HomeMy WebLinkAboutCity of Tamarac Resolution R-2001-1361
Temp. Reso. #9395
May 15, 2001
Page 1 of 4
CITY OF TAMARAC, FLORIDA
RESOLUTION NO. R-2001-136
A RESOLUTION OF THE CITY COMMISSION OF THE
CITY OF TAMARAC, FLORIDA, ACCEPTING THE
SOLID WASTE FRANCHISE COMPLIANCE REVIEW
OF WASTE MANAGEMENT, INC. PREPARED BY
DMG-MAXIMUS, INC. ON APRIL 27, 2001; ACCEPTING
A NEGOTIATED SETTLEMENT IN THE AMOUNT OF
$20,000 FROM WASTE MANAGEMENT, INC. IN FINAL
PAYMENT FOR FRANCHISE FEES, LATE FEES AND
INTEREST DUE THE CITY OF TAMARAC FOR THE
AUDIT PERIOD OF APRIL 1, 1999 TO JUNE 30, 2000;
PROVIDING FOR CONFLICTS; PROVIDING FOR
SEVERABILITY; AND PROVIDING FOR AN
EFFECTIVE DATE.
WHEREAS, on February 24, 1993, the City entered into a Franchise
Agreement with Waste Management, Inc. for residential multi -family solid waste
collection by Ordinance 0-93-3; and
WHEREAS, the Franchise Agreement states in Article 3 —
"Fees/Revenues", Section 3.1, "Street Use Fee": that "Contractor hereby agrees
to pay City an amount equal to fifteen percent (15%) of all Gross Receipts" and
further states in Section 8.2, "Records": that the "City may, upon reasonable
notice, cause an audit to be performed by City personnel or by an independent
party designated by City"; and
WHEREAS, Ordinance 0-95-15 authorized the execution of an Addendum
to the February 24, 1993 Agreement to extend the Agreement between Waste
Management and the City of Tamarac until December 31, 2001; and
Temp. Reso. #9395
May 15, 2001
Page 2 of 4
WHEREAS, the City of Tamarac entered into an Agreement with the
Florida League of Cities in conjunction with DMG-Maximus, Inc, to audit the solid
waste franchise fee payments to the City for the period of April 1, 1999 until
June 30, 2000 and the report was submitted to the City on April 27, 2001, and is
attached hereto as Exhibit "A"; and
WHEREAS, DMG-Maximus recommends that Waste Management remit
$966 to the City due to late fees and that Waste Management remit $1,244 to the
City for failure to remit proper franchise payment and that the City negotiate a
payment between $2,010 to $30,634 for the period April 1, 1999 to June 30,
2000; and
WHEREAS, the City and Waste Management have negotiated the sum of
$20,000 to settle all franchise fees, late fees and interest due the City for the
period of April 1, 1999 until June 30, 2000; and
WHEREAS, the Director of Finance recommends that the City of Tamarac
accept the sum of $20,000 from Waste Management as settlement for franchise
fees, late fees and interest due the City for the period of April 1, 1999 until June
30, 2000; and
WHEREAS, the City Commission of the City of Tamarac, Florida, deems it
to be in the best interest of the citizens and residents of the City of Tamarac to
accept the sum of $20,000 from Waste Management as settlement for franchise
fees, late fees and interest due the City for the period of April 1, 1999 until June
30, 2000.
11
Ll
1
Temp. Reso. #9395
May 15, 2001
Page 3 of 4
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COMMISSION OF
THE CITY OF TAMARAC, FLORIDA:
SECTION 1: The foregoing "WHEREAS" clauses are hereby
ratified and confirmed as being true and correct and are hereby made a specific
part of this Resolution.
SECTION 2: The appropriate City officials are hereby authorized to
accept the DMG-Maximus Solid Waste Franchise Compliance Review of Waste
Management, Inc.
SECTION 3: The appropriate City officials are hereby authorized to
accept a negotiated settlement in the amount of $20,000 from Waste
Management, Inc. in final payment for franchise fees, late fees and interest due
the City of Tamarac for the audit period of April 1, 1999 to June 30, 2000.
SECTION 4: All resolutions or parts of resolutions in conflict
herewith are hereby repealed to the extent of such conflict.
SECTION 5: If any clause, section, other part or application of this
Resolution is held by any court of competent jurisdiction to be unconstitutional or
invalid, in part or application, it shall not affect the validity of the remaining
portions or applications of this Resolution.
Temp. Reso. #9395
May 15, 2001
Page 4 of 4
SECTION 6: This Resolution shall become effective immediately
upon its passage and adoption.
PASSED, ADOPTED AND APPROVED this 23rd day of May, 2001.
TEST:
MARION S ENSON, CMC
- CITY CLERK
I HEREBY CERTIFY that I
have a�ppproved this
RESOLUTION as to form.
MITCHELL S.
CITY ATTO
JQE SCHREIBER, MAYOR
RECORD OF COMMISSION VOTE:
MAYOR SCHREIBER C U. ,e
DIST 1: COMM. PORTNER C_ C .0
DIST 2: COMM. MISHKIN
DIST 3: V/M SULTANOF C. e
DIST 4: COMM. ROBERTS L ,61i
�J
1
k'V3"�'
PRIVATE & CONFIDENTIAL
FINAL REPORT
CITY OF TAMARAC, FLORIDA
SOLID WASTE FRANCHISE COMPLIANCE REVIEW
Of
WASTE MANAGEMENT, INC.
Prepared: April 27, 2001
F
DMG-MAXIMUS, INC.
8303 Southwest Freeway, Suite 900
Houston, Texas 77074-1601
(713) 541-5457
800/259-1206
(713) 541-6649(FAX)
dmghouston@dmg.maxinc.com
-2�4 73 7 r
CITY OF TAMARAC, FLORIDA
WASTE MANAGEMENT, INC.
SOLID WASTE FRANCHISE COMPLIANCE REVIEW
CONTENTS
PAGE
Executive Summary
1
Introduction
,
Franchise Overview
,
a
Scope
Accounting Records and Practice
S
Audit TAethodology
6
Findings
7
Conclusion
12
Summary of Findings
12
Summary of Recommendations
1
CITY OF TAMARAC, FLORIDA
SOLID WASTE FRANCHISE COMPLIANCE REVIEW
OF
WASTE MANAGEMENT, INC
EXECUTIVE SUMMARY
The following key findings and recommendations resulted from the Florida League of Cities, Inc.
(FLC) and DMG-MAXIMUS, Inc.'s review of Waste Management compliance with the
franchise fee requirements of the City of Tamarac, for the period of April 1, 1999 to June 30,
2000.
FINDINGS
1) Waste Management remitted its payments past the due date several times during the audit
period. The interest due the City for these delinquent payments is $ 966.
?) Provisions in the franchise agreement allow the City to assess interest on underpayments due
to calculation errors. Interest due the city is $1.244.
3) Waste Management did not maintain adequate reports to support adjustments and gross
receipts amounts utilized to calculate the City's payments. Failure to do so hindered the
City's ability to audit records.
4) Waste Management did not provide notarized monthly and annual statements that detail the
components of the gross receipts amount used to calculate the City's payments as required by
the franchise agreement.
5) DMG prepared three payment trend analysis models to evaluate payments made to the CIM
These models were developed in order to determine whether the 1999 payments made by the
company were consistent with the City's historical payments records. Based on this review,
DMG estimates that there may be a possible underpayment in rancye between $2.010 or as
high as $30,634. Z
RECOMMENDATIONS
1) Request that Waste Management maintain copies of general ledgers, subsidiary reports and
other records. These records should be maintained at Waste's headquarters in Pompano
Beach, Florida that will allow the City to audit the accuracy of the base used to calculate the
City's franchise fee payments.
2) Request that Waste Management provide notarized monthly and annual statements detailing
the categories of gross receipts. The statements should accompany their monthly Street Use
Fee.
3) Request that Waste Management remit $966 to the City of Tamarac due to the late submittal
of Street Use Fee payments that are due thirty days (30) after the end of the month.
4) Request that Waste Management remit $1.244 to the City of Tamarac due to the failure to
remit the proper franchise payment.
5) City needs to review the annual payment trend information with the Company to request
information to support why the Company has remitted approximately $2,010 to $30,634 less
for the period FY99 to FY00.
2
INTRODUCTION
Waste Management, Inc. is the largest solid waste company in North America, providing
collection, transfer, landfill, recycling and waste -to -energy services to municipal, residential,
commercial and industrial customers throughout the United States, Canada. Mexico and Puerto
Pico. The company is headquartered in Houston, Texas.
FRANCHISE OVERVIEW
Multi-Familv Solid Waste Collection
The City of Tamarac, Florida (City) granted Waste Management, Inc. (Waste), d/b/a as Southern
Sanitation, a franchise agreement, Ordinance 0-93-3, tocollectwaste materials for residential
multi -family housing. "The agreement was codified on February 24, 1993 and the expiration date
was originally scheduled for December 31, 1997. The Board of Commissioner extended the
agreement to December 31, 2001 on September 27, 1995. Waste is required to remit a Street Use
Fee of fifteen percent (15%) of all gross receipts derived from residential solid waste customers.
The franchise fee and notarized monthly and annual statements are due to the City thirty days
(30) days after the end of the month. The company is required to pay a delinquency charge if the
fee is remitted after the required grace period. The interest factor is based on the prime rate for
the Chase Manhattan Bank, plus one percent (1%).
Commercial Solid Waste Collection
The City granted Waste Management a non-exclusive three-year agreement, Ordinance 0-92-41,
to provide commercial waste hauling services within the corporate limits of the City. Southern
Sanitation is required to remit a Street Use Fee of ten percent (10%) of its gross receipts from
commercial solid waste customers within the corporate limits of Tamarac. The franchise fee and
notarized monthly and annual statements are due to the City thirty days (30) days after the end of
the month. The Company is required to pay a delinquency charge, prime rate plus one percent, if
the fee is remitted after the required grace period.
SCOPE
This franchise fee compliance review was performed at the request of the City of Tamarac,
Florida. The review covered the period April 1999 to June 2000 and included the following
objectives:
1) Obtain a list of all Tamarac customer billings and collections by Waste Management during
their regular periodic billing cycle prior to their system conversion. Obtain a list of all
Tamarac customer billings and collections by Waste Management during each of their regular
monthly billing cycles after their system conversion.
3
2) Select a sample of at least fifty (50) large dollar amount and commercial accounts billed prior
to the conversion and trace these balances after the computer conversion to confirm whether
service billings were accurately calculated, collected. included timely and accurately in
Waste's Management total receipts and were included timely in the company's monthly
franchise payment to the City.
3) Electronically and analyticalhy compare and contrast these monthly service billings in total,
and trace individual large dollar amounts and commercial accounts, noting billing differences
and changes through April 2000. Investigate and document the cause of differences.
4) Test the franchise fee calculation for a sample test of accounts in months before and after the
conversion to ensure consistency and contract compliance regarding customer billing and
Waste's franchise fee calculation.
5) Review accounts receivable aging reports and collection efforts for reasonableness during
April 1998 through April 2000. Ascertain the percentage of delinquent accounts by
reviewing the aging reports and determine the impact on future cash collections and franchise
fees. Gain an understanding of the collection efforts of Waste Management and document
how collections are being properly credited to accounts and that the franchise frees are
remitted to the City.
6) Obtain a copy of Waste Management, Inc.°s S1 2 million accounts receivable write-off,
analyze and document the impact on collection and remittance of franchise fees to the City.
7) For each month, compare the general ledger accounts. journals and other supporting
schedules of Waste to the total monthly customer receipts for that month and compare them
to amount and payment date for remitted franchise fee payments to the City. For at least
three of these months, verify that individual test customer collections are included in these
totals monthly customer receipts that in turn correspond to Waste's monthly franchise
remittance.
8) Calculate and determine the delinquency charges for late franchise fee payments made to the
City for monthly receipts and compare to City franchise remittance in accordance with
franchise agreement. Extrapolate and apply delinquency charges from test account
receipts/remittances to the total monthly customer receipts. Reflect an assessment of total
delinquency charges due the City.
9) Review procedures for delinquent accounts to of Waste's management contract with NCO
Financial.
10) Review customer complaint logs and procedures.
11) Determine if Waste is incompliance with insurance and performance bond provision of the
franchise agreement.
El
12) Issue a report which reflects the substance of the above agreed upon procedures performed,
matters and issues related to customer billing. collection and franchise remittance that:
a. Provide explanation(s) as to the decline in Waste Managements franchise pavments to
the Citv of Tamarac.
b. Document issues that may warrant further investigation by the City of Tamarac.
c. Document issues or findings that are inconsistent with the City's franchise agreement.
d. Reflect franchise delinquency charges due to the City.
e. Reflects unpaid and/or underpaid franchise earnings due to the City based upon the
examination of the sample test accounts.
ACCOUNTING RECORDS AND PRACTICES
At the project -opening meeting with Waste Management, DMG-Maximus and City of Tamarac
representatives were informed that all records pertaining to franchise fee payment prior to April
1999 could not be produced during the course of the audit. DMG discovered during its pre -audit
assessment that Waste settled charges with the Securities Exchange Commission that dealt with
the Company's inability to produce account and timely financial information after the merger
with USA Waste Services, Inc. in June 1999. We were unable to test anv financial accounts of
the Company prior to the conversion to its new computer system. Therefore, all testing of
customer billing and cash receipts was restricted to the period April 1999 to June 2000.
DMG was able to gain an understanding of the Company's accounting process. The system is
initiated either by a call from the customer or a sales call by a member of Waste Management's
staff of sales professionals. The customer would inform the designated personnel that service is
needed for a particular address within the corporate limits of Tamarac. The accounting
department enters the customer demographic information into the accounting system. The
customer is assigned an account number, which Waste utilizes to account for the customer for
billing and operational issues.
A large percentage of customer payments are remitted to a lock box in Louisville, Kentucky but
customer service representatives can accept credit card and other payments at the regional office
in Pompano, Florida. Bank -One is the financial institution that processes lock -box payments.
Each customer is required to send in a copy of the remittance device with the payment. The
remittance device is scanned and a batch number is assigned for all payments for the day and sent
to Waste Management's District headquarters in Pompano, Florida.
Waste Management's accounting personnel reviews the documentation from Bank -One for
rejected customers. For example, if a customer failed to send a remittance device BankOne
would not be able to process the customer fully and obtain demographic customer information.
5
At this point, the Company's accounting personnel would research the reject report for customer
data and post the payment to the appropriate account. Commercial customers who reside in
different jurisdictional districts are accounted for by an intra-company transaction when errors
manifest upon handling their payments.
AUDIT METHODOLOGY
In order to ascertain that Waste Management reported all revenues applicable to the City of
Tamarac. DMG requested the following information in order to apply the applicable Street Use
Fee against the taxable base:
(a) Cash Receipts Reports
(b) Commercial Customer and Multi -Family Resident Customer Databases
(c) Vendor Payment Records
(d) Aged Receivables Reports
(e) Sample Bills
(f) BankOne Lockbox Reports
(g) Chart of Accounts
It was our methodology to trace a select group of customers from billings to posting to the cash
receipt records. After verifving cash receipts, DMG developed a franchise fee payment schedule
and compared the amounts calculated due the City to actual amounts paid and noting any
differences on the schedule. The Company does not post cash receipts by individual city to the
General Ledger but DMG was able to review subsidiary ledgers in order to validate gross receipts
amounts needed to calculate the franchise fee payments. Secondly, in order to determine the
delinquency charge we compared the actual receipt of the Street Use Fee by the City to the date
the payment was due, thirty days (30) days after the end of the month, and apply the applicable
daily prime rate which at the time of the audit was 9.5%.
The franchise agreement states that franchise payments shall be due no later than thirty (30) days
after the end of the month. It was our methodology to test actual receipt of the franchise
payment, date stamp, to the thirty days requirement. In the event Waste Management failed to
make the franchise payment on or before the due date. DMG applied the interest penalty depicted
in the agreement.
2
FINDINGS
1. Customer Billings and Franchise Remittance
Residential customers are billed on a quarterly basis in advance and commercial customers are
billed monthly. DMG selected thirty-six (36) individual Multi -Family and twenty (20) individual
commercial accounts and traced those accounts from the customer billing report to cash receipt
reports and tested to confirm if those customers were invoiced and subsequent payments were
included in the franchise base. We found that this sample was sufficient because based on our
review of the revenue report that many of the customers repeated or had accounts under
difference addresses within the City. In addition, DMG reviewed Waste's subsidiary records:
cash receipts, invoice billing and aged receivable reports to gain a sufficient understanding of the
Company's operations. DMG was unable to trace the subsidiary records to the general ledger,
the records were not made available, which hindered our ability to attest that the franchise fee
payments were in conformance with the franchise agreement.
A. Franchise Fee Calculation
Of the accounts that were tested, DMG did not find any differences in any account that was
tested but the error was on a more aggregate basis. However, in calculating the franchise fee for
commercial and multi -family customers overall, we found that Waste made calculation errors
throughout the audit period that generated a net overpayment of $1,401. Due to the lack of
financial records. DMG could not test any franchise fee pa}'rnents prior to the conversion to the
new accounting system. The compensation basis for calculating franchise fees are based on 10%
of gross receipts of commercial customers and 1 5% for Multifamily- solid waste collections.
Waste provided gross receipts by category in order to calculate the payment due the City. DMG
compared the franchise due and franchise fee paid for the period of April 1999 to June 2000.
The net difference in the calculations was $ 1.401. As noted, DMG was unable to review
financial reports prior to April 1999. Therefore, the net difference may not include all gross
receipts for the period of the audit.
B. Multi -Family Dwellings
DMG received a detailed listing of multifamily condominiums from the City. We compared this
listing to Waste's customer database. Based on this analysis, we observed that all the customers
were included in the Company's database and Waste had also included receipts from two
additional condominiums: Rokest Condominiums and Greenview Apartments in their listing of
cash receipts which were not included in the City's listing.
7
Table 1 - Franchise Fee Calculation
Residential
Commercial
Year
1999
Cash
Receipts
Amount
Franchise
Fee Rate
Franchise
Fee Due
Cash
Receipts
Amount
Franchise
Fee Rate
Franchise
Fee Due
Total Due
Per Audit
Franchise
Fee Paid
Difference
Aril
93.097
15%
13.964
39.278
10%
3.928
17,892
17.915
(23)
May
3.613
150i0
542
12,439
10%
1.244
1.786
2.110
(324)
June
76,650
15%
11.497
61,924
100/0
6,192
17.690
13.846
3.843
July
5.207
150/0
781
21.213
10%
2,121
2,902
5.804
(2.902)
August
110.844
15%
16.627
114,408
100,0
11.441
28.067
19.254
8.813
September
40.900
15%
6.135
37.454
100i0
3.745
9,880
16.926
(1.046)
October
24.388
15%
3.658
42.787
100i0
4.279
7,937
8.286
(349)
November
145.082
150/6
21.762
97.929
100/0
9,793
31.555
271?72
4,284
December
125.545
150/0
18.832
117.774
10 o
11.777
30.609
31.012
(403)
Total
625.323
93.799
545.204
54.520
148.319
136.426
11,893
1"ear
2000
Cash
Receipts
Amount
Franchise
Fee Rate
Franchise
Fee Due
Cash
Receipts
Amount
Franchise
Fee Rate
Franchise
Fee Due
Total Due
Per Audit
Franchise
Fee Paid
Difference
January
89.773
15°.6
13.466
168.065
10116
16.806
30.272
30,815
(513.13)
February
62.54
15°0
9.381
65.848
10%
6.584
15.965
16.399
(433.50)
March
133,512
15%
20,026
108,545
10%
10.854
30.881
42.904
(12.023)
pril
94.419
15010
14.162
75,906
10%
7.590
21.753
21.991
(237.50)
May
80,603
15%
12,090
71262
10°io
7,126
19?16
19.221
(4.50)
June
96,644
15%
14A96
83.687
10%
8.368
22,865
22,917
(52.50)
Dials
557.493
83.623
573,315
57.331
140,955
142.899
(13,294)
Grand Total ($1,401
C. Interest Due- Late Payments
The franchise agreements require that Waste Management remit Street Use Fees to the Cite thirty
days after the end of the month. We have determined that, for several months, were remitted as
N.
late as fifty-six days (56) after the end of the month. Therefore. the Cin, is due $966
interestipenalties as detailed in Table 2.
Table 7. — TnterPct T)m- — T ntR Pa-n„Pntc
Month/Year
Amount
Due
Date Due
Date
Received
Days
Late
Interest Rate
Interest Amount
due Citv
Sept-99
$10,926
10/30/99
11 /2/99
3
0.09%
$13
Oct-99
8.286
11/30/99
12/7/99
7
0.20%
19
Nov-99
27,272
12/30/99
2/24/00
56
1.610/0
447
Dec-99
31,012
1/30/99
2/24/00
25
0.72%
232
Feb-00
16,399
3/30/00
4/25/00
26
0.75°X0
123
Apr-00
21,991
5/30/00
6/19/00
20
0.58%
133
Total
$966
D. Interest Due Calculation Errors
The franchise agreements require that Waste Management remit pay delinquency charges if the
Company failed to make the payment prior to the due date. Waste made numerous calculation
errors for the period of the review which they underpaid franchise fee payments several months.
Therefore. the City is due $1.244 interest/penalties.
2. Bad Debts for Nan-Pavment of Solid M'aste Account:
It is Waste Management's policy that if a customer does not remit payment for waste services
after sixty days (60), the customer is placed on stop service by V+'aste's Collection Department.
Collections annotate the account for non-payment and the Operations department is notified to
discontinue service to a specific address via route sheets. During the course of our review, we
observed that Waste had turned the collections of commercial uncollectible accounts over to
NCO Financial Systems, Inc. DMG was informed that there is no standard contract between the
two companies. On a recurring basis, Waste submits the following information to NCO for
collection: company name, address, phone number and last invoice date. NCO would make the
appropriate contacts with the customer and remit the collection revenue to Waste less a specified
contingency fee. Waste reserves 5% of sales revenue for uncollectible accounts. We requested
and obtained evidential documentation that accounts that were previously written -off and later
collected were accounted for by the Company's financial system and were added to the monthly
cash receipts for the City and ultimately included in the franchise fee calculation base.
DMG analyzed the aged receivable report to determine what impact of non -collection of account
receivables would have on the franchise fee remittance to the City. Based on our analysis of
Waste Management's aged reports from March 31 to July 31, 2000 the Company's uncollectible
accounts that are sixty days and greater are $21,659.
L']
Table') — Aaed Accnnntc RPrPivahlar• 1/11 / 0 to 7/,1 /00
Dates
7/31/00
6/30/00
5/31/00
4/30/00
3/31/00
Total
ays Arrears
0
30
60
90
120
Dollars
$124.663
$26,325
$12,779
$2,160
$6,720
$172.647
ercentage
72.21%
15.25%
7.40%
1.25%
3.89%
3. Waste Management and USA Corporate Merger
During the project -opening meeting, Waste's General Manager made a comment concerning the
write-off of $1.2 million in charges. The $1.2 million related to a general restructuring of
corporate earning and not the write-off of any specific revenue account. Therefore, this
accounting transaction did not affect the City's franchise fee calculation base.
4. General Ledger & Cash Recei is Analysis
DMG reviewed Waste Management's cash receipts and accounts receivables journals to verify
whether the franchise fee payments remitted to the City were accurate in accordance to the cash
receipts received from the Company. The cash receipts reflected in the City's payment agreed
with the cash receipt journal of the Company but DMG did observe that Waste failed to pay the
calculated amount due per audit and therefore led to numerous payment errors and subsequent
interest penalties.
5. Analytical Review of Franchise Fee Pavments
The City informed DMG that franchise fee payments declined in fiscal year 1999. The Company
attributed the decline in payments to a change in accounting systems that caused no accounts
receivable billings to be generated for some months. Our review of company supplied data
revealed that May, July, September and October cash receipts decreased significantly compared
to other months reviewed for the calendar year 1999 as shown in Table 1. For example. DMG
reviewed the company's billing summary for July and found the billing had increased 80% to
$136,690 in comparison to the company's average accounts receivable billings. The company
indicated that this increased billing was attributed to retroactive billings for May. This pattern of
increased billing activity was also noted for October, November and December.
DMG prepared three payment trend analysis models to evaluate payments made to the City.
These models were developed in order to determine whether the 1999 payments made by the
company were consistent with the City's historical payments records. Based on this review,
DMG estimates that there may be a possible underpayment in range between $2,010 or as high as
$30,634.
The first payment analysis was a regression model prepared for commercial cash receipts only to
estimate what the cash receipts and franchise fee payments may have been for April, May, June
and October 99. In applying the regression equation. average cash receipt was $69.480.37 which
would result in a franchise payment of $6.948, the projected franchise payment was estimated at
$6.615 a difference of $333. The difference can be attributed to several factors. A main factor is
that the 1998 data is based on a full fiscal Year compared to eight months for fiscal year 1999.
The use of eight months was necessary to develop the regression equation because Waste
Management paid franchise payments that were typically higher than their average payment.
The second method was developed based on a model to calculate an average monthly payment.
The average payment was calculated by using 15 months of data from April 1999 to June of
2000. The projected average payment for multi -family and commercial were $11,828 and
57.467, respectively. These calculated average amounts were input into a computer model for
certain months to extrapolate what the City's fiscal year 1999 payment would have been if
problems incurred with Waste's accounting system conversion had not occurred. This model
indicates that Waste may have underpaid the City approximately $2.010 for the audit period. It
should be noted that this possible underpayment is based on the period October 1998 through
September 2000. This number may increase or decrease based on the availability of gross receipt
data for the period prior to April 1999.
At the City s request, a third model method was developed using the annual payments received
by the City for the past six years (1996 to 20001. This method was used to determine the annual
growth rate of franchise fees paid by Waste Management since 1996. The annual groArth rate
was then used to project franchise payment for the years 1999 and 2000 to determine if the
payments actually made were reasonable relative to the annual payment historic trend. This
analysis revealed that for the years 1997 and 1998 the franchise fee increased 4.5% ($10.216) and
2.5% (S5,980) respectively. In 1999 the payment dropped —22% ($54,654) and increased 51 %
($97,103) in 2000.
Our analysis of historical payments entailed using the 1998 payment as the base year to project
the City's payments for 1999 and 2000 with an annual gro%k-th rate of 2.5%. This growth rate is
conservative since the average growth rate for the years 1997 and 1998 would be 3.5% percent.
The difference between the actual amount ($1,184.1 S4) paid over the five-year period and actual
payments with projections for 1999 and 2000 ($1.214,788) indicates that the company may have
underpaid the City approximately 530,634. See the chart below.
Annual Franchise Payment Trend Analysis
Difference
Estimated
Between
Fiscal
Actual
Actual
Estimated*
Payments
Actual
Year
Payments
% Increase
Payments
Difference
% Increase
And Estimated
Payment
1996
227,509.94
227,509.94
1997
237,726.55
4.5%
237,726.55
10,216.61
4.5%
-
1998
243,707.36
2.5%
243,707.36
5,980.81
2.5%
-
1999
189,052.46
-22.4%
*249,800,04
*6,092.68
2.5%
60,747.58
2000
286,158.29
51.4%
*256,045.05
*6,245.00
2.5%
(30,113.24)
Total
1,184,154,60
1,214,788.94
$30,634
As noted earlier the radical shifts in the Cit}7's payment in 1999, per Waste Management. were
caused by a change in the company's accounting systems that caused no accounts receivable
billings for several months. Based the analysis Y of records provided by Waste, there is no
supporting information for the payments prior to April 1999. Due to the company's failure to
provide all requested data, DMG can not totally validate the accuracy of the billing process from
which the gross receipts were collected and reported. We were able to confirm that all
documented gross receipts were included in the City's franchise payment base. However, the
annual payment trend analysis indicates the possibility that customer billing for 1999 may not be
accurate thus resulting in under collected gross receipts. These payment trend anahrses identifies
a possible underpayment to the city in the range between $2.010 and $30.634. We recommend
the City review this trend information with theCompanyto determine a satisfactorily resolution
of this issue.
6. Maintenance of Records
Ordinance No. 92-41 requires that Waste Management maintain at its local office adequate books
and records relating to the performance of its obligation under this agreement. DMG was not able
to obtain any financial records from Waste Management for the period prior to April 1999.
Company officials informed DMG that records did not exist and could not be produced. The
Company informed DMG that all records prior to the conversion of the CIMS system to the MAS
computer system were destroyed or could not be located. The production of financial records are
required to obtained an independent assurance that Waste Management complied with the
franchise agreement and without this data DMG cannot have reasonable assurance that the fees
paid for this time period was in accordance to the franchise agreement.
7. Reporting: Solid Waste Collections
Ordinance No. 92-41 requires that Waste Management provide the City notarized monthly and
annual statements signed by an authorized representative. The statements shall identify the
categories and amounts of Gross Receipts. At the time of our review, the Company had not sent
notarized statements signed by authorized representatives to the City. At the time of our review
the City informed DMG that Waste was not submitting notarized schedules as required by the
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franchise agreement. The Cite does receive schedules from Waste in order to generate internal
reports.
8. Insurance Requirements
Waste Management is required to maintain specific levels of insurance for the protection of its
employees and commercial vehicles traveling on the right-of-way within the City. DMG has
found that the company has exceeded the required mandate set -forth in the franchise agreement
with the City. The franchise requirements and amounts maintained by Waste Management are
detailed in the table below:
Table 4 —Summary of Tnsurance RennirPmentc
Insurance Type
Ordinance
Requirement
Waste Management
Workers Compensation
N/A
1.000.000
Commercial General Liability
• Property Damage
1.000,000
2.000,000
• Public Liability
1,000,000
2.000.000
Automobile Insurance
• Comprehensive
1.000.000
1,000.000
Excess Liability
1.000.000
2.500,000
CONCLUSION
DMG-Maximus has thoroughly examined the financial records and reports provided by Waste
Management for this review and have determined the company paid the appropriate franchise fee
payments for all its accounts receivable transactions for the review period, April 1999 to June
2000. This review also disclosed that Waste Management did not maintain any records to support
its payments or revenue derived from its operations within the City's limits prior to April 1999;
2) Remit all payments timely and 3) Remit interest on late payments and calculation errors.
SUMMARY OF FINDINGS
Category
Low Range Amt
Due to City
High Range
Amt Due City
Interest Due — Late Payments
966
966
Interest Due — Calculation Errors
1,244
1.244
Calculation Errors- Net Difference
(1,401)
(1,401)
Estimated Underpayment- $2,010 to $30,634
for the period FY99 to FY00_
2,010
30,634
Total Amount Due City
S2,819
$31,443
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SUMMARY OF RECOMMENDATIONS
1) Request that Waste Management maintain copies of future financial records that relate to the
City of Tamarac at it corporate headquarters for review by the City.
2) Request that Waste Management provide notarized monthly and annual statements detailing
the categories of gross receipts as required by provisions of the franchise agreement. The
statements should accompany their monthly Street Use fee.
3) Request that Waste Management remit $966 to the City of Tamarac due to the late submittal
of Street Use Fee payments that are due thirty days (30) after the end of the month.
4) Request that Waste Management remit $1,244 to the City of Tamarac due to calculation
errors for the audit period.
5) City needs to review the annual payment trend information with the Company to request
information to support why the Company has remitted approximately $2,010 to $30,634 less
for the period FY99 to FY00.
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