09 - CR&R Audit Results Protecting our community's health and the environment by providing solid waste and sewer collection services. www.cmsdca.gov Costa Mesa Sanitary District ….an Independent Special District Memorandum T o: Operations Committee Via : Scott Carroll , General Manager From: Javier Ochiqui, Management Analyst Date: May 21 , 2013 Subject: CR&R Environmental Services Performance Audit Results Summary On February 27, 2013, the Board of Directors accepted the General Manager’s recommendation to appropriate $21,000 for the CR&R Environmental Services audit , and to award a contract to Michael Ball iet Consulting to perform the solid waste audit. Staff is providing the Operations Committee with the results of the audit. Staff Recommendation That the Operations Committee recommend to the Board of Directors to implement all of the recommendations p rovided by Michael Balliet Consulting. Analysis The purpose of the audit review was to establish CR&R’s compliance with contract terms and performance during FY 2011/2012. In order to establish a clear structure for the audit review, CMSD prepared a lis ting of 31 questions /section s of the contract to be answered by Michael Balliet Consulting. Each of these 31 q uestions is addressed in detail as part of four sep arate tasks in the body of the audit report (Att ach ment 1). B e low is a graph that summarizes t he overall results of the audit :
Operations Committee May 21 , 201 3 Page 2 of 3 Yes 80%No 10%Unclear 10%CR&R Audit Compliance As illustrated, CR&R Environmental Services did a satisfactory job scoring 80 out of 100 percent , or 25 out of 31 question s . Below are the six sections that can be improved: 1. Verify that CR&R , Inc., has provided DISTRICT with the most favorable rate with any other customer (Section 31, Most Favorable Rate). Unclear. 2. Verify the percentage of green waste that is being diverted from the landfill (Section 37, Master Manifests). Unclear. 3. Ver ify if CR&R rates are reasonable…CONTRACTOR shall submit an annual review of other cities’ comparable trash collection rates (Section 18, Justification of Rates). Unclear. 4. Verify the accounting of all recycled revenue (Section 28, Ownership of Solid W aste). No . 5. Verify that CR&R has had its financial statements audited and has made them available to DISTRICT (Section 34, Audit of Recycling Revenue). No . 6. Verify that CR&R has maintained a master manifest which shows disposal volumes, nature of the w aste, transportation and disposal sites as specified (Section 37, Master Manifests). No . Overall, CR&R En vironmental Services does a satisfactory job providing Costa Mesa Sanitary District residents with solid waste and recycling services , but there i s definitely room for improvement.
Operations Committee May 21 , 201 3 Page 3 of 3 Strategic Plan Element & Goal This item complies the with objective and strategy of Strategic Element 2.0, Solid Waste, which states: “Objective: Our objective is to manage the collection and recycling of residential t rash in the most economical and environmentally friendly way.” “Strategy : We will do this by looking for ways to improve efficiencies, achieve high customer satisfaction, and considering prudent new recycling methods.” Legal Review Not applicable at this time . Financial Review Not applicable at this time. Public Notice Process Copies of this report are on file and will be included with the complete agenda packet for the May 21 , 2013 , Operations Committee meeting at District Headquarters and posted o n the District’s website . Alternative Actions 1. Do nothing and refer the matter back to staff for additional information and/or analysis. Attachments 1 – Audit Results 2 – PowerPoint Presentation
Attachment 1 CR&R/Costa Mesa Disposal Fiscal Year 2011/2012 Review May 10 , 2013 Prepared for the Costa Mesa Sanitary District by Michael Balliet Consulting, LLC
Costa Mesa Sanitary District CR&R/Costa Mesa Disposal Review Fiscal Year 2011/2012 Page 2 Michael Balliet Consulting, LLC TABLE OF CONTENTS Executive Summary ................................................................................................... 3 Task 1 – Financial Review ......................................................................................... 4 Task 2 – Operational Review ................................................................................... 21 Task 3 – Administration & Systems Review ........................................................... 43 Task 4 – Compliance Review .................................................................................. 51
3 Executive Summary Michael Balliet Consulting, LLC (MBC) was retained by the Costa Mesa Sanitary District (CMSD ) to perform a review of CR&R/Costa Mesa Disposal (CR&R). The purpose of this review was to establish CR&R’s compliance with contract terms and performance during fiscal year 2011/2012 . A series of 31 questions was developed by the CMSD to address the compliance issues that were under the auditor’s purview. Eac h of these 31 questions is address ed in detail, as part of four separate tasks, in the body of this report. In summary CR&R wa s judged to be clearly in compliance with 25 of the 28 review areas (CMSD questions 20, 25, and 27 listed as non -compliant ). For each of the non -compliant areas noted CR&R has either rectified the noted issue during the audit or proposed an alternate means of satisfactorily resolving the auditor’s issue . Regarding no n -compliance with CMSD question 25 (submission of financial repor ts) CR&R acknowledges non -submittal, but cites previous problems with protection of this data as the reason it is no longer submitted. CR&R has no issue with providing their audited financial statement and related internal trial reports, they just request that CMSD staff review those documents at CR&R’s offices. For CMSD question 27 (master manifests), during the course of this audit CR&R did compile the required master manifests so they have effectively cured this deficiency. Finally, CR&R’s was judged to be out of compliance with question 20 (recycling revenue reporting). While they were under no requirement to pay a percentage of recycling revenues to the CMSD, the “estimate based” figures they compiled and presented to the CMSD were nonetheless inaccurat e. They cured their deficiency as part of this audit. There were also three areas of audit where CR&R’s compliance level is deemed “unclear ”. For each of these three areas (CMSD questions 2, 6, and 15), CR&R has been judged as co mpliant by previous reviews. However the auditor believes that potential ambiguities in your agreement make such previous determinations questionable. In each instance determinations of compliance are based upon an unwritten interpretation of very subjective agreeme nt terms (like “similar” and “reasonable”). The auditor recommend s that the CMSD and CR&R mutually define these subjective agreement terms, as well as clarify compliance measurement for the issues involved. Within this report the auditor details each compl iance issue, its potential impacts, and recommends how to move forward. Michael Balliet Project Auditor
4 Task 1 – Financial Review To establish a clear structure for the fiscal year 2011/2012 review t he CMSD prepared a listing of 31 questions to be answ ered by the auditor. Under Task 1 (Financial Review) questions 1, 10, 15, 20, 25, 28, and 29 are addressed. Below is the Task 1 Compliance Matrix: Recycling revenue figures presented to the CMSD (item 20) were found to have no basis in reality as they represent extrapolated survey data and not actual compensation received for CMSD materials sold. During the audit CR&R compiled recycling revenue figures that reconcile to their financials. The description of this subtask (CMSD #20) provides additional det ail. As shown , CR&R is considered to be out -of -co mpliance with CMSD item 25 . While the auditor reviewed their audited financials and confirmed that internal trial reports for the CMSD franchise reconcile with this report, CR&R failed to submit these state ments annually or provide notices to the CMSD that these statements were available for review at their offices .
5 With respect to item 15, CR&R ’s previous annual performance reviews failed to provide justification as to why rates for residential mixed waste programs are higher than three -cart systems. Rate survey data proved inconclusive with respect to answering this question. Detailed cost information for both types of collection and processing (single -stream versus 3 -cart), required by the auditor to esti mate costs for both program types, was not provided by CR&R. Therefore compliance is “unclear” for this item . Within the subtask discussion for item 15 we address this issue in great er detail , as well as recommend a path forward . The following Task 1 report includes sub -task detail for each of the respective audit areas requested by the CMSD. A description of review activity, CR&R compliance or non -compliance, and the auditor’s findings are presented therein. Where applicable the auditor also provides recommendations for the CMSD to consider. CMSD #1 – Verify that CR&R, Inc. paid the correct revenue for “additional” containers owed to the DISTRICT during Fiscal Year 2011 -2012 Under the Agreement (Section 11 -C) any customer that requests a container b eyond the amount prescribed for standard service (two 60 -gallon carts) is charged at the rate of $8 per -container per -month. This revenue is to be split between the District & CR&R, with the District receiving 86% of said revenue. CR&R utilizes their acco unt management software to track both carts in service and customers . During the onsite review the auditor worked with CR&R staff to obtain and analyze this data. The account management software was helpful for accessing specific account data but was not a ble to provide the data sorts required by the auditor. To perform his activity all cart/account data was exported to Excel for a recent “closed” period (February 2013). The use of a single month’s total is necessary since the number and distribution of car ts -in -service changes constantly. Data on designated “extra” carts was properly segregated by CR&R’s accounting system, resulting in very accurate paym ents to the CMSD . Listed below is a summary of CR&R system records , which match es the figures reported t o the CMSD for “extra” carts :
6 Where the auditor encountered system issues was in the review of “standard” or regular servi ce cart data from the accounting system. Other than a few isolated accounts, the majority of carts in service are listed as an individual line item with in the account data exported to Excel. This required the auditor to review cart data line -by -line to identify any accounts in “standard service” with cart numbers above the maximum (2 carts). The following table shows the tota l cart count from CR&R records. Our review established that “locking” carts listed in tables provided to the CMSD are actually included in the “Standard” service totals and do not represent unique carts. Therefore the initial number of carts in ser vice is established at 43,591 (February 2013): As discussed, within the “Standard” cart count our review found the following:
7 As shown , the review uncovered 32 accounts that are listed as “standard” service with 3 or more carts . These accounts are not charged for extra service by CR&R . Therefore no “additional cart” revenues are collected and no revenues are paid to the CMSD. Of the 141 carts in service (at these 32 accounts ), 77 are potentially “additional carts” that should be billed as such. The lis t of 32 accounts was provided to CR&R staff and an individual account activity report was generated for each. Accessing this level of data from the accounting system was needed to determi ne if these anomalies were truly carts provided over standard service levels. The following is a summary for each of the 32 account s identified with 3 or more carts and listed as “standard service” in CR&R’s accounting system :
8 Continued on the following page.
9 Based upon the account “detail” observed CR&R provide d justification for billing all but one these accounts as “Standard” service. The Task specific audit finding was at account number 17378 (1073 Tulare Drive) where an additional cart charge should have been levied. Service at this account started in March 2 011. The audit findi ng for this oversight is $178.88 (26 months – March 2011 through Ap ril 2013 @ $8 per month (or $208), with 86 % due the CMSD). CMSD staff should review each account where an “exemption” was provided by previous staff to insure no condi tions have changed. In addition you may wish to confirm multiple unit billings at the properties CR&R is claiming as multiple unit properties to ensure billing accuracy. At total of 71 units were identified from the list of 32 accounts . Actual unit counts wil l be developed further as part of Task 3 (CMSD #14). Audit Finding: The CMSD is owed $178.88 to reconcile improperly coded extra service. CMSD to verify “grandfathered” units and noted exceptions for proper approvals . Recommendation: The CMSD should require CR&R to present account and cart data as the auditor has done herein and in CMSD #14 (Task 4) to follow . Organizing cart data by customer service level s uncovered at least one missed billing, identified 4 improper listings of cart s, and uncovered a number of service anomalies that the CMSD may not have been aware of.
10 CMSD #10 – Verify that CR&R provides a bond or other security, including U.C.C. filing or lien rights, in an amount approved by DISTRICT, to guarantee CR&R’s perform ance of said container management program for a ten -year period. Under the Agreement (Section 11 -B) CR&R is required to maintain all containers purchased from the District and provide new containers where applicable (replacements, new and expanded service ). All new service recipients are required to be provided with two 60 -gallon carts, purchased and placed into service by CR&R. With respect to proof of compliance during the audit term CR&R provided correspondence to the CMSD and a copy of Performance Bo nd No. K087 59212, in the amount of $50,000 with a term of July 20, 2012 through July 20, 2013. This bond is renewed annually. Audit Finding: CR&R is in compliance with review item 10. CMSD #15 – Verify that CR&R’s rates are reasonable. CR&R shall provide an annual review of other cities’ comparable trash collection rates. Sect ion 18 of the Agreement requires CR&R to submit an annual review of other cities’ comparable trash collection rates and a justification as to why CR&R’s rates are reasonable. Prior to the audit period CMSD staff assumed the responsibility of performing this rate survey. CR&R believes this eliminates their obligation under Section 18. It should be noted that they have stated their willingness to resume this responsibility if directed by the CMSD. CR&R is also required to provide justification that their rates are “reasonable”. Such an assessment is highly subjective as “reasonable” is a relative term . What CR&R believes is reason able may be quite different than what the CMSD considers reasonable . An objective criterion is needed, and in the auditor’s opinion, no definitive data has ever been submitted to the CMSD (by CR&R ) that would allow for an accurate assessment of rate reasonability . In the auditor’s opinion, definitive d ata would require the disclosure of collection costs and processing costs, to provide a “profit margin” that could be used for comparison purposes. The premise of p revious “justifications” was that mixed waste collection rates provide the only comparable service. Therefore, so long as CMSD rates were lower than other County mixed waste collection program s (City of Stanton and Rossmoor ), they were deemed “reasonable”. What this premise fails t o account for is whether or not mixed waste program rates are “re asonable” when compared to three -cart program rates and if such a comparison is applicable . The auditor believes that Section 18 may have become somewhat confused with Section 22 of the agreement due to the inclusion of a rate review in its requirements. Section 22 is the provision that requires the CMSD receive the “most favorable ” rate for similar service , which has historically used rates in the City of Stanton and the Rossmoor community to meet that requirement . While Section 22 is also subjective (ter m “similar”), the auditor believes that “rate comparison ” and “rate reasonableness ” are not synonymous .
11 In order to determine if CMSD franchise rates are reasonable we need to first determine the amount CR&R was actually p aid during the audit period then divide that amount by the total unit count for the same period. That will provide us with a CMSD fr a nchise specific “net -to -hauler” figure for the audit term . Second, we must use a rate survey instrument that also calculates “net -to -hauler” revenues for a ll applicable Orange County jurisdictions . This type of survey instrument is necessary since jurisdictional administrative and compliance fees are often incorporated within residential rates and the level of tho se fees can vary significantly . To truly prov ide an “apples -to -apples” comparison we must determine what net revenue each residential rate provides to the hauler. Shown on the following page s are the data a nd calculations the auditor used to determine CR&R’s net revenue from the CMSD residential rat e and the net revenue realized in other Orange County residential franchises :
To deter mine the “reasonableness” of this $17.20 CR&R net revenue we utilized our survey instrument to establish “net -to -hauler” revenues in other Orange County jurisdictions. The results are shown on the following page:
13 As shown, CR&R’s net -to -hauler revenue from the CMSD franchise is 9 th highest among the 32 Orange County jurisdictions included in the survey. The cities of Lagu na Woods and Newport Beach were not included for the reasons noted above . The following table shows this comparison for CR&R serviced jurisdictions only :
14 The CMSD franchise net -to -hauler revenue is the third highest among CR&R ’s Orange County franchises . The $17.20 they “net” is $1.71 above the “net -to -hauler” average ($15.49) of their 11 Orange County franchises. It should be also be noted that CR&R’s receives an unseen financial benefit from the CMSD franchise as they are not required to pay the for th e cost of billing residents , the cost of de linquent account collection , and the cost of bad debt . These are costs CR&R must absorb in every other franchise. The auditor estimates this benefit at $0.50 per household per month. It is intere sting to note that CR&R net revenue from the 3 -cart program in San Juan Capistrano is $0.32 per -unit per -month higher than the CMSD figure . Net revenue from 3 -cart programs in San Clemente and Laguna Niguel are within 2% of to the CMSD amount. This suggests that the cos t of providi ng mixed waste program service might be similar to the cost of providing 3 -cart programs. It could also be that San Juan Capistrano operations are much more profitable than CMSD operations. In most instances the auditor does not bel ieve it is a contracting entity’s business to know the exact profitability of hauler operations. A rate was negotiated in good faith and both parties should abide by that agreement. However, in the case of the CMSD, your agreement sp ecifically guarantee s you the abil ity to maintain competitive rate s through Sec tions 18 and 22 . In the auditor’s opinion, to accurately determine if the CMSD rate is both “reasonable ” and the lowest “similar ” rate a disclosure and a nalysis of hauler costs and profitability is required. As discussed a definition of “reasonable ” is needed. Is reasonable the average rate in the County or a certain percentage range above /below that average? As constructed the agreement appears to use the County of Orange as t he basis for this determination. Ho wever it is the auditor’s opinion that more clarification is needed in the agreement to definitively make this determination.
The auditor discussed the need for CR&R to disclose operational cost data and profitability, and its basis in the agreement. We requested both CMSD franchise cost data (collection and processing) and the same cost figures for any 3 -cart jurisdiction CR&R selected, provided it was within Orange County . We also offered CR&R the option of presenting average per -t on and/or per -hour figures, to avoid disclosing jurisdiction specific data (provided the auditor can review the basis for these costs to determine their accuracy). CR&R did provide collection cost information for their CMSD service. However the y elected not to provide this information for a 3 -cart program. Processing cost figures were not provided. Therefore the auditor could not establish cost estimates that might provide justification that these programs should be considered “similar ”. Audit F inding: Sufficient data was not presented which would allow the auditor to determine whether costs of performing 3 -cart service are substantially less than mixed waste collection programs. In the auditor’s opinion such data is needed to determine rate rea sonability . Therefore we believe no definitive finding can be reached for this issue . Recommendation – We believe the District should clarify whether CR&R is to resume perform ing the annual survey of area rates. Furthermore we believe the District should specify the data to be collected and the format in which this data is to be presented. We believe the format we have used, which calculates “net -to -hauler” revenues , is superior to other survey methodologies . With regards to rate reasonability we strongl y urge the CMSD to renegotiate and revise Sections 18 and 22 of the agreement. In the auditor’s opinion the status quo is difficult for both the CMSD and CR&R. Our suggestion is to eliminate “reasonable” and “lowest similar” rate requirements in exchange f or a rate determination methodology that uses either a County average or a CR&R franchise average as its basis. CMSD #20 – Verify the accounting of all recycling revenue. Section 28 of the agreement actually works in conjunction with Section 29 (Residue/Flow Control) to reasonably assure the CMSD is in compliance with the ongoing County of Orange flow control agreement . The County is actually made a third -party to Section (29) of the agreement . P revious accounting of recycling revenue, prepare d by CR &R and provided to the CMSD , is believed to have been non -compliant with these sections (in tandem) as t hey presented extrapolated revenue numbers based upon “front -end” sorting estimates rather than the “post MRF sort” data needed to prove complian ce with the County’s flow control agreement. The difficulty in presenting accurate CMSD -specific recycling tonnage and revenues is acknowledged by the auditor. CMSD franchise material is mixed with that of several other jurisdiction s at the CR&R MRF in St anton. In the auditor’s opinion t he most accurate measurement available , given this commingling of waste, is a facility -wide total (Stanton MRF)
16 that is subsequently apportioned to the CMSD franchise by the MRF operator. The auditor requested that the foll owing be disclosed by CR&R : 1. Total waste delivered to the Stanton MRF during the audit period f r om all jurisdictions . 2. For that same period , a summary of all diverted materials by receiving facility, segregated by commodity type and corresponding weight s , and showing the total compensation received or cost paid for each material type . 3. Total residual waste disposed by landfill. 4. Finally, the percentage of each commodity type (for diversion ) and residual disposal allocated to the CMSD franchis e by the MRF operator . CR&R materially complied with this request, providing both CRT MRF total tonnage and CMSD franchise specific figures. Separately they provided a list of facilities receiving various material types, thus allowing the auditor to deve lop a reasonably accurate master manifest. With respect to recycling revenues the following table s provides the audited figures:
17 As shown above the distribution of “post -sort” recyclable material s varies from the “pre -sort” characterization projections. Recovery of paper products is significantly less, while green waste diversion is significantly higher. “Shrinkage”, which is predominantly wate r reduction, was not accounted for in the characterization but is a substantial portion of post -sort diversion . Regardless, the total tons of diversion allocated to the CMSD franchise by the MRF sorting operation is exactly the same, thus your 57.84% diversion rate is “verified ” and actual material values can be substantiated. For the City of Costa Mesa portion of the CMSD franchise (Area 9) recyclable material sales provided $752,881.33 in revenue in 2012 . As noted above, the net revenue realized by CR&R is less , as the cost of transporting materials to market is not included. While per ton sorting fees for the CMSD franchise are substantially lower than the facility “gate rate” for waste transfer, the auditor cannot confirm that there is any net processing cost to CR&R above the per ton tipping fee the CMSD pays.
18 The same MRF apportionment process was done for Santa Ana Heights (Area 11) resulting in the substantiation of characterization -based waste diversion levels. A similar variation in “post -sort” tonnage occurs . Recyclable material value obtained from Area 11 routes is $34,956.13 for calendar year 2012. In total t he CMSD franchise generated $787,837.46 in net recyclable material sales revenue, not inclusive of transportation costs.
19 Audit Finding: In the auditor’s opinion, CR&R’s previous submissions of recyclable material reven ues were non -compliant with Sect ions 28 and 29 of the agreement. Therefore non -compliance wa s our determination. However CR&R has rectified this issue by providing actual “post -sort” material data and accurate revenue figures as part of the audit process. CMSD #25 – Verify that CR&R has had its financial statements audited and has made them available to the DISTRICT. Section 34 of the agreement requires CR&R to make available its audited financial statements, which are required to be prepared “at least” annually and must also provide internal trial reports supporting the financial statements. Specifically revenue derived from all recycled materials is required. The auditor reviewed the most recent CR&R financial statement and revenues from the sale of re cyclable commodities were reconciled to trial reports that support the recycling revenue figure s (shown in CMSD #20 above). In addition, through discussions with CR&R staff we were informed that a previous submission of their audited financials was not kep t secure from unauthorized inspection . Therefore CR&R discontinued the practice of submitting their financial statements . Audit Finding: Out of compliance. At minimum CR&R should have provided written notice to the CMSD that their annual financials and i nternal trial reports were available for review . Recommendation: We suggested that CR&R compile an annual report for the CMSD that details their compliance efforts with respect to all agreement terms. W ithin this type of report CR&R sh ould also notify the CMSD o f the availability of audited financial records for review. CMSD #28 – Verify that CR&R has furnished a Bond as indicated. Section 44 of the agreement requires CR&R to furnish a faithful performance bon d guaranteeing franchise service . With re spect to proof of compliance during the audit term CR&R provided correspondence to the CMSD and a copy of Performance Bond No. K08759212, in the amount of $50,000 with a term of July 20, 2012 through July 20, 2013. This bond is renewed annually. No docume ntation requiring a separate bond for the cart program was found, thus CR&R is believed to be in compliance with review item 28. In the auditor’s opinion it is permissible for CR&R to use the same bond to guarantee performance for both areas of the agreeme nt. The CMSD is within its rights to require a separate bond for the cart program. As stated the auditor believes no such requirement was ever put in place nor is such action required. Audit Finding: CR&R is in compliance.
20 CMSD #29 – Verify that CR&R has been maintaining a Five Million Dollar public liability insurance policy and has provided the DISTRICT with such copies of certificates. Section 45 of the agreement requires CR&R to carry a public liability policy with combined single limit coverage of $5 million. During a portion of the audit period CR&R’s General Liability policy was with Greenwich Insurance Comp any (NAIC #22322) and carried per -occurrence coverage of $1 million. CR&R also carried an Excess/Umbrella Liability policy with Everest Nat ional Insurance Company in the per -occurrence amount of $4 million. Their combined coverage met agreement requirements through 9 -3 -2011 (CR&R was with Greenwich from 9 -3 -2005 through 9 -3 -2011). As of 9 -4 -2011 CR&R switch ed their General Liability coverage to the Great Divide Insurance Company, which is their current provider. On 9 -4 -2011 Excess/Umbrella coverage was switched from Everest National to Starr Indemnity & Liability Company. The same coverage amounts were maintain ed , thus CR&R has maintained comp liance. CR&R’s Automobile policy was with XL Insurance of America from 9 -3 -2005 through 9 -3 -2011. From 9 -4 -2011 forward this coverage wa s also provided by the Great Divide Insurance Company. Coverage is at the $1 million per occurrence level. Audit Finding: CR&R is in compliance .
21 Task 2 – Operational Review Under Task 2 (Operations Review) questions 5, 6, 7, 11, 12, 21, 26, and 27 are addressed. Below is the Task 2 Compliance Matrix: Compliance could not be de termined for CMSD item 6 as post -sort data for green waste within disposed waste was not available. The auditor is confident that CR&R is diverting the great majority of CMSD green waste, based on our review of both State and County ADC records , as well as CRT MRF records . For CMSD i tem 27 CR&R has previously failed to provide any detail on post -sort diversion a nd residual disposal . This issue was rectified by the audit . CMSD #6 and #27 subtask s below provide a detailed description of our review. CMSD #5 – Verify that 100% of multi -family waste is sent to the MRF facility in Stanton for processing. Section 41 of the agreement provides the CMSD with the right to audit any facet of CR&R performance, which includes the ir utilization of the CR&R MRF. Specific to this item, access to records that confirm delivery of 100% of the multi -family waste collected.
22 For the purposes of this review the auditor examined facility tip records, as well as landfill account records to establish that all CR&R collections, including those from multi -family accounts, are delivered to the Stanton MRF. No CMSD franchise waste was directly hauled to a landfill during the audit period. In that respect 100% compliance has been achieved. While our review has determined that all CMSD waste wa s delivered to the Stanton MRF we cannot definitively state that each load is processed . The Stanton MRF has the ability to bypass sorting , going straight to “transfer” for any load delivered . That is why it is important to reconcile “delivered” tonnage to a subsequent d iversion or disposal facility. In order to understand the specific process at the CRT MRF the auditor was provided a tour and was able to observe operations at both the CRT MRF and the Buy Back Center .
23 The preceding picture shows CR&R facilities in Stanton. Specific to our review, the C RT Material Recovery Facility (MRF) and Transfer Station is the receiving point for all CMSD route vehicles. This location houses the mixed waste processing equipment, green waste processing area, and C&D diversion operations, as well as the transfer area where trash loads and residual waste from sorting is loaded into transfer trailers and taken to the landfill. This CRT operation also receives “black barrel” (three -cart trash) and “green barrel” (three -cart green waste) loads for transfer and processing. The CRT MRF uses a multi -level sort, employing both mechanical and manual separation. It is a state -of -the -art facility that is capable of diverting an above -average amount of material, in comparison to the other MRF operations the auditor has observed. Our review confirmed that blue -barrel (3 -cart recycling) loads do not go to the CRT MRF. They are processed at the Buy Back Center. Three separate and distinct tipping areas are provided at the CRT MRF for trash, g reen waste, and the mixed material loads from CMSD and other mixed processing franchises. Construction and demolition wastes are tipped in a separate building. Based upon our observations the CRT facility can effectively segregate incoming loads and ensur e that all CMSD waste is sent to proper processing operations. Thu s the CMSD can be reasonably assured that all multi -family waste is processed. Audit Finding: CR&R is in compliance. CMSD #6 – Verify the percentage of green waste that is being diverted from the landfill. Section 37 of the agreement requires CR&R to maintain a master manifest show ing the volume, nature of waste transported, and site receiving all waste from the CMSD franchise. While the terms “disposal” and “disposal sites” are used in this Section the CMSD clearly believes this requirement applies to all materials collected and processed . Under the authority granted the CMSD by Section 41 of the agreement t he auditor agrees with this interpretation . A complete accounted of post -sorting tonnage is the only definit ive means of verifying reported d iversion. After discussions with CR&R management they provided post -sort data for all recycled material. However a waste composition study has never been performed on the residual waste that is d isposed . Without this composition data it is impossible to calculate the exact percentage of green waste that is being diverted. To independently verify CMSD green waste diversion we reviewed CMSD franchise green waste data from the State Disposal Reporting System (DRS) and Orange County landfill reports. Unfortunately both State and County landfill records include a ll unincorporated -County areas a s a single report line item. Therefore we could not include portion s of CMSD fr anchise service outside the City of Costa Mesa in this review. The following table shows State approved ADC diversion credits by landfill facility. Listed immediately below these amounts is “retail green waste” as quantified in landfill reports from the
24 C ounty of Orange . The term “retail” refers to green waste material that is not part of franchise service, thus these tons must be removed to arrive at a CMSD specific figure. Final State Disposal Reporting System data will not be available for 2012 until this summer. As shown above, our review established 2,955.20 tons of ADC diversion credit for calendar year 2010 and 6,436.68 tons in calendar year 2011. The State DRS lists zero ADC diversion at Chiquita Canyon. The following green waste diversion was claimed by CR&R for the same periods:
25 100% diversion of all green waste material is virtually impossible as finer material is contaminated with glass and plastic in mixed waste processing . However, CR&R’s MRF recovery process uses the latest air -se paration technology to remove most of the glass from this material. Within the post -sort recycled material tabl e in the previous task section (pages 17 and 18) the category “Organic/Fines” contains a percentage of green waste. As this “post -sort” data sho ws CR&R is diverting significantly more green waste than the characterization study suggests. State and County figures show CR&R to be maximizing your ADC diversion credit. CalRecycle has announce d that the ADC diversion credit will not always be availab le (tentative date for removing diversion credit is 2020). With so many Cal ifornia jurisdictions relying on ADC credits for green waste diversion, and most Orange County jurisdictions (including the CMSD) benefitting from zero cost disposal, the traditiona l green waste diversion market is projected to be flooded with material by 2020 . This “traditional” market includes composting operations that turn green material into soil amendments and other land application products. All curbside green waste programs w ill be impacted as even 3 -cart systems (which segregate green waste at curbside) experience a level of contamination in collected ma terial that is higher than materials collected by gardeners and commercial landscape companies. The auditor’s concern is tha t mixed waste processing will produce a more “contaminated” product for market, thus limiting diversion opportunities for CMSD green waste . CR&R is aware of these potential issues and is in the process of developing their own internal solution , an anaero bic digestion facility in Perris, California. Detailed presentations on this planned facility have been made to the CMSD. The auditor advises that you monitor this facility’s progress , along with State legislative action . Audit Finding: Unclear. Without a disposal composition study the exact percentage of green waste diverted is impossible to calculate . The master manifest data provided, along with State and County records, suggest that CR&R is maximizing green waste diversion to the maximum extent possib le . With regards to Section 37 of the agreement, CR&R is believed to have made a reasonable effort to come into compliance, providing post -sort data on green waste diversion. Recommendation – The CMSD should request that CR&R provide a waste composition s tudy to determine the amount of green waste in post -sort residual waste . CMSD #7 – Verify that CR&R met the 50% diversion rate for Costa Mesa Sanitary District in FY 2011 -2012. Section 30 requires CR&R to divert a minimum of 50% of the CMSD franchise m aterials they collect. Based upon reported data CR&R regularly exceeds this requirement. Their current reported diversion rate is over 57 %. Audit activity for this task focused on establishing how this reported diversion level is established and a review of CRT MRF operations.
26 Shown above is the sorting machinery used to process CMSD waste at the CRT facility in Stanton. Permitted capacity at this facility (State permit number #30 -AB -0013) is 3,600 tons -per -day, with current maximum throughput at 1,800 tons per day. The facility is currently operating within that capacity. The 57% diversion rate claimed for CMSD waste (residential mixed collection) is much higher than the 30% to 40% facility average that Los Angeles County establish in their recent audit of material recovery facilities . That audit was specific to commercial waste so it is not an apples -to -apples comparison. Nevertheless it does present a “comparison” figure and sets a precedent for a third -party audit of facility diversion rate claim s . At this juncture it is unlike ly that the State will “audit” CRT Stanton or challenge their diversion claims. However the auditor is concerned that the implementation of AB341 (State mandatory commercial/multi -family recycling) will expand MRF diversio n to the point where the State may decide to independently substantiate MRF diversion claims. Publicly CalRecycle has expressed their preference for source separation so this is not a n entirely baseless concern. Therefore our review activity focused on how “defensible” curr ent CMSD diversion numbers are. Through discussions with CR&R staff we established that the current 57.84% diversion figure (City of Costa M esa portion of CMSD franchise) wa s based upon a January 2011 sampling. For the Santa Ana Heights portion of the franchise, their 51.97% diversion rate is also based upon January 2011 sampling. CR&R was asked to describe the methodology used and provided the following data:
27 Costa Mesa Sanitary District Characterization Procedures The District is comprised of zoning sections based on property density type as reflected on the attached zoning map. Each zoning section/type is represented and color coded as follows: Color Orange - High density (large multi family complexes) Color Dark Yellow - Medium density (medium size multifamily complexes) Color Brown - R3 Lower density (2, 3, 4 unit complexes) Color Yellow - Lowest density (Individual single -family homes). The routes for characterization on each individual day (a different color on the CMSD District pick up map) are selected to include all property density types, representing the entire geography and population of the district. The different property types and areas represent the varying demographics of the district. Varying consumption habits are also present with different areas and property types, leading to varying waste streams. Each individual day’s characterization sample consists of material from e ach of the property types, representing all different waste stream possibilities. The contrast to this methodology would be to sample only one property type, skewing the sample data in a single direction. Each day’s characterization sample is from a diff erent area of the
28 district. The contrast to this methodology would be to sample the same area repeatedly, skewing the data in a single direction. The characterizations are performed for five consecutive days. Each day in a different area with all of t he different property types and corresponding varying waste streams included in the sample, providing a representative picture of the waste stream of the entire district. CRT Facility (MRF) – Mixed Municipal Waste Material 1) Material is dumped on the trans fer floor 2) The entire load is mixed and flattened with a front loader 3) Six 40 gallon containers are placed at different locations (determined by random number selection on an x y grid) on the pile 4) Each 40 gallon container is filled with material 5) The six cont ainers making up the sample are dumped into a 3 yard container 6) The sample material is taken to a designated sorting area 7) The material is sorted into the various material categories 8) The sorted materials are weighed individually 9) The individual material weigh ts are recorded on the characterization form 10) The handwritten form is then recorded on a computerized form 11) Typical sample size ranges from 250 to 350 pounds Sorting data is provided on the following pages for both CMSD franchise areas:
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31 In order to be defensible, the auditor’s opinion is that sampling to establish diversion estimates should adequately address the issues a third -party audit would likely raise . These issues would likely include the following : 1. Was the sample size adequate? 2. Did the sampling methodology reasonably approximate regular processing operations? 3. Do the sample loads selected provide a representative cross section of the total area serviced? Sample Size Adequacy For the City of Costa Mesa franch ise area only 1.17% of vehicle loads were sampled (1,280.78 pounds out of 109,540 pounds collected). For Santa Ana Heights , data on total truck weights was not provided therefore a sample size de termination could not be made. However, b ased up on the two sa mple weights listed (293.00 and 231.69 pounds) we believe the sample percentage is similar to Costa Mesa routes . An ideal sample size would be an entire vehicle load. Given that the CMSD program is mixed waste collection and processing, collected material is likely to present a more homogeneous mix upon tipping at the facility. However collection is still likely to be stratified to some degree, based upon the order in which single -fam ily versus multi -family units a re collected, and the various lot sizes of properties included (i.e. 20,000 square foot single -family lot would present significantly more green waste than a 5 ,000 square foot four -plex property). Opinion: CR&R addresses the stratification issue well in their sorting methodology, but the sample size is questionable. Sample Sorting Methodology The auditor’s concern is that the methodology used, while correct for the purpose of a waste composition study, may be viewed as inadequate for calculating specific facility diversion rates . In order to calculate diversion it is the auditor’s opinion that the capabilities of the sorting system employed must be tested , either through actual use or reasonable approximation . This would require the sorting methodology to use a sufficient quantity of material and be timed so that i ssues such as belt speed, mechanical and manual sorting (both employed at CRT), number of sorters employed, and daily facility throughput requirements be established and compared to actual operations . Opinion: CR&R’s methodology is inadequate as it only establishes material composition and uses an undisclosed methodology to approximat e sorting efficiency . This “approximation of sorting capabilities” is also questionable given that post -sort material composition var ies significantly from the pre -sort characterization . Sample L oad Area Versus Service Area The following pages show the collection areas that correspond to the truck numbers used in the CR&R survey. As described by CR&R they correspond with the regular co llection days presented in their description of methodology above.
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37 In the auditor’s opinion additional data is needed in order to establish whether or not selected routes provide a representative sample. While there is no doubt some type of p hysical and socio -economic stratification is represented in the collection schedule, what matters regarding the sort is how well the individual areas within those daily collections , in tandem with other selected routes, represent the franchise area as a wh o le . At minimum a percentage of single -family versus multi -family accounts for each daily sample would likely be required. In addition, data on the number of carts and cart sizes relative to specific accounts (not currently tracked by CR&R) is considered valuable information to have available. That would allow for the determination of average carts and total cart volumes, to both single -family and multi -family customers included in the survey, which could then be compared to the total franchise area. Opin ion: Additional data on the composition of individual routes selected, within the service day area, would likely be needed. CR&R may have adequately done this but it cannot be determined from the level of data provided. As discussed there is currently no State sorting standard for MRF diversion claims. U se of waste composition standards, coupled with some type of material sizing estimator , could conceivable be determine d as acceptable by the State. This would likely be similar to the methodology CR&R mana gement employed to determine diversion from the sample composition data . However, based upon the Los Angeles County MRF audits it is considered more likely that this type of approximating methodology will not be allowed . Audit Finding: CR&R diversion cla ims have been approved by the State since AB 939 diversion tracking began. The methodology utilized has been incorporated into 50% diversion rate approval for both the City of Costa Mesa and the portion of unincorporated County service that is within the C MSD franchise. Therefore CR&R is in compliance with this requirement. Recommendation: While this is not a pressing issue we believe the potential for MRF diversion audits is an issue the CMSD should aware of . Current methodology was disclosed by CR&R. Ho wever the methodology used to ultimately determine what was “diverted” and what was “disposed” was not. While the CRT MRF has substantiated all diversion claims, the auditor believes improvements to the “front -end” characterization model are needed. Any fu ture sorting should attempt to cover as many potential verification audit areas as possible. CMSD #11 – Verify that each vehicle used for the collection of solid waste shall have the name Costa Mesa Disposal Inc., plainly visible on the outside of said v ehicle for the purpose of identification. All vehicles used for collection sh all also prominently display an identification number on both sides of the vehicle. All vehicles used in the CMSD franchise are considered compliant with current standards. Over the years certain specifics have been changed by mutual consent . CR&R vehicles have incorporated all these CMSD approved changes.
38 The following pictures confirm appropriate signage, as observed on all CR&R vehicles used for franchise service: Audit Finding: CR&R is in compliance.
39 CMSD #12 – Verify that all equipment used for collection of solid waste shall be enclosed to ensure that solid waste is not spilled on streets and private property. CR&R shall comply with all requirements of the Veh icle Code, Health Department, and District Operations Code and all equipment used for collection of solid waste shall be watertight and shall be covered with suitable waterproof tarpaulins, metal covers, or other satisfactory covers. Section 12 of the agr eement requires the use of safe and compliant vehicles to perform franchise collection activity. The following is a listing of the trucks currently in service: As part of the review process I interviewed Frank Campos (Route Manager) and David Latham (Operations Manager) to familiarize myself with the safety and maintenance procedures CR&R employs. Through this process and a review of records I determined that CR&R has excellent preventative maintenance procedures in place and that the safety of their v ehicles and drivers is promulgated through regular training and the incorporation of route personnel in frontline inspection procedures. Vehicles operating under the franchise are established under two categories. Category “A” are frontline vehicles used in regular service. Category “B” vehicles are “spares” to be brought into service if repair or maintenance requirements keep a Category A vehicle off the road during scheduled collections. All Category A vehicles receive a detailed inspection and maintenan ce regimen every 30 days. These procedures include the inspection of all safety systems, and all seals (ensures water -tight collection units). All fluids are replaced and vehicle operating systems are inspected, repaired, or replaced at factory recommended intervals. As a result CR&R has a satisfactory vehicle performance record. During the audit term two (2) vehicle breakdowns on the collection route required tow service to reach the ma intenance yard. An additional 28 on -route issues (noted in route call -in logs ) required the driver to return the collection vehicle to the service yard . A number of incidents were minor issues such as inoperable windshield wipers, a sensor light coming on, tire leak, etc . Vehicle operational system issues noted included prob lems with collection arms (2), problems with the packer unit (3), and one (1) issue each from brakes and transmission. Given that 9 vehicles operate, five days per week and performed multiple routes each day, this is a very good performance record.
40 All tr ucks observed had proper and intact seals in place. CR&R staff replaces all seals on a regular maintenance schedule. A review of BIT inspection program records showed all vehicles are in good operating condition. Audit Finding: CR&R is in compliance. The only issue noted is that the agreement requires water -tight tarpaulins and CR&R uses a mesh tarp to contain debris in roll -off boxes. While this service isn’t typically used for residential service, c ommunity clean up and certain bulky item collection may utilize roll -off containers so this exception should be noted. The use of mesh tarps is standard operating procedure within the waste hauling industry. The three 1993 vehicle s we re being phased -out of service during the audit process. Those vehicles will b e replaced with the following CNG vehicles: CMSD #21 – Verify that the diversion reports compiled by CR&R are accurate and diversion requirements have been met. Section 30 requires CR&R to prepare and maintain appropriate documentation showing how diversion requirements have been met. As noted in previous areas of this review, the auditor does include master manifest data for diverted materials within this “appropriate documentation” ca tegory. While CR&R includes tonnage figures in its reports to the CMSD, these are all extrapolations based upon sample sorts. In the auditor’s opinion this sample sort data should be supported by MRF records that allocate facility specific diversion to the CMSD franchise. During the audit process CR&R did compile post -sort diversion records that serve as verification to current diversion claims. With regards to meeting diversion requirements for the audit period , CR&R’s diversion figures did match the methodology they have consistently used. With respect to that methodology, it has nev er been challenged by the State therefore required diversion levels have been met . Audit Finding: CR&R is in compliance with this requirement. Recommendatio n: The CMSD should require CR&R to provide an annual master manifest , like the one provided later in this audit report, to secure diversion credit for the CMSD franchise . H aving the MRF operator attest to diversion through a post -sort data report is consi dered more “audit proof” than the extrapolation methodology CR&R has previously used . This will provide an extra layer of “protection” to the diversion the MRF facility allocates t o the CMSD franchise should CR&R’s methodology ever be challenged. CMSD #26 – Verify that CR&R has provided support for the anti -scavenging program and has kept its trash containers free from graffiti.
41 Section 36 requires CR&R to provide financial support to the CMSD’s anti -scavenging efforts through payments of up to $5,000 p er year. This $5,000 maximum payment amount is to be adjusted (beginning in July 2007) to account for fluctuations in a designated CPI rate. CR&R is also required to keep its containers free from graffiti. Interviews with both CMSD and CR&R staff confirme d that all required financial support to anti -scavenging programs has been provided by CR&R. With respect to keeping their containers free from graffiti the auditor performed three separate filed inspections and found the containers used in the CMSD franch ise to be very well maintained. A subsequent review of CR&R container maintenance records found that 525 carts were replaced during the audit period. An estimated 50 to 60 carts were replaced to address graffiti issues (CR&R does not track specific reasons for exchanges, but does note “repairs” in their cart maintenance log). Estimated graffiti replacements are noted “exchanges” without a “repair” designation. Audit Finding: CR&R is in compliance. CMSD #27 – Verify that CR&R has maintained a master mani fest which shows disposal volumes, nature of the waste, transportation and disposal sites as specified. Section 37 of the agreement has been addressed in several subtask assessment s in this report. It is the auditor’s opinion that CR&R must prepare and pr ovide the CMSD with both disposal and diversion data, post -sort, from the CRT facility in Stanton. Furthermore that CMSD diversion be documented as a percentage of total post -facility sort diversion so that you are assured of proper diversion credit. From the wording of this section the auditor a lso believes that composition of certain disposed materials (i.e. green waste) should be made available in order for CR&R to be fully in compliance with this provision. CR&R has not previously provided this level of detail to the CMSD. Therefore we have determined that they were out of compliance with this agreement requirement during the audit period. During this review CR&R staff did compile post -sort diversion data for th e auditor and also provided a separate listing of all destination facilities for CMSD waste. By combining these two pieces of information the auditor has created the required master manifest (shown on following page). Audit Finding: CR&R is out of compl iance. CR&R did comply with the requirement as part of this audit. Recommendation: The CMSD should require that CR&R provide annual updates to the master manifest created herein (following page). While it is permissible for them to use characterization b ased tonnage for monthly reporting, on an annual basis they should be required to reconcile to actual tons diverted.
42 The above data constitutes a “master manifest” for all CMSD franchise materials collected during calendar year 2012. Once the C ounty of Orange finalizes their landfill report (on or about May 25 th ) CMSD staff can verify “Total Landfill” tonnage above and allocate it to the specific landfill facilities listed (Olinda -Alpha, Frank R. Bowerman, and Prima Desecha – All part of the Ora nge County landfill system). As discussed the CMSD should require CR&R to annually prepare and submit this type of “master manifest” to verify actual tons diverted and disposed during the previous year.
43 Task 3 – Administration & Systems Rev iew Under Task 3 (Administration & Systems Review) questions 3, 8, 14, 16, 17, 30, 31 are addressed. Below is the Task 3 Compliance Matrix: CR&R is in compliance with each Task 3 item. Auditor issues with CMSD #3 are addressed in other audit finding areas. With respect to CMSD #14 we believe closed/inactive accounts should be disclosed in monthly reports. In addition the CMSD should require customer data be presented in the format we have developed (shown in narrative of CMSD #1 4 ). CMSD #3 – Verify that all internal trial reports in regards to the DISTRICT are accurate. Internal trial reports for recycling revenue, reported tonnage, compilations of cart distributions, and other quantifiable franchise items are considered highly accurate. CR&R acc ounting and management staff are well qualified. The only area the auditor has issue with is in the pro duction of the s e records to the CMSD. Those issues have been address ed elsewhere in this report. With respect to this subtask the auditor has determined CR&R to be highly accurate with every report that has been made available, including reports containing “proprietary” data CR&R is not comfortable in having presented in this type of review document. Therefore with respect to CMSD item #3 they are judged to be in compliance. Audit Finding: CR&R is in compliance.
44 CMSD #8 – Verify that CR&R has established a Drug -Free Awareness program. CR&R has a written employment policy that stipulates that all their facilities are to be drug free. Employees must agree to be drug -free as a condition of employment and CR&R employs a private company to provide periodic, ra ndom drug tests on all employees. CR&R is taking every reasonable measure to make employees aware of the policy and a review of records shows they are regularly conducting employee awareness meetings and administering random drug -tests. Audit Finding: CR &R is in compliance. CMSD #14 – Verify if occupancy count that DISTRICT prepared for CR&R is accurate . Section 17 establishes a system whereby the CMSD uses an assessor’s parcel base d list , which CR&R continually updates , as the basis of monthly occupan cy count figures. CMSD billing and CR&R compensation is based upon this occupancy count. The table below show s the unit -count figure s that were approved and billed by the CMSD for each month of the audit period: February 20 12’s count is highlighted (a bove) as that is the period where detailed cart and customer report data was reviewed . CR&R’s procedures for establishing the monthly unit count is to run their “Residential List” report, which contains all customer accounts within the CMSD franchise. Thi s list was originally based upon the assessor’s parcel list referenced in the agreement. From that total CR&R backs out customer accounts established for the CMSD and Costa Mesa City Hall. They also back out all accounts that have discontinued service (ina ctive or closed accounts). Finally, they provide a list of reactivated or new accounts to come up with the unit total to be billed that month. This is an acceptable and reasonably accurate system. However, as discussed under CMSD #1 (Task 1) the auditor be lieves the CMSD should require more detail from CR&R . Specifically we believe the CMSD should be provided a list that shows customer counts by service level. With respect to monthly unit billings we believe a listing of closed accounts should also be provi ded. This would allow the CMSD to reconcile CR&R’s “universe” of franchise accounts to an assessor’s parcel list in any random month you choose . Since CR&R’s “Residential List” is the report from which our cart and customer accounts were established in Task 1 (CMSD #1) we can use that data as the basis to provide the CMSD with a
45 complete customer count by service level, and establish the number of closed or inactive accounts. The table on the left (below) presents that data: CR&R’s databas e for e xtra carts simply removes those “extra” containers, leaving standard service carts at their respective accounts in the “Standard” customer database. The adjustments shown in the table on the right (above) distribute those accounts and carts to properly rep resent service levels. For example, under 35 -gallon service 22 “two -cart” customers must be removed from the “standard serv ice” list as they are actually: three -cart (20), four -cart (1), and six -cart (1) customers. From that point we then make adjustment s based upon findings from the account level detail provided by CR&R for all anomalies uncovered in our review of “Standard” service . As listed in CMSD #1 this account level detail identified a number of single accounts as actually being multiple units, co nfirme d “extra cart” service levels but claimed exceptions to billings, and contained one audit finding (extra service where billing should be occurring).
46 The following table shows the adjustments made to account for CR&R explanations for all “anomalies ”: For 35 -gallon service all extra carts identified by our review were found to be incidents of extra service. CR&R customer records for each account shows an “exception ” which is why these customers are not billed for their extra carts. Under 60 -gall on service our review established an additional 27 units/account s. These additional accounts are multiple units at properties, identified by CR&R from account -level data, but listed as a single account number in audit ed data . These “additional” account s could represent standard service billings that should be taking place. As discussed in Task 1 (CMSD #1), CMSD staff should review each identified anomaly with CR&R to not only establish whether noted exceptions are valid but also to confirm that each uni t is properly billed as an account . Our
47 review of 60 -gallon service also identified an error in cart reporting in CR&R’s database that reduced their previously reported cart count by 4 units. Finally, for the 6 accounts with confirmed extra service, CR&R p rovided exceptions that they claim as their authorization not to bill these accounts. For 90 -gallon service an additional 8 accounts were identified, based upon CR&R account -level data. For the two accounts requiring an authorization not to bill, CR&R rec ords only indicated one exception, thus the audit finding in CMSD #1 (Task 1). The following table shows our audited customer and extra cart counts for the CMSD franchise: CR&R submissions to the CMSD (February 2012) show only 23,363 customers, 35 less than our total. Their cart count for this sam e period is 43,591 which is 4 carts higher than our audit total. The auditor’s adjustment to “Total Extra” carts was required as CR&R’s Standard service records include 3 -cart service to City Hall. All these ca rts are complimentary service and that “extra” cart must be removed to reconcile with our audit finding regarding billings (CMSD #1).
48 Based upon our review we have established the following customer count for February 2012: Total Accounts 23,398 Less CMSD & Costa Mesa City Hall -2 Estimated Billable Unit Count 23,396 Less Approved Unit Count -2 1 ,540 February 2012 Closed/Inactive Units 1,856 Based upon our review the accurate count for February 2012 was 23,396 potentially billable units (customer coun t). With 21,540 units approved for billing, CR&R’s records establish a total of 1,856 closed or ina ctive accounts for that period. This would reflect a 92.07% occupancy rate in the CMSD franchise area . Audit Finding: CR&R is in compliance. Recommendati on: As discussed t he CMSD and CR&R mus t resolve the 35 accounts we believe may be unidentified units requiring additional standard service billing. This process could reduce closed/inactive units to 1,821. Once this process is completed then CR&R should be required to produce account data that lists each individual customer and their total service as a single line item . That would then allow the CMSD to easily merge the CR&R list with a County parcel listing to identify discrepancies. CMSD #16 – Verify that CR&R is providing log of complaints received to District on a monthly basis. Contractor shall also provide DISTRICT with a copy of any report, complaints, pleading, or any other communication related to CONTRACTOR’s performance of the Agreeme nt. Section 22 of the agreement requires CR&R maintain and provide to the CMSD a log of all complaints received on a monthly basis. Given the recent rate reduction, and years of rate stability prior to that; teamed with a very simple collection program, C R&R enjoys a complaint call average that is significantly below levels the auditor normally encounters. For the entire audit period only eight (8) complaints calls were received. The table below lists each complaint and the CR&R procedures used to resolve them:
49 As shown above, complaints are minimal and handled in a prompt and professional manner. Based upon interviews with CMSD staff they are kept apprised of complaints received by CR&R. Audit Finding: CR&R is in compliance. CMSD 17 – Verify that CR&R is reviewing the existing “Green Cards” (card left at a residence to explain violations of the program) and suggest revisions thereto. Section 25 requires CR&R to use and review information cards (aka green cards) to inform re sidents of program violations and keep records on an individual parcel basis. The review found that CR&R is using these cards and that drivers are properly removing the bottom portion and providing it to the route manager. CR&R is then properly recording issues on customer account records. The “green card” itself is effective and clearly presents appropriate program violation s . The auditor has no suggested revisions to the card itself or to CR&R’s procedures. Audit Finding: CR&R is in compliance CMSD #30 – Verify that CR&R has maintained a workers’ compensation policy. CR&R provided a copy of their workers’ compensation policy for auditor review. CR&R has used XL Specialty Insurance for this coverage since April 2007. The current policy runs through April 14, 2014. Audit Finding: CR&R is in compliance
50 CMSD #31 – Verify that CR&R has maintained all licenses and permits required by any government agency. CR&R maintains permits and licenses with CalRecycle for the CRT MRF a nd the recycling buy -back center. They also maintain permits with the Air Resources Board and South Coast Air Quality Management District for MRF operation. Motor carrier permits and driver registration are also permitted through the State of California. C R&R produced documentation that shows their compliance in these areas. With respect to local governments the County of Orange has waived franchise rights to the Santa Ana Heights area, deferring to the CMSD. CR&R has obtained a hauler permit from the City of Costa Mesa for their commercial franchise activity, though such a permit is not required to perform CMSD service. All that is required is a Costa Mesa business license, which CR&R has obtained. Audit Finding: CR&R is in compliance.
51 Task 4 – Compliance Review Under Task 4 (Compliance Review) questions 2, 4, 9, 13, 18, 19, 23, 24, 32 ar e addressed. Below is the Task 4 Compliance Matrix: CR&R is deemed to be in compliance with every Task 4 subtask item, with the possible exception of CMSD #2 . In the auditor’s opinion the CMSD cannot be assured of having the most favorable rate until cost information is provided by CR&R to substantiate the assumption that only mixed waste collection programs should be considered in making this determination.
52 CMSD #2 – Verify that CR&R has provided DISTRICT with the most favorable rate with any other customer. Under Section 31 of the agreement CR&R guarantees that the CMSD’s rate “is the most favorable rate given to any customer using service similar to the D istrict”. It also states “if contractor (CR&R) negotiates a more favorable rate with any customer, that rate shall become the rate for the District". As previously addressed extensively under Task 1 (CMSD #15), it is the auditor’s opinion that CR&R’s rate reasonability cannot be definitively established . In order to make that determination relative costs of performing mixed waste collection and processing should be compared to three -cart co llection and processing costs, since t he term “similar” could reaso nably be considered to encompass all fully automated curbside residential programs . With respect to “most favorable” rates our review under Task 1 established the following for CR&R franchises in Orange County: As discussed, the fact that San Juan Capistrano’s three -cart rate provide s more net -revenue to CR&R than the CMSD franchise, and that three -cart programs in San Clemente and Laguna Niguel provide similar revenues, argues that these programs may be a “similar ” service for rate comparison purpo ses . That said the extremely low rates provided to the City of Orange and Rancho Santa Margarita were negotiated by CR&R under the assumption that the CMSD program was not similar. Also our review did not establish the level of commercial rate subsidies t hat may have been employed in those jurisdictions to artificially lower residential rates. Commercial rates are commonly a source of hauler rate revenue that is negotiated as an offset to lower -than -desired residential rates. For example, in the City of Orange their commercial service encompasses over 5,000 bins. Such “subsidies” are often not publicized , though there are instances where commercial rate subsidies are part of City Council approved rates (i.e. City of
53 Yorba Linda), so it is virtually imposs ible to include in a survey . In fairness to CR&R the absence of an exclusive commercial franchise with the CMSD requires them to make their residential rate a “stand -alone” revenue source. On the other hand, as discussed previously, CR&R receives a minimu m financial benefit of $0.50 per household due to CMSD billing and the elimination of bad debt/collection costs due to rate revenue being guaranteed by property tax assessments. Ultimately the auditor believe s the current agreement terminology, requiring “most favorable” rates , is not properly defined and could present significant challenge s for both the CMSD and CR&R in any future action involving Section 31 of the agreement. F or example, what would happen if the CMSD decided a three -cart program was pref erable? Audit Finding: Unclear. Sufficient data is not available to resolve what the auditor believes is a very subjective agreement term. Similar service is not adequately defined in the agreement. In addition the agreement refers to the mixed waste col lection program as fully automated service, when the industry standard definition would include three -cart programs. “Fully automated” simply refers to the collection vehicle having driver controls that operate an automated collection “arm” on the vehicle to collect any type of cart (trash, recyclable, green waste, or mixed waste). Recommendation: The CMSD and CR&R should discuss ways of eliminating sections #22 and #31 of the agreement. Key agreement terms such as “similar” and “most favorable” are not defined. In addition the agreement uses the term “fully automated” to mean mixed waste collection when this is not the industry standard definition. “Fully automated” simply means a collection vehicle with driver controls that allow for the collection of c arts via an automated “arm” on the collection vehicle. Those carts could contain trash, source -separated recyclables, green waste, or mixed waste. The CMSD program should be called “single -stream” or “mixed -automated”, or something similar that differentia tes this program from three -cart collection (if such differentiation is required for rate reviews). CMSD #4 – Verify that CR&R has an agreement in place for composting or processing green waste. Section 33 requires that CR&R have agreements in place for the composting or processing of green waste with properly licensed facilities. CR&R self -processes green waste at the CR T MRF which is permitted to perform green materials chipping and processing under State Solid W aste Facil ity Permit #-30 -AB -046 3 . CR&R is also the listed op erator for the planned Rancho Mission Viejo Composting Facility in San Juan Capistrano (#30 -AB -0448). A large percentage of their processed green waste material is taken to local landfills for use as ADC. CR&R provided a copy of their agreement with the County, which establishes their ADC allotment for Costa Mesa at 49 tons -per -day. Their total allotment for Unincorporated County (including Santa Ana Heights) is 11 tons -per -day. County ADC allotments are ba sed upon population and CR&R receives the full allotment they are entitled to. Audit Finding: CR&R is in compliance.
54 CMSD #9 – Verify that CR&R has provided an educational program with components designed to inform current and future residents of the det ail of the fully automated program including the procedure for using fully automated containers. Section 6 requires CR&R to inform residents about the collection program once every two years. In May of 2012 resi dents under the CMSD franchise we re mailed a brochure outlining the residential waste and recycling curbside collection program. This brochure explained the process the waste stream takes from the time items are placed in the carts, delivered to the transfer station, baled and ship overseas to bec ome other useful products. Additional information clarified the correct procedure for putting out carts for service. The brochure also contains information about how to order a bulky item pickup and how to dispose of household hazardous waste. Finally i t provides customers with holiday schedules and the customer service number. The auditor reviewed the brochures and found it to be very well produced and informative. Audit Finding: CR&R is in compliance. CMSD #13 – Verify that CR&R has provided the DISTRICT with a list of all trucks and other vehicles including identification numbers to perform this agreement. In CMSD #12 we provided the following listing of CR&R vehicles: This vehicle list is provided to the CMSD on a regular basis. As discusse d the three oldest vehicles (all 1993 models) are in the process of being replaced with the following trucks: An updated vehicle list will be provided by CR&R once these trucks are in service. We confirmed with CMSD staff that CR&R regularly provides a vehicle list.
55 Audit Finding: CR&R is in compliance. CMSD #18 – Verify that CR&R drivers are properly outfitted with uniforms and name identification thereon, will be courteous and accommodating to residents of the DISTRICT. Section 26 addresses driver conduct and uniforms. The auditor verified that driver uniforms are used, though they do not list the driver name. All uniforms list CR&R . Per CR&R staff the CMSD is aware of this uniform style and has approved its use. The uniforms were found to be well made and present a professional image. The auditor was presented with CR&R’s employee handbook and reviewed both this document and driver -meeting records. In addition both David Latham (Operations Manager) and Frank Campos (Route Manager) met with the aud itor to discuss driver training, route management, and to address the few resident complaints the auditor uncovered during the review. All policies and procedures were found to be excellent. Audit Finding: CR&R is in compliance. CMSD #19 – Verify that CR&R has participated in the education program required by AB 939 either in money or services at the option of the DISTRICT with levels of participation to be set by DISTRICT and will provide such reports as are required of the DISTRICT by the City. Section 27 required CR&R to participate in AB 939 education, either in money or services, to a level established by the CMSD. Our review found that each year CR&R provides the District with monetary contributions, cash prizes, additional give a ways, and service to community programs to support the CMSD’s AB 939 related outreach efforts. CR&R has also attending school expos to promote recycling and explain to students the benefits of the one -cart system. Additionally, all Costa Mesa schools where cont acted an extended an invitation to participate in a “Bottle & Can” recycling program with direct mo netary benefit to schools, the C ity, and the environment. The program entails CR&R d elivering a 21’ long by 8’ wide and 7’ tall security container. The sc hool does n ot pay for service or for the storage container. When the box is full CR&R is contacted and the bin is exchanged. The school then receives a check for California Redemption Value (CRV) based on the weight of material collected. CR&R also pro vides tours of the Material Recovery Facility in Stanton upon request by the CMSD . In 2012 tours included several District staff, Estancia High School and Costa Mesa College Park Elementary. CR&R continues to provide special event boxes and/or service the comm unity to promote recycling. Fo r example CR&R annually provided special bins and service to assist the CMSD
56 with the annual telephone book contest during the audit term . CR&R provided 22 bin s to 21 schools, for 5 weeks with special collection service , to support this program . Also, CR&R delivered a bale of aluminum cans for the Costa Mesa community run event at Estancia High School for a recycling contest. CR&R also provides four quarterly panel signs for the eight trucks every 2 years to help promote the CMSD recycling program . The signs have varied in message , depending upon di rection from the CMSD (i.e. Stop Junk Mail , Christmas Tree Collections, Large item Pick -up , etc.). Audit Findin g: CR&R is in compliance. CMSD #23 – Verify that CR&R has met its educational program requirements. Section 32 provides specific compliance targets for CR&R to achieve. Those targets are listed below, along with our determination of compliance for each : Audit Finding: CR&R is in compliance. CMSD #24 – Verify that CR&R has had an agreement in place for composting or processing of green waste with a properly licensed facility. Section 33 and CR&R compliance was addressed under CMSD #4 above. From a review of record s CR&R has always maintained permits to process green waste, first under their CRT permit (#30 -AB -0013), then from September 2012 forward as the Stanton Green Materials Recycling Facility (#30 -AB -0463). The Stanton Green Materials facility has been inspected by the Local Enforcement Agency three times during calendar year 2013 with no violations or areas of concern reported. Audit Finding: CR&R is in compliance.
57 CMSD 32 – Verify that no regular employee of DISTRICT is also employ ed by CR&R and that CR&R is in compliance with the Federal and California laws concerning minimum hours and wages. The auditor’s review found CR&R to be fully compliant with both federal and state employment law. CR&R employs no person who is also employe d by the CMSD. Audit Finding: CR&R is in compliance.
CR&R Fiscal Year 11/12 Michael Balliet Consulting, LLC Costa Mesa Sanitary District Residential Solid Waste Franchise Review of Vendor Compliance with Agreement Terms and Performance Standards
District developed a series of 31 questions to help auditor establish CR&R’s level of compliance with all facets of the residential solid waste franchise . The franchise agreement was reviewed, along with all reports submitted by CR&R during the review period (July 2011 through June 2012 ). Compliance measurement questions were segregated into four general categories (see right) and answered via onsite audit of records and field inspections . #1 – Financial Review #2 – Operational Review #3 – Admin & Systems Review #4 – Compliance Review
Financial Review
Operational Review
Administration & Systems Review
Compliance Review
Summary of Compliance CR&R is clearly in compliance with 25 of 28 review questions (89 %). With respect to facilities, equipment, and staff/management they are one of the top firms in the State . The 3 noted areas of non -compliance were resolved during this review . 3 additional review questions could not be definitively answered as compliance measurement is based upon agreement terms the auditor considers ambiguous and/or too subjective . The following slides address non -compliance and “unclear” compliance by CR&R .
Non -Compliant with Question #20 – Accounting of Recycling Revenue CR&R previously used “projected” revenue figures based upon sample sorts rather than actual revenue received for the District’s recyclable materials . The table below shows accurate information for “Area 9 ” (City of Costa Mesa):
Non -Compliant with Question #25 – Audited Financial Statements CR&R did not provide a copy of their audited financials, along with specified “trial” reports, during the audit period (2011 /2012 ). CR&R cited a previous issue regarding confidentiality as the reason they no longer submit this data . Auditor advised them to prepare an annual notice to the District when these records available for review at their offices . CR&R sent this notice to the District . Non -Compliant with Question #27 – Master Manifests CR&R provides the District with tonnage information that is based entirely upon sample sort percentages . The agreement requires actual tons by facility and is considered vital by the auditor for two reasons : 1 ) Actual tonnage data confirms reported diversion levels and shows District compliance with County waste flow agreement ; and 2 ) Since diversion is obtained from a facility serving multiple jurisdictions a statement from that facility is needed to secure your diversion credit . CR&R complied with the auditor’s request to present master manifest data and to provide facility diversion conformation (shown in next slide):
Note: Drywall is taken to CR&R Organics in San Juan Capistrano
“Unclear” Compliance Area #1 Question #15 – Reasonability of CR&R rates CR&R no longer performs the required rate study as District staff took over this responsibility . The study methodology previously used does not provide an apples -to -apples comparison as the total residential rate includes varying City fees . “Net -to -hauler” revenue must be compared . The $17 .20 “net” CR&R figure established for the District franchise by this review (2011 /2012 ) was compared to other CR&R franchise cities :
Question #15 – Continued As shown the net -to -hauler revenues from the District is the third highest among CR&R’s 11 Orange County franchises . Previous reviews only compared mixed collection system rates (Stanton, Rossmoor, and the District) without providing data to support the assumption that mixed collection programs are more costly than 3 -cart programs . The auditor requested collection and processing cost data from CR&R in order to make this cost comparison between program types . All requested data was not provided thus CR&R’s compliance remains unclear to the auditor . The auditor believes agreement requirements that CR&R’s rates to be reasonable, and that they also be the lowest of any “similar” program, are problematic as they fail to define these potentially ambiguous terms . The agreement also fails to provide a clear measurement methodology to determine compliance . For your reference District rates are compared to the entire County in the following table . As shown your rates are the 9 th highest among the 32 cities included . In the auditor’s opinion that could be considered reasonable or unreasonable depending upon the criteria used .
Residential rates, even those “clarified” through net -to -hauler calculations, do not offer conclusive data as many jurisdictions subsidize residential rates through higher commercial bin rates . The table above also cannot measure the financial benefit CR&R obtains through District billing and revenue guaranteed through property tax assessments . Again, the auditor cannot definitely state that your rates are unreasonable or that they are not the lowest among similar programs due to measurement criteria that is undefined and cost data that is unavailable .
“Unclear” Compliance Area #2 Question #6 – Verify percentage of green waste diversion The waste diversion study performed by CR&R provided no composition data for disposed materials . Master manifest data obtained by the auditor during this review also contained no composition data for disposed material . Therefore, it was impossible to establish the percentage of green waste that was diverted . Our review did establish that the actual percentage of green waste diversion is much higher than the figure established by CR&R’s sampling methodology . Based upon master manifest data green waste accounted for approximately 65 % of all waste diverted for the District franchise . CR&R is obviously diverting the great majority of green waste . Therefore, the auditor did not believe they should be judged as out -of -compliance in this area even though they could not substantiate the percentage of green waste disposed .
“Unclear” Compliance Area #3 Question #2 – Most Favorable Rate For reasons discussed regarding Question #15 (rate reasonability) a definitive determination of “most favorable” rate status could not be made . The historic comparison of only mixed waste collection and processing programs is based upon an unwritten assumption that may or may not be valid . The auditor believes the following casts some doubt on its validity : Net -to -hauler revenues from 3 -cart programs in San Juan Capistrano, San Clemente, and Laguna Niguel closely mirror District franchise revenues . District billing and revenue guarantees through property tax assessments eliminate mailing costs, bad debt and collection expenses CR&R incurs in its other franchises . “Fully Automated” program description in agreement is an incorrect use of terminology (it could apply to 3 -cart systems).
Recommendations Waste diversion sample sort methodology may prove problematic if State audits of material recovery diversion occur . Though this is not on the immediate horizon, recent audits of facilities in Los Angeles County and increased State oversight of diversion programs through AB 341 are of concern . Consider requiring CR&R to alter their methodology to address the points of concern raised in my report . Require annual reporting of master manifest and recycling revenue data in the format developed by this audit . Discuss problematic agreement terminology and unclear compliance areas with CR&R . Also, verify current extra cart waivers claimed by CR&R . Require both customer and cart distribution data be presented by CR&R in the format developed by this audit . While only a small finding occurred ($178 .88 ) it is important that the District be aware of all service anomalies and inactive accounts (use following table as a model).
Based upon our review we have established the following customer count for February 2012: Total Accounts 23,398 Less CMSD & Costa Mesa City Hall -2 Estimated Billable Unit Count 23,396 Less Approved Unit Count -21,540 02/2012 - Closed /Inactive Units 1,856