CC SR 20170606 02 - EDCO AuditCITY OF kbok RANCHO PALOS VFRDES
PUBLIC HEARING
Date: June 6, 2017
Subject: Consideration and Possible Action to hear and approve the performance
audit results of EDCO Disposal Corporation for calendar years 2014, 2015,
and 2016
Subject Property: Citywide
1. Report of Notice Given: City Clerk
2. Request for Staff Report: Mayor Campbell
3. Staff Report & Recommendation: Senior Administrative Analyst Ramezani
4. Council Questions of Staff (factual only, no opinions):
5. Declare the Hearing Open: Mayor Campbell
6. Public Testimony: Mayor Campbell invites brief comments from the public.
Appellant: N/A
Applicant: N/A
7. Council Questions of speakers — (factual only):
8. Rebuttal: N/A
9. Declare Hearing Closed: Mayor Campbell
10. Council Deliberation: Questions of staff in response to testimony and deliberation.
11. Council Action:
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RANCHO PALOS VERDES CITY COUNCIL MEETING DATE: 06/06/2017
AGENDA REPORT AGENDA HEADING: Public Hearing
AGENDA DESCRIPTION:
Consideration and possible action to hear and approve the performance audit results of
EDCO Disposal Corporation for calendar years 2014, 2015 and 2016
RECOMMENDED ACTION:
Consideration and possible action to hear and approve the results of the performance
audit of the City's exclusive residential solid waste hauler EDCO Disposal Corporation
(EDCO) for calendar years 2014, 2015 and 2016.
FISCAL IMPACT: EDCO is reimbursing the City for the Consultant's auditing costs.
Amount Budgeted: N/A
Additional Appropriation: N/A
Account Number(s): N/A
ORIGINATED BY: Lauren Ramezani, Senior Administrative Analyst
REVIEWED BY: Terry Rodrigue, P.E., Interim Director of Public Works
APPROVED BY: Doug Willmore, City Manager' O,,j
ATTACHED SUPPORTING DOCUMENTS:
1. MSW Consultant's Performance Audit Report (A-1)
BACKGROUND AND DISCUSSION:
The City has an exclusive residential solid waste and recycling agreement with EDCO
Disposal Corporation (EDCO) which expires on June 30, 2020, and includes seven, one-
year options to extend, based on mutual consent (FY20-21 to FY26-27).
The EDCO residential agreement includes a "performance audit" section 8.2.6 where in
the hauler agrees to reimburse the City for the cost of such an audit up to $60,000 for the
first audit and up to $25,000 each for subsequent audits every three years. Accordingly,
the cost of the audit is accounted for in the waste rates. The results of the first audit
covering July 1, 2010, to December 31, 2013, were presented to Council in 2014. This
audit is a continuation of the previous audit and covers calendar years 2014, 2015 and
2016.
The scope of the audit is exclusively for residential services, which includes single-family
accounts and multi -family bin accounts. The scope does not include any commercial roll
off or business bin service which are covered under separate non-exclusive agreements
with seven (7) haulers, including EDCO.
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WORK PERFORMED FOR AUDIT: The objectives of the performance audit were to
review EDCO's:
• Operating performance: Vehicle Start and Stop Times, Disposal Activities,
Dedicated Routes, Vehicle Fleet, Legal Weight Limit of Vehicles, CHP Vehicle
Inspections, Mandatory Commercial Recycling, and Diversion Reports.
• Customer service: Customer Complaints, and Customer Outreach.
• Financial performance: Billing Accuracy, Customer Recycling Credits, Insurance,
Bond and Letter of Credit, Fees Paid to City, and Accuracy of Previous Rate
Adjustments.
The audit was performed by MSW Consultants, who also conducted the prior audit in
2014 (as a subcontractor to SCS Engineers). To perform this audit, MSW Consultants:
a) obtained and reviewed EDCO's operating records and financial records, b) visited
EDCO's offices in Signal Hill, and c) conducted field observations of EDCO's operations
in the City. The detailed audit report is attached.
SUMMARY OF FINDING(S): As a result of conducting its performance audit, MSW
Consultants found that EDCO had met the requirements of the Agreement in all of the
three areas described above. One minor exception was identified:
MSW Consultants found that EDCO had overbilled a small number of its
single-family customers. MSW Consultants observed approximately 1,100 single-
family customer locations in the City. In its review, MSW Consultants found that
eight (8), or approximately 0.7%, had a trash cart that was smaller than the size for
which the customer was being billed. For example, a customer with a 64 gallon cart
was being billed for a 96 gallon cart.
This minor finding was reported to EDCO for follow-up and correction, and EDCO agreed
to conduct an internal follow-up audit of its single family customers in the City and credit
customers, where necessary.
SOLID WASTE SUBCOMMITTEE: The City Council Solid Waste Subcommittee
(comprised of Councilmembers Brooks and Misetich), Staff, senior EDCO
representatives, and MSW Consultants met on Monday, May 15, 2017. At that meeting
Staff recommended and EDCO agreed to share the results of the internal follow-up audit
with the City on a timely basis, and to review its method of calculating compounding two
or more discounts (e.g. annual prepayment (10%), plus senior (5%), plus low income
(5%)). The Subcommittee accepted the audit report, along with matters raised and
EDCO's responses to solve the discussed problems, and recommended approval of the
audit results to the full Council.
ALTERNATIVES:
In addition to the Staff recommendation, the following alternative actions are available for
the Council's consideration:
1) Do not recommend approval of the performance audit.
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2) Take other action as deemed appropriate by the Council.
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CITY OF RANCHO PALOS VERDES
PERFORMANCE AUDIT OF EDCO DISPOSAL CORPORATION
PREPARED BY
a7m
CONSULTANTS
MAY 11, 2017
A-1
PERFORMANCE AUDIT
OF EDCO DISPOSAL CORPORATION
TABLE OF CONTENTS
1. INTRODUCTION, BACKGROUND AND KEY FINDING 1
1.1 INTRODUCTION AND BACKGROUND
1
1.2 PROCEDURES
2
1.3 AUDIT OBJECTIVES
2
1.4 KEY FINDING
3
2. OPERATIONS
4
2.1 HOURS OF OPERATION
4
2.2 DEDICATED ROUTES
4
2.3 VEHICLE EVALUATION
5
2.4 OVERWEIGHT VEHICLES
6
2.5 BIENNIAL INSPECTION OFTERMINAL
7
2.6 DISPOSAL ACTIVITIES
7
2.7 MANDATORY COMMERCIAL RECYCLING
8
2.8 ACCURACY OF DIVERSION REPORTS
10
3. CUSTOMER SERVICE
11
3.1 CUSTOMER COMPLAINTS
11
3.2 PUBLIC OUTREACH AND EDUCATION
12
4. REVIEW FINANCIAL REQUIREMENTS 14
4.1
BILLING ACCURACY
14
4.2
CUSTOMER RECYCLING CREDITS
15
4.3
INSURANCE, BOND AND LETTER OF CREDIT
16
4.4
FEES PAIDTOTHE CITY
17
5. PREVIOUS RATE ADJUSTMENTS
19
5.1 PREVIOUS RATE ADJUSTMENTS
19
6. CONCLUSION
21
6.1 CONCLUSION
21
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1. INTRODUCTION, BACKGROUND AND KEY FINDING
1.1 Introduction and Background
The City currently arranges for single-family and multi -family residential solid waste collection
service through a franchise agreement (Agreement) with EDCO. The City previously had two
residential service providers. A small portion of the City (Portuguese Bend) had been served
by Universal Waste Systems, Inc. (Universal). In June 2015, with the approval of the City,
Universal assigned its residential franchise agreement to EDCO. As a result, EDCO is the
exclusive provider of solid waste collection services to single family and multi -family
customers in the City.'
Under the terms of its exclusive residential Agreement with the City, EDCO is allowed to
charge its customers rates that were initially set in the Agreement, and have been
subsequently adjusted based on disposal costs and certain economic indexes. Under the
terms of the Agreement, EDCO is required to meet certain performance criteria. These
performance criteria include:
Operating exclusive routes in the City within certain daily time limits.
Properly handling, processing, and disposing of specified waste streams
(e.g., refuse, recyclables, green waste, etc.).
Diverting at least 50% of the residential waste it collects in the City from
landfills.
Providing a high level of quality customer service.
Conducting public education and outreach activities.
Accurately billing customers.
Remitting certain fees to the City.
Meeting specified insurance, bond, and letter of credit requirements.
The Agreement allows the City to conduct periodic audits of EDCO's performance. The scope
of the performance audit may include items such as an audit of customer service levels and
billing, a verification of the waste diversion rate, and a review of EDCO's compliance with the
terms of the Agreement.
' The City arranges for commercial solid waste collection service through non-exclusive franchise agreements
with seven (7) authorized waste haulers, including EDCO. This performance audit is focused solely on EDCO's
exclusive residential franchise Agreement.
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Performance Audit of EDCO Disposal — May 11, 2017
The Agreement allows the City to audit EDCO at any time, but also stipulates that audits are to
be performed every third year. The scope of the audit is determined by the City. EDCO is
required to reimburse the City for the cost of the audit. The maximum amount of EDCO's
reimbursement is $60,000 for the first audit, and $25,000 for subsequent audits.
In 2014, the City retained SCS Engineers (with MSW Consultants serving as subconsultant) to
conduct performance audits of both EDCO and Universal. The scope of those audits covered
the years from the inception of the Agreements through 2013. The results of those audits
found that, with some minor exceptions, both EDCO and Universal had met or exceeded the
requirements of their respective agreements.
In February 2017, the City retained our firm, MSW Consultants, to conduct an audit of EDCO's
performance. The objectives of this performance audit were determined by the City. The
scope of our audit covered EDCO's performance from January 1, 2014 through December 31,
2016. This report describes the audit background, objectives, procedures, and our findings.
1.2 Procedures
Throughout this report, descriptions are included for each of the audit objectives, as well as
the procedures performed to achieve those objectives. These procedures were agreed to by
the City, and the City is responsible for their sufficiency. This report is intended solely for the
use of the City and should not be used by those who have not agreed to the procedures and
taken responsibility for the sufficiency of the procedures for their purposes.
1.3 Audit Objectives
The objectives of this performance audit are outlined in Table 1 on the following page.
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Performance Audit of EDCO Disposal — May 11, 2017
Table 1— Audit Objectives
Objectives
Operations
Confirm operation of vehicles in the City is within the daily start and stop times specified in the Agreement.
Confirm that EDCO operates dedicated routes in the City.
Review the quantity, type, fuel type, year, and condition of the vehicles that EDCO operates in the City to
confirm that its fleet meets the requirements of the Agreement.
Confirm EDCO has operated its vehicles in the City within the legal weight limit.
Confirm that EDCO has received a rating of Satisfactory on its BIT inspections conducted by the CHP.
Confirm that waste collected in the City by EDCO was delivered to properly permitted facilities approved by
the City.
Review EDCO's performance regarding compliance with AB 341 and AB 1826.
Confirm the accuracy of reports submitted by EDCO, and confirm the accuracy of the diversion rates
reported by EDCO.
Customer Service
Confirm that EDCO has properly documented and addressed customer complaints.
Ensure EDCO has provided its customers with the required public outreach and education materials in a
timely manner, and ensure that the information is complete, aesthetically pleasing, and easy to understand.
Financial Requirements
Confirm that EDCO has billed only up to the maximum rates allowed in the Agreement.
Confirm that EDCO has accurately accounted for the recycling credit.
Confirm that EDCO has obtained and maintained the insurance coverage, the performance bond, and letter
of credit as required in the Agreement.
Confirm that EDCO has accurately paid to the City the Collector Fee and Environmental Programs Fee.
Previous Rate Adjustments
Confirm that EDCO's rate adjustments that became effective July 1, 2014 and January 1, 2017 were correctly
calculated.
1.4 Key Finding
Based on the procedures in our performance audit, we found that EDCO had met the
requirements of the Agreement in all of the areas described above, with the following
exception:
Based on a sample of approximately 1,100 customers, we found that EDCO had
overbilled eight (8), or approximately 0.7%, of its single-family customers for the
size of their cart.
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Performance Audit of EDCO Disposal — May 11, 2017
2. OPERATIONS
2.1 Hours of Operation
Background
Section 4.6.1 of the Agreement requires that EDCO operate its vehicles in the City no earlier
than 7:00 a.m. or no later than 7:00 p.m. Monday through Friday, and no earlier than 9:00
a.m. or no later than 5:00 p.m. on Saturdays. These hours are established to preserve peace
and quiet in residential neighborhoods.
Objective
Confirm that EDCO's start and end times of collection operations in the City are consistent
with the requirements of the Agreement.
Procedures
We observed EDCO's collection route vehicles on April 21, 24 and 26, 2017. We also reviewed
EDCO's complaint logs to identify any complaints related to hours of operation.
Finding
We found nothing to indicate that EDCO had operated its vehicles outside the start and stop
times outlined in the Agreement.
2.2 Dedicated Routes
Background
Section 4.10 of the Agreement requires EDCO to collect waste and recyclables in the City using
dedicated routes to prevent the commingling of City material with materials from other
jurisdictions.
Objective
Confirm that EDCO has operated dedicated routes in the City.
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Performance Audit of EDCO Disposal — May 11, 2017
Procedures
We reviewed driver route sheets and interviewed company staff regarding dedicated routes.
Findings
EDCO uses automated sideloader vehicles to collect waste from single family and multi-
family customers with carts. EDCO uses front -loader vehicles to collect waste from multi-
family customers with bins.
We found that EDCO did not comingle any of the automated sideloader routes that it uses
to collect waste from single-family customers.
We found that EDCO used the same front -loader collection vehicles to collect refuse from
both its non-exclusive commercial customers, and from its exclusive multi -family customers
with bin service. We also found that EDCO used a front -loader vehicle used in the City to
service two accounts in San Pedro. We found that EDCO used a reasonable method to
allocate the weight of the material collected from among its San Pedro customers, non-
exclusive commercial customers, and exclusive multi -family residential customers. As a
result, we found that this practice of including material from two San Pedro customers had
no impact on EDCO's diversion rate in the City.
2.3 Vehicle Evaluation
Background
Section 4.6.3 of the Agreement requires that all of EDCO's route collection vehicles used in the
City be powered by alternative fuels (i.e., compressed natural gas (CNG) or liquid natural gas
(LNG)). Spare trucks, pup trucks, and trucks used to provide scout service are not required to
be powered by alternative fuels. The Agreement further requires EDCO to maintain its
vehicles in good working condition.
Objective
Review the quantity, type, fuel type, year, and condition of the vehicles that EDCO operates in
the City to confirm that its fleet meets the requirements of the Agreement.
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Performance Audit of EDCO Disposal — May 11, 2017
Procedures
We reviewed a list of the vehicles that EDCO uses in the City, including the vehicle number,
year, manufacturer, type, and fuel type. We visited EDCO's maintenance facility, reviewed its
maintenance procedures, and inspected its vehicles. We observed the condition of its
vehicles during our field observations.
Findings
We found that EDCO's route collection vehicles used in the City were powered by
compressed natural gas (CNG). We found the vehicles that EDCO used in the City were in
good operating condition and met the requirements of the Agreement.
2.4 Overweight Vehicles
Background
Section 4.6.3.E of the Agreement prohibits EDCO from loading its vehicles in excess of the
manufacturer's recommended weight limit, or in excess of limitations imposed locally or by
the State. The California Vehicle Code prohibits commercial vehicles from being loaded such
that the gross vehicle weight exceeds the manufacturer's Gross Vehicle Weight Rating
(GVWR). The 'gross vehicle weight' is the total weight of a vehicle, including the weight of the
vehicle itself and its payload. The manufacturer's GVWR for most of EDCO's trucks is 30 tons.
Objective
Confirm EDCO has operated its vehicles in the City within the legal weight limit.
Procedures
We obtained a download of EDCO's disposal and processing facility transactions. For each
transaction, we compared the gross weight for each load to the maximum GVWR for each
corresponding vehicle.
Findings
We found that EDCO had operated its vehicles in the City within the legal weight limit.
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Performance Audit of EDCO Disposal — May 11, 2017
2.5 Biennial Inspection of Terminal
Background
All operators of vehicle fleets in the State are required to have their fleet terminals inspected
every two years by the California Highway Patrol (CHP). These are referred to as 'BIT'
inspections (Biennial Inspection of Terminal). The CHP assigns a rating to the terminal as
either 'Satisfactory' or 'Unsatisfactory.'
Section 4.6.2.1-1 of the Agreement requires that EDCO, upon request, to provide the City with a
copy of the Safety Compliance Report prepared by the CHP resulting from these BIT
inspections. If EDCO receives a rating of 'Unsatisfactory,' it is in violation of the Agreement
and is required to notify the City.
Objective
Confirm that EDCO has received a rating of Satisfactory on its BIT inspections conducted by
the CHP.
Procedures
We obtained a copy of EDCO's Safety Compliance Report (BIT inspection report) for the
inspection completed by the CHP in July 2015.2 We also reviewed a Certificate of
Achievement awarded to EDCO by the CHP for having two consecutive Satisfactory BIT
inspection ratings since 2012.
Findings
We found EDCO's maintenance facility (terminal) and fleet had received a rating of
'Satisfactory' resulting from its BIT inspection conducted in July 2015.
2.6 Disposal Activities
Background
Section 4.8 of the Agreement requires EDCO to dispose of waste collected in the City at
permitted disposal or transfer facilities approved by the City.
Z This was the only BIT inspection of EDCO's maintenance facility during the scope of this audit (2014 through 2016). The
most recent BIT inspection conducted prior to July 2015 was conducted in April 2012, for which EDCO received a rating of
Satisfactory.
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Performance Audit of EDCO Disposal — May 11, 2017
Objective
Confirm that waste collected in the City by EDCO was delivered to properly permitted
facilities approved by the City.
Procedures
We reviewed EDCO's tonnage tracking system to confirm delivery of each specified waste
stream handled by the company, including refuse, recyclables, greenwaste, used oil and
filters, and electronic waste. We reviewed (via CalRecycle's Solid Waste Information
System) the current regulatory status of each of the facilities to which EDCO delivered
material.
Findings
We found that the facilities to which EDCO had delivered material were properly permitted
and approved by the City.
2.7 Mandatory Commercial Recycling
Background
In 2012 the State adopted AB 341, which requires all businesses with four (4) or more cubic
yards of solid waste, and multi -family dwelling complexes with five (5) or more dwelling units,
to participate in recycling (e.g., recyclables such as paper, metal, glass, cardboard, etc.).
In 2015 the State adopted AB 1826, which requires all businesses, including multi -family
complexes, with eight (8) or more cubic yards of organics to participate in organics recycling
as of April 1, 2016.3 However, multi -family complexes with four (4) or fewer units are exempt
from AB 1826.
The obligation of compliance with these laws is currently on the waste generator. Unless a
local jurisdiction adopts an ordinance to mandate commercial recycling, it cannot compel
businesses or multi -family customers to recycle.
Although local jurisdictions are not directly responsible for their businesses and multi -family
complexes to comply with these laws, local jurisdictions are required to provide education
3 As of January 1, 2017, this threshold was lowered to four (4) cubic yards of organic waste. On January 1, 2019, the
threshold will be further reduced to four (4) or more yards of solid waste. Multi -family complexes with four (4) or fewer
dwelling units are exempt from AB 1826.
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Performance Audit of EDCO Disposal — May 11, 2017
and outreach to these customers. In addition, local jurisdictions are required to monitor the
compliance of their businesses and multi -family complexes.
Sections 4.3.1 and 4.3.2 of the Agreement require EDCO to provide recycling service at no
additional charge to all its multi -family cart and bin customers. Section 4.4.1 of the
Agreement requires EDCO to provide greenwaste (organics) collection service to all its multi-
family customers with carts. However, the Agreement does not require EDCO to provide
greenwaste (organics) collection service to multi -family customers with bin service.
Section 5.3 of the Agreement requires EDCO to cooperate with the City in expanding
customer knowledge regarding the need and methods to reduce, reuse and recycle.
Objectives
Review EDCO's performance regarding compliance with AB 341 and AB 1826.
Procedures
We reviewed EDCO's list multi -family customers and identified which customers were subject
to AB 341 and mandated to participate in recycling service (i.e., customers with either four (4)
or more cubic yards per week or five (5) or more dwelling units). We reviewed the type of
service that EDCO provided to these customers.
We also discussed with EDCO and the City the outreach that the City had conducted regarding
organics recycling for multi -family customers. We also reviewed the materials that EDCO had
used to outreach to its multi -family customers regarding recycling and organics recycling.
Findings
We found that EDCO had provided recycling carts to all its multi -family cart and bin
customers. As a result, all of its multi -family customers were in compliance with AB 341.
We also found that the City had sent surveys to all multi -family customers regarding
organics recycling. Of those customers that responded to the survey, the City determined
that they had arranged for organics recycling through their gardeners or landscape
contractors. Based on our review of EDCO's customer information and our discussions with
City staff, we found that EDCO had fulfilled its contractual obligations related to the City's
compliance with AB 341 and AB 1826.
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Performance Audit of EDCO Disposal — May 11, 2017
2.8 Accuracy of Diversion Reports
Background
Section 4.3.6 of the Agreement requires EDCO to divert a minimum of 50% of the material it
collects in the City. Section 8.3 of the Agreement, requires EDCO to submit to the City
quarterly and annual reports of the quantity and type of materials it collects in the City. EDCO
has reported to the City that is has achieved the diversion rates shown below in Table 2.
Table 2 - Annual Residential Diversion Rates
Objective
Confirm the accuracy of reports submitted by EDCO, and confirm the accuracy of the
diversion rates reported by EDCO.
Procedures
We reviewed EDCO's quarterly and annual reports, and verified them for accuracy. We
agreed the amounts in the reports to EDCO's tonnage tracking system. We compared the
tons reported by EDCO to reports independently obtained from Los Angeles County's Solid
Waste Information Management System (SWIMS). We evaluated the reasonableness of
EDCO's reported tons by calculating standard industry ratios (average lbs. per home, average
lbs. per cubic yard, etc.), and comparing them to industry averages with which we are familiar.
Findings
We found that the reports and the diversion rates submitted by EDCO were accurate.
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Performance Audit of EDCO Disposal — May 11, 2017
3. CUSTOMER SERVICE
3.1 Customer Complaints
Background
Sections 5.2.2 and 5.2.3 of the Agreement require EDCO to properly document and address all
customer complaints. The Company is required to maintain daily logs of complaints for a
minimum of three years. A summary of the number of customer complaints recorded by
EDCO is shown below in Table 3.
Table 3 — Customer Complaints
Description
Number of Complaints:
Resolved in Two Days or More
16
24
22
Resolved in One Day
60
47
64
Resolved on Same Day
497
729
723
Total Complaints
573
800
809
Percent of Complaints:
Resolved in Two Days or More
2.79%
3.00%
2.72%
Resolved in One Day
10.47%
5.88%
7.91%
Resolved on Same Day
86.74%
91.13%
89.37%
Total Complaints
100.00%
100.00%
100.00%
Objective
Confirm that EDCO has properly documented and addressed customer complaints.
Procedures
We interviewed Company staff to gain an understanding of the customer complaints
procedures. We reviewed a representative sample of complaints from EDCO's complaint logs.
The review included the nature of the complaint, the frequency of and type of complaint, the
timing of resolution, and customer satisfaction with resolution of the complaint.
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Performance Audit of EDCO Disposal — May 11, 2017
Findings
We found that EDCO had properly documented and addressed customer complaints. We
also found that most of the complaints received by EDCO were for missed pickups. In the
solid waste collection industry, it is common for waste haulers to receive complaints for
missed pickups due to customers setting out their carts after the truck has serviced their
street. We found that the number of complaints that EDCO received for missed pickups
were consistent with what we have observed in the waste collection industry. The average
number of complaints per stop are shown below in Table 4.
Table 4 — Complaints per Stop
3.2 Public Outreach and Education
Background
Section 5.3 of the Agreement requires EDCO to provide public outreach and education to its
customers regarding, but not limited to: services; changes to service (holidays, new programs,
etc.); City special events; and other communications and instructional materials.
Objective
Ensure EDCO has provided its customers with the required public outreach and education
materials in a timely manner, and ensure that the information is complete, aesthetically
pleasing, and easy to understand.
Procedures
We reviewed copies of materials that were distributed to residents, and evaluated them
for timeliness, completeness of information, aesthetics, and ease of understanding.
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Performance Audit of EDCO Disposal — May 11, 2017
Findings
We found that EDCO had met the requirements of the Agreement. Each piece of public
outreach and education material was visually appealing and informative. EDCO had sent
flyers and/or informational packets to customers for each major holiday, including those
holidays in which services were not affected (e.g., to let customers know that services
would occur on the regular collection day).
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Performance Audit of EDCO Disposal — May 11, 2017
4. REVIEW FINANCIAL REQUIREMENTS
4.1 Billing Accuracy
Background
Section 5.1 of the Agreement allows EDCO to bill its customers up to certain maximum rates.
These rates are to be adjusted annually and approved by the City. The rates for single family
customers are based on the size of each customer's refuse cart. The current rates for the
most common level of single family service are shown below in Table 5.
Table 5 — Single Family Customer Rates
CreditMonthly Recycling
Service Description Rate
0
Most Single-family Customers
Net
Quarterly
Rate
32 gallon
$19.78
($1.58)
$18.20
$54.60
64 gallon
$25.46
($1.58)
$23.88
$71.64
96 gallon
$31.12
($1.58)
$29.54
$88.62
Former Universal Waste Customers
32 gallon
$19.78
($1.31)
$18.47
$55.41
64 gallon
$25.46
($1.31)
$24.15
$72.45
96 gallon
$31.12
($1.31)
$29.81
$89.43
Backyard Service
$61.80
($1.31)
$60.49
$181.47
Objective
Confirm that EDCO has billed only up to the maximum rates allowed in the Agreement.
Procedures
We obtained an Excel download of EDCO's single-family and multi -family customers in the
City. This included each customer's name, service address, number and sizes of containers,
and type of service. We sorted and analyzed this information, and compared it to the City's
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Performance Audit of EDCO Disposal — May 11, 2017
currently approved rate schedule. We also reviewed historical billing information. We
sought to identify any inconsistencies in the data.
Additionally, we conducted field observations of a sample of approximately 1,100 single
family customer locations in the City. We compared our observations to the size of cart for
which each customer was being billed by EDCO.
Finding
Based on our review, we found that eight (8), or approximately 0.7% of the customers in
our sample, had a cart that was smaller than the size for which the customer was being
billed. For example, a customer with a 64 gallon cart was being billed for a 96 gallon cart.
EDCO has said that it will contact these eight customers and issue a credit for the amount
they were overbilled. Additionally, EDCO has said that it plans to conduct a follow up audit
of its single family customers in the City to ensure that they are being properly billed for the
size of their cart.
4.2 Customer Recycling Credits
Background
In January 2013, the recycling rebate was transitioned to a customer recycling credit. These
credits are incorporated into the amounts billed to customers. As shown above in Table 5,
former customers of Universal receive a slightly lower recycling credit.
Objective
Confirm that EDCO has accurately accounted for the recycling credit.
Procedures
We reviewed the billing download and reports from EDCO's billing system to verify that all
customers are receiving the correct recycling credit.
Findings
We found that the company had properly accounted for the recycling credit in the amount
it billed to customers.
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Performance Audit of EDCO Disposal — May 11, 2017
4.3 Insurance, Bond and Letter of Credit
Background
EDCO is required to obtain and maintain insurance, bonds, and letters of credit in relation to
the services they provide to the City. Section 9.4 of the Agreement requires EDCO to obtain
the insurance coverage shown in Table 8.
Table 6 — Required Insurance Coverages
Type of Coverage
Coverage Limit
Aggregate
General Liability
$10 million
Per Occurrence
$5 million
Auto Liability
Aggregate
$10 million
Per Occurrence
$5 million
Workers Comp
Aggregate
As required by State
law
Per Occurrence
Section 9.5 of the Agreement requires EDCO to furnish and maintain during the contract term
a performance bond in the amount of $1,750,000.00. The purpose of the performance bond
is to guarantee EDCO's performance of its obligations under the Agreement.
Section 9.6 of the Agreement requires EDCO to furnish and maintain during the contract term
an irrevocable letter of credit in the amount of $250,000.00. The purpose of the letter of
credit is to provide the City with a more liquid form of surety to guarantee EDCO's
performance of its contractual obligations.
Objective
Confirm that EDCO has obtained and maintained the insurance coverage, the performance
bond, and letter of credit as required in the Agreement.
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Procedures
We obtained and reviewed copies of the insurance certificates, performance bond, and letter
of credit that EDCO had provided to the City.
We will request copies of the most recent renewals of these documents, and confirm they
meet the requirements in the Agreement.
Finding
We found that EDCO had satisfied the insurance, bond, and letter of credit requirements
under the Agreement.
4.4 Fees Paid to the City
Background
Sections 3.2.1 and 3.2.2 of the Agreement require EDCO to pay a Collector Fee and an
Environmental Programs Fee, respectively. The Collector Fee is paid to the City in
consideration for the exclusive right to collect waste in the City. The Environmental Programs
Fee is paid to the City and used to support the City's environmental programs.
The amount of these fees were initially set in the Agreement, and have been annually
adjusted based on the same percent that customer rates have been adjusted. In 2015,
EDCO's Collector Fee and Environmental Programs Fee were both adjusted to account for the
amount of these fees that the City had previously received from Universal.
The amount of these fees paid by EDCO and Universal in the last three years are shown below
in Table 7
Table 7 — Fees Paid to the City by EDCO
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Performance Audit of EDCO Disposal — May 11, 2017
Objective
Confirm that EDCO has accurately paid to the City the Collector Fee and Environmental
Programs Fee.
Procedures
We obtained from the City a list of payments received by the City from EDCO. We compared
the amounts the City received from EDCO with the payments required in the Agreement.
We reviewed the calculation of the amounts due to the City for the Collector Fee and the
Environmental Fee. We obtained information from the City to confirm the payments
received by the City. We evaluated those payments to ensure that they complied with the
Agreement (and the amendment to the Agreement).
Findings
We found that EDCO had correctly paid its Collector Fees and Environmental Program Fees
pursuant to the terms of the Agreement
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5. PREVIOUS RATE ADJUSTMENTS
5.1 Previous Rate Adjustments
Background
Section 6.3 of the Agreement allows EDCO to adjust its rates each year effective on July 1St
Section 6.4 of the Agreement sets forth the method by which EDCO may adjust its rates. This
method is based on changes in certain economic indices, and changes in the cost of disposal
tipping fees. Rates are adjusted each year effective July 1st. Since the inception of the
Agreement, EDCO's rates have been adjusted five times. The historic percent increases in
EDCO's rates since the beginning of the Agreement are shown below in Table 7.
Table 8 — Historic Rate Adjustments
In 2016, EDCO was scheduled to receive a 1.3% rate increase effective on July 1st.
However, the City determined that EDCO's rates were subject to the notification and
public hearing requirements of Proposition 218. As a result, the rate adjustment was
rescheduled to January 1, 2017. To account for the delay, EDCO requested that the
adjustment percent be increased by 50% (or 65 basis points) to 1.95%. In calculating the
rate adjustment that is scheduled for July 1, 2017, the City plans to deduct the additional
65 basis points.
Objective
Confirm that EDCO's rate adjustments that became effective July 1, 2014 and January 1, 2017
were correctly calculated.
Procedures
We reviewed the rate adjustments that become effective on July 1, 2014 and January 1, 2017.
We reviewed them for accuracy and completeness. We confirmed the external data (e.g., CPI,
PPI, disposal tip fees, etc.) on which the rate adjustments were based and ensured that EDCO
followed the methodology outlined in exhibit 5A of the Agreement. We also considered the
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method applied to account for the delay in EDCO's rate adjustment from July 1, 2016 to
January 1, 2017.
Findings
We found that the underlying calculations for the rate adjustments that became effective
on July 1, 2014 and January 1, 2017 were accurate and in accordance with the methodology
outlined in Exhibit 5A of the Agreement.
We found that the increase of 65 basis points to the January 1, 2017 was less than what
EDCO could have reasonably requested. To fully account for its lost revenue for half of the
fiscal year, EDCO could have requested that rates be adjusted by 2.6% (1.3% X 2, or twice
the percent it was due on July 1).
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6. CONCLUSION
6.1 Conclusion
Other than the minor number of single family customers that were overbilled for the size
of their cart, for the period from January 1, 2014 through December 31, 2016, we found
nothing to indicate that EDCO had not fulfilled the terms of its Agreement with the City.
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