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HomeMy WebLinkAboutAudit Refuse Franchise Provisions Palm Desert Disposal INTEROFFICE MEMORANDUM CITY OF PALM DESERT DATE : September 14 , 1990 TO : CITY MANAGER , HONORABLE MAYOR AND MEMBERS OF CITY COUNCIL FROM : ASSISTANT CITY MANAGER SUBJECT : AUDIT OF THE REFUSE FRANCHISE PROVISIONS WITH PALM DESERT DISPOSAL On April 12 , 1990 , the City requested that the firm of Thomas , Byrne & Smith perform an audit of the refuse franchise . Attached is a copy of my letter requesting those areas that the audit should specifically address . The City has received a report on the results of the audit , which indicate the following : Franchise Payments The report indicates that the franchise payments were generally made by due dates with some exceptions when they were late because of personnel changes within Palm Desert Disposal . Franchise fees paid to the City during 1989 were $ 188 , 911 . Service Rates The report indicates that for the most part the rates being charged by Palm Desert Disposal are correct with regard to those that have been authorized by City resolution . However , there are some areas where specific agreements have been made , particularly with regard to condominium complexes . The report indicates that we need to review and include provisions for such arrangements in future rate resolutions . Palm Desert Water and Services District With regard to the relationship between Palm Desert Water and Services District ( PDWSD ) and the refuse company , their report indicates that in 1989 the amounts billed within that District were $258 , 597 , which results in $29 , 000 in franchise fees being collected and kept by the PDWSD . The report goes on to state that revenues collected within the District are not included in the gross revenues and , therefore , the City does not receive franchise fees on those amounts . Recently Annexed Areas The report indicates that there is a recently annexed area where both Western Waste and Palm Desert Disposal are providing services . It goes on to make a recommendation that since we cannot issue another franchise to Western Waste we should constitute a licensing fee to Western Waste to serve customers in that area , and that the fee would be comparable to what we charge Palm Desert Disposal as a franchise fee . Insurance The audit indicates that the proper insurance , as required by the franchise agreement , is in place . Carlos L . Ortega Assistant City Manager mh Attachments • 1 p1 THOMAS, BYRNE & SMITH AN ACCOUNTANCY CORPORATION ' 1!2 LI CERTIFIED PUBLIC ACCOUNTANTS Donald L. Thomas. C.P.A. July 8 , 1990 4362 Orange Street D. Richard Byrne. C.P.A. Riverside. California 92501 V. C. Smith.Jr.. C.P.A. Telephone(714)682-4851 Jerry D. Bigbie. C.P.A. • Teiecopier(714)682-6569 Mr. Carlos L. Ortega Assistant City Manager City of Palm Desert 73-510 Fred Waring Drive Palm Desert, California 92260 Dear Mr. Ortega: Pursuant to your request dated April 12 , 1990, we have performed a review of Palm Desert Disposal ' s operations under a franchise contract with the City of Palm Desert. As requested, our review related to the following aspects of the contract: (1) Franchise Payments The franchise contract states that Palm Desert Disposal shall pay to the City eight percent of all gross receipts, exclusive of dump fee surcharges, received under the contract by the fifteenth of every month for the preceding months ' receipts. During 1989 gross receipts within the City of Palm Desert totaled $2 , 361, 384 . The franchise fee of eight percent results in $188, 911. During 1989 Palm Desert Disposal paid the City $204 , 000 in franchise fees based upon estimates in order to meet the fifteen day deadline. Palm Desert Disposal will take the $15, 089 overpayment as a credit on a subsequent month' s payment. Our review of payments indicated that they were generally made by the due dates. However, Palm Desert Disposal failed to make payments for the months of January and February, 1990 because of personnel changes. Mr. Carlos L. Ortega Assistant City Manager City of Palm Desert July 8 , 1990 Page 2 . Therefore, Palm Desert Disposal should remit $18, 911 to the City. (Two payments of $17, 000 less the overpayment of $15, 089 . ) Palm Desert Disposal provides the following other services: Under the franchise provisions: Addressed in (4) . Not under the franchise provisions: 1) Street sweeping 2) Portable Restrooms 3) Septic Pumping 4) Temporary Power Poles 5) Temporary Fencing 6) Temporary Storage Bodies 7) Construction Office Trailers (2) Service Rates Our review of service rates indicated one case involving a tennis club where the billing amount was being disputed. The City' s Environmental Conservation Manager made a determination of the correct billing amount based upon his personal inspection of the properties. We concur with the Environmental Conservation Manager' s determination, and verified that Palm Desert Disposal made the appropriate revision to the billing rate. • Mr. Carlos L. Ortega Assistant City Manager City of Palm Desert July 8 , 1990 Page 3 . Also, Palm Desert Disposal allows a ten percent discount for certain centrally billed residential service where the customers agree to accept service on slower days. This needs to be addressed inasmuch as it is not provided for in the current franchise agreement. Additionally, City of Palm Desert Resolution Number 88-80 provides for lower rates for each additional unit above the first unit for multiple dwellings. Palm Desert Disposal ' s records indicate several instances where groups of customers were billed at the higher single residence rate. We were unable to determine if the proper rate is charged to these multiple dwelling units inasmuch as it would require observation of all the buildings in question on a case-by-case basis. This should be reviewed in more detail on a case-by-case basis by Palm Desert Disposal during route collections and tested on a sample basis. (3) Palm Desert Water and Services District Our review of the relationship between Palm Desert Disposal and the Palm Desert Water and Services District indicated the District also bills and collects for residential refuse services. They extract a 15 percent billing and franchise fee and remit 85 percent of the revenues to Palm Desert Disposal . The total franchise fee for residential service for the year ended December 31, 1989 was $21, 067 . Palm Desert Disposal bills and collects for its Mr. Carlos L. Ortega Assistant City Manager City of Palm Desert July 8 , 1990 Page 4 . commercial service within the District boundaries in the same manner as for the City. The franchise fee charged for commercial service is 8 percent and the fees paid by Palm Desert Disposal for the year ended December 31, 1989 were $8 , 812 . This resulted in gross refuse revenues for 1989 of $250, 597 billed within the Water District. A May 7 , 1990 memorandum from Kandy Lee Allen, Deputy City Attorney, to John Wolhmuth, Environmental Conservation Manager, which was subsequent to your request, stated in part "the City' s agreement is binding within its boundaries except for that area served by the District" . Therefore, revenues collected through the District would not be included in the gross revenues for the purpose of Palm Desert Disposal ' s computing the City' s franchise fee. (4) Other Agreements Palm Desert Disposal currently has other agreements for the following categories of refuse service that are not specifically established by the City' s rate resolution: 1) More than once a week services; residential and rolloffs. 2) Pullout; pull bins out manually. 3) Compactor; compacts trash from one fifth to one third its original size. 4) Rotator; remove old bin and drop off new bin. Mr. Carlos L. Ortega g Assistant City Manager City of Palm Desert July 8 , 1990 Page 5. More than once a week service is common in other areas of the valley. Should it be desirable to provide for this type of service within the confines of certain areas of the City then an appropriate rate or formula should be determined and approved by resolution. Total customers for the aforementioned unique services, according to Palm Desert Disposal staff, approximated company wide; pull outs 400 ; compactor 40 ; rotator 30. Inasmuch as, even combined, these services represent only two thirds of one percent of the total customers billed we feel these charges would fall under Section 8 of Resolution 88-80, Unusual Conditions. (5) Recently Annexed Areas According to Western Waste Industries, they are currently servicing 64 customers in recently annexed areas to the City and 18 rolloff customers with gross annual revenues approximating $85 , 000 . Inasmuch as the City establishes business license fees utilizing the gross receipts method it would be appropriate that all refuse companies conducting business within the City of Palm Desert pay an annual business license fee of 8 percent of their gross receipts, less credit for any franchise fees paid to the City. Mr. Carlos L. Ortega Assistant City Manager City of Palm Desert July 8, 1990 Page 6. Additionally, our review of Palm Desert Disposal ' s service to the recently annexed areas indicated only some of the customers serviced are included in the City' s franchise payment calculation. However, this is commendable inasmuch as they were never provided the necessary information from the City to adjust their records. For each annexation, the City should provide Palm Desert Disposal with a listing of addresses within the annexed area. Palm Desert Disposal should subsequently furnish evidence to the City that their records have been updated within a reasonable amount of time. (6) Dump Fee Surcharges During 1989 Palm Desert Disposal collected approximately $547 , 000 for dump fee surcharges from Palm Desert residents out of a total of approximately $2 , 154 , 000, or 25 . 4% . During 1989 Palm Desert Disposal paid out approximately $2 , 231, 000 to the County for dump charges. (7) Insurance The City ' s current franchise agreement requires liability insurance coverage of $2 million per person, per occurrence and an aggregate of $4 million per accident. In addition, the City requires $500, 000 of property damage insurance and that the City is named as an additional insured. Mr. Carlos L. Ortega Assistant City Manager City of Palm Desert July 8 , 1990 Page 7 . Our review of Palm Desert Disposal ' s records indicated they have met this requirement. We would like to take this opportunity to express our appreciation for the cooperation and assistance rendered us during the course of our engagement. Also, should you have any questions in regard to this matter or if we may be of any further assistance, please feel free to contact our office. Respectfully submitted, THOMAS, BYRNE & SM TH An Acc ntan y poration Jfief -,7/ By: D. Rich d Byrne Certified Public Accountant DRB/kcm r ©o%� o� pa[i D ese ��'''77 •o,a -•• 73-510 FRED WARING DRIVE, PALM DESERT CALIFORNIA 92260 TELEPHONE(619)346-0611 II April 12 , 1990 Mr . Rick Byrne , C . P . A . Thomas , Byrne 8 Smith 4362 Orange Street Riverside , CA 92501 Dear Rick : Per our telephone conversation of April 10th , the following is the kind of information that I would like to see in the audit report that you will be performing on behalf of the City of Palm Desert on the refuse franchise with Palm Desert Disposal : 1 . Review of the franchise payments that are being made to the City. Section H of the exclusive franchise contract states that the contractor will pay 8% of all gross receipts to the City , included but not limited to revenues for the collection of solid waste and rental of solid waste bins to Palm Desert customers . I would also like to see what other services Palm Desert Disposal provides , even though some of these may not fall under the exclusive franchise provisions . 2 . Do a random sample of Palm Desert accounts to review whether they are being provided the category of service as stated in the rate resolution and , whether they are being charged the correct amounts . 3 . Review of the relationship between Palm Desert Disposal and the Palm Desert Water and Services District . We understand that Palm Desert Water and Services District is paid a billing fee by Palm Desert Disposal . We want to make sure that such revenues collected through the District are being included in the gross revenues for the purpose of computing the City ' s franchise fee. Mr . Rick Byrne , C . P . A . Thomas , Byrne 8 Smith April 12 , 1990 The Manager of Palm Desert Disposal has indicated to us that there is an agreement which he calls a franchise between his company and the Palm Desert Water and Services District . Our position is that the City is the only one that can issue a franchise within the City . He can make arrangements for the District to collect accounts for him and pay them a fee for that service . 4 . Review to determine if there are any other agreements that Palm Desert Disposal may have made with any business or country club in Palm Desert that do not fall within the service frequency provisions , categories of service , or rates . For example , I have been told that there may be a specific agreement between Palm Desert Disposal and the Marrakesh Country Club , which do not fall between the services currently established by our rate resolution , and the different rates being charged to that country club . 5 . Review of how many and what types of customers are being charged by Palm Desert Disposal in those areas that have been recently annexed to the City . We understand that those areas are being serviced by both Palm Desert Disposal and Western Waste . If possible , we would like you to look into how many customers are being serviced by Western Waste and how much gross revenues are being derived from the annexed area . While I understand that we cannot issue Western Waste a franchise to service those areas because of our exclusive agreement with Palm Desert Disposal , my feeling is that we should charge them a business fee at least equivalent to what they would have to pay under a franchise agreement . Please make a suggestion on what an appropriate licensing fee would be to Western Waste . 6 . Look into the amounts that have been paid to the County by Palm Desert Disposal for dump fee surcharges , and how much has been collected from Palm Desert residents to pay those surcharges . Our agreement allows Palm Desert Disposal to pass on those costs to customers with a 10% added for administrative purposes . Since Palm Desert Disposal does not cost out expenses by area served , the amount charged to Palm Desert Disposal customers is an estimated amount on how much should be paid by the cities served . Please review what types of insurance policies and what amounts 2 Mr . Rick Byrne , C . P . A . Thomas , Byrne 8 Smith April 12 , 1990 are being carried by the refuse company . The current exclusive franchise contract requires that the contractor carry public liability insurance of not less than $2 , 000 , 000 for an accident to any one person . They are subject to the same limit for each person in an amount not less than $4 , 000 , 000 for any one accident , and property damage insurance for not less than $500 , 000 for each accident . Additionally , the contract requires that the City be named as an additional insured on all policies . I am enclosing for your information a copy of the exclusive franchise , which has recently been renegotiated effective March 1 , 1990 . Also enclosed is the authorized service classification , the rates which had been in effect since July 1 , 1988 , and a map of the recently annexed area . Sincerely , Carlos L . Ortda Assistant City Manager mh Enc . cc : City Manager Finance Director John Wohlmuth 3