codes by
correcting their computer billing software to not charge the 2% Right of way fees for Roll-off
services; no further action is required. Upon notification of the error, Waste Management
adjusted their computer billing software on May 1, 2013 to comply with the City Codes.
2. Finding-Monthly Reporting
Waste Management did not submit the following documents in accordance with the listed
City Code sections during the audit period:
a. Waste Management did not submit the Monthly Report in accordance with City Code
Section 90-308 Monthly Report, "Each recycling contractor shall deliver monthly to the
city manager an accurate report regarding the nature and disposition and volume of
Recyclable Materials collected by it from each account within the limits of the city. Upon
request by the City Manager, each contractor shall also furnish the city with verifiable
information regarding the method and place of final disposal or distribution of said
materials'~
b. Waste Management did not submit the following documents in accordance with the City
Code Section 90-223. "The licensed contractor shall deliver to the finance department a
true and correct monthly report of gross receipts generated during the previous month
from accounts within the city on or before the last day of each month. This detailed
monthly report shall include the customers' names, service addresses, account
numbers, and the actual amount of waste/solid waste and of any recycles materials
collected from each customer".
Recommendation( s)
Going forward, Waste Management must comply with the designated sections of the City
Codes by delivering monthly to the City Manager an accurate report regarding the nature
and disposition and volume of Recyclable Materials collected by it from each account within
the limits of the city. In lieu of sending the report to the City Manager, the report should be
forwarded to the Sanitation Director as his or her designee. In addition, Waste Management
must comply by submitting to the City's Finance Department a detailed monthly report shall
include the customers' names, service addresses, account numbers, and the actual amount
waste/solid waste and of any recycles materials collected from each customer.
Page 4 of 5
Internal Audit Report
Waste Management, Inc. (Non-Exclusive Franchise Waste Contractor)
June 12, 2013
EXIT CONFERENCE
Audit findings were e-mailed on June 7, 2013 to Waste Management. We confirmed their
agreement to our findings on June 11, 2013.
JJS: CD
Audit performed by Carmin Dufour
F:\obpi\$AUD\DOC012-13\REPORTS-\WASTE MANAGEMENT AUDIT FINAL REPORT.doc
cc: Eric Carpenter, Director of Public Works
Alberto Zamora, Sanitation Director
Patricia Walker, Chief Financial Officer
Leslie Sanatan, (District Revenue Manager of Waste Management)
Jim Lambros, (Area Controller of Waste Management)
Page 5 of 5