HomeMy WebLinkAbout1617-6 Solid Waste Controls over revenues report (Final 1-8-18)Solid Waste Department - Controls over revenue report #16/17-6 January 2018
Solid Waste Department –
Controls over revenue
To request this information in an alternate format, please call (541) 330-4674 or send email to David.Givans@Deschutes.org
Deschutes County,
Oregon
David Givans, CPA, CIA, CGMA
Deschutes County Internal Auditor
PO Box 6005
1300 NW Wall St, Suite 200
Bend, OR 97708-6005
(541) 330-4674
David.Givans@Deschutes.org
Audit committee:
Lindsey Lombard, Chair – Public member
John Barnett - Public member
Tom Linhares - Public member
Daryl Parrish - Public member
Wayne Yeatman - Public member
Anthony DeBone, County Commissioner
Nancy Blankenship, County Clerk
Dan Despotopulos, Fair & Expo Director
Solid Waste Department - Controls over revenue report #16/17-6 January 2018
TABLE OF CONTENTS:
HIGHLIGHTS
1. INTRODUCTION
1.1. Background on Audit …………..……………………………….……………….…...……… 1-2
1.2. Objectives and Scope ………………….……………………………….....…................… 2-3
1.3. Methodology …………………………………….…………………...….............................… 3
2. BACKGROUND …………………………………………………………………………………… 4-5
3. FINDINGS
3.1. Fiscal controls ………………………………...……………………………..……..……....… 6-12
3.2. Operational efficiencies ………………………………………..…………………..……..…. 13
3.3. Franchise agreements ……………………………………………………………………. 14-16
4. MANAGEMENT RESPONSES
4.1. Solid Waste Department..…..…………………………………………………………... 17-19
5. APPENDICES
5.1. Internal control diagram suggestions
♦ Solid Waste Administration revenue controls over cash receipts to
deposit handling …………………………………………….……………………..…...... 20
♦ Solid Waste Administration revenue controls over customer receipts,
billings, and deposits …………….............................................................… 21
5.2. Internal control references for guidance ………………………………………... 22
5.3. Green book components and principles ………………………………….…. 22-24
Solid Waste Department - Controls over revenue report #16/17-6 January 2018
HIGHLIGHTS
Why this audit was
performed:
To review the Solid Waste
Department controls over revenues.
What is recommended
Recommendations included:
• continually updating written
procedures to address their
changing control environment;
• assessing changes as a potential
risk to their established
controls;
• sustaining segregation of duties;
• completing implementation of
cost accounting system;
• using a pre-numbered bound
receipt book (at selected sites);
• educating staff on systems and
controls over their duties;
• identifying needs for cost
accounting information;
• walking through procedures to
assure their systems are
operating as intended;
• exploring facility improvements
as well as options for newer
credit card machines;
• administering annual franchise
renewal letters supporting
County Code 13.24.160; and
• auditing reported franchise
fees.
Solid Waste Department - Controls over revenue
The Solid Waste Department anticipates $10.6 million in charges for service in FY 2018. This
is up 8% from $9.8 million in FY 2017 with over 157 thousand tons of solid waste. The
County collects fees from franchise garbage haulers, established credit customers and cash
customers based upon fees set by the County fee schedule.
What was found
Deficiencies were observed in design and operation of revenue systems of internal control.
Though the audit did not identify any specific anomalies in revenues, there were a number
of areas identified that together make it clear that more needs to be done to achieve an
effective system of internal control over revenues. The report findings and associated
recommendations are related to the internal control components: control environment; risk
assessment; control activities; information and communication; and monitoring.
Some credit card processing tasks could be improved. Credit cards machine deposits
processed for sites without a telephone connection do not always agree to deposit. Credit
card transactions processed later do not always clear.
The County does not have franchise agreements with franchisee haulers. Contractual
expectations are provided in the County Code (13.24). Solid Waste has not audited fees
reported by franchise haulers
Franchise fee rates charged by counties for garbage vary within state. Deschutes County’s
3% franchise fee rate is among the lowest.
Deschutes County Internal Audit
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1.
Introduction
1.1 BACKGROUND ON AUDIT
Audit Authority:
The Deschutes County Audit Committee authorized the review of Solid Waste controls over revenues in
the Internal Audit Program Work Plan for FY 16/17. The last audit of Solid Waste revenue controls
occurred in a 2003 audit of internal controls over service fees.
Local government is responsible for using public assets and public funds in a prudent and responsible
manner. Internal controls help managers achieve desired results through effective stewardship of public
resources. Management is ultimately responsible for implementing appropriate internal control systems.
Effective internal controls minimize the potential for errors and/or irregularities to occur. If they do occur,
effective internal controls detect such errors and/or irregularities in a timely manner during the normal
course of business.
Internal controls help an entity
1. run its operations efficiently and effectively;
2. report reliable information about its operations; and
3. comply with applicable laws and regulations.
Though there are a number of resources to build or assess systems of internal control, the corporate
financial world strongly favors guidance from the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) who has provided internal control guidance through an integrated
framework. COSO introduced the concept of five components of internal control. The U.S. Government
Accountability Office interpreted COSO’s guidance in their “Standards for Internal Control in the Federal
Government” (also referred to as the “green book”) as a source of information for developing an internal
control system in government. The Green Book has adapted control “principles” for a government
environment related to each of the COSO components. (See Appendix 5.2 for references)
COSO and the Green Book identify the five components of internal control to include:
1. Control environment – provides discipline and structure to help an entity achieve its objectives.
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2. Risk assessment - assesses risks facing the entity and develops appropriate risk responses as it
seeks to achieve its objectives.
3. Control activities – establish policies and procedures to achieve objectives and respond to risks.
4. Information and communication – supports quality information management and personnel use
to support the internal control system.
5. Monitoring - establishes activities to assess performance and resolve findings.
1.2 OBJECTIVES and SCOPE
“Audit objectives”
define the goals
of the audit.
Objectives:
The audit objectives include:
1) Evaluate system of management control over service fees (includes billing and collection).
2) Reconcile services fee information between department and county systems.
3) Be aware of any issues with compliance with federal and state regulations and requirements, as
may be applicable
Scope:
This audit work is focused on revenue controls in place during the audit. Internal audit work on this
project was primarily in June 2017 through November 2017. The audit did not address all systems of
internal control. The audit’s scope was limited and did not address or inquire about other internal control
systems. The audit does not provide an opinion as to the overall system of internal controls for revenue.
Solid Waste’s cost accounting system has not been fully implemented which limited the data available
from the system. The cost accounting system included only customer collections and those were
reconciled on a test basis. Periods selected for reconciliation were based on availability of data and
extent of work required to reconcile between systems. County financial systems compared to were the
County’s prior accounting system (HTE) as the County has moved to a new financial accounting system in
July 2017 (Munis). The change in County system does not appear to influence the findings within this
report. We also reviewed the system for collection of solid waste tonnage information. Revenues
reviewed were limited to those for the operating fund for Solid Waste (Fund 610) and excludes other
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reserve and non-operating funds used by Solid Waste. The significant laws, regulations and guidance
identified for these audit objectives included County Code Chapter 13, County cash handling policies, and
OAR 340-094.
1.3 METHODOLOGY
Audit procedures included:
Assess status of previous recommendations from prior internal audits.
Developing an understanding of Solid Waste Department issues through review of audit reports
and associated recommendations issued by other local governments.
Interviews and observation of selected employees (management and staff).
o Walk-throughs with actual transactions to see how these systems were being performed
o Observations of routine operations at attendant locations and with office administration
Collection and analyses of data, including
o charting;
o reconciliation; and
o comparative and trend analysis.
Reconciliation of selected revenues to County Financial system on a test basis.
Assessment of key internal controls.
We conducted this performance audit in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate
evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives.
We believe that the evidence obtained provides a reasonable basis for our findings and conclusions
based on our audit objectives.
(2011 Revision of Government Auditing Standards, issued by the Comptroller General of the United States.)
Note: Certain confidential information shared with management has been omitted from this report as it
was deemed exempt from disclosure under ORS §192.501(23). Management will look into addressing.
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2.
Background
CHART I – Trend in
Solid Waste
revenues and
expenses by year
The Deschutes County Solid Waste Department manages the solid waste system for the County. In
cooperation with County residents; four private collection companies (garbage haulers); and regulatory
agencies, solid waste is collected, recyclables diverted, and appropriate materials deposited into the
landfill. Fees collected recover the cost of providing services, which includes post closure costs.
The County collects fees from franchise garbage haulers, established credit customers and cash
customers. Solid waste fees are set by the County fee schedule. From the 2016/2017 fee schedule,
franchise garbage haulers are charged $50 per ton and public customers generally pay a range of
effective rates based on the weight of their load from $55 to $67 per ton for loads at or above the
minimum weight.
Source: Deschutes County Comprehensive Annual Financial Report (CAFR) for proprietary funds (see for details)
Solid Waste anticipates $10.6 million in revenues in FY 2018. This is up 8% from $9.8 million in FY 2017
with over 157 thousand tons of solid waste. $6.8$7.4$8.1$8.9$9.8$7.7$5.9$7.2$8.9$9.8$0
$2
$4
$6
$8
$10
FY13 FY14 FY15 FY16 FY17in millionsOperating revenues Operating expenses
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CHARTS II & III –
Composition of
Solid Waste
operating
revenues by
source (in % and
millions) for FY
2017
Source: Solid Waste accounting information (Fund 610)
The franchise haulers providing services to cities and unincorporated areas in the County provide a
majority of the revenues. Commercial activities and private haulers are the next largest contributors to
revenues. The trend in these revenue sources has been consistent over time.
Deschutes County annually provides the Oregon Department of Environmental Quality (DEQ) under OAR
340-094 financial assurance. The County’s external auditor applies certain agreed upon procedures to
these calculations. The assurance provides an indicator of fiscal stability of the County and the ability to
be responsible for closure and post closure costs. The assurance is determined through a number of
fiscal calculations. No issues have been identified in the most recent FYE 6/30/2016 report.
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3. Findings
Audit findings result from incidents of non-compliance with stated procedures and/or departures from
prudent operation. The findings are, by nature, subjective. The audit disclosed certain policies,
procedures and practices that could be improved. The audit was neither designed nor intended to be a
detailed study of every relevant system, procedure or transaction. Accordingly, the opportunities for
improvement presented in the report may not be all-inclusive of areas where improvement may be
needed and does not replace efforts needed to design an effective system of internal control.
3.1 Fiscal controls
Deficiencies observed in design and operation of revenue systems of internal
control.
Though the audit did not identify any specific anomalies in revenues, there were a number of areas
identified that together make it clear that more needs to be done to achieve an effective system of
internal control over revenues. Effective internal controls minimize the potential for errors and/or
irregularities to occur or detect such errors and/or irregularities in a timely manner during the normal
course of business. A significant deficiency is defined as an internal control deficiency that could
adversely affect the entity’s ability to initiate, record, process, and report financial data consistent with
the assertions of management in the financial statements. The findings noted below in internal controls
over revenue (in aggregate) are potentially significant and could affect the department’s ability to
properly report revenues.
As noted in the introduction, the Standards for Internal Control in the Federal Government (also referred
to as the “green book”) is a source of information for developing an internal control system in
government. Audit findings have been associated with the five components and selected principles to
highlight where additional work is recommended. The hyperlinks for these and other useful internal
control documents are also included in the Appendices.
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The findings related to internal control have been structured in context with the five components of
internal control:
• Control environment – provides discipline and structure to help an entity achieve its objectives.
• Risk assessment - assesses risks facing the entity and develops appropriate risk responses as it
seeks to achieve its objectives.
• Control activities – establish policies and procedures to achieve objectives and respond to risks.
• Information and communication – supports quality information management and personnel use
to support the internal control system.
• Monitoring - establishes activities to assess performance and resolve findings.
Note: Some findings are attributable to more than one component area and in such situations may be
duplicated or put with the best-fit component.
Control Environment – Management and employees should establish and maintain an environment
throughout the organization that sets a positive and supportive attitude toward internal control and
conscientious management.
• Solid Waste management has not evaluated the performance of their systems or maintained the
control environment as staffing has changed. With the departure of an administrative staff person,
duties and controls have not been addressed and resulted in administrative staff performing
duties that are not compatible with proper segregation of duties (as documented in their current
written procedures).
• Management oversight for the internal control system is not apparent through the documentation
and duties performed over revenues. In particular, their responsibilities over ongoing assessment
of risks and monitoring and evaluation of deficiencies in their control structure could be
strengthened. Management has not put in place sufficient supervision over administrative staff
handling revenues.
• Management and staff have made inroads in documenting accounting policies and procedures (a
recently completed prior recommendation); however, that documentation does not extend to
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controls in place and oversight/supervision that should occur. The policies do not reflect new
County accounting environment (Munis) as well as their own new cost accounting systems
(WinCams).
In the absence of effective ongoing evaluation of risks, documentation, and oversight; the system of
internal controls can be undermined.
It is recommended for written procedures to be continually updated and address their changing
accounting and control environment; identify specific controls; and identify supervision and
monitoring.
{This recommendation differs from a prior audit recommendation in that it emphasizes continual
updating; the management and supervision of the system; and identifying controls.}
Risk assessment – Management assesses the risks facing the entity to provide the basis for developing
appropriate risk responses. Management assesses the risks the entity faces from both external and
internal sources.
• Solid Waste management should be considering the nature and type of fraud when responding to
risks as well as identify and respond to changes in their control environment. The 2016 departure
of an administrative staff person was not consistently addressed since their departure of more
than a year. Management should approach consistently the risk environment.
In the absence of routine risk assessment activities, the system will not properly respond to risks.
It is recommended that the Solid Waste management team periodically assess changes in their
operating environment as a potential risk to their established controls and consider whether
additional or different controls are required.
Control activities - Internal control activities are the policies, procedures, techniques, and mechanisms
that help ensure that management’s directives to mitigate risks identified during the risk assessment
process are carried out.
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“Staff turnover
has impacted
their ability to
maintain and
implement
internal controls”
• Solid Waste management should maintain appropriate control activities to respond to risk. The
audit identified a lack of supervision controls as well as lapses in segregation of duties. Control
activities could be strengthened with a number of controls:
o Segregation of duties reduces the chance for fraud by segregating duties that would allow
someone to conceal irregularities. This includes separating the responsibilities for
authorizing transactions, processing and recording them, reviewing the transactions, and
handling any related assets so that no one individual controls all key aspects of a transaction
or event.
o Site attendants have no responsibilities for their monies past depositing with Solid Waste
Administrations and do not retain any information on their deposits turned over.
o Tamperproof bags are not utilized as intended. Staff sometimes open the bags and do not
always do that with two people signing off on the count. The site attendants need to retain
the tag off the bag to provide a link to control over the contents and assure the bag is not
tampered with through to deposit*. A separate staff person should consistently reconcile
between the deposits and the amounts reported to Finance or deposited with the bank.
This currently is not a routine practice.
*If there were a necessity to revisit a bagged deposit, two staff would document the
opening with a recount. Both staff members would initial off on the recount and any
changes. Once completed, the deposit would be again placed in a tamperproof bag for
deposit. The new bag tag number would be retained as part of the documentation.
The insufficient segregation of duties and controls over assets could lead to all revenues not being
accounted for.
• Management should design the entity’s information system to support the systems of
control. The department has a separate cost accounting system that is not complete and
therefore cannot provide any level of accountability or cost accounting information to the
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department. Currently, the system is primarily used to perform customer billings. Though
the County’s financial system is deemed primary for financial reporting, the department’s
decision to have a more robust cost accounting system (after a previous effort did not work
out -see 14/15-1) will provide greater operational reporting.
In the absence of fully implementing the system, the department is not receiving the full benefit of
the potential internal control and the operational information.
Management indicates that staff turnover limited their ability to have time to fully implement the
cost accounting system.
• Control activities for a small-attended site lack controlled receipts. The receipts are pre-numbered
and loose so there is no accountability for those receipts. This also does not conform to current
cash handling policy (F-11) over invoice controls.
The site does not have a cash register due to the lack of activity.
It is recommended the Solid Waste department make efforts to sustain segregation of duties
regardless of staffing changes.
It is recommended for someone separate from the person making the deposit consistently
validate the amount of the deposit and that it agrees to the bank, departmental records and
County records (Munis).
It is recommended that efforts be made to make deposits intact from site attendants to the
bank, but if it is necessity to revisit a bagged deposit: two staff would observe the opening and
recount; initial off on the recount and any changes; and document new tamperproof bag tag used
for the deposit.
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“As noted
above, the
accounting
systems lack of
complete
information
limits the ability
to pull the
required
information
from the
system.”
It is recommended that all staff utilizing tamperproof bags have a log for the deposits by
tamperproof bag tag number.
It is recommended the Solid Waste department complete the implementation of its cost accounting
system to capture all revenues and expenditures to the extent it will facilitate the needs of the
department and the control efforts.
It is recommended for management to periodically reconcile/compare the County Finance and
internal accounting systems.
It is recommended for the small-attended site to use a pre-numbered bound receipt book. Such a
receipt book should be available receipting when power outages occur in any of the sites.
Information and communication - for an agency to run and control its operations, it must have relevant,
reliable information, both financial and nonfinancial, relating to external as well as internal events.
• Solid Waste management needs to assure there is quality information supporting internal control
systems. The audit could not compare the completeness of information of the department’s
accounting system to the County reported information.
• Management needs to set expectations for the use of the system and monitor for the information
coming from these systems. Currently management is not receiving any reports on cost
accounting for the department.
• Management needs to educate all staff on written procedures for the control of revenues.
• Management needs sufficient information from its systems to make timely and effective decisions.
The current cost accounting system is not yielding any additional information on a routine basis on
revenue or expense activities.
In the absence of effective communication, internal controls cannot be effectively maintained.
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“In the absence
of being flexible
to changing
situations,
management has
put at risk the
system for
collecting
revenue.”
It is recommended for appropriate staff to be educated on systems and controls over their duties.
It is recommended that management identify their needs for cost accounting information from the
cost accounting system.
Monitoring - since internal control is a dynamic process that has to be adapted continually to the risks
and changes an entity faces, monitoring of the internal control system is essential in helping internal
control remain aligned with changing objectives, environment, laws, resources, and risks.
• Solid Waste management needs to assure through monitoring that the internal controls are
operating as intended. This also provides feedback for improvements as things change.
Management does not routinely evaluate whether their system is operating as it should. This is
evidenced by the lack of implementation of the accounting system and allowing the accountant to
be responsible for all deposit activities. Supervisory staff inconsistently compare deposit records
to the County deposits. This is especially important given the change in segregation of duties.
Management has not enacted additional monitoring or oversight controls given the changing
administrative staffing.
It is recommended for management to periodically walk through their controls and procedures to
assure their systems are operating as intended.
{IMPLEMENTATION INFORMATION: Please see Appendix 5.1 for suggested internal control flowcharts
for administrative handling of site attendant deposits and customer billings. It is hoped these examples
might prompt further discussion of how to segregate activities as well the internal controls that should be
in place.}
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3.2 Operational efficiencies
Some credit card processing tasks could be improved.
Credit cards machine deposits processed for sites without a telephone connection do not always agree to
deposit. Credit card transactions processed later do not always clear. This requires a significant amount
of follow-up by administrative staff. Transactions are sometimes entered into a different credit card
machine which making it hard to track and reconcile. In addition, some sites have trouble with
processing credit cards with poor phone connectivity. Credit card machines do not utilize the newer near
field communication (NFC) allowed by some credit card chips.
In order to facilitate a better tracking of credit cards revenues not transacted, those deposit records
should be entered on their face and reduced by any applicable over/short. They can then be cleared
through subsequent follow-up activities.
It currently is not clear how much revenue is being lost through the current process. It might be possible
with some newer technology to provide a different kind of credit card machine. The current credit card
machines do not utilize near field communication for reading credit cards more efficiently. Using NFC
seems to reduce wait time.
It appears between improving communication avenues and the credit card technology that some
improvement in transacting business and managing the activity could be accomplished.
It is recommended for the department to consider using the over/short accounting line for tracking the
credit card charges not clearing.
It is recommended for the department to explore facility improvements as well as options for newer
credit card machines for the improvement in connectivity weighing the cost with Finance and the
County’s bank processing options.
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3.3 Franchise agreements
“The original
applications for
their franchise
did not include
legal language
indicating
adherence to the
County Code,
current or as
amended. “
Agreements with franchisee haulers limited to County Code.
A review for franchise hauler agreements indicated that there are no signed acknowledgements of the
franchise arrangement. All of the expectations are included in the County Code (13.24). The code
indicates a number of important responsibilities and reinforces how the County will deal with the
franchises.
Franchise haulers have a rolling seven-year contract due to their significant investment in the solid waste
collection system. Some of these franchises are sold/transferred without the County necessarily getting
any affirmation that the purchaser will abide by the arrangement.
County Legal Counsel thinks that consistent with their interpretation of the Code, the franchisees should
annually affirm their obligation to abide by the code.
In the absence of these signed agreements, the County or franchisee may not understand their current
obligations under the Code.
It is recommended for Solid Waste to administer annual franchise renewal letters consistent with
County Code 13.24.160 and to receive the Franchisee’s acknowledgement and obligation to abide by and
adhere to DCC 13.24, as amended.
It is recommended the franchise application be updated to include legal language for the Franchisee’s
acknowledgement and obligation to abide by and adhere to DCC 13.24, as amended.
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Department has not audited fees reported by franchise haulers.
Franchise haulers pay the County a franchise hauler fee of 3% on County franchise receipts. The limited
supporting information provided by a franchise in calculating the fee does not always reconcile with what
was paid. As noted in Chart II, these represent a small portion (~3%) of the operating revenue of the
department. Trends show an increase in this revenue but not at the pace of overall waste flow.
The Code for the franchises (discussed above) allows the County the right to audit these fees. What
makes the fees difficult to review is that the franchise is only for County customers and does not include
incorporated city customers under separate franchise agreements.
A periodic audit by Solid Waste (or their agent) should be performed to assure the County is fully
receiving its franchise fees. This review might benefit from coordination with City franchise fee reviews.
In the absence of audits, the revenues might be misstated and go uncorrected.
It is recommended for the department to periodically audit/review the franchise reported franchise
fees for completeness.
It is recommended for the department to review and follow-up on any differences in fees
submitted.
{As of the date of this report, Management has since inquired and resolved the differences noted. It
related to an adjustment to arrive at gross receipts and no additional fees were due. }
Franchise fee rates charged by counties for garbage vary within state.
The County receives a 3% franchise fee rate for garbage collection in the unincorporated part of the
county. This rate has been in existence since 1970. The history of this ordinance does not indicate the
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Graph I -
County
franchise fee
rates (%)
origin of the percentage other than it seems to be a relative minimum point for most counties. As
indicated in Graph I, a number of counties have higher franchise rates.
As noted in Chart II, these represent a small portion (~3%) of the operating revenue of the department.
Source: County franchise rate survey (2014) by League of Oregon Cities
The average county franchise fee is around 3.7% for the counties that charge a franchise fee. Most
notable is Lane county that charges no franchise fee. Linn and Jackson counties have similar population
density to Deschutes and have higher franchise fee rates. City of Bend has a franchise fee rate of 5% and
Redmond is at 7%. Multnomah and some other counties have a fee not based on a percentage.
The Solid Waste department is currently reviewing their master plan. The franchise fee rate has not been
discussed in any recent budget discussions.
It is recommended for the County to consider whether the franchise fee rate percentage is at an
appropriate level as the department considers implementation of its master plan for the County.
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4. Management response
Solid Waste
Director, Timm
Schimke
We are pleased that the audit did not identify any specific anomalies in revenues handled by the
Department of Solid Waste, but we recognize the need to improve internal controls in revenue handling.
We are committed to establishing a culture that sets a positive and supportive attitude toward internal
control and conscientious management in the future.
The Department as already undertaken steps that will allow us to address many of the recommendations
in the report. On January 2, 2018, the Department added a management analyst to the staff. The
addition of this upper level administrative position will allow us to address any noted deficiencies quickly
and thoroughly. We look forward to establishing the culture referenced above.
Recommendations in section 3.1 Fiscal Controls
1. It is recommended for written procedures to be continually updated and address their
changing accounting and control environment; identify specific controls; and identify
supervision and monitoring.
2. It is recommended that the Solid Waste management team periodically assess changes in
their operating environment as a potential risk to their established controls and consider
whether additional or different controls are required.
3. It is recommended that the Solid Waste Department make efforts to sustain segregation of
duties regardless of staffing changes.
4. It is recommended for someone separate from the person making the deposit consistently
validate the amount of the deposit and that it agrees to the bank, departmental records and
County records (Munis).
5. It is recommended that efforts be made to make deposits intact from the site attendants to
the bank, but if it is necessary to revisit a bagged deposit: two staff would observe the opening
and recount; initial off on the recount and any changes; and document new tamperproof bag
tag used for the deposit.
6. It is recommended that all staff utilizing tamperproof bags have a log for the deposits by
tamperproof bag tag number.
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continued –
Solid Waste
comments
7. It is recommended the Solid Waste Department complete the implementation of its cost
accounting system to capture all revenues and expenditures to the extent it will facilitate the
needs of the department and the control efforts.
8. It is recommended for management to periodically reconcile /compare the County Finance
and internal accounting systems.
9. It is recommended for the small-attended site to use a pre-numbered bound receipt book.
Such a receipt book should be available receipting when power outages occur in any of the
sites.
10. It is recommended for appropriate staff to be educated on systems and controls over their
duties.
11. It is recommended that management identify their needs for cost accounting information
from the cost accounting system.
12. It is recommended for management to periodically walk through their controls and
procedures to assure their systems are operating as intended.
We agree with all the recommendations made in Section 3.1. With the addition of the management
analyst position, we expect these recommendations should be able to be completed within 6 to 9
months. We hope to be able to use Mr. Givans as a resource as we make these changes to insure that we
are meeting the intent of his recommendations. We would like to note that past experience with having
attendants make deposits directly to the bank (recommendation 5.) has resulted in problems with errors,
and difficulties correcting those errors with the bank. We appreciate that the report identifies an
alternative, and we are committed to meeting the requirements specified in that alternate approach.
Recommendations in Section 3.2 Operational efficiencies
1. It is recommended for the department to consider using the over/short accounting line for
tracking the credit card charges not clearing.
2. It is recommended for the department to explore facility improvements as well as options for
newer credit card machines for the improvement in connectivity weighing the cost with
Finance and the County’s bank processing options.
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continued –
Solid Waste
comments
We agree with recommendation 2 and are already taking steps to implement. A solution for Southwest
Transfer station where we currently do not have a live connection for processing credit card transaction is
in progress with the final piece of equipment on order. This should be installed within the next 30 days.
This will eliminate the need to implement recommendation 1. We are currently researching new credit
card machines for all sites to take advantage of the latest technology.
Recommendations in Section 3.3 Franchise Agreements
1. It is recommended for Solid Waste to administer annual franchise renewal letters consistent
with County Code 13.24.160 and to receive the Franchisee’s acknowledgement and obligation to
abide by and adhere to DCC 13.24, as amended.
2. It is recommended the franchise application be updated to include legal language for the
Franchisee’s acknowledgement and obligation to abide by and adhere to DCC 13.24, as
amended.
3. It is recommended for the department to periodically audit/review the franchise reported
franchise fees for completeness
4. It is recommended for the department to review and follow-up on any differences in fees
submitted.
5. It is recommended for the County to consider whether the franchise fee rate percentage is at
an appropriate level as the department considers implementation of its master plan for the
County.
We agree with these recommendations as well. The annual submittal form for franchises to report and
pay the 3% franchise fee will be modified to include additional information, which will make it easier to
review the franchise fees for accuracy and completeness as well as adding language/provisions for the
franchise holder to acknowledge the obligation to abide by and adhere to DCC 13.24, as amended.
The current solid waste management planning currently underway will include a review/analysis of the
franchise system. This analysis will include a discussion regarding the appropriate franchise fee rate
percentage.
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5. APPENDICES
5.1.
Internal
control
diagram
examples -
proposed
1. Solid Waste Administration revenue controls over cash receipts to deposit handling
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2. Solid Waste Administration revenue controls over customer receipts, billings and
deposits
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5.2.
Internal
control
references
for guidance
The following are potential references for gaining a better understanding of internal controls:
1. Infographic: What is the Green Book?
2. Standards for Internal Control in the Federal Government (GAO-14-704G). See Appendix 5.3 below for
the components and principles.
3. Internal Control Management and Evaluation Tool (GAO-01-1008G).
4. COSO guidance on internal controls.
5.3.
Green book
components
and
principles
Source: Standards for Internal Control in the Federal Government (GAO-14-704G); includes five
components with seventeen principles.
1. Control environment
The control environment is the foundation for an internal control system. It provides the discipline and
structure, which affect the overall quality of internal control. It influences how objectives are defined and
how control activities are structured. The oversight body and management establish and maintain an
environment throughout the entity that sets a positive attitude toward internal control.
Principles
1. The oversight body and management should demonstrate a commitment to integrity and ethical
values.
2. The oversight body should oversee the entity’s internal control system.
3. Management should establish an organizational structure, assign responsibility, and delegate
authority to achieve the entity’s objectives.
4. Management should demonstrate a commitment to recruit, develop, and retain competent
individuals.
5. Management should evaluate performance and hold individuals accountable for their internal
control responsibilities.
2. Risk Assessment
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Having established an effective control environment, management assesses the risks facing the entity as it
seeks to achieve its objectives. This assessment provides the basis for developing appropriate risk
responses. Management assesses the risks the entity faces from both external and internal sources.
Principles
6. Management should define objectives clearly to enable the identification of risks and define risk
tolerances.
7. Management should identify, analyze, and respond to risks related to achieving the defined
objectives.
8. Management should consider the potential for fraud when identifying, analyzing, and responding
to risks.
9. Management should identify, analyze, and respond to significant changes that could impact the
internal control system.
3. Control Activities
Control activities are the actions management establishes through policies and procedures to achieve
objectives and respond to risks in the internal control system, which includes the entity’s information
system.
Principles
10. Management should design control activities to achieve objectives and respond to risks.
11. Management should design the entity’s information system and related control activities to
achieve objectives and respond to risks.
12. Management should implement control activities through policies.
4. Information and Communication
Management uses quality information to support the internal control system. Effective information and
communication are vital for an entity to achieve its objectives. Entity management needs access to relevant
and reliable communication related to internal as well as external events.
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Principles
13. Management should use quality information to achieve the entity’s objectives.
14. Management should internally communicate the necessary quality information to achieve the
entity’s objectives.
15. Management should externally communicate the necessary quality information to achieve the
entity’s objectives.
5. Monitoring
Finally, since internal control is a dynamic process that has to be adapted continually to the risks and
changes an entity faces, monitoring of the internal control system is essential in helping internal control
remain aligned with changing objectives, environment, laws, resources, and risks. Internal control
monitoring assesses the quality of performance over time and promptly resolves the findings of audits and
other reviews. Corrective actions are a necessary complement to control activities in order to achieve
objectives.
Principles
16. Management should establish and operate monitoring activities to monitor the internal control
system and evaluate the results.
17. Management should remediate identified internal control deficiencies on a timely basis.
{End of Report}
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