denver arapahoe disposal site · non-hazardous solid waste at the denver arapahoe disposal site...

Dennis J. Gallagher Auditor

Office of the Auditor

Audit Services Division

City and County of Denver

DenverArapahoeDisposalSitePerformanceAudit

October2014

The Auditor of the City and County of Denver is independently elected by the citizens of Denver. He is responsible for examining and evaluating the operations of City agencies for the purpose of ensuring the proper and efficient use of City resources and providing other audit services and information to City Council, the Mayor and the public to improve all aspects of Denver’s government. He also chairs the City’s Audit Committee.

The Audit Committee is chaired by the Auditor and consists of seven members. The Audit Committee assists the Auditor in his oversight responsibilities of the integrity of the City’s finances and operations, including the integrity of the City’s financial statements. The Audit Committee is structured in a manner that ensures the independent oversight of City operations, thereby enhancing citizen confidence and avoiding any appearance of a conflict of interest.

Audit Committee

Dennis Gallagher, Chair Robert Bishop Maurice Goodgaine Jeffrey Hart Leslie Mitchell Timothy O’Brien, Vice-Chair Rudolfo Payan

Audit Staff

John Carlson, Deputy Director, JD, MBA, CIA, CRMA, CGAP Chris Wedor, Internal Audit Supervisor, MBA Katja Freeman, Lead Internal Auditor, MA, MELP Manijeh Taherynia, Senior Internal Auditor, CPA, CFE, CRMA Torry J. van Slyke, Senior Internal Auditor

You can obtain copies of this report by contacting us at:

Office of the Auditor

201 West Colfax Avenue, Department 705 Denver CO, 80202

(720) 913‐5000 Fax (720) 913‐5247

Or download and view an electronic copy by visiting our website at:

www.denvergov.org/auditor

A2014‐006

To promote open, accountable, efficient and effective government by performing impartial reviews and other audit services that provide objective and useful information to improve decision making by management and the people.

We will monitor and report on recommendations and progress towards their implementation.

City and County of Denver 201 West Colfax Avenue, Department 705 Denver, Colorado 80202 720-913-5000 FAX 720-913-5247 www.denvergov.org/auditor


October 16, 2014 Lars Williams, Director of Solid Waste Public Works Solid Waste Management City and County of Denver Dear Mr. Williams: Attached is our performance audit of the Denver Arapahoe Disposal Site. The purpose of the audit was to assess the efficiency and accuracy of the invoice reconciliation performed by the Department of Public Works (PW) for the services it receives from Waste Management of Colorado (WMC), specifically for the Solid Waste Management Division’s (SWMD’s) dumping of non-hazardous solid waste at the Denver Arapahoe Disposal Site (DADS) and other WMC-owned Denver-area transfer stations. The proper management of a large urban landfill and disposal facility is an important task for our City. Our review and conclusions are designed to give SWMD additional insights to this activity. While the generation of waste may increase proportionally with income, the economic and environmental costs associated with landfills continue to rise. Ideally, waste reduction at the source, through policy initiatives, may promote the most effective and efficient way of handling disposal issues in the future as our City expands. Waste prevention should be our next target. My team found that, although SWMD management believes that the City’s DADS disposal rates are fair, SWMD management does not actively investigate whether the DADS rates proposed by WMC each year are indeed lowest, best, consistent, or competitive, as specified in the contract. We also found that, although the DADS disposal rates that PW pays appear to be consistent and competitive with what other Denver metro-area municipalities pay at their respective landfills, PW has not received the lowest or best disposal rates at DADS. It is my sincere hope that you look into this matter and reconcile any gaps my team has identified in order to ensure that the City is receiving the lowest and best disposal rates at the DADS landfill. If you have any questions, please call Kip Memmott, Director of Audit Services, at 720-913-5000. Sincerely,




cc: Honorable Michael Hancock, Mayor

Honorable Members of City Council Members of Audit Committee Ms. Cary Kennedy, Deputy Mayor, Chief Financial Officer Ms. Janice Sinden, Chief of Staff Mr. David P. Edinger, Chief Performance Officer Ms. Beth Machann, Controller Mr. Scott Martinez, City Attorney Ms. Janna Young, City Council Executive Staff Director Mr. L. Michael Henry, Staff Director, Board of Ethics



City and County of Denver 201 West Colfax Avenue, Department 705 Denver, Colorado 80202 720-913-5000 FAX 720-913-5247 www.denvergov.org/auditor


AUDITOR’S REPORT

We have completed an audit of the Denver Arapahoe Disposal Site. The purpose of the audit was to assess the efficiency and accuracy of the invoice reconciliation performed by the Department of Public Works (PW) for the services it receives from Waste Management of Colorado (WMC), specifically for the Solid Waste Management Division’s (SWMD’s) dumping of non-hazardous solid waste at the Denver Arapahoe Disposal Site (DADS) and other WMC-owned Denver-area transfer stations. The audit also assessed PW’s role in the process to negotiate and determine solid waste disposal fees for dumping City-hauled waste at DADS. While DADS and the three solid waste transfer stations SWMD uses to dump solid waste were included in evaluating SWMD’s invoice reconciliation, the assessment of disposal rates was limited to DADS, since this is the only facility where SWMD has the ability to negotiate disposal rates.

This performance audit is authorized pursuant to the City and County of Denver Charter, Article V, Part 2, Section 1, General Powers and Duties of Auditor, and was conducted in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.

Our audit work found that, although SWMD management believes the City’s DADS disposal rates are fair, SWMD management does not actively investigate whether the DADS rates proposed by WMC each year are indeed lowest, best, consistent, or competitive. We also found that, although the DADS disposal rates PW pays appear to be consistent and competitive with what other metro-area municipalities pay at their respective landfills, PW has not received the lowest or best disposal rates at DADS.

We extend our appreciation to Lars Williams and Mike Lutz and the personnel who assisted and cooperated with us during the audit.

Audit Services Division

Kip Memmott, MA, CGAP, CRMA Director of Audit Services

For a complete copy of this report, visit www.denvergov.org/auditor Or Contact the Auditor’s Office at 720.913.5000

Background The Solid Waste Management Division

(SWMD) of the Department of Public

Works (PW) operates the City’s trash

collection program, which serves

Denver’s single family homes,

residential complexes with seven units

or fewer, and most municipal facilities.

Contractual agreements and an

Executive Order require all non‐

hazardous solid waste hauled in City

vehicles to be directed to the Denver

Arapahoe Disposal Site (DADS).

Although the City owns DADS, Waste

Management of Colorado (WMC) has

assumed exclusive long‐term

operational responsibilities and

environmental liabilities for the site.

WMC pays a percentage of its DADS

annual revenues to the City as

royalties, which are a main source of

funding for the Department of

Environmental Health (DEH).

Purpose This audit sought to determine

whether PW ensures that WMC

charges the City the lowest, best

disposal rates for the City's use of

DADS, and whether SWMD’s current

reconciliation process ensures efficient

and accurate payment to WMC.

City and County of Denver – Office of the Auditor Audit Services Division

REPORT HIGHLIGHTS

Denver Arapahoe Disposal Site October 2014

The audit assessed contract compliance of the disposal rates that the Department of Public Works (PW) receives at

the Denver Arapahoe Disposal Site (DADS) and examined PW’s invoice reconciliation process for the services it

Highlights Contractual agreements between the City and Waste Management of

Colorado (WMC) state that the City shall receive the lowest and best

per‐ton disposal rate for non‐hazardous solid waste at the Denver

Arapahoe Disposal Site (DADS). In addition, these contracts stipulate

that the DADS disposal rates WMC charges the City are to be

consistent and competitive with disposal rates at other Denver

Metropolitan‐area landfills. Management within the Department of

Public Works’ (PW) Solid Waste Management Division (SWMD)

believes the City’s DADS disposal rates are fair. However, audit work

revealed that PW has not received the lowest or best disposal rates at

DADS and that SWMD management does not actively investigate

whether its DADS deposal rates are indeed lowest, best, consistent, or

competitive.

We also assessed the efficiency and accuracy of PW’s invoice

reconciliation for the services it receives from WMC, specifically for

SWMD’s dumping of non‐hazardous solid waste at DADS and other

WMC‐owned, metro‐area transfer stations. Audit work revealed that

these reconciliations comply with the City’s Fiscal Accountability Rules

and are important aspects of SWMD’s management and fiduciary

duties. However, the current processes depend heavily on paper‐

based documentation and manual data entry, and rely solely on data

from WMC. PW could expand the use of their trucks’ onboard

systems to generate its own solid waste load data. Moreover, SWMD

could coordinate with WMC to establish a regular transfer of solid

waste load data in an effort to streamline its invoice reconciliation.

TABLE OF CONTENTS

INTRODUCTION & BACKGROUND 1

SCOPE 9

OBJECTIVE 9

METHODOLOGY 9

FINDING 1 11

The Department of Public Works Should Ensure its Disposal Rates are the Lowest and Best, and Consistent and Competitive 11

RECOMMENDATIONS 17

FINDING 2 18

The Department of Public Works Should Streamline and Improve its Invoice Reconciliation Process 18

RECOMMENDATIONS 23

Other Pertinent Information 24

APPENDIX A 29

Comparison of Actual and CPI-Based Annual DADS Base Rates 29

AGENCY RESPONSE 30

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INTRODUCTION & BACKGROUND Roles and Duties of the Solid Waste Management Division

The Solid Waste Management Division (SWMD) of the Department of Public Works (PW) operates the City’s Trash Collection Program, which provides weekly trash collection for Denver single family homes and small residential complexes with seven units or fewer, municipal facilities except for the Wellington Webb Municipal Building, and Denver Public Schools. SWMD hauls City-generated trash and negotiates City disposal rates, as well as conducts the following services and programs:

Denver Recycles – A voluntary program with more than 100,000 participants, 2 million collections per year, and more than 30,000 tons of materials recycled annually

Seasonal and Special Recycling – Includes leaf drop-off programs in the fall, Christmas tree recycling in the winter, and a mulch giveaway and compost sale in the spring

Denver Composts – A pay-to-participate pilot program for composting with more than 2,200 residents, who are reducing their waste by more than 50 percent through composting food, soiled paper, and yard debris for a small fee

Denver Partners Against Graffiti – Provides free graffiti abatement services to residents and businesses

Keep Denver Beautiful – Programs that provide support and direction for neighborhood organizations in maintaining the aesthetics of the City and coordinate volunteer litter collection, graffiti removal, and clean-up projects throughout the City

Ancillary Collection Services / Large-Item Pickup – SWMD maintains a regularly scheduled Large-Item Pickup (LIP) system for large items, such as furniture and mattresses, on a nine-week rotation schedule. This service is available for residents who already receive trash services through the City.

According to the City and County of Denver, Mayor’s 2014 Budget, in 2013, SWMD employed 116.25 full-time equivalent (FTE) employees to service 174,000 Denver households and collect 215,000 tons of trash.1 According to the Solid Waste Master Plan, SWMD utilizes a fleet of approximately 200 vehicles, including collection vehicles, tractors and front-end loaders, plows, dump trucks, pickup trucks, and service vehicles.

The 2010 Solid Waste Master Plan further provides the City with a vision and suggests options for implementation for Denver’s future collection, transfer, and disposal of solid

1 This is the number of FTEs dedicated to the Trash Collection Program. In 2013, SWMD’s total personnel complement was 183.58 FTEs.

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waste, recyclables, and organics. The Plan also analyzes steps SWMD should take to achieve Denver’s waste management goal of a 30-percent reduction in landfill tons, using 2004 as the base year.2 The Master Plan process was started in 2007 and includes a study of cities similar to Denver for best practices and as a basis for comparison; multiple public surveys and meetings; a multi-season waste composition study; a tonnage projection analysis; and guidance from and coordination with the Mayor’s Office, City Council, Greenprint Denver, and other City agencies.3

Relative to other municipalities, Denver is unique in its trash collection practices in that the City does not directly charge residents or users for service. Instead, SWMD activities are financed through annual general fund encumbrances. Table 1 details solid waste expenditures in recent years. For 2014, SWMD has a budget of approximately $29 million.

Table 1

Funding for Solid Waste Management Division, 2012 – 2014

Expenditures 2012 Actual

2013 Appropriated

2014 Recommended

General Fund by Type

Personnel Services $11,194,881 $11,744,383 $12,163,899

Services and Supplies $5,750,636 $6,581,509 $8,035,117

Capital Equipment $25,976 $0 $0

Internal Services

And Misc. $7,191,469 $7,508,799 $7,819,384

$24,162,962 $25,834,691 $28,018,400

General Fund Activity

Administration $1,619,297 $1,360,389 $1,397,111

Graffiti Program $1,053,120 $1,445,713 $1,411,985

Keep Denver Beautiful $95,754 $110,438 $112,763

Large Item Pickup $1,318,968 $1,574,035 $1,587,935

Recycling $3,216,650 $3,952,622 $4,245,659

Trash Collection $16,859,172 $17,391,494 $19,262,947

$24,162,962 $25,834,691 $28,018,400

Special Revenue Fund by

Activity (Estimated)

Composting $0 $685,000 $1,081,700

Trash Collection $92,359 $84,300 $35,000

$92,359 $769,300 $1,116,700

Total Program Expenditures $24,255,321 $26,603,991 $29,135,100 $

Source: City and County of Denver, Mayor’s 2014 Budget, page 506.

2 Denver Public Works, Master Plan for Managing Solid Waste in the Mile High City, October 2010, page 4, https://www.denvergov.org/Portals/709/documents/master‐plan/master_plan_exec_summary.pdf. 3 Ibid.

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Types of Solid Waste Collection

SWMD provides different types of trash collection services:

Shared Dumpster Collection – Shared dumpsters are owned by the City, located in alleyways, and are emptied by specially designed trucks. This comprises approximately 47 percent of refuse collected.

Barrel Collection – Wheeled ninety-five-gallon barrels are owned by the City and are emptied by a side loader with a robotic arm operated by one driver. Approximately 31 percent of refuse is collected via barrels.

Manual Collection – SWMD crews physically pick up garbage contained in thirty-two-gallon size containers or bags (maximum fifty pounds) provided by residents, which are then loaded into a rear-load collection vehicle. Due to container size restrictions, most households use several containers or bags. Manual collection represents approximately 19 percent of SWMD’s total refuse.

Ancillary Collection Services – Manual collection of large items (Large-Item Pickup, or LIP) requires various equipment types including manual rear-load vehicles with up to two workers each. LIP represents approximately 3 percent of total collection.

SWMD deposits the waste it collects at one of four locations: a City-owned transfer station, one of two WMC-owned transfer stations, or directly to the City-owned and WMC-operated main landfill, the Denver Arapahoe Disposal Site (DADS). All waste collected at these transfer stations eventually ends up at DADS. Following are the names and locations of these specific dumping sites. Figure 1 shows the respective percentages of waste SWMD routes through each location.

Cherry Creek – Waste collected in southeast Denver is hauled to the Cherry Creek Transfer Station, which is owned by the City and located in SWMD’s southeast camp. SWMD routes the largest share of the trash it collects through this facility.

Disposal and Recycling (D&R) – Most waste collected in northeast Denver is taken to the D&R Transfer Station in Commerce City, which is owned by Waste Management of Colorado (WMC).

Union – Waste collected in southwest Denver is often routed through the WMC-owned Union Transfer Station, located in Englewood, which is also known as Denver South Transfer Station.

Direct Haul – The smallest share of the total waste collected by SWMD is hauled directly to the DADS landfill in SWMD’s trash route trucks.

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Figure 1. Transfer systems used, by percentage of

total waste hauled

Cherry Creek Transfer Station 46%

D&R Transfer Station 36%

Union Transfer Station 12%

Direct Haul 8%

Source: 2010 Solid Waste Master Plan, page 10

History of the Denver Arapahoe Disposal Site and Lowry Landfill

Although the City and County of Denver owns the DADS landfill, the site is operated by Waste Management of Colorado, Inc. (WMC). DADS is a 1,965 acre Subtitle D solid waste facility located in Arapahoe County, approximately 20 miles southeast of downtown Denver.4 DADS encompasses the Lowry Landfill Superfund site, which covers an area of 480 acres. Below is a photograph of an active solid waste area at the DADS landfill.

Source: Audit Services Division.

Originally, the City operated a municipal solid waste landfill, the Lowry Landfill, from 1966 to 1980, allowing the disposal of liquid and solid municipal and industrial wastes. During that time period, approximately 138 million gallons of liquid industrial waste were disposed of in 78 unlined pits over an area of 400 acres.5 Moreover, between 6 and 10 million vehicle tires were disposed of at the Lowry site. The liquids from the industrial waste gradually seeped from the pits and mixed with surrounding refuse, contaminating

4 Subtitle D of the Resource Conservation and Recovery Act (RCRA) regulates the management of non‐hazardous solid waste. It sets minimum federal technical standards and guidelines for state solid waste plans with the goal to promote environmentally sound management of solid waste. Municipal Solid Waste commonly known as trash or garbage consists of product packaging, grass clippings, furniture, clothing, bottles, food scraps, newspapers, appliances, paint, and batteries. Typically, this material comes from our homes, schools, hospitals, and businesses. For general background regarding RCRA see: http://www2.epa.gov/regulatory‐information‐topic/waste#hazardous. 5 Colorado Department of Public Health and Environment, Special Report to the Colorado General Assembly, The History, Status and Long‐Term Funding Needs of the Colorado CERCLA Program, http://www.colorado.gov/cs/Satellite?blobcol=....

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groundwater and surface water with volatile and semi-volatile organic compounds. Moreover, toxic gases from the buried waste contaminated the air spaces of subsurface soil.6 The U.S. Environmental Protection Agency (EPA) declared the Lowry Landfill a Superfund site and added it to the National Priorities List on September 21, 1984.7

In 1964, the federal government deeded the land that comprises DADS and the adjoining Lowry Landfill to the City and County of Denver. The City then operated the Lowry Landfill from 1966 to 1980. The advent of the Resource Conservation and Recovery Act (RCRA) established the Subtitle C cradle to grave requirements, which directed the EPA to create controls on the management of hazardous waste from the point of generation through their transportation, treatment, storage, and disposal, otherwise known as the term cradle to grave. RCRA regulations were phased in over time and required the use of different types of disposal techniques. The City then decided to issue an RFP since they lacked the experience and knowledge to operate a landfill site taking into account the new, stricter regulations. In 1980, WMC was competitively selected to operate the site. Under a long-term contract (the Landfill Agreement), WMC has responsibility for the day-to-day operation of the DADS landfill, as well as for closure and post-closure liability and care of DADS, thus relieving the City of the burden of these costs. The contract between Denver and WMC extends for the life of DADS, which is currently estimated at thirty to one hundred years.8

In the 1980s, Superfund legislation was enacted through the federal Comprehensive Environmental Response Compensation and Liability Act (CERCLA), which is the name of a fund to clean up toxic waste sites. According to the EPA, Superfund is also the name given to the environmental program established to address abandoned hazardous waste sites.9 Also in 1980, WMC began operating the landfill and developed a chemical waste disposal facility in a section of the landfill site. However, the liners leaked and the state forced WMC to shut down the chemical waste disposal facility. At that time, the contamination of groundwater in Lowry was also detected.

In 1983, controversy over the Lowry Landfill developed and the City sued the EPA because the EPA and the State of Colorado had been directing the City to clean up the Superfund site without federal or state assistance. Superfund law imposes liability on parties responsible either partially or completely for the presence of hazardous material at a site.10 Superfund liability can be triggered retroactively, even when the damage occurred before Superfund legislation was enacted. The City administration at the time

6 U.S. Environmental Protection Agency website, Lowry Landfill, http://www2.epa.gov/region8/lowry‐landfill. 7 Superfund is the name given to the environmental program established to address abandoned hazardous waste sites. It is also the name of the fund established by the federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, or CERCLA. This law was enacted in the wake of the discovery of toxic waste dumps such as Love Canal and Times Beach in the 1970s. CERCLA allows the EPA to clean up such sites and to compel responsible parties to perform cleanups or reimburse the government for EPA‐lead cleanups. The Superfund cleanup process is complex. It involves the steps taken to assess sites, place them on the National Priorities List, and establish and implement appropriate short‐term and long‐term cleanup plans. For general Superfund information see: http://www.epa.gov/superfund/about.htm. 8 The lifespan of DADS is estimated to be between 30 and 100 years based on different sources. The City’s Solid Waste Master Plan lists a lifespan of thirty to sixty years for DADS , while WMC information projects a lifespan of one hundred years. 9 U.S. Environmental Protection Agency website, “Basic Information,” accessed on 04/24/2014, http://www.epa.gov/superfund/about.htm 10 Environmental Protection Agency, “Superfund Liability,” http://www2.epa.gov/enforcement/superfund‐liability

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settled with the EPA. Following the settlement, the City built an underground dam to block materials and installed a groundwater treatment plant in 1984. From 1983 to 1992, the City spent approximately $20 million studying clean-up possibilities. The Lowry Coalition, consisting of twenty companies such as Coors, spent $20 million as well for the same purpose.

In the early 1990s, the City negotiated the clean-up and agreed to pay 80 to 90 percent of the clean-up costs. The total cost was projected at between $500 million and $4.5 billion depending on different estimates. As a result, the City was evaluating different methods to fund the clean-up. In January 1992, the City negotiated a deal with WMC and decided to enter joint liability for 20 percent each. The City placed the money from settlements with other involved parties into the Lowry Trust to fund site clean-up.

The Landfill Agreement

The Landfill Agreement is an agreement between the City and WMC for WMC's exclusive and long-term operation of DADS. According to the agreement, Denver maintains ownership of DADS while WMC is responsible for all equipment and supplies to operate DADS and assumes all environmental liabilities for operation and post-closure remediation. The current Landfill Agreement took effect in 1997, whereby the City at that point shifted all long-term liabilities to WMC. As part of the Landfill Agreement negotiations , the City receives a percentage of DADS’ annual revenues as royalty payments.11 In return, the City granted WMC the exclusive rights to operate the DADS landfill for the lifetime of the site. The Landfill Agreement also stipulates that the City is to receive the best disposal rate at DADS; the City’s Department of Environmental Health (DEH) is primarily responsible for implementing and enforcing the provisions of the Landfill Agreement. In addition, the royalties derived from the operation of DADS are the primary funding source for DEH.

The Disposal Agreement

Under the Landfill Agreement, the fees charged for disposal of City-hauled solid waste at DADS are negotiated periodically. This separate contract with WMC, known as the Disposal Agreement, guarantees that all non-hazardous waste hauled by SWMD vehicles will be deposited at DADS, and the City will exclusively use City-owned or WMC-owned transfer stations to haul this waste to DADS. This contract is often for a five-year period, with the current contract in effect from July 1, 2011, through December 31, 2014. The City is currently renegotiating the successive Disposal Agreement with WMC.

According to the Solid Waste Master Plan, SWMD pays a disposal fee for each ton of non-hazardous solid waste it disposes at the DADS landfill. The City receives the aforementioned royalties from WMC, but trash collection and disposal is overall a net cost item in the City’s budget. In contrast, SWMD does not pay a tipping fee for delivery

11 According to the landfill agreement, initially, a 15 percent royalty rate was negotiated to be applicable until 1999, which was increased to 18 percent until 2007, further increased to 21 percent until 2019, and will be raised to 24 percent starting in 2019 for the remainder of the life of the facility.

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of single-stream recycling to the Material Recovery Facility (MRF), and the City receives payments for the materials recycled.12

Currently, money allocated from the general fund pays for residential solid waste collection and disposal. Sources for the general fund are primarily derived from commercial establishments including money spent by visitors to Denver. A small percentage of funding comes from property taxes paid by all residents, including single family homes and large multi-family units (MFUs). However, only single family homes and small MFUs receive solid waste services through SWMD. Large MFUs and commercial establishments must contract directly with a solid waste hauler to get their solid waste removed.13

Executive Order 115

In 2001, the mayor enacted Executive Order 115, which implements the landfill agreement across all City agencies. It establishes a Citywide policy to assure compliance with the City’s Agreement regarding the use and operation of DADS and to optimize the long-term use of the landfill. The policy is intended to ensure that City activities with regard to the collection, transportation, and disposal of non-hazardous waste are consistent with the City Charter, the Landfill Agreement, and the Disposal Agreement , in order to protect the financial interests of the City, reduce potential liability for CERCLA-related site remediation clean-up costs to a minimum, and protect human health and the environment. The policy further states that the Landfill Agreement shall be administered by DEH. It affects all department and agency heads within the City’s executive branch.

Complexities and Effects of Disposal Rate Setting

The Landfill Agreement establishes a low-rate provision, specifying that the City should receive the best disposal rate at DADS. However, the Disposal Agreement allows WMC to establish the annual DADS disposal fee, also known as a gate fee or tipping fee, charged for each ton of waste dumped at DADS. Earlier agreements tied fee increases to the Consumer Price Index (CPI), but the current disposal agreement allows WMC to increase the disposal fee by up to 5 percent per year. SWMD and City Attorney’s Office (CAO) staff reported that WMC negotiated this increase based on what WMC considered Denver’s low disposal fees and WMC’s increasing costs. For 2014, the City’s DADS disposal fee is $15.43 per ton.

The Landfill Agreement is implemented and enforced by DEH, and DADS royalties are the primary funding source for DEH’s enterprise fund. Figure 2 shows the total amounts in royalties DEH has received from WMC for the years 2011 through 2013.

12 Tipping fee, another term for disposal or gate fee, is a per‐unit fee paid to dispose of waste at a landfill or transfer station. 13 Solid Waste Master Plan, page 4.

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Figure 2. DADS royalty payments funding Environmental Health

2013 $6,661,122

2012 $6,197,590

2011 $5,756,191

Source: Department of Environmental Health

Multi-agency Involvement with the Denver Arapahoe Disposal Site

In addition to SWMD, the following City agencies are involved in the operation of DADS:

The Department of Environmental Health (DEH) – Covers the on-going operation and maintenance of DADS and the Lowry Landfill. DEH ensures compliance with federal, state, and local requirements and regulations. The main source of department funding for DEH is royalties derived from the revenue generated by DADS.

The City Attorney’s Office – Assists in negotiating disposal agreements and with adherence to contractual obligations and environmental rules.

Additionally, Denver International Airport and the Department of General Services administer several separate contracts with WMC and are not included in the Disposal Agreement or Landfill Agreement.

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SCOPE The audit assessed the efficiency and accuracy of the invoice reconciliation performed by the Department of Public Works (PW) for the services it receives from Waste Management of Colorado (WMC), specifically for the Solid Waste Management Division’s (SWMD’s) dumping of non-hazardous solid waste at the Denver Arapahoe Disposal Site (DADS) and other WMC-owned Denver Metropolitan-area transfer stations. The audit also assessed PW’s role in the process to negotiate and determine solid waste disposal fees for dumping City-hauled waste at DADS. Although DADS and the three solid waste transfer stations SWMD uses to dump solid waste were included in evaluating SWMD’s invoice reconciliation, the assessment of disposal rates was limited to DADS since this is the only facility where SWMD has the ability to negotiate disposal rates.

Other City agencies are involved in the regulation and compliance management of DADS, specifically the City Attorney’s Office (CAO) and the Department of Environmental Health (DEH). Although our audit work included interviewing staff and obtaining and reviewing DADS-related documentation and records from these agencies, our audit did not evaluate the various roles and responsibilities of these agencies in relation to DADS. In addition, our audit did not assess the environmental or other regulatory compliance at DADS beyond that described in the audit objectives. Audit activities related to disposal rates were largely tied to the term of the current Disposal Agreement, calendar years 2009 through 2014. Invoice reconciliation activities and associated file and data review were confined to calendar years 2012 through 2014.

OBJECTIVE The objective of the audit was to determine whether:

PW ensures that WMC charges the City the lowest, best disposal rates for the City's use of DADS

SWMD’s current reconciliation process ensures efficient and accurate payment to WMC for services the City receives at DADS

PW undertakes inspections of weighing facilities at DADS and City- and WMC-owned transfer stations in order to verify accuracy of solid waste weight measurements at these sites. We assessed this objective and found no risk in this area.

METHODOLOGY We used the following methodologies to achieve the objectives of the audit.

Reviewed applicable City and department requirements, policies, and procedures regarding payment for services received

Reviewed related internal and external audits and other studies for applicable methodologies and findings

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Assessed compliance with City-WMC waste contract provisions Reviewed WMC and City policies and procedures for load weighing and invoice

reconciliation Interviewed SWMD staff to obtain an understanding of waste load weighing and

DADS billing and reconciliation processes Evaluated City practices for weighing waste loads and reconciling WMC invoices Obtained and reviewed sample SWMD and WMC waste load, billing, and

reconciliation documentation for compliance and accuracy Evaluated load weighing and billing practices at DADS against relevant

standards Examined SWMD’s internal controls for compliance with current requirements and

regulations Reviewed databases SWMD uses for DADS billing, reconciliation, and record

keeping purposes Evaluated disposal rates the City receives at DADS for contract compliance Examined DADS customer disposal rates and the landfill disposal rates for a

sample of Denver Metropolitan-area municipalities

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FINDING 1 The Department of Public Works Should Ensure its Disposal Rates are the Lowest and Best, and Consistent and Competitive

The current Landfill and Disposal Agreements stipulate that the City shall receive the lowest and best per-ton solid waste disposal rate at the Denver Arapahoe Disposal Site (DADS), including rates charged to Waste Management of Colorado (WMC) or any WMC affiliate. In addition, these contracts stipulate that the DADS disposal rates WMC charges the City are to be consistent and competitive with disposal rates at other Denver Metropolitan-area (metro-area) non-hazardous solid waste landfills. These two disposal rate provisions are distinct. The first states that out of all the customers that dump solid waste at DADS, the City should have the lowest disposal rates. The second is concerned with how the City’s DADS disposal rates compare to disposal rates at area landfills. Our team sought to determine whether the Solid Waste Management Division (SWMD) of the Department of Public Works (PW) ensures that their DADS disposal rates are indeed lowest, best, consistent, and competitive. Audit work revealed that, although SWMD management believes the City’s DADS disposal rates are fair, SWMD management does not actively investigate whether the DADS rates proposed by WMC each year are indeed lowest, best, consistent, or competitive. In addition, although the DADS disposal rates PW pays appear to be consistent and competitive with what other metro-area municipalities pay at their respective landfills, the Landfill and Disposal Agreements do not define what exactly constitutes consistent or competitive in terms of PW’s DADS disposal rates. We also found that PW may not have received the lowest or best disposal rates at DADS.

Disposal Rates Have Increased at a Higher Rate Due to Change from Index-Based to Fixed-Percent Annual Adjustments

By moving from an index to a fixed percentage for its annual rate adjustments, the City’s DADS disposal rates have increased at a higher a rate since the change occurred in 2009. We determined that higher disposal rates has cost PW at least an additional $933,966, as we describe in this section, while at the same time resulting in higher royalty payments to the City. The Landfill Agreement and Disposal Agreement both contain provisions specifying that the City is to receive the lowest and best disposal rates at DADS, and that these rates are to be consistent and competitive with other metro-area landfills. The Landfill Agreement states that the City’s disposal rates may not increase more than the Consumer Price Index (CPI) for any one year of a five-year-or-greater term disposal contract. These Disposal Agreements between PW and WMC also tie annual increases of the City’s DADS disposal rates to changes in the metro-area CPI.14 The

14 The Consumer Price Index for All Urban Consumers (CPI‐U) for the Denver‐Boulder‐Greeley Combined Statistical Area is a measure of the average change in prices over time from a designated reference date (1982‐84) in a fixed market basket of goods and services. The index is published by the U.S. Department of Labor’s Bureau of Labor Statistics. See: http://www.bls.gov/ro7/cpiden.htm.

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current Disposal Agreement is for the period of July 1, 2011, through December 31, 2014. This term is less than five years, which has allowed WMC and PW to move from CPI-based to fixed-percent annual disposal rate adjustments. PW is currently in negotiations with WMC regarding the succeeding Disposal Agreement.

The Disposal Agreement also states that WMC is to provide PW a proposed annual schedule of DADS disposal rates for the upcoming calendar year by July 1 of the current year. We obtained and reviewed the annual disposal rate schedules for the years 2009 through 2014, which contain the per-ton disposal rates for DADS and the WMC-owned Union Transfer Station and D&R Transfer Station. Of note is that the City has no ability to influence or negotiate the disposal rates WMC charges at its transfer stations. While the Disposal Agreement establishes that SWMD shall deposit waste at only the WMC-owned D&R and Union Transfer Stations – in addition to DADS and the City’s Cherry Creek Transfer Station – these WMC transfer stations are not included in the disposal rate provisions of the Landfill or Disposal Agreements.

SWMD management reported that in 2009 WMC sought to increase the City’s DADS disposal rates beyond the CPI, with WMC citing increased operational costs, declining revenues at DADS, and small increases in the CPI. As a result, PW and WMC negotiated to increase DADS disposal rates at a set percent annual adjustment. The language in the current Disposal Agreement still ties annual disposal rate increases to the CPI, but holds that WMC may increase the City’s DADS disposal rates at an amount beyond the CPI, so long as the total increase does not exceed five percent each year. Since the current Disposal Agreement’s term is less than five years, WMC has had the ability to increase annual DADS disposal rates beyond increases in the metro-area CPI.

From 2011 to 2014, WMC increased SWMD’s annual DADS disposal rates by five percent over the previous year per their ability established in the current Disposal Agreement. One notable exception is 2011, when WMC reportedly took advantage of the lack of prohibitive language in the previous and current Disposal Agreements to increase SWMD’s 2010 DADS Transfer disposal rate by 12 percent, from $12.50 to $14 per ton, and DADS Direct disposal rate by 26.3 percent, from $9.50 to $12.00 per ton, to arrive at the baseline 2011 disposal rates for the term of the current Disposal Agreement.15 The metro-area CPI increase for 2010 was 1.9 percent, a difference of 10.1 and 24.4 percentage points, respectively, from the actual disposal rate increases. Figure 3 illustrates the differences between SWMD’s actual DADS disposal rates and hypothetical disposal rates tied to increases in the metro-area CPI, for the period 2009-2014. Appendix A provides a detailed table of the data that was used to create Figure 3, and shows that since 2009, the City has spent at least an additional

15 Prior to 2012, WMC charged different DADS disposal rates for transfer trailers (for SWMD, waste routed through Cherry Creek Transfer Station) and standard trash trucks (for SWMD, waste hauled directly to DADS).

TheCityhasspentatleastanadditional$933,966asaresultofmovingfromCPI‐basedtofixed‐percent‐based

DADSdisposalfeeadjustments,butthishasalsoincreasedrevenuestothe

EnterpriseFund.

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$933,966 as a result of moving from the CPI-based to the fixed-percent-based annual DADS disposal fee adjustments. However, this additional spending has in turn increased royalty revenues to the City’s Enterprise Fund.

Figure 3.

Comparison of Actual and Hypothetical CPI‐Based Disposal Rate Increases, 2009‐2014

Source: Compiled by Audit Services Division.

Department of Public Works’ Management Favors Fixed-Percent Annual Adjustments

SWMD management described various complexities involved in negotiating and setting DADS disposal rates. For example, they cited conflicting City interests in that the Landfill and Disposal Agreements stipulate the City is to receive the lowest and best rates, while higher DADS disposal rates ensure higher royalty payments, and therefore increased funding, to the City’s Department of Environmental Health (DEH). Higher disposal rates could also promote increased recycling and composting within the metro area through the resulting increased costs associated with disposing solid waste. In addition, SWMD management described past issues with unpredictability and volatility when the DADS disposal rates were tied to indices. One prior Disposal Agreement tied increases related to the hauling portion of WMC’s transfer fees to the price of diesel fuel, which is one of the primary factors in waste management operational costs. However, SWMD management said this diesel-fuel index fluctuated more than the CPI; some years benefitted SWMD and others benefitted WMC.

According to SWMD management, fixed-percent increases allow for more predictable and easier annual budgeting, as they know earlier and more clearly what the next year’s

$7.00

$8.00

$9.00

$10.00

$11.00

$12.00

$13.00

$14.00

$15.00

$16.00

2009 2010 2011 2012 2013 2014

PerTton DADS Disposal R

ate

Year

DADS Transfer Disposal Rate (Actual) DADS Transfer Disposal Rate (Hypothetical)

DADS Direct Disposal Rate (Actual) DADS Direct Disposal Rate (Hypothetical)

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disposal rates will be. These past issues with indices and the time-consuming nature of negotiating disposal rates with WMC are factors that have put SWMD management in favor of the fixed-percent annual disposal rate increases even though fixed-percent increases may not always be the most cost-effective method for the City, as our audit illustrates. As mentioned earlier, the current Disposal Agreement expires on December 31, 2014. SWMD management reports that they are currently in negotiations with WMC regarding the successive Disposal Agreement. Therefore, if PW seeks cost savings through lower annual DADS disposal rate increases, SWMD management could pursue a Disposal Agreement with a term of five years or greater. This would invoke the aforementioned Landfill Agreement provision that annual DADS disposal rate increases may not increase more than the metro-area CPI.

Department of Public Works Has Not Received The Lowest or Best Disposal Rates

SWMD management believes its DADS disposal rates are the lowest at DADS. However, audit work revealed instances where SWMD’s disposal rates have not been the lowest at DADS, and that SWMD management does not actively investigate whether the DADS disposal rates WMC proposes each year are in fact the lowest and best disposal rates. According to our analysis of WMC disposal rate data for DADS, in 2013 three DADS customers paid lower per-ton disposal rates than SWMD for non-hazardous solid waste. Our analysis also showed that these customers continued to pay lower disposal rates at DADS through the first quarter of 2014.16

DEH staff reported they are currently in negotiations with WMC regarding this disposal rate issue. According to DEH staff, WMC has argued these customers did not receive lower DADS disposal rates than the City. WMC reported to DEH that these customers entered into multi-year disposal contracts with WMC, which were finalized before WMC definitively knew what SWMD’s DADS disposal rates would be in the upcoming years. WMC also reportedly argued that when such charges as the environmental maintenance fee, fuel surcharge, and revenue-cost-recovery fee are included in customer’s disposal rates, these identified customers’ overall DADS disposal rates were higher than those of SWMD. This can result, WMC argues, in customers with base disposal rates that are lower than the City’s; however, when the additional fees and surcharges are included, the City, in the end, pays lower total disposal rates than these customers. Furthermore, DEH staff pointed out that these fees and surcharges go toward WMC’s revenues at DADS, and therefore contribute to the City’s DADS royalties.

The Landfill Agreement states the City shall not be charged an environmental maintenance fee, but does not address any additional fees, such as fuel surcharges or revenue-cost-recovery fees. Moreover, as the Landfill Agreement does not define the term disposal rate with precision, the inclusion of additional fees and surcharges is questionable. The City Attorney’s Office (CAO) has indicated that WMC can include these ancillary charges in their definition of disposal rate since the term is undefined in both the current Landfill and Disposal Agreements. But, as CAO points out, WMC has

16 The disposal rates WMC charges to other DADS customers is proprietary information and therefore business confidential. For this reason we have not presented the dollar amounts of other customers’ DADS disposal rates in our report.

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changed the way it charges DADS customers since the Landfill Agreement was signed in 1997, relying more now on fees and charges than disposal rates to increase overall customer fees. Hence, CAO agrees the City needs to define disposal rate in the succeeding Disposal Agreement in order to decide whether any additional fees or charges should be included in a customer’s DADS disposal rate. The opinions of DEH and CAO in regards to this issue are preliminary and may change as negotiations with WMC continue.

Consistency and Competitiveness of Disposal Rates Cannot be Determined Due to Lack of Defined Criteria

We determined that the City’s DADS disposal rates may be consistent and competitive with the disposal rates of other metro-area municipalities, but we were unable to conclude definitively without a clear definition in the Landfill Agreement, the Disposal Agreement, or from SWMD of what constitutes consistent and competitive disposal rates. In 2010, PW, in conjunction with DEH, contracted with a private, third-party firm to conduct a financial review, market rate analysis, and performance audit related to the City’s relationship with WMC at DADS. One conclusion of this contracted audit was that the then-proposed 2011 contractual DADS disposal rates for SWMD did not appear to be consistent and competitive with landfill disposal rates charged to a sample of metro-area municipalities, according to the criteria established in the audit. The audit found that SWMD’s 2010 DADS disposal rates were zero to 4 percent higher than the sample municipalities, while SWMD’s 2011 DADS disposal rates were 3 to 11 percent higher than the sample municipalities. According to staff from this firm, the change from the CPI-based to a fixed-percent rate increase was the main reason they concluded that SWMD’s 2011 disposal rates were not competitive. We replicated the analysis of the contracted private firm and found that, in 2014, SWMD’s DADS disposal rates are lower than the disposal rates of some municipalities and higher than the disposal rates of others, as Table 2 illustrates. This indicates the City’s 2014 DADS disposal rates may be consistent and competitive, but we were unable to conclude for certain without a clear definition from SWMD of what constitutes consistent and competitive disposal rates.

Table 2.

Comparisons of Metro‐Area Landfill Disposal Rates for 2014

Source: Compiled by Audit Services Division.

SWMD management believes the disposal rates they receive at DADS are consistent and competitive when compared to other metro-area landfills and therefore does not

MunicipalityPer-Ton Disposal Rate For

Non-Hazardous Solid WasteCity A $11.00

City B $11.00

City C $14.76

Denver $15.43City D $25.25

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perform any formal, documented analyses of annual disposal rates at DADS or among other metro-area municipalities. SWMD management reported that they conduct informal discussions with staff from metro-area municipalities and private waste haulers to understand other customers’ disposal rates at DADS and across the region.

However, SWMD has not established a clear, formal definition of what exactly constitutes consistent and competitive disposal rates. Neither the Landfill Agreement nor the Disposal Agreement define or qualify consistent or competitive as related to how the City’s DADS disposal rates should compare to the landfill disposal rates of other municipalities within the metro-area. Because of this, the 2010 contracted audit established a threshold of percent variance among the municipalities surveyed as its criteria, but SWMD has not adopted any such threshold or variance as defining criteria. These findings led us to conclude that we cannot determine whether SWMD’s DADS disposal rates are consistent and competitive with the landfill disposal rates paid by other metro-area municipalities.

Department of Public Works Should Establish a Process to Ensure its Disposal Rates are Lowest, Best, Consistent, and Competitive

While SWMD management believes its DADS disposal rates are consistent, competitive, and among the lowest within the metro area, they may not be due to undefined criteria. SWMD also indicated that they have had no reason to suspect their disposal rates do not comply with Disposal Agreement provisions, reasoning that this would be a poor business practice for WMC. SWMD management reported that they partner with DEH to contract the aforementioned third-party audit approximately every five years to assess the compliance of their DADS disposal rates. However, our work revealed that this constitutes the only official, documented analysis PW conducts to determine whether its DADS disposal rates comply with Disposal Agreement provisions of lowest, best, consistent, and competitive. SWMD was not able to provide us with any additional documentation to show that they have analyzed and compared their DADS disposal rates to other DADS customers or to the landfill disposal rates of other municipalities. Our audit found that SWMD has appeared to make no changes to the way it negotiates or approves WMC’s proposed annual DADS disposal rates based on the conclusions of the 2010 contracted audit. Indeed, our findings that SWMD has not received the lowest or best disposal rates at DADS – in conjunction with the fact that the Landfill Agreement and Disposal Agreement do not define the terms lowest, best, consistent, or competitive – demonstrates the need for SWMD to develop its own internal criteria and process to evaluate the DADS disposal rates WMC proposes to SWMD each year.

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RECOMMENDATIONS We make the following recommendations to the Department of Public Works in order to ensure that Waste Management of Colorado charges the City the lowest, best disposal rates at the Denver Arapahoe Disposal Site.

1.1 Disposal Rate – The Department of Public Works should ensure any future Disposal Agreements with Waste Management of Colorado define the terms disposal rate, disposal fee, and gate rate, and incorporate in these definitions any additional fees, taxes, charges, or surcharges that are included and not included in these terms.

1.2 Consistent and Competitive – The Department of Public Works should ensure any future Disposal Agreements with Waste Management of Colorado define the terms consistent and competitive, and specifically how the City’s disposal rates at the Denver Arapahoe Disposal Site should compare to disposal rates at other non-hazardous, solid waste landfills in the Denver Metropolitan-area.

1.3 Rate Evaluation Process – The Department of Public Works should establish a formal process to ensure that its Denver Arapahoe Disposal Site disposal rates are the lowest and best rates at the Denver Arapahoe Disposal Site and consistent and competitive with disposal rates at other Denver Metropolitan-area non-hazardous waste landfills.

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FINDING 2 The Department of Public Works Should Streamline and Improve its Invoice Reconciliation Process

We assessed the efficiency and accuracy of the Department of Public Works’ (PW) invoice reconciliation for the services it receives from Waste Management of Colorado (WMC), specifically for the Solid Waste Management Division’s (SWMD’s) dumping of non-hazardous solid waste at the Denver Arapahoe Disposal Site (DADS) and other WMC-owned, Denver-area transfer stations. SWMD currently uses two distinct reconciliation processes depending on the location where SWMD truck drivers dump their solid waste loads. Audit work revealed that although these reconciliations are important aspects of SWMD’s management and fiduciary duties, the current processes rely heavily on paper-based documentation and manual data entry. These reconciliations also do not involve any corroboration of City-generated data and instead rely solely on data from WMC.

Reconciliation Processes Are Paper-Based and Resource-Intensive SWMD’s reconciliation process begins at the DADS or transfer-station gatehouse. Upon entry, a SWMD truck drives onto the gatehouse scale, where an electronic sensor captures the vehicle number and tare weight unique to each truck.17 The driver then receives a paper receipt or ticket from either an automated machine or a gatehouse attendant that contains information such as ticket number, date, time, location, and net weight of solid waste (in U.S. tons). Each paper ticket represents one load of solid waste dumped. As an additional management control, drivers manually enter the location, time, and net tons for each load of solid waste dumped per truck, per route, per day in their Daily Driver Log.

At the end of each shift, SWMD truck drivers submit their day’s worth of paper waste load receipts to their supervisors, who then compile this load information into their Weekly Operations Report. Upon completion of the week, supervisors submit this report, the corresponding Daily Driver Logs, and the corresponding gatehouse receipts to SWMD management. The division’s Customer Service (CS) staff then receives these documents for data entry into the division’s Access database, called Auto 99. At this point, the two reconciliation processes diverge.

Union and Cherry Creek Reconciliation Process – For the loads dumped at the WMC-owned Union Transfer Station (Union) and the City-owned Cherry Creek Transfer Station (Cherry Creek), SWMD management conducts a ticket-by-ticket reconciliation. This consists of CS staff entering the ticket number, date, truck number, and tons dumped from each waste load receipt into Auto 99 and management comparing this data to the corresponding line item in the monthly WMC invoices. Upon data entry, CS staff visually

17 Tare weight, also called unladen or zero weight, is the weight of an empty vehicle or container. By subtracting tare weight from gross weight (laden weight), the weight of the goods carried (the net weight) may be determined.

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compares the aforementioned data elements on the waste load receipt to those in the Daily Driver Log and Weekly Operations Report and will follow up with supervisors and truck drivers to correct any inconsistencies. Once SWMD receives the paper WMC invoice for each location, management reconciles, for each waste load ticket, the information CS staff has entered in Auto 99 to the corresponding entry on the WMC invoices. Management will investigate and correct any discrepancies between the two data sources. Once they have completed their reconciliation, SWMD management submit a payment voucher for the amount due, along with a scan of the first and last page of the WMC invoice, to PW Finance for payment to WMC for services rendered.

D&R and DADS Reconciliation Process – In contrast, the reconciliation process for the WMC-owned D&R Transfer Station and DADS Direct Haul is not ticket-by-ticket, but instead compares the total number of waste loads dumped each day of the month. CS staff tabulates the number of gatehouse receipts to arrive at the total number of waste loads dumped each day at each location, and enters this information into Auto 99. When they receive the monthly WMC invoices for these locations, SWMD management tabulates the number of waste loads for each location, each day, and compares the daily totals of waste loads to the number that CS staff entered in Auto 99. SWMD management reported that if there is a difference of three or more loads in one day, they will investigate and correct any discrepancies. Although SWMD staff does not enter individual load information into Auto 99 or reconcile at this granular level for these locations, SWMD staff does maintain the supporting gatehouse receipts, Daily Driver Logs, and Weekly Operations Reports in order to investigate any discrepancies of waste load totals between Auto 99 and the WMC invoices. Once they have completed this waste load reconciliation, SWMD management similarly submits the payment voucher and scanned invoice pages to PW Finance for payment to WMC for services rendered.

Inefficiencies Exist with Two Reconciliation Processes We reviewed a sample of reconciliation documentation from May 2014 and were able to conclude that both of SWMD’s current reconciliation processes comply with the City’s Fiscal Accountability Rules regarding reconciliation and fraud deterrence, specifically separation of duties and supporting documentation.18 However, through file review and interviews with SWMD staff, we determined that SWMD’s reliance on paper-based documentation and manual data entry potentially leads to a less efficient and more error-prone reconciliation than one based on electronic data. While 7.5 FTE in SWMD are involved, in varying amounts, in the data entry and reconciliation processes, SWMD management has not calculated the actual total amount of staff time involved. Our analysis demonstrates that, at a minimum, the extra time and resources SWMD dedicates to its ticket-by-ticket reconciliation does not provide significant, additional assurance to the reconciliation process based on total daily loads.

18 The Controller’s Office within the Department of Finance has authority over the City’s Fiscal Accountability Rules (FARs), which set parameters for fiscal activities of the City and County of Denver. The purpose of FARs is to assist officers and employees in conducting financial activities and in making fiscal decisions. Specifically, FARs 2.2, 2.4, and 2.5 respectively relate to reconciliations, separation of duties, and supporting documentation. See: http://www.denvergov.org/finance/DenverDepartmentofFinance/FinancialReports/FiscalAccountabilityRules/....

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Ticket-by-ticket Reconciliation Provides No Significant Increase in Reconciliation Assurance

SWMD management reported that they initiated the ticket-by-ticket reconciliation when SWMD began using the Union Transfer Station approximately fifteen years ago. SWMD decided to use Union since it provided a convenient solid waste dump location in southwest Denver and saved SWMD considerable time and cost not having to haul waste to DADS directly or to another transfer station. Union has the highest disposal rates of all the facilities that SWMD uses to dump solid waste. However, PW has no input on the rates WMC charges at Union since this WMC-owned facility is not included in the disposal rate provisions of the Disposal or Landfill Agreements. Because of this, SWMD management reported they sought extra assurances that they were being billed and were paying the correct amount. Similarly, SWMD management reported that they use the detailed reconciliation process for Cherry Creek as there is currently no certified scale at Cherry Creek; the WMC waste load documentation provides the only way to collect detailed information on the amounts of solid waste flowing through this City-owned facility. However, audit work determined that the extra time and resources SWMD dedicates to the paper-intensive, granular reconciliation process used for Union and Cherry Creek does not yield significant gains in accuracy over the more simple reconciliation process used for D&R and DADS Direct.

We reviewed monthly reconciliation data from January 2012 through May 2014 to compare the average tonnage and load variances between SWMD data from Auto 99 and WMC data from invoices. As Table 3 illustrates, the range of absolute variance for the ticket-by-ticket locations (Union and Cherry Creek, also known as DADS Transfer) ranged from zero percent to 0.51 percent, while the absolute variance for the total load reconciliation locations (D&R and DADS Direct) ranged from 0.09 percent to 2.12 percent. The difference in variances identified by the two reconciliation processes for the period examined was therefore 1.61 percentage points, within the target threshold of one to two percent variance that WMC management reported they strive to attain. Hence, SWMD should consider abolishing the ticket-by-ticket reconciliation process and instead harmonize all solid waste dumping locations to reconcile by total daily loads. Reconciling all waste load locations by total daily loads would not require additional facilities or significant changes at Cherry Creek or Union, or with SWMD’s invoice reconciliation since SWMD already reconciles D&R and DADS Direct by total daily loads. In fact, reconciling all waste load locations by the less time-consuming and resource-intensive total daily load process could reduce costs and increase efficiency for SWMD.

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Table 3.

Comparison of Differences in Total Waste Loads and Tonnages by Location

Source: Compiled by Audit Services Division from PW records. Notes: *Negative values resulted from unfavorable cases where WMC invoice charges were for more loads or tonnage than loads or tonnage recorded in the WMD database. **WMC sends two separate invoices for the D&R Transfer Station, one for side‐loading trucks and another for rear‐loading trucks. ***2014 figures are for the period of January 1 through May 31.

While in theory one would expect no variation since all reconciliation data is ultimately from WMC, we learned that in practice variation can and does occur. According to SWMD management, duplicate gatehouse receipts for the same load are one of the most common errors, caused from drivers mistakenly pressing Enter multiple times on gatehouse scale keypads. Management reported that they correct such duplicate tickets by contacting WMC during the reconciliation process. SWMD data may also show fewer total loads than the WMC invoice, as management reported that gatehouse tickets commonly become lost, damaged, or stuck to other tickets during their journey from WMC gatehouse to CS staff. These stand as examples of the shortcomings of SWMD’s paper-based reconciliation process. They also demonstrate the need for additional driver education and adoption of electronic reconciliation data.

No City Data Involved in Invoice Reconciliation We found that SWMD’s reconciliations essentially mirror the processes and controls in place at WMC. As noted, all data SWMD uses in its reconciliation processes comes from WMC systems since PW has not implemented any systems or processes to generate or capture its own solid waste load data. The waste load data contained in gatehouse receipts, which SWMD staff use to complete Daily Driver Logs and Weekly Operations

Union DADS Transfer D&R Side ** D&R Rear ** DADS DirectLoad Difference as Percentage of Total Loads Charged

0.39% 0.00% -0.46% 1.68% -0.68% 0.62%

Tonnage Differences as Percentage of Total Tons Dumped

0.51% -0.02% -1.33% 0.75% -1.77% -0.41%

Load Difference as Percentage of Total Loads Charged

0.00% 0.00% -0.27% 0.66% -1.15% -0.19%


0.02% 0.04% -0.09% 1.00% -0.77% -0.10%

Load Difference as Percentage of Total Loads Charged

0.00% 0.00% -1.02% 0.54% 0.19% -0.44%


0.87% 1.09% 0.52% 2.12% -1.37% 1.26%

Solid Waste Dumping Location

YearAverage Monthly

Differences *Annual

Total

2012

2013

2014 ***

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Reports, comes from the Fast Lane system that WMC operates in its facility gatehouses. This system interfaces with WMC’s separate MAS system several times per day, whereby MAS automatically populates and generates itemized customer invoices. WMC accounting staff reported that they have internal controls in place to ensure accuracy and consistency across these two systems. Namely, WMC accounting staff compare dollar totals between Fast Lane and MAS on a daily and monthly basis and, while apparently rare, they will immediately correct any discrepancies encountered. This shows that SWMD could establish a regular transfer of WMC’s electronic waste load data for SWMD reconciliation and management purposes.

In contrast, SWMD could implement its own solid waste load data collection and generation processes in order to reconcile independent data against WMC data. According to SWMD management, there would be high costs and complexities involved in establishing their own solid waste data collection since WMC owns or operates all of SWMD’s final dumping facilities. However, SWMD management reported that all SWMD trash trucks are equipped with DriveCam and Zonar – two onboard systems that together provide SWMD with fleet tracking, fuel management, vehicle diagnostic, and safety compliance capabilities. SWMD management could expand their use of such onboard systems to generate its own solid waste load data and essentially capture all waste load data contained in the paper WMC gatehouse receipts. Management also expressed reservations of too much “computerizing” of what they term to be the real-time, decision-driven trash collection business, believing the costs and complexities of additional electronic data would outweigh any potential benefits. Despite these reservations, SWMD could coordinate with WMC to establish a regular transfer of Fast Lane and/or MAS data and thereby bypass the paper-based, manual data entry components of its reconciliation processes.

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RECOMMENDATIONS We make the following recommendations to the Department of Public Works in order to ensure efficient and accurate payment to Waste Management of Colorado for services the City receives at the Denver Arapahoe Disposal Site.

2.1 Invoice Reconciliation Process – The Department of Public Works should streamline its solid-waste invoice reconciliation process by evaluating its ticket-by-ticket reconciliation and making reconciliation consistent for all waste dumping locations.

2.2 Policies & Procedures – The Department of Public Works should establish policies and procedures to educate its truck drivers in order to mitigate duplicate solid waste loads.

2.3 Automated Systems – The Department of Public Works should expand the use of automated systems in order to electronically collect solid waste information for management purposes.

2.4 Fast Lane & MAS Data Collection – The Department of Public Works should establish a regular collection of electronic Fast Lane and MAS data from Waste Management of Colorado for reconciliation purposes.

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Other Pertinent Information An Other Pertinent Information section or OPI is a section of the report that is informational and for the reader to gain background of a subject that may not necessarily fit into the audit based on the scope of the project. The Auditor’s Office adheres to a citizen-centric philosophy and uses reports to inform the citizenry to risks to their community. This section of the report does not require any response by the auditee. This section will provide a brief overview of advantages and disadvantages that are discussed in the literature on privatizing landfills in the United States. The list is not exhaustive but is meant to provide context to our audit.

Moreover, this section will talk about the transition of the Greenprint Denver initiative to the Office of Sustainability of the City and County of Denver (City) and associated environmental goals for the handling of solid waste matters in the City. The OPI talks about the dangers of disposing of compostable materials at landfills, which creates methane gas. Finally, the OPI covers SWMD’s different streams of waste disposal, including landfill hauling, recycling and composting. It points out how landfill tons have been reduced despite a growing number of households in the City and applauds the addition of a second compost collection route for the City.

Landfill Ownership Advantages and Disadvantages

Privatization of landfills has become a growing trend in the United States in the last two decades. Managing liabilities from landfills, improving efficiency, reducing costs or debt, access to capital, and potentially improving accountability are among the reasons that have led to increasing privatization efforts.19 Different forms of privatization have developed ranging from cooperative agreements with private firms for support services to management contracts, asset sales, or complete dependence on the private landfill market for services.20 Subtitle D regulations have been cited as a major reason for the increasing trend towards privatization. The stricter regulations have increased the costs of operating a landfill with many small-scale owners either not wanting or being unable to finance the upgrades necessary to remain in compliance with Subtitle D regulations.21 Moreover, many landfill sites have been replaced with large landfills covering large regional areas that were previously serviced by many single landfills operating on a single-jurisdiction level.

In some of the literature on privatizing landfills, public officials have voiced their concern about monopoly-pricing as a result of privatizing landfills, among many other concerns.22 On the local level, one could think of a large operator effectively reducing the competition from smaller companies and a local government may find itself in a position where it is dependent on the service of one large contractor. Distance to other landfills

19 Geoffrey Segal and Adrian Moore, “Privatizing Landfills: Market Solutions for Solid Waste Disposal,” April 2000, http://reason.org/files/f5477f3e23eb04770b6a222456421e6d.pdf. 20 Ibid. 21 See footnote 3. 22 See footnote 18.

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or competitors in the region are factors that may influence the decision of a public landfill owner when contemplating selling a landfill asset. Moreover, the ability to negotiate contracts and implement safe-guards is an important factor to consider. Some critics of landfill privatization may worry that an efficiently operating large company may have little incentive in offering ways to divert waste and offering recycling and composting services since these companies benefit from low landfill disposal rates.23

City Staff Members Involved in Waste Disposal Favor City-Ownership of DADS

SWMD staff related to us that the City benefits greatly from owning DADS and having a third party lease and operate the site. This way, DADS stays in operation but costs and liabilities to the City are drastically reduced. This benefits the City financially long-term since it has no environmental responsibility yet maintains ownership of the land. Staff-members of the Department of Environmental Health (DEH) also believe the City benefits the most from the current DADS ownership-lessee structure. The immense costs and infrastructure involved to operate and manage such a large-scale operation are an important reason why the City does not operate DADS, which is the 10th largest landfill by volume in the country. Most importantly, the current structure protects the City against environmental liabilities.

City Initiatives Related to Waste Collection and Generation

The City’s 2010 Solid Waste Master Plan is intended to provide a framework to balance cost efficiency with SWMD providing good customer service and aiming for a higher level of economic and environmental sustainability. Greenprint Denver established a specific goal of a 30-percent reduction of landfill disposal by 2011 using 2004 as a baseline. The reduction would be achieved by reducing approximately 76,000 tons of waste either by reducing or diverting waste to recycling and composting.24 Table 4 shows the goals that had been set for each year from 2004 to 2011 using 2004 landfill tons as a baseline.

Table 4

Greenprint Denver Landfill Reduction Goals

Year Landfill Tons

2004 254,489

2005 248,596

2006 234,059

2007 231,596

2008 219,675

2009 221,797

2011* 178,100

Source: Solid Waste Master Plan, page 4. *Calculated to achieve Greenprint Denver goal

23 See footnote 18. 24 Greenprint Denver was a citywide initiative brought into life in 2006 under the Hickenlooper administration. Its purpose was to promote the importance of sustainable development and ecologically friendly practices throughout the community. Solid Waste Master Plan, page 10, https://www.denvergov.org/Portals/709/documents/master‐plan/master_plan_exec_summary.pdf.

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The actual amount of landfill tons collected in 2011 was 213,411 tons instead of the goal of 178,100 tons. This is 19.8 percent above the goal for 2011. The projected amount of landfill tons collected for 2014 is 215,000 tons. The current estimation is that the tonnage of landfill materials collected will stay constant over the next few years. Although the number of households serviced will increase, the amount of waste generated by households is declining.

Executive Order No. 123 establishes the Office of Sustainability to be the successor of Greenprint Denver. It also established important sustainability goals for the City and County of Denver.25 Chapter 5 of the executive order talks about materials and waste management and proposes among other suggestions for all agencies to pursue integrated materials management strategies that include reducing consumption, reusing materials, recycling waste materials that cannot be reused, and purchasing cost-competitive recycled content and recyclable products.

Memorandum 123 – E provides information about the Citywide sustainability policy and mentions that SWMD among other agencies will be responsible for the development and implementation of cost-effective initiatives that will advance the policies established by Chapter 5 of the Executive Order. According to the memo, all City employees will take measures to reduce waste and reuse resources, and implement established strategies whenever possible, for example, recycling relevant materials and compost where applicable.

The 2020 Goals are supposed to be implemented through City agencies, community partners, and public awareness campaigns with the help of the City’s Office of Sustainability. The 2020 Sustainability Goals as promulgated by the Denver Sustainability Office list the government operational goal of reducing waste disposed of by City operations through delivery to a landfill by 30 percent using the 2012 baseline.26 The goal for waste generated by households in the community is to reduce waste disposed of by delivery to a landfill by 20 percent, with 2012 as the baseline. The Mayor’s Structural Task Force recommended in 2012 that the City begin to charge all Denver residents for trash collection in an effort to reduce costs to the City.27 However, the Task Force does not recommend a specific system for trash collection, such as a pay-as-you-throw system, and leaves that decision to the City. Additionally, the task force advised expanding programs including trash collection to neighboring jurisdictions, and charging those residents for such service, in an effort to increase revenue and consolidate costs.

City Council has issued Council-set priorities for 2014, one of which is accelerating the implementation of the Comprehensive Solid Waste Plan. Specifically, City Council is focused on four goals:

1. Setting clear timelines and providing sources of capital funding to improve solid waste service

25Executive Order, No. 123, https://www.denvergov.org/Portals/728/documents/NDCC/NWSS%20RFQ%20Executive%20Order%20123.pdf. 26 City and County of Denver, Office of Sustainability, 2020 Sustainability Goals, https://www.denvergov.org/Portals/779/documents/2020%20Sustainability%20Goals.pdf. 27 Financial Task Force Report, January 2012, page 30, http://www.denvergov.org/Portals/9/documents/Structural_Taskforce/SFTF_Final_Report_1‐23‐12.pdf.

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2. Establishing a three-cart waste collection system Citywide (recyclables, compost, and trash)

3. Converting dumpsters to roll-out barrels, especially in Denver’s low-income neighborhoods

4. Ensuring large-item pickup in areas prone to illegal dumping

Environmental Impacts of Waste Diversion Types

When compostable items are hauled to a landfill, biodegradation usually takes place in an oxygen-starved environment, causing the release of methane. Methane is a greenhouse gas, which is twenty-two times more potent than carbon dioxide.

Organic waste does not create methane by itself. It is only when organic waste is placed into an anaerobic environment that methane is produced. Composting, while not perfectly aerobic, will generate very little, if any, methane. The very components that make for good composting, like using proper carbon-to-nitrogen ratio, adequate moisture, and good airflow, also minimize methane generation.28

According to the EPA, composting organic materials that have been diverted from landfills ultimately avoids the production of methane and leachate formulation in the landfills.29 Compost has the ability to prevent pollutants in stormwater runoff from reaching surface water resources. Compost has also been shown to prevent erosion and silting on embankments parallel to creeks, lakes, and rivers, and prevents erosion and turf loss on roadsides, hillsides, playing fields, and golf courses.30 Composting helps to extend the life of a landfill by diverting organic waste from landfills and provides a less costly alternative to conventional methods of remediating (cleaning) contaminated soils. SWMD has implemented a second route to increase the collection of compostable items and divert those materials from being dumped at DADS.

Information on Trash Removal, Recycling, and Composting in the City and County of Denver as Serviced by Solid Waste

According to information in the 2014 Mayor’s budget, the tons of trash collected in the City are expected to remain relatively constant at 215,000 tons per year for the next few years. It is noteworthy that although the number of homes serviced continues to increase, the amount of waste generated per household has been declining. Moreover, the compost tons collected will increase in 2014 due to the addition of a second compost-collection route. Composting is a voluntary, fee-based program in the City and County of Denver. Table 5 shows trash, recycling, and composting statistics from 2011 to present estimates.

28 United States Composting Council, Position Statement: Keeping Organics Out of Landfills, see: http://compostingcouncil.org/admin/wp‐content/uploads/2011/11/Keeping‐Organics‐Out‐of‐Landfills‐Position‐Paper.pdf. The US Composting Council is involved in research, public education, and composting standards. 29 Leachate is a liquid that has come in contact with or has been released from waste. 30 The EPA indicates compost use can result in a variety of environmental benefits. For more information, see: http://www.epa.gov/composting/benefits.htm.

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Table 5

Trash, Recycling, and Composting Statistics for Denver

Trash Collection 2011 Actual

2012 Actual

2013 Actual

2014 Estimate

Number of households serviced 172,000 173,000 174,000 176,000

Tons of trash collected 213,411 209,849 215,000 215,000

Recycling tons collected 31,042 32,000 32,000 32,300

Recycling and composting as a

percentage of waste stream 13.11% 13.66% 13.38% 13.90%

Recycling subscription rate 67% 68% 69% 71%

Compost tons collected 1,155 1,200 1,200 2,400

Source: City and County of Denver, 2014 Mayor’s budget, page 529.

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APPENDIX A Comparison of Actual and CPI-Based Annual DADS Base Rates

Source: Compiled by Audit Services Division from Department of Public Works records. Notes: *Beginning in 2010, DADS disposal rates changed from CPI‐based to fixed‐percent annual adjustments. **2014 figures are for January 1 through May 31.

Tons Disposed

Actual Base

Disposal Rate

Hypothetical CPI-Adjusted Base Disposal

Rate*Rate

Difference

Cost Impact of

Rate Difference

Tons Disposed

Actual Base

Disposal Rate

Hypothetical CPI-Adjusted Base Disposal

Rate*Rate

Difference

Cost Impact of

Rate Difference

2009 -0.60% 16,761 $7.47 N/A N/A N/A 101,382 $10.21 N/A N/A N/A2010 1.90% 23,934 $9.50 $7.43 $2.07 $49,659 101,022 $12.50 $10.15 $2.35 $237,5292011 3.70% 22,748 $12.00 $9.68 $2.32 $52,764 102,225 $14.00 $12.74 $1.26 $129,0592012 1.90% 24,335 $14.00 $10.04 $3.96 $96,399 96,571 $14.00 $13.21 $0.79 $76,4082013 2.80% 23,299 $14.70 $10.23 $4.47 $104,160 101,463 $14.70 $13.46 $1.24 $125,839

2014** 2.90% 10362 $15.43 $10.52 $4.91 $50,921 7,047 $15.43 $13.84 $1.59 $11,228121,439 $353,902 509,710 $580,064

Total cost impact $933,966

Year

Annual change in CPI

DADS DirectDADS Transfer

Totals

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AGENCY RESPONSE

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