CC SR 20180605 K - Republic and Waste ManagementRANCHO PALOS VERDES CITY COUNCIL MEETING DATE: 06/05/2018
AGENDA REPORT AGENDA HEADING: Consent Calendar
AGENDA DESCRIPTION:
Consideration and possible action to receive and file results of performance audits of
two of the City’s commercial waste haulers, USA Waste of California, Inc. DBA Waste
Management and Consolidated Disposal Service, LLC DBA Republic Services
RECOMMENDED ACTION:
(1) Receive and file the performance audit reports for USA Waste of California, Inc.
DBA Waste Management and Consolidated Disposal Service, LLC DBA Republic
Services for calendar years 2015 and 2016.
FISCAL IMPACT: The audits were paid for from the Waste Reduction fund, which
consists of AB 939 fees paid to the City by the commercial waste haulers.
Amount Budgeted: $15,000
Additional Appropriation: N/A
Account Number(s): 213-400-0000-5101
ORIGINATED BY: Lauren Ramezani, Senior Administrative Analyst
REVIEWED BY: Elias Sassoon, PE, Director of Public Works
APPROVED BY: Doug Willmore, City Manager
ATTACHED SUPPORTING DOCUMENTS:
A. Performance Audit Report of USA Waste of California, Inc. DBA Waste
Management (page A-1)
B. Performance Audit Report of Consolidated Disposal Service, LLC DBA
Republic Services (page B-1)
BACKGROUND AND DISCUSSION:
The City’s two largest commercial haulers, USA Waste of California, Inc. DBA Waste
Management (Waste Management) and Consolidated Disposal Service, LLC DBA
Republic Services (Republic) have been recently audited to assure compliance with the
terms of their non-exclusive commercial haulers agreements. These audits were
performed for transparency purposes and as a part of the City’s fiduciary responsibility,
not because of concerns regarding under-reporting, under-payments and/or the lack of
compliance with the terms of the agreements.
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Based on the results of the audits, Staff is pleased to report that there are no findings
indicating discrepancies in the waste and recycling tonnage reports and/or in the
quarterly fees paid to the City for the calendar years 2015 and 2016.
The City has non-exclusive commercial agreements with seven waste haulers: California
Waste Services LLC, CalMet Services, Inc., EDCO Disposal Corporation, Universal
Waste Systems, Inc., West Coast Waste & Roll Off Service, Republic, and Waste
Management. These seven haulers are authorized to provide bins to business
customers for on-going business activities, and roll-off dumpsters to residential and
commercial customers for construction, demolition, cleanup, and remodeling activities.
Customers are able to choose from any of the City’s authorized commercial waste
haulers. The rates charged by the haulers for various services are competitive and are
set by the haulers, not by the City.
Under the terms of the Agreements, and in consideration for the right to offer their
services in the City, the franchised waste haulers are required to:
• Remit to the City a Franchise Fee equal to 5% of their gross receipts collected from
customers in the City.
• Remit to the City an AB 939 Fee equal to 5% of their gross receipts collected from
customers in the City. As a financial incentive to increase recycling, the hauler may
reduce its AB 939 fees by the same percent as its diversion rate. For example, if the
hauler diverts/recycles 10% of the waste it collects in the City, the AB 939 Fee for
that period is reduced by 10%.(e.g., they would pay 4.5% instead of 5%).
• Provide public outreach and education, and upon customer request, provide
collection of recyclables, green waste, or organics such that customers are able to
comply with State-mandated Mandatory Commercial Recycling (AB 341) and
Mandatory Commercial Organics Recycling (AB 1826).
• Submit to the City quarterly reports that include the amount of solid waste and
recycling tons collected in the City.
• Notify the City prior to any vehicle inspection performed by the California Highway
Patrol (CHP).
In addition to these requirements, the Agreements give the City the right to inspect/audit the
haulers records, and require the haulers to provide copies of any requested records at no
cost to the City. In October 2017, the City retained MSW Consultants (MSW) to conduct
performance audits on Waste Management and Republic for calendar years 2015 and
2016. MSW has audited over 40 waste haulers and have certified public accountant (CPA)
and experienced staff that are trained for such performance audits. Furthermore, in 2016
MSW successfully completed performance audits of the City’s residential haulers, EDCO
Disposal Services and Universal Waste Systems, Inc.
Waste Management and Republic were selected for auditing because they have the
largest share of the commercial waste collection market in the City, representing 67%
(or ~$976,000) of the total annual reported commercial hauling market activity in the
City. As mentioned above, these audits were performed for transparency purposes and
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not due to any specific fee-payment or performance-related concerns. The objectives of
the audits were to:
• Confirm each hauler’s proper payment of fees to the City.
• Review each hauler’s quarterly and annual waste diversion reports.
• Assess each hauler’s compliance with Mandatory Commercial Recycling (AB
341) and Mandatory Commercial Organics Recycling (AB 1826) requirements.
• Review each hauler’s CHP Biennial Inspection of Terminal (BIT) inspection
report.
MSW performed audit procedures on each waste hauler that were agreed upon by the City
in advance. After reviewing the submitted calendar year 2015 and 2016 quarterly reports,
which indicated tonnage of waste and recycling collected and fees paid to the City, MSW ’s
audit results concluded that both haulers have been in material compliance with the terms of
their franchise agreements, and no variances or issues were found. MSW’s reports for
Waste Management and Republic are included with this report as Attachments A and B,
respectively.
ALTERNATIVES:
In addition to the Staff recommendation, the following alternative action is available for
the Council’s consideration:
1. Take other action as deemed appropriate by the City Council.
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SOLID WASTE CONSULTANTS
TO LOCAL GOVERNMENT
27393 YNEZ ROAD, SUITE 259, TEMECULA, CALIFORNIA 92591
951.694.4001 951.704.9776 (CELL) 951.694.9001 (FAX)
WWW.MSW-CONSULTANTS.COM
April 3, 2018
Ms. Lauren Ramezani Via E-mail
Sr. Administrative Analyst
City of Rancho Palos Verdes
30940 Hawthorne Blvd.
Rancho Palos Verdes, California 90275
Performance Audit – Waste Management
Franchisee Contact: Ms. Fatima Haidin
Dear Ms. Ramezani:
Introduction and Executive Summary
We have completed the performance audit of USA Waste of California, Inc. (Waste
Management) for the calendar years 2015 and 2016. Based on the procedures we
performed, which are described in our proposal dated June 14, 2017, we found that
Waste Management was in material compliance with the terms of its franchise
agreement for the calendar years 2015 and 2016. This report describes the project
background and objectives, as well as the procedures we performed, their limitations
and our findings.
Background
The City currently arranges for commercial solid waste collection service through non-
exclusive franchise agreements (Agreements) with several haulers, including Waste
Management. Under the terms of its non-exclusive agreement with the City, Waste
Management is required to:
Remit to the City a Franchise Fee equal to 5% of its gross receipts collected from
customers in the City.
Remit to the City an AB 939 Fee equal to 5% of its gross receipts collected from
customers in the City. Waste Management may reduce its AB 939 Fee by the
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SOLID WASTE CONSULTANTS
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Performance Audit
Waste Management
April 3, 2018
Page 2 of 8
same percent as its diversion rate. For example, if the company diverts 10% of
the waste it collects in the City, the AB 939 Fee for that period is reduced by 10%.
Offer to provide its customers with collection of recyclables, greenwaste, or
organics such that customers are able to c omply with the State’s mandatory
recycling laws. AB 341 requires businesses that generate four or more cubic
yards of waste per week to participate in recycling. AB 1826 requires businesses
that generate four or more cubic yards of organic material to participate in
organics recycling.
Submit to the City quarterly reports that include the amount of tons collected by
material type.
Give the City at least fifteen (15) days prior written notice of any biennial
inspection of terminal (BIT) performed by the California Highway Patrol.
In addition to these requirements, Section 10.3 of the Agreement gives the City the right
to inspect Waste Management’s records.
Objectives
The objectives of our audit were to:
Confirm proper payment of fees to the City.
Review quarterly and annual waste diversion reports.
Assess compliance with AB 341 and AB 1826.
Review Waste Management’s CHP BIT inspection reports.
Procedures
In our audit, we performed the following procedures:
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Waste Management
April 3, 2018
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Verified the mathematical accuracy of the quarterly reports;
Agreed the amounts on the quarterly reports to Waste Management’s billing
system;
Performed a false-exclusion test. We performed an on-screen review of a
representative sample of Waste Management’s service addresses with Rancho
Palos Verdes (RPV) street names. This was done to ensure that the gross receipts
from the accounts we reviewed with RPV addresses were included in the
amounts on which Waste Management’s fees were based;
Reviewed Waste Management’s reported amount of tons collected from its
customers in the City.
Reviewed and analyzed the annual tonnage and waste diversion reports
submitted by Waste Management.
Assessed the extent to which Waste Management has assisted customers in
complying with the State’s mandatory recycling laws by interviewing company
staff and reviewing company provided outreach materials.
Created a matrix of recycling compliance that categorizes customers by recycling
status.
Reviewed Waste Management’s BIT inspection reports.
Limitations
These procedures are subject to certain limitations. The specific procedures described
above were tailored to this company and based on the procedures described in our
proposal. These procedures were agreed to by the City and are intended to meet the
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Waste Management
April 3, 2018
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City’s objectives in a reasonable manner. Had we performed additional procedures,
other matters might have come to our attention that would have been reported.
This report is intended solely for the use of the City of Rancho Palos Verdes 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.
Findings
Fees Paid to the City
Based on the procedures we performed, we found nothing to indicate that the
Franchise Fees and AB 939 Fees paid to the City were incorrect. Waste Management’s
Franchise Fees and AB 939 Fees for 2015 and 2016 are shown below in Table 1 and on
the following page in Table 2.
Table 1 – Franchise Fees
2015 2016
Commercial Industrial Total Commercial Industrial Total
Gross Receipts $341,564 $50,215 $391,778 $381,957 $65,221 $447,178
Franchise Fee
Rate 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%
Franchise Fee $17,078 $2,511 $19,589 $19,098 $3,261 $22,359
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April 3, 2018
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Table 2 – AB 939 Fees
2015 2016
Commercial
Bins Rolloff Total Commercial
Bins Rolloff Total
Gross Receipts $341,564 $50,215 $391,778 $381,957 $65,221 $447,178
Effective AB 939
Rate* 5.00% 4.78% 4.97% 4.74% 4.51% 4.71%
AB 939 Fee $17,078 $2,399 $19,478 $18,115 $2,943 $21,058
*After adjusting for the diversion rate
Quarterly Reports
We found that the amount of commercial tons reported in 2015 were understated
because Waste Management’s tonnage allocation model erroneously did not allocate
enough tons to the City. We found that Waste Management identified the problem
early in 2016, and began correctly reporting its tonnage in 2016.
We estimate that Waste Management understated its commercial tons in 2015 by
approximately 1,000 tons. However, this understatement had no impact on Waste
Management’s AB 939 Fee calculation in 2015.
Waste Management performs separate calculations for its commercial and industrial AB
939 Fees. In calculating its AB 939 Fee for 2015, Waste Management did not claim any
diversion credit for its commercial tons. As a result, the understatement in commercial
tons had no impact on the company’s AB 939 Fee in 2015. The company’s reported
tonnage collected for 2015 and 2016 are shown on the following page in Table 3.
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Table 3 – Reported Tonnage by Type
Material Type 2015 2016
Commercial
Bins Rolloff Total Commercial
Bins Rolloff Total
Landfilled 389 562 951 1,608 825 2,433
Recyclables 0 25 25 87 92 179
Total 389 587 976 1,695 917 2,612
Diversion Rate 0.0% 4.3% 2.6% 5.1% 10.0% 6.9%
Compliance with AB 341 and AB 1826
We found that Waste Management had an ongoing program to educate and outreach to
its customers regarding AB 341 and AB 1826. This program includes:
Outreach – Phone Calls and Personal Visits
During 2016, Waste Management’s public sector representative and a consultant
reached out and conducted site visits at each customer in the City that was not in
compliance with AB 341 or AB 1826. During these site visit, Waste Management’s
representatives discussed the State’s new laws with customers, and provided brochures
about their programs. The representatives made follow up calls as needed.
Education – Informational Brochures
Waste Management has mailed each of its commercial customers in the City an
informational brochures regarding mandatory commercial recycling.
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April 3, 2018
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Monitoring – Excel Spreadsheet
Waste Management recorded its outreach activities in an excel spreadsheet.
Customer Compliance Overview
Table 4 below shows the regulatory requirement and recycling status of Waste
Management’s customers in the City. Table 4 also shows that, of Waste Management’s
forty five (45) customers in the City, one (1) customer was not in compliance with the
state’s mandatory commercial recycling laws.
Table 4 – Mandatory Recycling Compliance
Recycling Status
Regulatory Status
Non-
mandated
Mandated
for Recycling
Only
Mandated
for Organics
and
Recycling
Total
Organics and Recycling 2 - - 2
Recycling 9 2 4 15
Not Recycling 27 0 1 28
Total 38 2 5 45
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Company Response
In response to the customer that was not in compliance with State Law, Waste
Management represented that the company would be scheduling a meeting with the
Facilities Manager to discuss providing the customer with recycling and foodwaste
collection service.
BIT Inspection Reports
We found that Waste Management achieved a rating of Satisfactory on its most recent
BIT report from December 2015.
Recommendation
Receive and file this report.
* * *
Review conducted and report prepared by:
1,180
_____________________________ _____________________________
David L. Davis, CMA Craig D. Stroud
MSW Consultants MSW Consultants
A-8
SOLID WASTE CONSULTANTS
TO LOCAL GOVERNMENT
27393 YNEZ ROAD, SUITE 259, TEMECULA, CALIFORNIA 92591
951.694.4001 951.704.9776 (CELL) 951.694.9001 (FAX)
WWW.MSW-CONSULTANTS.COM
April 3, 2018
Ms. Lauren Ramezani Via E-mail
Sr. Administrative Analyst
City of Rancho Palos Verdes
30940 Hawthorne Blvd.
Rancho Palos Verdes, California 90275
Performance Audit – Republic Services
Franchisee Contact: Mr. David Yen
Dear Ms. Ramezani:
Introduction and Executive Summary
We have completed the performance audit of Consolidated Services Disposal Service, LLC
dba Republic Services (Republic Services) for the calendar years 2015 and 2016. Based on
the procedures we performed, which are described in our proposal dated June 14, 2017,
we found that Republic Services was in material compliance with the terms of its franchise
agreement for the calendar years 2015 and 2016. This report describes the project
background and objectives, as well as the procedures we performed, their limitations and
our findings.
Background
The City arranges for commercial solid waste collection service through non-exclusive
franchise agreements (Agreements) with several haulers, including Republic Services.
Under the terms of its non-exclusive agreement with the City, Republic Services is
required to:
Remit to the City a Franchise Fee equal to 5% of its gross receipts collected from
customers in the City.
Remit to the City an AB 939 Fee equal to 5% of its gross receipts collected from
customers in the City. Republic Services may reduce its AB 939 Fee by the same
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SOLID WASTE CONSULTANTS
TO LOCAL GOVERNMENT
Performance Audit
Republic Services
April 3, 2018
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percent as its diversion rate. For example, if the company diverts 10% of the waste
it collects in the City, the AB 939 Fee for that period is reduced by 10%.
Offer to provide its customers with collection of recyclables, greenwaste, or
organics such that customers are able to c omply with the State’s mandatory
recycling laws. AB 341 requires businesses that generate four or more cubic yards
of waste per week to participate in recycling. AB 1826 requires businesses that
generate four or more cubic yards of organic material to participate in organics
recycling.
Submit to the City quarterly reports that include the amount of tons collected by
material type.
Give the City at least fifteen (15) days prior written notice of any biennial
inspection of terminal (BIT) performed by the California Highway Patrol.
In addition to these requirements, Section 10.3 of the Agreement gives the City the right
to inspect Republic Services’ records.
Objectives
The objectives of our audit were to:
Confirm proper payment of fees to the City.
Review quarterly and annual waste diversion reports.
Assess compliance with AB 341 and AB 1826.
Review Republic Services’ CHP BIT inspection reports.
Procedures
In our audit, we performed the following procedures:
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Performance Audit
Republic Services
April 3, 2018
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Verified the mathematical accuracy of the quarterly reports;
Agreed the amounts on the quarterly reports to Republic Services’ billing system;
Performed a false-exclusion test. We performed a review of a representative
sample of Republic Services’ service addresses with Rancho Palos Verdes (RPV)
street names. This was done to ensure that the gross receipts from the accounts
we reviewed with RPV addresses were included in the amounts on which Republic
Services’ fees were based;
Reviewed Republic Services’ reported amount of tons collected from its customers
in the City.
Reviewed and analyzed the annual tonnage and waste diversion reports submitted
by Republic Services.
Assessed the extent to which Republic Services has assisted customers in
complying with the State’s mandatory recycling laws by interviewing company
staff and reviewing company provided outreach materials.
Created a matrix of recycling compliance that categorizes customers by recycling
status.
Reviewed Republic Services BIT inspection reports.
Limitations
These procedures are subject to certain limitations. The specific procedures described
above were tailored to this company and based on the procedures described in our
proposal. These procedures were agreed to by the City and are intended to meet the
City’s objectives in a reasonable manner. Had we performed additional procedures, other
matters might have come to our attention that would have been reported.
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TO LOCAL GOVERNMENT
Performance Audit
Republic Services
April 3, 2018
Page 4 of 8
This report is intended solely for the use of the City of Rancho Palos Verdes 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.
Findings
Fees Paid to the City
Based on the procedures we performed, we found nothing to indicate that the Franchise
Fees and AB 939 Fees paid to the City were incorrect. Republic Services’ Franchise Fees
and AB 939 Fees for 2015 and 2016 are shown below in Table 1 and Table 2.
Table 1 – Franchise Fees
2015 2016
Gross Receipts $507,102 $523,710
Franchise Fee Rate 5.0% 5.0%
Franchise Fee $25,355 $26,185
Table 2 – AB 939 Fees
2015 2016
Gross Receipts $507,102 $523,710
Effective AB 939 Fee Rate* 4.5% 4.4%
AB 939 Fee $22,668 $23,209
* After adjusting for the diversion rate.
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Performance Audit
Republic Services
April 3, 2018
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Quarterly Reports
We found nothing to indicate that the amount of tons reported by Republic Services were
incorrect. Republic Services’ reported tonnage for 2015 and 2016 are shown below in
Table 3.
Table 3 – Reported Tonnage
Material Type 2015 2016
Landfilled 3,129 2,966
Recyclables 362 382
Total 3,491 3,348
Diversion Rate 10.4% 11.4%
Compliance with AB 341 and AB 1826
We found that Republic Services had an ongoing program to educate and outreach to its
customers regarding AB 341 and AB 1826. This program includes:
Outreach – Phone Calls
A designated account manager that periodically calls every customer. In addition, there
is a separate food waste account manager that calls customers with organic-rich waste
streams.
Outreach – Personal Visits
A designated account manager periodically conducts site visits. A waste assessment, with
recommended solutions, is provided to each customer. If the customer meets the
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threshold for mandatory recycling, the account manager will provide the customer a
proposal for recycling services.
Education – Website and Marketing Material
Education and outreach information is provided to all customers even if they do not meet
the threshold for mandatory recycling. Monthly invoice inserts designed specifically to
introduce and propose services for mandatory recycling are used. Invoices include a
CalRecycle approved message and a website link with additional information regarding
mandatory recycling. Republic Services also provides custom designed marketing
material at no charge to its cities.
Outreach – Technical Assistance
Technical recycling assistance is offered through a customer service call line, direct
support from an account manager, and a new mobile app and online platform. The
mobile app enables customers to pay their bill, request services and receive alerts.
Monitoring
Periodic review of all customers is recorded in the Notes section of Republic’s billing
system.
Customer Compliance Overview
Table 4 on the following page shows the regulatory requirement and recycling status of
Republic Services’ customers in the City. Table 4 shows that, of Republic Services’ thirty
(30) customers in the City, seven (7) customers were not in compliance with the state’s
mandatory commercial recycling laws.
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Performance Audit
Republic Services
April 3, 2018
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Table 4 – Mandatory Recycling Compliance
Recycling Status
Regulatory Requirement
Non-
mandated
Mandated
for
Recycling
Only
Mandated
for Organics
and
Recycling
Total
Organics and Recycling - - - 0
Recycling 1 1 6 8
Not Recycling 15 1 6 22
Total: 16 2 12 30
Company Response
In response to the seven customers that were not in compliance with State Law, Republic
represented that, starting in early April, two representatives from the company would
contact each of the seven customers to conduct on-site waste assessments. The company
would then propose recycling and organics collection services that would enable these
customers to comply with State law.
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Performance Audit
Republic Services
April 3, 2018
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BIT Inspection Reports
We found that Republic Services achieved a rating of Satisfactory on its most recent BIT
report from October 2013. These reports are now conducted every 6 years per the CHP.
Recommendation
Receive and file this report.
* * *
Review conducted and report prepared by:
1,180
_____________________________ _____________________________
David L. Davis, CMA Craig D. Stroud
MSW Consultants MSW Consultants
B-8