HomeMy WebLinkAboutAuditCITY OF MIAMI
OFFICE OF INDEPENDENT AUDITOR GENERAL
AUDIT OF BROWNING-FERRIS
INDUSTRIES, INC.'s FRANCHISE FEES
TRANSACTIONS AND CLAIM FOR REFUND
AUDIT NO. 08-004
Prepared By
Office of Independent Auditor General
Victor 1. lgwe, CPA, CIA
Auditor General
PAULINO GARCIA, STAFF AUDITOR
VICTOR 1. IGWE, CPA, CIA
Independent Auditor General
Tag of tami .
November 30, 2007
Honorable Members of the
City Commission
City of Miami
3500 Pan American Drive
Coconut Grove, FL 33133-5504
Telephone: (305) 416-2040
Telecopier: (305) 416-2046
E•Mail: iageci.miami.fl.us
Re: Audit of Browning -Ferris Industries, Inc.'s Franchise Fees Transactions and Claim
for Refund
Audit No. 08-012
Pursuant to Section 48 of the City of Miami's (City) Charter and the Fiscal Year 2007 Audit
Plan, we have examined the billing records of Browning -Ferris Industries, Inc. (BFI). Effective
March 31, 2007, BFI's operation in the Miami -Dade County, Florida was sold to Waste Services
of Florida, Inc. The audit was performed to determine whether BFI complied with Chapter 22 of
the City Code and the Commercial Solid Waste Franchise Agreement (Agreement) between the
City and commercial solid waste hauling companies. Chapter 22 of the City Code and said
Agreement regulate the operation of commercial solid waste services in the City. The audit
covered the period October 1, 2005 through September 30, 2006, as well as, selected financial
transactions that were processed prior and subsequent to this period.
Our audit also included a review of BFI's claim for a $121,391.53 refund relating to an audit
performed by Miami -Dade County (County), which determined that during the period January 1,
2002 through December 31, 2004 BFI remitted said amount of franchise fees to the City of
Miami that were due to the County.
Additionally, we examined the internal control policies and procedures in the City's Solid Waste
Department to determine whether they were adequate and effective in administering and
overseeing the operation of commercial solid waste services in the City.
OFFICE OF INDEPENDENT AUDITOR GENERAL/444 S.w. 2nd Avenue, Suite 715/Miami, Florida 33130-1910
•
Sincerely,
Victor I. Igwe, CPA, CIA
Independent Auditor General
Office of Independent Auditor General
C: The Honorable Mayor Manuel A. Diaz
Pedro G. Hernandez, Chief Administrator/City Manager
Members of the Audit Advisory Committee
John Badke, Controller Vice President, Allied Waste Southeast Region
Roger Hernstadt, Assistant City Manager, Office of the City Manager
Bill Anido, Assistant City Manager, Office of the City Manager
Larry M. Spring, Assistant City Manager/Chief Financial Officer
Peter W. Korinis, Chief Information Officer, Information Technology Department
Michael J. Boudreaux, Director, Budget Department
Jorge L. Fernandez, City Attorney, City Attorney's Office
Mario E. Soldevilla, Director, Solid Waste Department
Priscilla A. Thompson, City Clerk, City Clerk's Office
Diana M. Gomez, CPA, Director, Finance Department
Demetrio Constantiny, Accounts Receivable Supervisor, Finance Department
Audit Documentation File
AUDIT OF BROWNING-FERRIS INDUSTRIES, INC.'s FRANCHISE FEES
TRANSACTIONS AND CLAIM FOR REFUND
OCTOBER 1, 2005 THROUGH SEPTEMBER 30, 2006
TABLE OF CONTENTS
INTRODUCTION 1
SCOPE AND OBJECTIVES 4
METHODOLOGY 6
SUMMARY OF AUDIT FINDINGS 7
BROWNING-FERRIS INDUSTRIES, INC. THE CITY'S SOLID WASTE, AND FINANCE
DEPARTMENTS 7
COMPLIANCE WITH CERTAIN SECTIONS OF THE CITY CODE AND THE FRANCHISE
AGREEMENT 7
BROWNING-FERRIS INDUSTRIES, INC. 8
REFUND DUE TO BFI 8
LACK OF COMPLIANCE WITH THE FRANCHISE AGREEMENT AND THE CITY CODE 8
SOLID WASTE DEPARTMENT 9
INADEQUATE MONITORING AND ENFORCEMENT OF THE PROVISIONS OF THE
FRANCHISE AGREEMENT 9
AUDIT FINDINGS AND RECOMMENDATIONS 10
BROWNING-FERRIS INDUSTRIES, INC. 10
REFUND DUE TO BFI 10
LACK OF COMPLIANCE WITH THE FRANCHISE AGREEMENT AND THE CITY CODE 14
SOLID WASTE DEPARTMENT 16
INADEQUATE MONITORING AND ENFORCEMENT OF THE PROVISIONS OF THE
FRANCHISE AGREEMENT 16
EXHIBIT I 27
INTRODUCTION
On July 25, 2002, and October 14, 2004, the City Commission passed and adopted
Ordinance Numbers 12258 and 12599, respectively, amending Chapter 22, Articles I, II,
and III of the City Code. A total of 25 firms signed the Commercial Solid Waste
Franchise Agreement (Agreement), which authorized them to operate commercial solid
waste hauling services in the City of Miami for the period starting November 1, 2004
through September 30, 2009, with a three year renewal option through September 30,
2012. The option to renew the Agreement for an additional three year period will be at
the sole discretion of the City.
Article V of the Agreement titled "Franchise Fees" stipulates that the following fees be
assessed and collected:
• Gross Receipts Franchise Fees. In accordance with Article II, Section 2.2 of the
Agreement, the term "Gross Receipts" shall mean, "all monies whether paid by
cash, check, debit or credit, collected from customers for garbage, solid waste,
fuel surcharge, construction and demolition debris, roofing materials, trash, litters,
refuse and/or rubbish collection removal and disposal services rendered, or from
any other source related directly from waste collection services by the
FRANCHISEE, exclusive of taxes as provided by law, whether wholly or
partially collected within the CITY, less bad debts." During the period October 1,
1999 through September 30, 2004, the franchisee was required to remit to the City
20% of the gross receipts generated. Effective October 1, 2004, the rate increased
to 22%. A one and one half percent (1-1/2%) late payment penalty fee is assessed
monthly on any balance due.
• Annual Franchise Fee. The sum of $5,500 (increased annually by $500) for the
right to provide commercial solid waste services and specialized waste handling
1
services within the City. A one and one half percent (1-1/2%) late payment
penalty fee is assessed monthly on any balance due.
• Annual Specialized Waste Handling Service Fee. The sum of $1,500 (increased
annually by $500) for the right to provide "Specialized Waste Handler" services
within the City. Ordinance 12258, Section 22-1 defines "Specialized Waste
Handlers" as companies whose primary business is limited to collecting and
disposing of solid waste that requires special handling and management;
including, but not limited to, white goods (appliances), waste tires, used oil, lead -
acid batteries, construction and demolition debris, ash residue, and biomedical
and biological waste. A one and one half percent (1-1/2%) late payment penalty
fee is assessed monthly on any balance due.
• Permit Per Account Fee. The franchisee is required to pay $50 for each account
contracted within the City for commercial solid waste services and/or specialized
waste handling services, including, each container and/or roll -off utilized by the
franchisee in the course of providing solid waste services. The franchisee may
only pass on an amount not to exceed $24 of said Permit Per Account Fee to each
contracted customer. This fee is not transferable. A one and one half percent (1-
1/2%) late payment penalty fee is assessed monthly on any balance due.
During the fiscal year, October 1, 2005 through September 30, 2006, the 25 franchisees
remitted a total of $9,792,454 to the City. BFI was one of the franchisees selected for
review to determine compliance with the provisions of the Franchise Agreement.
Effective March 31, 2007, BFI's operation in the Miami -Dade County, Florida was sold
to Waste Services of Florida, Inc. A separate audit report will be issued for each of the
franchisees audited.
The Solid Waste Department (SWD) is responsible for ensuring that commercial solid
waste service accounts and applicable fees/transactions are properly assessed and paid to
the City. The SWD is also responsible for monitoring the operations of the commercial
2
solid waste franchisees. This audit report describes whether BFI and the SWD complied
with the terms of the Agreement and applicable Sections of the City Code. Our audit also
included a review of BFI's claim for a $121,391.53 refund relating to an audit performed
by Miami -Dade County (County), which determined that during the period January 1,
2002 through December 31, 2004 BFI remitted said amount of franchise fees to the City
of Miami that were due to the County.
3
SCOPE AND OBJECTIVES
This audit was performed pursuant to the authority set forth in Section 48 of the City's
Charter titled, "Office of the Independent Auditor General", and was conducted in
accordance with the Fiscal Year 2007 Audit Plan. As part of our oversight
responsibilities, the Office of the Independent Auditor General performs financial and
operational audits to determine the extent of compliance with terms of contracts,
programs, and/or lease agreements between the City and private companies. This audit
focused primarily on whether Browning -Ferris Industries, Inc. (BFI) and the City's Solid
Waste Department (SWD) complied with the terms of the Commercial Solid Waste
Franchise Agreement (Agreement) and with Chapter 22 of the City's Code, which govern
the operation of commercial solid waste collection services in the City. The audit also
included examinations of various transactions to determine whether they were processed
in accordance with the generally accepted accounting principles. The audit covered the
period October 1, 2005 through September 30, 2006 and focused on the following broad
objectives:
• To ascertain whether all customer accounts located in the City were properly
identified, coded, and assessed the appropriate fees.
• To determine whether all applicable franchise fees as stipulated in Article V
of the Agreement were properly computed and remitted to the City.
• To review the annual statement of gross receipts that was prepared by an
independent Certified Public Accountant retained by BFI. Additionally, to
determine whether said statement was submitted to the SWD on or before 60
days following the close of the fiscal year.
4
• To ascertain whether the fees remitted to the City were properly recorded in
the City's accounting system and deposited into the City's treasury.
• To verify whether the appropriate public liability insurance and bonds were
obtained as required by Article VII of the Agreement.
• To examine the internal control policies and procedures of BFI and the City's
SWD and determine whether they were adequate and effective in
administering and overseeing the operation of commercial solid waste hauling
services in the City.
5
METHODOLOGY
We conducted the audit in accordance with generally accepted Government Auditing
Standards, issued by the Comptroller General of the United States. The audit
methodology included the following:
• Interviewed and inquired of appropriate personnel; reviewed and observed
applicable written policies and procedures in order to gain an understanding of the
internal controls; assessed control risk; and planned substantive testing.
• Performed substantive testing consistent with the audit objectives.
• Examined, on a test basis, applicable transactions and records.
• Determined compliance with all the objectives noted on pages 4 and 5.
• Performed other audit procedures as deemed necessary.
• Drew conclusions based on the results of the testing, made corresponding
recommendations, and obtained the auditee's responses and corrective action
plans.
6
SUMMARY OF AUDIT FINDINGS
BROWNING-FERRIS INDUSTRIES, INC. THE CITY'S SOLID WASTE, AND
FINANCE DEPARTMENTS
COMPLIANCE WITH CERTAIN SECTIONS OF THE CITY CODE AND THE
FRANCHISE AGREEMENT
We conducted various audit tests, on a sample basis, to determine compliance with
certain Sections of the City Code, the Commercial Solid Waste Franchise Agreement,
and other guidelines. Our tests disclosed that Browning -Ferris Industries, Inc. (BFI), the
Solid Waste Department (SWD), and the Finance Department (FD) materially complied
with the following:
• The FD properly recorded the sampled payments from BFI to the City. The
sampled payments received by the FD were also traced to the City's treasury
without exception.
• BFI complied with the vehicle insurance requirement as stipulated by Section
22-47(4)a of the City Code.
• The SWD obtained vehicle insurance records as stipulated by Section 22-47(4)a
of the City Code.
BROWNING-FERRIS INDUSTRIES, INC.
REFUND DUE TO BFI
Article V, Section 5.2 of the Agreement titled "Franchise Fees" stipulates certain fees
the franchisee is required to remit to the City. Our audit of Browning -Ferris
Industries (BFI) for the period October 1, 2005 through September 30, 2006, as well
as, selected transactions prior and subsequent to this period indicated that an
additional $26,590.85 of franchise fees is due to the City for said period. Our audit
also included a review of BFI's claim for a $121,391.53 refund relating to an audit
performed by Miami -Dade County (County), which determined that during the
period January 1, 2002 through December 31, 2004 BFI remitted said amount of
franchise fees to the City of Miami that were due to the County. Our review of BFI's
claim for refund confirmed that $119,353.58 of the $121,391.53 refund claimed was
due to the County. Therefore, a total net refund of $92,762.73 ($119,353.58-
$26,590.85) is due to BFI.
LACK OF COMPLL4NCE WITH THE FRANCHISE AGREEMENT AND THE
CITY CODE
o Our audit disclosed that BFI did not provide the City, in a timely manner, with the
required statement of annual gross receipts prepared by an independent certified
public accountant as stipulated in Section 22-56(b) of the City Code and Article
V, Section 5.3 of the Agreement.
o Our audit disclosed that for fiscal year 2006-2007, BFI did not maintain the
required amount of surety bond as stipulated in Section 22-47(b) of the City Code
and Article VII, Section 7.2 of the Agreement:
8
SOLID WASTE DEPARTMENT
INADEQUATE MONITORING AND ENFORCEMENT OF THE PROVISIONS OF
THE FRANCHISEAGREEMENT
The Solid Waste Department (SWD) is responsible for administering, monitoring, and
enforcing provisions of Chapter 22 of the City Code and the Commercial Solid Waste
Franchise Agreement (Agreement) between the City and the franchisees. However, we
noted that adequate internal control procedures were not implemented to:
o Ensure that BFI submitted the proper statement of annual gross receipts prepared
by a Certified Public Accountant in a timely manner as required by Section 22-
56(b) of the City Code and Article V, Section 5.3 of the Agreement.
o Ensure that BFI maintained the required amount of bond as stipulated by Section
22-47(b) of the City Code and Article VII, Section 7.2 of the Agreement.
9
AUDIT FINDINGS AND RECOMMENDATIONS
BROWNING-FERRIS INDUSTRIES, INC.
REFUND DUE TO BFI
Pursuant to Section 48 of the City of Miami's (City) Charter and the Fiscal Year 2007
Audit Plan, we have examined the billing/accounting records of Browning -Ferris
Industries, Inc. (BFI) relating to franchise fee transactions for the period October 1,
2005 through September 30, 2006. The audit was performed to determine whether
BFI complied with Chapter 22 of the City Code and the Commercial Solid Waste
Franchise Agreement (Agreement) between the City and commercial solid waste
hauling companies. Our audit also included a review of BFI's claim for a
$121,391.53 refund relating to an audit performed by Miami -Dade County (County),
which determined that during the period January 1, 2002 through December 31, 2004
BFI remitted said amount of franchise fees to the City of Miami that were due to the
County.
Our audit for the period October 1, 2005 through September 30, 2006, as well as,
selected transactions prior and subsequent to this period indicated that an additional
$26,590.85 of franchise fees is due to the City for said period. Our review of BFI's
claim for refund, as noted above, confirmed that $119,353.58 of the $121,391.53
refund claimed was due to the County. Therefore, a total net refund of $92,762.73
($119,353.58-$26,590.85) is due to BFI. The total amount due to the City and the
credit due to BFI are itemized below:
I. Article V, Section 5.4 of the Agreement stipulates that franchisee agrees to
remit to the City annually (due October 1) the sum of $5,500 (increased
annually by $500) for the right to be a franchisee for Commercial Solid Waste
services and Specialized Waste Handling Services within the City. Failure to
remit the required annual franchise fee by the due date will result in a one and
10
one half percent (1-1/2%) penalty per month on the balance due to the City.
Our audit disclosed that BFI remitted its annual franchise fee for the fiscal
year 2005-2006 on October 31, 2005 (1 month late). Therefore, a late
payment penalty fee of $82.50 is due to the City.
II. Article V, Section 5.6 of the Agreement requires the franchisee to remit to the
City annually a Permit Per Account Fee (PPAF) in the amount of $50 for each
account contracted within the City for commercial solid waste handling
services and/or specialized waste handling services, including, each container
and/or roll -off utilized by the franchisee. Failure to remit the required PPAF
by the due date will result in a one and one half percent (1-1/2%) penalty per
month on the balance due to the City. Our review of the City's and BFI's
accounting records disclosed the following:
• BFI remitted its PPAF for the fiscal year 2005-2006 on
October 31, 2005 (1 month late) and as a result a late penalty
fee of $1,548.00 is due to the City.
• BFI did not remit the PPAFs for 32 customer accounts that it
serviced during the audit period. The un-remitted PPAF and
late fees totaling $3,026.25 (($2,250 + $776.25) are due to the
City.
III. Article V, Section 5.2 of the Franchise Agreement requires the franchisee to
remit to the City 22% of its monthly gross receipts generated from accounts
within the City limits. The remittance of the previous month's collection
should be received by the City on or before the last day of each month.
Failure to remit by the last day of the following month will result in a one and
one half percent (1-1/2%) penalty per month on the balance due. Our review
of BFI's billing records and customer listings disclosed that the 22% franchise
fees due from thirty (30) miscoded accounts and the Permit Per Account Fees
(PPAF) due from 21 of the 30 miscoded customer accounts were not remitted
11
to the City as required. The un-remitted gross receipts franchise fees, PPAFs,
and late fees totaling $17,748.10($12,002.10+$1,791.56+$3,954.44) are due
to the City.
IV. Article VI, Section 6.2 of the Franchise Agreement stipulates that "if a City
Audit reveals that FRANCHISEE under reported gross receipts, and results in
additional revenue due the City in the amount of $20,000.00 (per Fiscal Year)
or more, FRANCHISEE agrees to pay for the cost of said Audit." Our audit
for the fiscal year 2005-2006 disclosed that the amount due to the City before
including the audit fee totaled $22,404.85. Our audit also included a review
of BFI's claim for a $121,391.53 refund relating to a Miami -Dade County
(County) audit that determined that during the period January 1, 2002 through
December 31, 2004 BFI remitted said amount of franchise fees to the City of
Miami that were due to the County. Therefore, the $4,186.00 cost of
conducting this audit and verifying BFI's claim for refund are due to the City,
V. We reviewed BFI's claim for a $121,391.53 refund relating to a County audit
that determined that during the period January 1, 2002 through December 31,
2004 BFI remitted said amount of franchise fees to the City of Miami that
were due to the County. Our review confirmed that $119,353.58 of the
$121,391.53 claimed was due to the County.
Recommendation
Effective March 31, 2007, BFI's operation in Miami -Dade County, Florida was sold to
Waste Services of Florida, Inc. We recommend that Allied Waste Southeast (formerly
known as BFI) be granted a refund of $92,762.73, as requested.
12
Auditee's Response and Action Plan
In a written response, the auditee concurred with the audit findings and
recommendation. Due to the divestiture of the BFI operation in the Miami -Dade
County, the auditee requested that a check for $92,762.73 be remitted to the Allied
Waste Southeast Region Office. See Pages 18 through 25.
13
LACK OF COMPLIANCE WITH THE FRANCHISE AGREEMENT AND THE
CITY CODE
The Commercial Solid Waste Franchise Agreement (Agreement) between the City and
franchisees provides certain operating guidelines and requirements. The operating
guidelines are designed to ensure uniformity in the services provided and also to ensure
that the City's best interest is well protected. However, our audit disclosed the following
deficiencies:
• FAILURE TO PROVIDE THE CITY WITH THE REOUIRED STATEMENT
OF ANNUAL GROSS RECEIPTS INA TIMELY MANNER
Article V, Section 5.3 of the Agreement stipulates that the franchisee shall, on or
before 60 days following the close of each fiscal year (November 30th), deliver to
the Director of the Solid Waste Department a statement of its annual gross
receipts generated from accounts within the City for the preceding year. Such
statement must be prepared by an independent certified public accountant.
However, our audit disclosed that BFI submitted said statement for the fiscal year
of 2005-2006 on January 31, 2007 (2 months late).
• FAILURE TO OBTAIN THE REOUIRED AMOUNT OF SURETY BOND
Article VII, Section 7.2 of the Franchise Agreement stipulates that franchisee
agrees to maintain a Performance Bond, executed by a surety company duly
authorized to do business in the State of Florida. The amount of the bond shall
be equal to the franchisee's previous 12 month franchise fees paid to the City
(including the annual franchise fee, monthly 22% franchise fee, annual permit per
account fee, and any other franchise fees paid to the City) or a minimum of
$25,000 whichever is greater as security for the faithful performance of the
franchise Agreement. The surety shall have a rating classification of "A" and a
financial category of Class VII as evaluated in the current Best's "Key Rating
14
Guide, Property Liability". However, our review disclosed the following
deficiencies:
o BFI remitted to the City franchise fees totaling $1,829,131.61. However,
it maintained a surety bond of $1,800,000. Accordingly, the required
amount of surety bond needs to be increased by $29,131.61.
The surety bond maintained by BFI had a rating of B+++ and a financial
strength of V, contrary to the rating classification of "A" and financial
category of class VII required by the Agreement.
Recommendation
Effective March 31, 2007, BFI's operation in Miami -Dade County, Florida was sold to
Waste Services of Florida, Inc. (WSF). However, we recommend that WSF implement
effective internal control procedures to ensure compliance with the performance bond
requirements and submission of the statement of annual gross receipts in a timely
manner.
Auditee's Response and Action Plan
The auditee concurred with the audit findings and recommendations. See written
response on pages 18 through 25.
15
SOLID WASTE DEPARTMENT
INADEOUATE MONITORING AND ENFORCEMENT OF THE PROVISIONS OF
THE FRANCHISE AGREEMENT
The Solid Waste Department (SWD) is responsible for administering, monitoring, and
enforcing provisions of Chapter 22 of the City Code and the Commercial Solid Waste
Franchise Agreement (Agreement) between the City and the franchisees. However,
adequate internal control procedures were not implemented to ensure proper monitoring
of the provisions of the franchise agreement as summarized below:
• Failure to follow up and obtain from Browning -Ferris Industries, Inc. (BFI) the
required statement of annual gross receipts, prepared by an independent certified
public accountant, in a timely manner as required by Section 22-56(b) of the City
Code and Article V, Section 5.3 of the Agreement, as discussed on 14.
• Failure to follow up and ensure that the Browning -Ferris Industries, Inc. (BFI)
obtained the required amount of surety bond pursuant to Section 22-47(4)b of the
City Code and Article VII, Section 7.2 of the Agreement. Also the Bond
Company does not meet the required financial rating, as discussed on pages 14
and 15.
• Failure to ensure that BFI's surety bond had a rating classification of "A" and a
financial category of class VII as required by the Agreement, as discussed on
pages 14 and 15.
The proper monitoring of compliance with the Franchise Agreement would safeguard the
City's best interest and ensure that the appropriate fees due are collected and deposited
into the City's treasury in a timely manner.
16
Recommendation
We recommend that the SWD enhance its internal control procedures to ensure that
franchisees comply with all applicable provisions of the City Code and the Franchise
Agreement.
Auditee's Response and Action Plan
The auditee concurred with the audit findings and recommendation. See written response
on page 26.
17
Garcia, Paulino
From: Marj Gentzle (Marj.Gentzle@awin.comj
Sent: Thursday, November 29 2007 11 38 AM
To: Garcia. Paulino
Cc: John Badke
Subject: Allied (formerly known as BR) Miami audit
Attachments: City of Miami Franchise Fee Audit letter pdf
Paulino,
Page 1 of 1
var..vit'EC
Attached is the letter you sent to Juan Carlos Romero regarding the Miami Location Franchise Fee audit. It has
been signed by John Badke the Allied Waste Southeast Region Controller Vice President accepting all the
findings.
Due to the divestiture of this location by Allied Waste, you will need to send the check for $92,762.73 made out
to Allied Waste to our Southeast Region office for proper handling es follows:
Allied Waste Southeast Region Office
3358 Hwy 51 North
Fort Mill, SC 29715
Attn: Marj Gentile
Thank you for all your efforts in finalizing this audit.
Marj
Marj Gentile
Southeast Region
Senior Finance Analyst
DID Phone 803-548-5165
OSC EXT 5165
Fax 803-547-3584
Cell 704-506-7729
11'29'2007
18
Nov 07 07 11:45a Office of Aud:sor General 305-41G-204G p.1
VICTOR L IGWB, CPA, CIA
AUDITOR CGN1iRAL
TO:
FAX NUMBER:
DATE:
alitg of Atianti
mEPHONL N$
FAX 1:: 4163016
FAX TRANSMITTAL
Mr. Tulip Car 1os Romero, Gelleral_Manager
f305) 6.333 2973
November 7, 2007
FROM: Paulin Garcia
SUBJECT: MOU - BPI Audit.
PACES: 13
(Including cover)
Attached please find the Audit MOU for BFI for your review. Thank you.
Paulino Garcia
Staff Auditor
City of Miami
Office of the Auditor Gerheral
Tel: (305) 416-2047
Fax (305) 416-2046
iv)
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sM SW.1.SAA A,6NYns/MAAt rt1 )4O)GAPIO/WAX (ws) asmw
MYBK Adams: S..0. Au VONr MYw1. FLN4 ]RILi.O•
19
Nov 07 07 11:450 offtoe of fuditor General 305-4r6-2046
VICTOR t IGWC. CPA. CIA
m oCPENOEWr AUOtTOR GENEWLL
aitg of Allizrzni
November 6, 2007
Mr. Juan Carlos Romero. General Manaticr
Browning.Ferris Industries, Inc. (WI)
3840 NW 37'I' Court
Miami, Florida 33142
RE: Audit of Browning-Fara Industries, Inc. (BFI) (#07-010)
Dear Mr. Romero:
p,2
Taaphon413OS) 416-a040
ThYxplr: ta01) 4144M6
"tit ItatZt i .0.VM
Pursuant to Section 48 of the City of Miami's (City) Charter and the Fiscal Year 2007 audit plan,
we have examined the billing/accounting records of Browning -Ferris Industries, Inc. (T3F1)
relating to franchise fee transactions for the period October 1, 2005 through September 30, 2006.
The audit was performed to determine whether BFI complied with Chapter 22 of the City Code
and the Commercial Solid Waste Franchise Agoocment (Agreement) between the City and
commercial solid waste hauling companies. Our audit also included a review of BFI's request
for S121,391.53 credit relating to Miami -Dade County audit that determined that BFI remitted
said amount of franchise fees to the City of Miami that were duc to the County during the period
January 1, 2002 through December 31, 2004.
Our audit for the period October 1, 2005 through September 30, 2006, es well as, selected
transactions prior and subsequent to this period indicated that additional S26,590.85 of franchise
fees is due to the City for said period. Ole review of 131t1's claim for credit as noted above
confined that 5119,353.58 of the S12I,391.53 claimed were due to the County. Therefore, a
total credit of 592,762.73 (St 19,353.511-S26.590.55) is due to BR.. The total amount due to the
City and the credit due to BF) are itemized below:
20
Nov 07 07 11,45a 0fftce of Ruditor General 305-41G-2045
Pere 2 or6
Mrlean Casks Ramer
WorettMr 6.2007
p.3
I. Article V, Section 5.4 of the Ag,eRnent stipulates that franchisee agrees to remit to the
City annually (due October 1) the sum of S5,500 (increased annually by S500) fur the
right to be a Ranuhisee for Commercial Solid Waste services and Specialized Waste
Handling Services within the City. Failure to remit the required annual franchise fee by
the due date will result in one and one haif percent (1-1I2%o) penalty per month on the
balance due to the City. Our audit disclosed that RFI remitted its annual fee for the fiscal
year 2005-2006 on October 31, 2005 (1 month late). Therefore, a late penalty fee of
S82.50 is due to the City.
1 agree X, I disagree Please initial:
Explanation
II. Article V. Section 5.6 of the Agreement rcquu es the franchisee to remit to the City
annually a permit per account fee (PPAF) in the amount of S50 for each account
contracted within the City for commercial solid waste handling services and/or
specialized waste handling services, including, each container and/or roll -off utilized by
the fianehisce. Failure to remit the required PPAF by the due dale will result in a one and
one half percent (I-1/2e%) penalty per month on the balance due to the City. Our review
of the City's and BFI's accounting records diachared the following:
• I3171 rc nhled its PPAF for the fiscal year 2005-2006 on October 31. 2005
(1 month late) and as a result a late penalty fee of 51.548.00 is due to the
City.
• BFI did not remit the PPAFs for 32 customer accounts that it serviced
during the audit period. 17:4m.fur,, un-remitted PPAF, and late fees
totaling $3,026.25 ((12,250 + S776.25) are due to the City.
I Agree
1 disagree Please, Inkier
Explanation:
21
Nov 07 07 11145a Office of Ruditor General 305-416-2040
Pegs ror6
Mt. Juan Carbs Rondo
November 6,2007
P.4
lll. Article V, Section 5.2 of the Conuuen:ia1 Wage Franchise Pee Agreement (Agreement)
requires the franchisee to remit to the City 22% of its monthly gross mceipts. The remittance
of the previous month's collection should be received by the City on or before the last day of
each month. Failure to remit by the last day of the following month will tasuit in a one and
one half percent (1-1/2%) penalty per month on the balance due. Our review of BF1's billing
records end listing of customers disclosed that the 22% franchise fees due from thirty (30)
mi►coded accounts and the Permit Pa Account Fees (PPAF) due from 21 of the 30 miscoded
customer accounts were not remitted to the City as required. The tut -remitted gross receipts
franchise fees, PPAFs, and late fees totaling S17,748.10(S12,002.10+SI,791.56+53,954.44)
are due to the City.
1 agree 1 disagree Please Initial:,
F.xplanati n:
3-
IV Article V, Section 5.3 of the Agreement stipulates that the franchisee shall, on or before 60
days (?November 30t") following the close of each 0scal year, deliver to the Director of
Solid Waste Department a statement of its annual gross receipts generated from accounts
within the City for the preceding year. Such statement must be prepared by an lndepen4 nt
Certified Public Accoturant. however, our audit disclosed that BPI submitted the
statement for the fisesl year 2005-2006 on January 31,2007 (2 months tate).
I agree 1 Disagree Please initial: '
Explanation
22
Nev 07 07 11:45a Office of Auditor General 305-41G-204S
raw 4 of 6
Mt Juan Ca o Roncio
Nu..mbor e. 2007
P.
V. Article V, Section 7.2 of the Commercial Agreement stipulates that franchisee agrees to
• maintain, a Perlotmance Bond, executed by a surety company duly authorized to do
business in the State of Fiurida. The amount of the bond shall be equal to the
franchisee's previous 12 month franchise fees paid to the City (including the annual
franchise fee, monthly 22% franchise fee, annual per account fee, and any other franchise
foes paid to the City) or a minimum of S25,000, whichever is greater, as security for the
faithful performance of the franchise Agreement 711e surety dull have a rating
classification of "A" and a financial category of Class V11 as *valuated in the current
Bcst's "Key Rating Guidc, Pio .aty Liability". However, our review disclosed the
following deficiencies:
o BF1 remitted to the City franchise fees totaling S1,829,131.61. However, it
maintained a surety hood of $1,S00,000. Accordingly, the required amount of surety
bond needs to be increased by 529,131.61.
o the surety bond maintained by BM has a rating of B+++ and a financial strength of
V, contrary to the rating classification of "A" and financial category of
class VII as required by the Agreement.
1 Agree 1` 1 Disagree Please Initial:
Explanation:
VI Article VI, Section 6.2 oldie Franchise Agreement stipulates that "if a City Audit reveals
that FRANCHISEE under reported gross receipts, and results In additional revenue due
the City in the amount of S20,000.00 (per Fiscal Year) or more, FRANCHISEE agrees to
pay for the cost of said Audit" Our audit for the fiscal year 2005-2006 disclosed that the
amount due to tie City before including the audit fee totaled S22,404.135. Our audit also
included a review of BFI's request for S121,391.53 credit relating to Miami -Dade County
audit that determined that BFI remitted said amount of franchise foes to the City of
23
Nov 07 07 1114*e article of fluprtor General 305-416-Z046 P • 6
rats sere
Mr. Jam tubs Romero
N,,vambce 4 20117
Miami that were due to the County during the period January 1, 2002 through December
31, 2004. Therefore, the S4,186 cost of conducting this audit and verifying your request
for refund are due to the City.
!Agree
1 Diugree Please initial:
Explattution:
Vlt We reviewed BFI's request for S121,391.53 credit relating to Miami -Dade County audit
that determined that BFI remitted said amount of franchise fees to the City of Miami that
were due to the County during the period January 1, 2002 through December 31, 2004.
Our review of BFI's claim for credit as noted above confirmed that S119,353.58 of the
512I.391.53 claimed were due to the County-
! Agree- I Disagree Please Initial_
Explanation:
Please confirm our understanding by signing on the spar provided below arid return this memo
to us. In the event that you disagree with any of the items listed above, please provide your
explanation and attach all supporting documents/records. In order for us to meet our audit
deadline, a response by November 16. 2007 would be greatly appreciated.
�fLlr9.&dIce,
'e.5ioNea4%i'GI/er VP
A summary schedule is attached for your reference. If you have any questions. please feel free
to contact me at (305 ) 416- 2047
24
Nov 07 07 1I:45a Office of Auditor. Seneral 305-416-P046
Page 6 of6
Mr. Juan Crites Romero
November b. 2t.'e7
Thank you for your attention in this matter.
Sincerely.
Paulin Garcia
StafAuditur
Office of Independent Auditor General
C: Mario C. Soldevilla, Director, Solid Waste Department
Steven Margolis, Principal Auditor, Solid Waste Department
Victor Igwe. CPA, CIA. Auditor General
p.7
25
GITY OF MbWI. FLORIDA
INTER -OFFICE MEMORANDUM
ro Paulin Garcia, Staff Auditor
Office of Independent Auditor General
FROM
Mario E. Soldevilla. Director
Department of Solid Waste
DATE.
nerinsvcas
ENC:OSuess:
November 26, 2007
Response to Memo of
Understanding•BFI
Audit #07-010
Fae.
!. Performance Bond:
At the commencement of each fiscal year, our department sends every commercial solid
waste banter a letter reminding them of their financial and fiduciary responsibilities to the
City. We bave also instituted stronger internal control procedures to monitor each
commercial hauler. Ow department is pleased to see that your own staff auditor
reviewed our more aggressive follow-up letttr dated February 16, 2007.
In addition, we contacted the City's Risk Management department and they informed us
that Bond Safeguard Insurance Company has a rating classification of A- and a financial
strength of V. We were also informed by Risk Mgmt. that the financial strength of V is
now acceptable to the City, even though our Agreement states that the,surety company
should have a financial strength of VIl. We also sent BPI a certified letter dated
November 20, 2006, to increase their Performance Bond to a minimum amount of
S1.829,132.00.
11. 'CPA Statement:
On October 9, 2007. our department sent a reminder letter to Waste Services of Florida.
(formerly BFI) to submit their required annual CPA Statctaent by November 30, 2007.
Upon receipt of the statement, we will forward a copy to your Office.
We also followed -up this request by calling the Franchisee at the beginning of November.
2007, td eriiurc submission of their CPA Statement by November 30, 2007. In the future,
even stronger follow-up letters will be sent, reminding Ftattchisees that they roust submit
their CPA Statement by November 30. of each year. Any Franchisee not in compliance
within 14 days of notification by this Department of deficiencies that exist, will then be
notified that their license can and will be suspended or revoked, dependent upon the
severity of the deficiency.
c: Steven: Margolis, Auditor
Joe Tang. Fiscal Administrator
26
EXHIBIT I
BROWNING-FERRIS INDUSTRIES, INC.
SCHEDULE OF FEES DUE TO THE CITY
OCTOBER 1, 2005 THROUGH SEPTEMBER 30, 2006
DESCRIPTION
ITEMIZED TOTAL
AMOUNT FEES DUE
Annual Franchise Fee
1.5% Penalty on late Remittance of Annual Franchise Fee 82.50
Permit Per Account Fee
1.5% Penalty on late Remittance of Permit Per Account Fee
Un-remitted Permit Per Account Fee
Miscoded Accounts & Permit Per Account Fee
Miscoded Accounts
Permit Per Account Fee
Late fees
Cost of Audit
Cost of audit and review of claim for refund
1,548.00
3,026.25
4,574.25
12,002.10
1,791.56
3,954.44 17, 748.10
Grand Total due to the City of Miami:
Total Franchise Fees remitted to City in error per County Audit
Refund Due to BFI
4,186.00
$ 26,590.85
119, 353.58
(92,762.73)
27