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Home My WebLink About2009-01-AU Follow-up Review of the 2006 Audit of the Department of Environmental Management's Recycling and Diversion Grants ProgramEXECUTIVE SUMMARY The Legislative Auditor's Office has completed a Follow -up Review of the Department of Environmental Management's Recycling and Diversion Grants Program. This follow -up review was conducted in accordance with Generally Accepted Government Auditing Standards ( GAGAS). Criteria GAGAS Section A.1.06 provides, in pertinent part, that: • "Those charged with governance have the duty to oversee the strategic direction of the entity and obligations related to the accountability of the entity. This includes overseeing the financial reporting process, subject matter, or program under audit including related internal controls...." GAGAS Section A1.08 specifies that management of an audited governmental entity is responsible for: • ,a. using government resources legally, effectively, efficiently, economically, ethically, and equitably to achieve the purposes for which the resources were furnished or the program was established; • b. complying with applicable laws and regulations • c. implementing systems designed to achieve compliance with applicable laws and regulations; • d. establishing and maintaining effective internal control to help ensure that appropriate goals and objectives are met ... • e. providing appropriate reports to those who oversee their actions and to the public in order to demonstrate accountability ... • f. addressing the findings and recommendations of auditors ... and maintaining a process to track the status of such findings and recommendations ... • h. taking timely and appropriate steps to remedy fraud, illegal acts, violations of provisions of contracts or grant agreements, or abuse that auditors report to it." Background At the request of the Council in Resolution No. 168 -05, our office conducted a limited scope performance audit of the Department of Environmental Management's 11 Recycling and Diversion Grant Programs for fiscal years 2004 and 2005 and issued our report in June 2006. Major deficiencies identified in our original audit report included the lack of written policies and procedures related to internal and external communications, procurements, contracting, file organization, and program documentation; the lack of internal controls for accurate measurement, data reconciliation, and independent validation of solid waste commodities being claimed under each diversion program; and the lack of a County -wide commitment by the executive and legislative branches to implement a long -term solid waste management solution. Purpose In accordance with GAGAS, we are required to follow up on all significant audit findings and recommendations to determine whether issues identified in the original audit report have been appropriately addressed. The specific purpose of this follow -up review is to determine whether those County managers and elected officials charged with responsibility for and authority over areas of concern identified in the original audit report have implemented action plans to satisfactorily address program deficiencies or management and policy issues cited in the original report. Scope and Methodology Our office requested that the Department of Environmental Management provide a written update outlining what remedial measures had been planned and the timelines for and status of their implementation, and what successes had been achieved in addressing specific audit recommendations. We performed limited scope inquiry, observation, and testwork to independently corroborate and evaluate the effectiveness of actions reported as implemented by respective departmental and other County personnel. Results Significant improvement was noted in procurement practices, contract language, file organization, and program documentation. Procurement and contract documents now more clearly delineate specific commodities, volumes, and requirements for diversion, recycling, and /or reuse. Policies and procedures were implemented for more timely dissemination of and response to external communications, including governmental regulatory notices; more reliable documentation of contract authorizations, amendment requests, and changes; and more consistent review of contractor claims reports and documentation of payment approvals. However, significant deficiencies continue to exist in the following areas: • Risk of abuse or fraud remains high due to continued failure to include or enforce contract provisions and internal controls relating to contractor tonnage claims for commodities being hauled or diverted. 0 Disclosure of "related or affiliated party" and "conflict of interest" relationships between contractors and end - market users and /or implementation of mitigating controls are lacking. For commodities such as glass, scrap metal, and mixed recyclables, DEM continues to permit end - market users to substantiate contractor tonnage claims without independent verification, even when the end - market user and the diversion contractor are affiliated entities or the end - market user has a financial relationship with the diversion contractor. In some instances, DEM permits the diversion contractor to be the end - market user, with no additional controls in place. 0 Independent verification of contractor claims for diverted commodities is lacking. For commodities such as transfer station hauling, green waste, and glass, no controls are in place to prevent the contractor from weighing and claiming the commodity multiple times. Risk of liability and financial loss remains high due to the practice of permitting contractors to commence work or deliver services prior to contract execution and /or with accounts receivable outstanding to the County. 0 12 of 16 contracts or contract supplements reviewed were signed after their start- dates. 0 On at least one occasion, contracts were awarded and payments continue to be made to a contractor with past due tipping fees of $90,000 at the time of award, even when contracts provide that "all bidders having an accounts receivable with the County of Hawaii shall be in good standing." • Risk of mismanagement and financial loss remains high due to insufficient and ineffective program reporting of relevant, timely, and accurate data that would permit proactive management of contractor performance and assessment of departmental controls. While DEM indicates that progress has been made to permit some program reporting using the County's FRESH accounting system, we noted the following continuing inefficiencies: 0 Program managers do not have direct inquiry access to the FRESH accounting system to track program expenditures, nor are they provided with relevant contract or program expenditure reports on a regular basis. As a result, program managers must track contract expenditures on separate spreadsheet applications outside of the FRESH accounting system. 0 No reconciliation of data from spreadsheet applications to the FRESH accounting system is conducted to confirm the accuracy of program reports. 0 No analysis or implementation of improved project/program accounting modules has been conducted by the County. Audits of other County departments have noted similar inefficiencies of redundant data entry into independent systems because the County's FRESH accounting system lacks the capability to provide necessary reports and is not integrated with other available applications. Conclusion Fundamental to any meaningful assessment of the County's recycling and diversion efforts is the basic ability to accurately measure waste flows by type and track costs related to their specific modes of diversion. DEM managers indicate that they feel implementing adequate controls would make the programs too costly, therefore they have been willing to accept the risks of fraud and /or abuse related to inadequate controls in order to gain the benefits of diverting solid waste commodities from our landfills. While the Auditor agrees that there are significant environmental, social, and operational benefits to diverting these commodities from the County's waste stream, County government is not relieved of its responsibility to provide public programs and services in a fiscally prudent and accountable manner. The Auditor recommends that the County perform cost - benefit analyses to assess whether it would be more cost - effective to conduct hauling from transfer stations and possibly subsequent diversion or recycling activities with County personnel, thereby reducing verification and control requirements associated with private contractors. Should the County decide to continue outsourcing components of its recycling and diversion programs, it should implement proper controls to reduce the risk of abuse and /or fraud or the perception of impropriety by requiring proper disclosure of contractor relationships and independent third -party verification of contractor tonnage claims. The County should also pursue alternate State and Federal funding and directly administer its recycling and diversion programs whenever possible to minimize excessive loss of funds to multiple layers of contractors and subcontractors for administrative rather than program activities. The Mayor and his cabinet can assist DEM and other County departments by providing information management systems that can efficiently gather data and report outcomes, so they may better exercise managerial and fiscal controls and improve their delivery of services to the public. The Finance Department and Corporation Counsel can assist by developing and implementing standardized policies and procedures to ensure that all contracts clearly delineate contractor performance expectations as well as remedies for failure to deliver goods and services, and by providing training on contract formulation and documentation of contractor performance. The Council can assist DEM by participating in the Update to the County's Integrated Solid Waste Management Plan and committing to its adoption and funding of its implementation, and by requiring regular detailed reports on program status and operational activities to provide greater accountability and transparency to the public. Most importantly, the "Tone at the Top" set by the Administration and the Council needs to communicate that the County's commitment to source reduction, recycling, and diversion of its waste stream is balanced with the County's commitment to monitor and deliver cost effectiveness and expense reconciliation. Only through the implementation of internal controls, performance measures, reliable data systems, and regular public reporting by newly elected officials and new managers at the Department of Environmental Management can their governmental responsibilities for public accountability and transparency be achieved. Colleen Schrandt Legislative Auditor March 2009 Follow -up Review of the 2006 Audit of the Department of Environmental Management's Recycling and Diversion Grants Program A Report to the Hawaii County Chair and Members of the County Council Report No. 09 -01 March 2009 i� THE OFFICE OF THE LEGISLATIVE AUDITOR COUNTY OF HAWAII TABLE OF CONTENTS REPORT FORMAT AND CRITERIA TABLE OF RECOMMENDATIONS BY GRANT PROGRAMS ........................................................ ..............................i GeneralFindings ........................................................................................................................... ..............................i DiversionGrant Program ............................................................................................................ ............................... ii ADF — Glass Container Recovery Program ............................................................................... ............................... iii H15 — Beverage Container Deposit Program ................................................................................ ..............................v GreenWaste Program ............................................................................................................... ............................... vi ScrapMetal Program ................................................................................................................ ............................... vii Househould Hazadous Waste Program ..................................................................................... ............................... ix West Hawai'i Material Recovery Program .................................................................................... ..............................x TireRecycling Program .............................................................................................................. ............................... xi EPAGrants Phase I .................................................................................................................. ............................... xii Kea'au Recycling and Reuse Center (KKRC) EPAGrants Phase 11 ................................................................................................................ ............................... xiii Kea'au Recycling and Reuse Center (KKRC) EPAGrants —Phase I II ............................................................................................................ ............................... xiv Waste Reduction and Recycling Project (West Hawai'i) RECOMMENDATIONS — GENERAL FINDINGS ............................................................................ ..............................1 RECOMMENDATIONS — DIVERSION GRANT PROGRAM .......................................................... .............................15 RECOMMENDATIONS —ADF -GLASS CONTAINER RECOVERY PROGRAM ........................... .............................20 RECOMMENDATIONS — H15 - BEVERAGE CONTAINER DEPOSIT PROGRAM ....................... .............................28 RECOMMENDATIONS — GREEN WASTE PROGRAM ................................................................ .............................30 RECOMMENDATIONS —SCRAP METAL PROGRAM ................................................................. .............................35 RECOMMENDATIONS — HOUSEHOLD HAZARDOUS WASTE PROGRAM ............................... .............................41 RECOMMENDATIONS —WEST HAWAII MATERIAL RECOVERY PROGRAM ......................... .............................43 RECOMMENDATIONS —TIRE RECYCLING PROGRAM ............................................................. .............................45 RECOMMENDATIONS — EPA GRANTS — PHASE I ..................................................................... .............................50 Kea'au Recycling and Reuse Center (KKRC) RECOMMENDATIONS — EPA GRANTS — PHASE 11 .................................................................... .............................51 Kea'au Recycling and Reuse Center (KKRC) RECOMMENDATIONS — EPA GRANTS — PHASE III ................................................................... .............................53 Waste Reduction and Recycling Project (West Hawaii) APPENDIX"A" .............................................................................................................................. .............................55 Anaysis of Recycling and Diversion by Commodity and Fiscal Year REPORT FORMAT The 2006 Performance Audit Report of Hawaii County's Recycling and Diversion Grants Program presented General Findings related to departmental and County -wide management and policy issues and Specific Findings related to each of the 11 Recycling and Diversion Grant Programs. This 2009 Follow -up Review of Hawaii County's Recycling and Diversion Grants Program utilizes a similar format: • We list our original June 2006 recommendation for each audit finding, followed by the Department of Environmental Management's February 2009 response as to action plan and implementation status (DEM Response) and our March 2009 assessment (LAO Follow -Up). • For copies of Attachments A to J referenced in DEM Response, please contact the Legislative Auditor at (808) 961 -8490 or cschrandta-co.hawaii.hi.us. • Preceding our follow -up report is a table that summarizes the original audit recommendations by grant program, the status of DEM's action plans, and the page numbers in the report where further discussion can be found. REPORT CRITERIA Both the 2006 Performance Audit Report and 2009 Follow -up Review were conducted in accordance with Generally Accepted Government Auditing Standards (GAGAS) issued by the U.S. Government Accountability Office. The County's Recycling and Diversion Grants Program was reviewed for its compliance with the following applicable sections of generally accepted government auditing standards: • GAGAS Section A.1.06 provides, in pertinent part, that: "Those charged with governance have the duty to oversee the strategic direction of the entity and obligations related to the accountability of the entity. This includes overseeing the financial reporting process, subject matter, or program under audit including related internal controls...." GAGAS Section A1.08 specifies that management of an audited governmental entity is responsible for: ,,a. using government resources legally, effectively, efficiently, economically, ethically, and equitably to achieve the purposes for which the resources were furnished or the program was established; b. complying with applicable laws and regulations ... c. implementing systems designed to achieve compliance with applicable laws and regulations; d. establishing and maintaining effective internal control to help ensure that appropriate goals and objectives are met ... e. providing appropriate reports to those who oversee their actions and to the public in order to demonstrate accountability ... f. addressing the findings and recommendations of auditors ... and maintaining a process to track the status of such findings and recommendations ... h. taking timely and appropriate steps to remedy fraud, illegal acts, violations of provisions of contracts or grant agreements, or abuse that auditors report to it." RECOMMENDATIONS - GENERAL FINDINGS TABLE OF RECOMMENDATIONS BY GRANT PROGRAMS RECOMMENDATIONS — GENERAL FINDINGS STATUS REPORT REFERENCE 1. We recommend that the Mayor and County Council, in consultation with DEM, revise and adhere to the Updated ISWMP as the long -term plan for addressing PENDING pp. 1 - 2 the County's solid waste streams. 2. We recommend a detailed "working plan" be developed to drive and guide PENDING pp. 2 - 5 implementation of the Updated ISWMP. 3. We recommend that DEM evaluate areas of possible risk and exposure and develop and implement written policies and procedures to reduce said risk and PENDING pp. 5 - 11 exposure. 4. We recommend that DEM consult with the Finance Department and the Corporation Counsel to develop written policies and procedures relating to PENDING pp.11 - 12 procurement and contracting. 5. We recommend that the County Council adopt an ordinance to clearly establish the County's authority to audit any entity with which it contracts, regardless of PENDING p. 12 whether the procurement is subject to or exempt from State and County procurement code provisions. 6. We recommend that DEM evaluate and implement processes and procedures to IN provide departmental capabilities for regular and continuous measurement of the PROGRESS pp. 12 -13 volume of various waste types entering and being diverted from the County's solid waste system. 7. We recommend that DEM include accurate descriptions and measurements of the IN volumes of specific waste types to be processed under each procurement and PROGRESS pp.13 - 14 contract document, as well as specific requirements for diversion, recycling, and /or reuse of waste types under each procurement and contract document. RECOMMENDATIONS - DIVERSION GRANT PROGRAM RECOMMENDATIONS — DIVERSION GRANT PROGRAM STATUS REPORT REFERENCE 1. We recommend that the County obtain a legal opinion regarding the award of grants and grant contracts by County agencies and the applicability of HRS IMPLEMENTED p.15 §103D- 102(b)(2)(A), Hawai'i County Code chapter 2, article 25, and other statutory, code, and charter provisions. 2. We recommend that the County review the issues of "conflict of interest" and "related party transactions" adopting any necessary revisions to the County PENDING pp. 15 -16 Code in order to reduce the risk of abuse and /or fraud or perception of impropriety by the public. 3. We recommend that DEM establish a standardized policy pertaining to program IN pp.16 - 17 file documentation. PROGRESS 4. We recommend that DEM ensure the timely procurement of its contracts so that IN p. 17 a valid contract is issued prior to commencement of work. PROGRESS 5. We recommend that DEM review all contracts to ensure the accuracy and IMPLEMENTED p. 17 completeness of each contract. 6. We recommend that the County and DEM consider whether a dedicated IN p. 18 personnel position is warranted to be tasked with the responsibility for PROGRESS procurement and contract management, implementation of industry best practices, and monitoring of compliance with regulatory requirements. 7. We recommend that DEM review current contracted operations to identify areas IN of control deficiencies that increase the risk of contractor abuse and /or fraud, PROGRESS p. 18 -19 and implement corrective measures to ensure accuracy of claims and fiscally responsible use of grant monies. RECOMMENDATIONS - ADF - GLASS CONTAINER RECOVERY PROGRAM RECOMMENDATIONS — REPORT STATUS REFERENCE ADF - GLASS CONTAINER RECOVERY PROGRAM 1. We recommend that the County obtain a legal opinion as to whether the ADF and Diversion Grant programs are, in fact, exempt from the State procurement IMPLEMENTED p. 20 code under HRS §103D- 102(b)(2)(A). 2. We recommend that the County amend its Code to clearly establish its authority to audit any entity with which it contracts, regardless of whether the procurement PENDING p. 20 is subject to or exempted from State and County procurement code provisions. 3. We recommend that the County incorporate into all contracts exempted from State and County procurement codes, excerpts from the "General Terms and Conditions" of said codes which afford the County better protections and IMPLEMENTED pp. 20 - 21 remedies against collusion, abuse, and fraud without subverting the flexibility intended by the exemptions. 4. We recommend that DEM revise Grant Guidelines and subsequent monitoring IN pp. 21 - 23 practices to ensure accuracy of contractor claims and to reduce the risk of PROGRESS errors, abuse and /or fraud. 5. We recommend that DEM review its ADF program for glass source streams that are not currently being measured, and implement corrective actions to provide PENDING p. 24 greater accountability without causing undue hardship to contractors or County personnel in their application. 6. We recommend that DEM determine whether additional positions will be required to meet timelines for procurement and contract issuance and to IN p.24 conduct necessary oversight and monitoring of contractor performance under PROGRESS procurement and contract agreements. 7. We recommend that DEM research utilizing the project accounting module of the County's FRESH accounting system to assist in more efficient financial PENDING pp. 24 - 25 monitoring and reporting. 8. We recommend that DEM develop a formal policy and procedure for p.25 authorization, documentation, and systematic recordation of changes to its IMPLEMENTED contracts and budgets. 9. We recommend that DEM establish a formal policy and procedure whereby IN financial status reports at contract and program levels are regularly and timely PROGRESS p. 25 provided to and monitored by a designated budget responsible manager within the department. 10. We recommend that DEM obtain specific written clarification from DOH as to IMPLEMENTED p. 25 whether its "glasscrete" projects will satisfy all or portions of the "glassphalt" paving requirement under HRS §342G- 86(a)(2). RECOMMENDATIONS — ADF - GLASS CONTAINER RECOVERY PROGRAM RECOMMENDATIONS — REPORT ADF - GLASS CONTAINER RECOVERY PROGRAM STATUS REFERENCE 11. We recommend that DEM work closely with DOH and other counties to address data deficiencies and possible solutions such as, reporting of ADF glass PENDING p.26 imported or manufactured at both the county and State levels. 12. We recommend that DEM further research the history of ADF accounting within IMPLEMENTED pp. 26 - 27 the State Environmental Management Special Fund. 13. We recommend that the department and the County address issues created by IN p. 27 the severe reduction or possible discontinuation of State funding for the ADF PROGRESS program. iv RECOMMENDATIONS — H16 - BEVERAGE CONTAINER DEPOSIT PROGRAM RECOMMENDATIONS — REPORT STATUS REFERENCE H15 - BEVERAGE CONTAINER DEPOSIT PROGRAM 1. We recommend that DEM work with DOH to establish certified redemption IN centers in those areas currently unserved or under - served as required by HRS PROGRESS p. 28 §342G- 113(d) and /or HAR §11- 282- 62(a). 2. We recommend that DEM work with other counties and DOH to assess current IN program deficiencies at all levels and to formulate countermeasures and PROGRESS p.28 procedures to address them. 3. We recommend that DEM work more closely with ARC to ensure that sufficient control mechanisms are in place and that regular review and reconciliations are IN pp. 28 - 29 performed to confirm accuracy of data collected and reduce the risk of PROGRESS contractor errors or abuse. 4. We recommend that DEM continue to support ARC's efforts to make transfer station redemption centers and public participation projects more convenient IMPLEMENTED p.29 and user - friendly. 5. We recommend that DEM prepare a master internal check list/review form to IMPLEMENTED p. 29 accompany contractor payment requests. 6. We recommend that the County Council clarify by ordinance the County's p.29 authority to audit any and all of its procurement contracts including any sub -tier PENDING contracts. RECOMMENDATIONS - GREEN WASTE PROGRAM RECOMMENDATIONS — GREEN WASTE PROGRAM STATUS REPORT REFERENCE 1. We recommend that a cohesive vision be developed to address solid waste management in Hawai'i County, including input from the general public, IN p.30 Environmental Management Commission, Department of Environmental PROGRESS Management, the Mayor, and the County Council. The Updated ISWMP needs to be revised to reflect this vision. 2. We recommend that the Hawai'i County Code be amended to address the IN p. 30 banning of household and commercial green waste from County landfills in PROGRESS accordance with Hawai'i Administrative Rules §11- 58.1- 65(b). 3. We recommend that Landfill operation plans need to be updated in accordance with current statutory and regulatory requirements and the County's Updated IN p. 31 ISWMP, and communicated to landfill management, operations personnel, PROGRESS contractors, and the general public. 4. We recommend that DEM develop and implement formal policies and procedures for responses to any and all regulatory agency warnings and violation notices, including to whom and when these warnings and notices IMPLEMENTED p. 31 should be communicated, and procedures to ensure timely follow up and resolution. 5. We recommend that DEM determine whether a dedicated personnel position should be tasked with the responsibility for monitoring of contracts and IMPLEMENTED pp. 31 - 32 contractor compliance. 6. We recommend that DEM establish standardized internal policies and IN pp. 32 - 33 procedures for program documentation and reporting. PROGRESS 7. We recommend that DEM establish standardized policies and procedures to IN p. 33 permit verification of contractor claims reports and reduce the risk of fraud PROGRESS and /or abuse. 8. We recommend that DEM establish standardized policies and procedures for IN monitoring and documenting vendor compliance with other contractual PROGRESS pp. 33 - 34 obligations. 9. We recommend that DEM obtain accurate estimates of green waste volumes to IN p. 34 be processed for inclusion in procurement documents. PROGRESS RECOMMENDATIONS - SCRAP METAL PROGRAM RECOMMENDATIONS —SCRAP METAL PROGRAM STATUS REPORT REFERENCE 1. We recommend that DEM ensure that the award entity is a "legal" entity prior to contract award and that there is sufficient documentation in the program file to IMPLEMENTED p. 35 explain inconsistencies between the names of original bidders and names of vendors awarded contracts during the procurement process. 2. We recommend that DEM ensure that personnel with sufficient training and IN p. 35 expertise are assigned to supervise the contract procurement process. PROGRESS 3. We recommend that DEM ensure that personnel with sufficient training and expertise are assigned to monitor each contract after issuance to ensure IN p.35 departmental and contractor compliance with all contractual, regulatory, and PROGRESS operational requirements. 4. We recommend that DEM ensure that proper permits are obtained prior to any IN p. 36 contractor commencing work on any contract on any County property. PROGRESS 5. We recommend that DEM ensure that contractors obtain necessary permits and IN p. 36 provide documentation of work performed before disbursing any County funds. PROGRESS 6. We recommend that DEM develop and implement policies and procedures to p. 36 adequately verify the accuracy and integrity of the contractor's claims of scrap PENDING metal removed from County storage sites. 7. We recommend that DEM address any warning letter received from DOH - SHWB or any other regulatory agency in a timely manner to avoid assessment IMPLEMENTED p. 36 of fines and penalties and possible termination of permits. 8. We recommend that RFP and contract documents require contractors to p.37 respond within a given time to any communications pertaining to complaints or IMPLEMENTED deviations from program, permit, or other regulatory requirements. 9. We recommend that DEM document any operational problem with a contractor IN p. 37 during the administration of a contract. PROGRESS 10. We recommend that DEM document its own departmental responses and IN pp. 37 - 38 corrective actions taken to resolve operational problems. PROGRESS 11. We recommend that DEM adhere to contractual provisions particularly regarding IN p. 38 vendor compensation. PROGRESS 12. We recommend that DEM reconcile contractor invoices against supporting IMPLEMENTED p.38 documentation before processing payment. Vii RECOMMENDATIONS - SCRAP METAL PROGRAM RECOMMENDATIONS —SCRAP METAL PROGRAM STATUS REPORT REFERENCE 13. We recommend that DEM monitor fund balances to ensure that funds are PENDING p.39 available to pay contractor invoices. 14. We recommend that DEM implement processes and procedures to permit PENDING p.39 ongoing and accurate measurement of incoming tonnages. 15. We recommend that DEM implement necessary changes to obtain accurate PENDING p.39 estimates of volume to be processed for inclusion in procurement documents. 16. We recommend that DEM implement standardized project accounting utilizing the p.40 County's FRESH financial accounting system to better monitor fund balances and PENDING to create reports for dissemination to proper personnel on a regular and timely basis. 17. We recommend that DEM explore the possibility of exercising its right to assess PENDING pp. 40 fines and penalties against contractors to enforce compliance with contractual terms and conditions. Viii RECOMMENDATIONS - HOUSEHOLD HAZARDOUS WASTE PROGRAM RECOMMENDATIONS — REPORT STATUS REFERENCE HOUSEHOLD HAZARDOUS WASTE PROGRAM 1. We recommend that DEM together with the County review current procedures and research possibilities for new economically feasible technologies, facilities, IN p. 41 and procedures that would identify and prevent hazardous wastes from entering PROGRESS County landfills. 2. We recommend that the County establish permanent sites for ongoing collection IN p. 41 of both household and commercial hazardous wastes. PROGRESS 3. We recommend that DEM clarify the applicability of HRS chapters 342G and 342J to the County's household hazardous waste program, and either bring the IMPLEMENTED p. 42 program into compliance with statutory requirements or obtain a legal determination that compliance is being waived by the State. 4. We recommend that DEM implement procedures for reconciliation of contractor IN p. 42 collections reports with shipping manifests and delivery receipts from certified PROGRESS reuse and disposal facilities. ix RECOMMENDATIONS - WEST HAWAII MATERIAL RECOVERY PROGRAM RECOMMENDATIONS — REPORT STATUS REFERENCE WEST HAWAII MATERIAL RECOVERY PROGRAM 1. We recommend that DEM retain in its program file any and all documentation pertaining to changes noted on any County form or contract. Should any IMPLEMENTED p.43 Contractor or Consultant mark or change any County form, documentation and authorization needs to be provided. 2. We recommend that DEM require a Contractor or Consultant to comply with p. 43 contractual timelines for submittal of required plans and applications and should IMPLEMENTED document said compliance in the program file. 3. We recommend that DEM assign specific personnel to track and monitor a IN pp. 43 — 44 Contractor's or Consultant's performance and compliance with contractual PROGRESS requirements prior to payment of any invoices for services. RECOMMENDATIONS - TIRE RECYCLING PROGRAM RECOMMENDATIONS — REPORT STATUS REFERENCE TIRE RECYCLING PROGRAM 1. We recommend that the County Code, Updated ISWMP, and DEM landfill IN operations manuals be reviewed and further updated to be consistent with the PROGRESS p. 45 State ban of used tires from County landfills. 2. We recommend that DEM implement a process to ensure that all interested parties are included in the IFB process to ensure strict adherence with IN p.45 procurement laws and to enable the County to contract for quality services at PROGRESS reasonable prices. 3. We recommend that the Purchasing Division and DEM determine whether file PENDING pp. 45 — 46 documentation can be improved to develop a priority list for procurements. 4. We recommend that DEM implement formal policies and procedures for p.46 program review and contractor evaluation to better determine whether a current PENDING contract should be extended or a new procurement process should be initiated. 5. We recommend that DEM determine why timeliness in its procurement is PENDING pp. 46 — 47 problematic and implement appropriate countermeasures. 6. We recommend that DEM develop formal procedures and forms for IMPLEMENTED p.47 authorization of contract - related changes such as account balance liquidation. 7. We recommend that DEM review documentation submitted by contractors for IN p. 47 compliance with contractual and regulatory permit requirements. PROGRESS 8. We recommend that DEM develop policies and procedures pertaining program IN pp. 47 — 48 incident resolution and reporting. PROGRESS 9. We recommend that DEM provide staff with clearly defined job responsibilities IN and adequate training and policy guidance regarding transfer station operations PROGRESS and contractor monitoring duties. 10. We recommend that DEM implement the changes necessary to provide the IN capability to obtain accurate estimates of volumes to be processed for inclusion PROGRESS p. 48 in procurement and contract documents. 11. We recommend that DEM implement a mechanism for ongoing measurement IN pp. 48 - 49 of inflow volumes. PROGRESS RECOMMENDATIONS - EPA GRANTS - PHASE I Kea`au Recycling and Reuse Center (KKRC) RECOMMENDATIONS - EPA GRANTS - PHASE I Kea`au Recycling and Reuse Center (KKRC) STATUS REPORT REFERENCE 1. We recommend that the County as EPA Grant awardee monitor and PHASES I AND II ARE p.50 review all procurement processes and obtain sufficient documentation CLOSED. to provide assurance that all procurements are made in accordance with applicable grant and procurement laws and regulations. REMAINING PHASE 111 FUNDS WILL BE 2. We recommend that DEM ensure the timely procurement of its UTILIZED FOR REUSE contracts and /or agreements, so that a valid contract is issued prior to SHELTERS AT commencement of work. TRANSFER STATIONS. 3. We recommend that the County consider revision of the County Code PHASE IV FUNDS WERE and procurement rules relating to "conflict of interest' and "related GRANTED DIRECTLY TO party" issues on the part of employees, contractors and HIEDB. subcontractors. FORMER DIVERSION 4. We recommend that DEM implement policies and procedures for GRANT SERVICES ARE monitoring and control of contractor performance to ensure that NOW SUBMITTED TO contractual obligations to the County are being fulfilled and public FORMAL PROCUREMENT funds are being properly expended. PROCESS. 5. We recommend that DEM assign personnel to reconcile contractor claims and authorize payment of invoices. 6. We recommend that DEM include in its program file any and all documentation pertaining to any complaints, improprieties, or discrepancies that may occur during a contract period, including a chronology of the resolution process. xii RECOMMENDATIONS — EPA GRANTS — PHASE II Kea`au Recvclinq and Reuse Center RECOMMENDATIONS — EPA GRANTS — PHASE II Kea`au Recycling and Reuse Center (KKRC) STATUS REPORT REFERENCE 1. We recommend that DEM re- evaluate its procurement process to PHASES I AND // ARE pp. 51 - 52 ensure that all performance requirements and tasks are sufficiently CLOSED. communicated to all potential providers and that process volume estimates are realistic. REMAINING PHASE 111 FUNDS WILL BE 2. We recommend that DEM document issues related to supplemental UTILIZED FOR REUSE contracts when two different fund sources are involved. SHELTERS AT TRANSFER STATIONS. 3. We recommend that DEM reconcile contractor invoices with supporting documentation and contractual requirements and should PHASE IV FUNDS WERE require that revised invoices be accompanied by written clarification of GRANTED DIRECTLY TO increased amounts. HIEDB. 4. We recommend that DEM re- evaluate its administration of grant FORMER DIVERSION programs and analyze the cost - benefits of hiring additional personnel GRANT SERVICES ARE for grant management versus contracting private service providers. NOW SUBMITTED TO FORMALPROCUREMENT 5. We recommend that DEM review and monitor its contracts to ensure PROCESS. that all applicable governmental permits are obtained prior to commencement of work on County property. 6. We recommend that DEM ensure that all documentation relating to grant and contract administration is current and complete in the program file. 7. We recommend that DEM document any deficiencies relating to operations under its contracts. xiii RECOMMENDATIONS — EPA GRANTS — PHASE III Waste Reduction and Recycling Project (West Hawaii) RECOMMENDATIONS — EPA GRANTS — PHASE III Waste Reduction and Recycling Project (West Hawaii) STATUS REPORT REFERENCE 1. We recommend that DEM initiate a complete assessment of waste PHASES I AND // ARE pp. 53 - 54 reduction, recycling, and reuse capabilities at County transfer stations. CLOSED. 2. We recommend that DEM implement internal policies and procedures REMAINING PHASE 111 for grant management. FUNDS WILL BE UTILIZED FOR REUSE 3. We recommend that DEM consider revising HIEDB's project scope or SHELTERSAT reduce its contract amount under the MOA, since establishment of the TRANSFER STATIONS. model recycling or reuse center in West Hawai'i will not be implemented prior to expiration of the EPA Grant III funding period. PHASE IV FUNDS WERE GRANTED DIRECTLY TO 4. We recommend that DEM review departmental policy relating to multi- HIEDB. tier subcontracting, and determine whether the practice is a cost effective use of grant monies. FORMER DIVERSION GRANT SERVICES ARE 5. We recommend that as the designated recipient of EPA grant funds, NOW SUBMITTED TO the County should re- evaluate the cost - benefit of hiring additional FORMAL PROCUREMENT departmental personnel over outsourcing program management and PROCESS. outreach and education components. AV RECOMMENDATIONS - GENERAL FINDINGS RECOMMENDATIONS — GENERAL FINDINGS General Findings Recommendation #1 We recommend that the Mayor and County Council, in consultation with DEM, revise and adhere to the Updated ISWMP as the long -term plan for addressing the County's solid waste streams. • There needs to be a County -wide commitment for implementation of and adherence to a long -term solid waste management plan on the part of all stakeholders, including the Mayor, DEM, County Council, and the recycling public, regardless of changes in elected officials. The County should consider codifying the "agreed" upon long -term solid waste management plan. If the Updated ISWMP is to represent the County's strategic plan for solid waste management, it needs to be further updated and revised to address at a minimum: The priority, in quantifiable measures, of recycling and diversion in the County's solid waste management system. o Specific goals pertaining to solid waste reduction, recycling, and diversion, and specific timelines for attaining said goals. DEM Response The ISWMP is currently going through an update. Consultant CH2M Hill has been hired and started the update process in the April 2008. The Solid Waste Advisory Committee (SWAC) was created, chaired by former DEM Director, Barbara Bell. We have conducted eight SWAC meetings and two series of public meetings. In addition to the SWAC meetings, the presentation is on the agenda for the County Council Environment Committee Meetings to keep the Council informed and current on the ISWMP as it is being developed. We anticipate an 18 month process to finalize a draft Update which will be submitted to the County Council and the Mayor for their approval. The Update will then be submitted to the State Department of Health for their review and approval. The Department is considering several approval options, such as preparation of an ordinance to adopt and adhere to the updated ISWMP. The chapters are available at the DEM website for public input and review. http: //www.co.hawaii.hi.us /env mnq /iswmp.htm. The chapters include: 1. Waste stream assessment 2. Source reduction 3. Public education and information 4. Recycling, bioconversion and marketing 5. Household hazardous waste and E -waste 6. Special waste 7. Collection and transfer 8. Residuals management 9. Administration and funding 10. Recommendations and implementation LAO Follow -Up DEM has complied with portions of this recommendation by requiring that its ISWMP consultant conduct public meetings and provide monthly reports to the Council in an effort to obtain input from key stakeholders. However, full implementation of this recommendation goes beyond DEM's purview and requires a commitment on the part of County government. Changing priorities of prior Mayoral administrations and Councils have created a continually moving target for DEM in its attempt to formulate a long -term plan to address the County's solid waste problems and maintain a clear vision RECOMMENDATIONS - GENERAL FINDINGS of how this goal should be accomplished. The purpose of this recommendation is to provide DEM with clear expectations including specific timelines, reporting requirements, and performance measures, and to provide residents with a mechanism for input and assessment of the County's performance in addressing solid waste issues and protecting public resources, both environmental and monetary. General Findings Recommendation #2 We recommend a detailed "working plan" be developed to drive and guide implementation of the Updated ISWMP and should include, but not be limited to: DEM Response Please see the response provided above (Recommendation No. 1). The scope of work for the consultants, CH2M Hill, was based on the requirements for the ISWMP as called out in the Hawaii Revised Statues (HRS) Part 111. Integrated Solid Waste Management Planning §342G. We anticipate an 18 month process to finalize a draft Update which will be submitted to the County Council and the Mayor for their approval. The County- adopted Update will be submitted to the State Department of Health for their review and approval. Some of the audit recommendations may be addressed in the ISWMP if it was required and described in the HRS §342G. However, other audit recommendations may not be included as they were not specifically identified in the consultant's original scope of work. As the Update is well underway, the Department is not currently pursuing a revision to the original scope of work as it may jeopardize our ability to complete the Update with available funds, manpower, and timeframes. LAO Follow -Up The audit recommendations were available to DEM prior to establishing the scope of work for the Update to the ISWMP. The Auditor agrees that some of the items listed as part of this recommendation are "managerial procedures" and may be more appropriately addressed by DEM outside of the ISWMP. However, whether part of or external to the ISWMP, it is important that an overall "working plan" delineate specific tasks, responsible parties, and specific timelines to guide implementation of the ISWMP. • An outline and schedule of specific tasks and benchmarks required to attain Updated ISWMP goals. DEM Response The ISWMP will include a 5 -year implementation plan for the plan recommendations that includes funding levels for each recommendation. Any actions to be completed later than 5 years will be summarized into actions to be taken during years 6 -20. • An assignment of stakeholder responsibility for completion of specific tasks and benchmarks. DEM Response As described above, the ISWMP consultant original scope of work did not require that the Update include a provision for assignment of stakeholder responsibility for completion of specific tasks and benchmarks as it is not a requirement of HRS §342G. RECOMMENDATIONS - GENERAL FINDINGS • A mechanism for regular and frequent review and reporting of stakeholder progress by a body reporting to the legislative branch. DEM Response As described above, the ISWMP consultant original scope of work does not require that the Update include a mechanism for regular and frequent review as it is not a requirement of HRS §342G. LAO Follow -Up Again, whether part of or external to the ISWMP, it is important that an overall "working plan" delineate specific tasks, responsible parties, and timelines to guide implementation of the ISWMP. The Council should also require regular reporting of actuals against the plan in order to ensure effective resource planning and allocation, timely progress, and public accountability. • Standardized criteria for evaluation of solid waste management programs, technologies, and funding sources. DEM Response The ISWMP will present evaluation of a series of options. LAO Follow -Up The evaluation process should be standardized and documented to permit future in -house analysis of solid waste programs, technologies, and funding sources. • An evaluation of regulatory constraints to implementation of identified solid waste management programs and technologies. DEM Response The ISWMP will provide a list of recommended regulations which may be considered for implementation at the County or State level to move forward the goals and objectives of the solid waste management programs and technologies. • A timeline and prioritization schedule for implementation of identified solid waste management programs and technologies. DEM Response The ISWMP will include a 5 -year implementation plan for the plan recommendations that includes funding levels for each recommendation. Any actions to be completed later than 5 years will be summarized into actions to be taken during years 6 -20. • A standardized process for determining whether implementation and operation of identified programs and technologies should be managed by County personnel or outsourced to a private contractor. DEM Response This is outside the scope of the ISWMP. The KONO court decision describes when County of Hawaii personnel will do the work. In addition Act 90 has expired. 3 RECOMMENDATIONS - GENERAL FINDINGS LAO Follow -Up This recommendation is not directed at the work - related legal requirements of the Kono decision. Rather, it is recommending an analysis of providing "in- house" solid waste management services with County personnel due to the long -term need for such services and the time and costs required to implement sufficient controls over privately contracted services. • A standardized policy and procedure setting forth departmental controls to be implemented and identifying which departmental personnel will be responsible for program oversight. DEM Response The ISWMP will describe the current department structure as it pertains to the management of the solid waste division and recycling section. The department maintains a set of operational policies and procedures specific to the solid waste division and recycling section, these policies and procedures are not planned to be included in the Update. LAO Follow -Up Based on discussions with DEM managers, there still seems to be uncertainty as to who is responsible for ensuring that internal controls are included and implemented in each solid waste diversion and recycling program. • A standardized process for reviewing and evaluating the County's, DEM's, and the contractor's responsibilities and obligations under specific contracts, including monitoring of regulatory compliance and data reporting accuracy. DEM Response This is beyond the scope of the ISWMP as it is not a requirement of HRS §342G. LAO Follow -Up Agreed. However, the County as a whole should review key responsibilities in its procurement and contracting processes and formalize policies and procedures related to the sufficiency and enforcement of project specifications, internal controls, contractor performance measures, and remedies for contractor non - compliance and non - performance. • Standardized policies, procedures, and safeguards necessary to reduce the County's risk to contractor abuse and /or fraud to acceptable levels. DEM Response As described above, the ISWMP consultant original scope of work did not require that the Update include a provision for including standardized policies, procedures and safeguards as it is not a requirement of HRS §342G. LAO Follow -Up If so, DEM should develop, communicate, and implement standardized policies, procedures, and safeguards in consultation with the Finance Department and Corporation Counsel. RECOMMENDATIONS - GENERAL FINDINGS An evaluation of legislative or governmental authority available to the County for contract enforcement purposes. DEM Response The ISWMP scope of work was designed around the HRS §342G and is limited to that chapter. LAO Follow -Up If so, DEM should develop, communicate, and implement standardized policies, procedures, and safeguards in consultation with the Finance Department and Corporation Counsel. • Incorporation of public input into plan development and participation in future recycling and diversion programs and technologies. DEM Response The ISWMP has designed into the scope of work, a number of opportunities for public input and is designed around maximizing the public input to reflect the needs of the public. LAO Follow -up It is unclear whether this recommendation can be fully addressed within the Updated ISWMP, since an overall "working plan" may need to include certain internal organizational issues, personnel schedules, and departmental controls. If so, DEM should identify these respective components and develop separate action plans. In addition to referring the ISWMP Update to the Council for approval or amendment, DEM should continue to regularly update the Council as to the status of implementation of the ISWMP. General Findings Recommendation #3 We recommend that DEM evaluate areas of possible risk and exposure and develop and implement written policies and procedures to reduce said risk and exposure. • Consult with the Finance Department and Corporation Counsel on development of a risk management policy to limit the County's exposure to governmental sanctions and civil liabilities. DEM Response This recommendation should be pursued by Finance Department and Corporation Counsel as it will affect all County Departments, not just DEM. LAO Follow -Up Agreed. However, DEM will need to cooperate with the Finance Department and Corporation Counsel in order for the County to properly assess and address risk management in its solid waste management programs. RECOMMENDATIONS - GENERAL FINDINGS • Consult with other County departments and State agencies to establish "best practices" in order to minimize its risk and exposure to governmental sanctions and civil liabilities. DEM Response This recommendation should be pursued by Finance Department as it will affect all County Departments, not just DEM. LAO Follow -Up While overall risk management includes components outside of the department's purview, DEM should devise a mechanism to incorporate "best practices" as they relate to the solid waste management industry. • Immediately transmit any and all communications received from governmental agencies regarding possible regulatory violations or sanctions to the Mayor, Managing Director, Finance Director, Corporation Counsel, and County Council. DEM Response Please refer to the letter from former Director Barbara Bell, dated July 10, 2006 on page 7- Risk Management. LAO Follow -Up It appears that DEM has implemented a procedure for timely communication and tracking of responses to governmental regulatory notices when DEM is the permittee or co- permittee. • Develop formal written policies and procedures for general departmental administration as well as individual program management, including, but not limited to: o A file management system for departmental and contractor documents, reports, plans, and other related information to ensure that program files are current and complete. DEM Response DEM developed a formal contract policy effective 811106 (Refer to Attachment "A" Contract Policy) in response the audit recommendation: The purpose was to provide better tracking of contract history, negotiations, or discussion, on issues that are unexpected, and to document discretionary decisions instituting written policies and procedures for all contract files. It states that two (2) contract tiles are to be maintained; one is a "program file" maintained by the section responsible for managing the program and the second is a "contract tile" to be maintained by the Business Services Section. The Solid Waste operations and its sections are located in a separate location than the DEM Administration and Business Services Section and the files are physically located with the respective group. The program tiles for Greenwaste, Diversion Programs, Recycling Education and Beverage Container Program are maintained by the Department's Recycling Section. The program files for Scrap Metal and Tires are maintained by the Department's Abandoned Vehicle Program Staff. The Department of Health (DOH) Solid Waste Permits and any correspondence with DOH (where the County is co- permittee) are tiled in the program file and a copy in the files for each Solid Waste Facility maintained in the Solid Waste Division Chiefs Office. Many of the Transfer Stations have RECOMMENDATIONS - GENERAL FINDINGS numerous DOH Solid Waste Permits. For instance Kealakehe has a permit for the transfer station (aka convenience center), the Greenwaste Operation, the Recycling Operation and the Scrap Metal Operation. LAO Follow -Up The Auditor reviewed a sample of contract files and noted no significant deficiencies. o A communication management system for intra - departmental, inter- departmental, and public communications to ensure adequate and timely response to and appropriate dissemination of any inquiry or complaint. DEM Response DEM policy for communication with other County departments is through the Department Director. The Department's Recycling Section receives numerous calls from the public. The calls are handled directly by one of the Recycling staff. The Recycling Section maintains a call log record of incoming calls and uses a form (Refer to Attachment `B" Contractor Complaint Form) to document specific complaints. Currently DEM Solid Waste Division and Wastewater Division Staff are in separate physical locations from DEM Administration and the Business Services Section which creates communication challenges. DEM agrees that a communication management system would be valuable. This is an excellent recommendation that will be implemented when appropriate staff and funding are available. DEM is in the process of relocating the Solid Waste and Wastewater Division personnel to the DEM Administration and Business Services Section office. LAO Follow -Up Although no written policy or procedure was provided, the Auditor noted significant improvement in DEM's documentation of and responses to external communications. o A program tracking system to monitor departmental and vendor compliance with all contractual, permit, and regulatory requirements related to solid waste management. DEM Response The State Department of Health (DOH) is the regulatory agency for Solid Waste permits in the entire State, including the County of Hawaii. Any notification or warning letter received from the DOH is assigned a numerical number in MS Outlook and is tracked by the DEM Secretary until an appropriate response has been prepared and issued by the Department, Division or Vendor. LAO Follow -Up Procurement documents clearly state: "all bidders having an accounts receivable with the County of Hawaii shall be in good standing on that account ". However, on at least one occasion, a contract was awarded to a bidder with past due tipping fees of $90,000 at the time of contract award. o An account tracking system to monitor contractor billings and payments by utilizing the project accounting module within the County's FRESH accounting system. RECOMMENDATIONS - GENERAL FINDINGS DEM Response The Recycling Specialist 111 has created spreadsheets to track contractor billings and payments relating to the Recycling Programs. At this time DEM believes these spreadsheets are a more suitable option than the project accounting module in FRESH. LAO Follow -Up Like other County departments, DEM has implemented a separate program billing and payment tracking system that is not reconciled with the County's FRESH accounting system. The inefficiencies of redundant data entry in multiple information systems and possible inaccuracies in the absence of data reconciliation are issues that need to be addressed County -wide. o A formal process and schedule for periodic assessment and review of program and departmental effectiveness and efficiency in achieving objectives contained in the County's Updated ISWMP, the State's Hawaii Integrated Solid Waste Management Act, and federal EPA guidelines. DEM Response DEM agrees that a formal process and periodic review may be valuable. This is an excellent recommendation that will be implemented when appropriate staff and funding are available. o A formal process and schedule for monitoring changes to County, State, and federal laws, rules, regulations, and requirements. DEM Response DEM monitors the changes to County, State and Federal laws, rules, regulations and requirements that would affect its operations or funding. DEM works closely with the State Department of Health and the USEPA to stay updated on changes. DEM agrees that a formal process and periodic review may be valuable and will be implemented when appropriate staff and funding are available. LAO Follow -Up To ensure continuity of institutional knowledge, DEM should formalize its process and schedule for monitoring changes in governmental regulations by delineating specific tasks and responsible parties in a process map or manual. • Re- evaluate its organizational structure, staffing, and position descriptions, determine program components and personnel necessary to carry out effective and efficient operations, and implement necessary changes to ensure that internal controls and staffing levels are sufficient to meet program demands. o Develop departmental and division "process maps" to aid in evaluating the adequacy of staffing levels. DEM Response "Process mapping" may require the assistance of a specialized consultant to perform the analysis to make recommendations for efficiency. The Department personnel specialist and the County's Dept. of Human Resources have assisted in identifying and developing relevant position descriptions. The RECOMMENDATIONS - GENERAL FINDINGS Department personnel specialist consults with the Division regularly to examine position needs for future fiscal years. o Review current staffing competencies and expertise to ensure that staff are qualified to perform their required duties. DEM Response The Department's personnel specialist reviews job performance reports, concerns of the supervisors, identities training opportunities, and seeks training requests from the Divisions to improve skill levels. LAO Follow -Up Again, the Auditor recommends an organizational re- evaluation followed by a reassessment of staff competencies in order to ensure that internal controls and staffing levels meet program demands in an effective and efficient manner. An increase in personnel does not necessarily ensure improvement in internal controls and delivery of services to the public. o Implement internal training programs to ensure that staff are competent and knowledgeable in the performance of their duties. DEM Response The Department's personnel specialist will assist in finding appropriate training resources when the Division does not have staff to conduct the training. The Division has a responsibility to train employees to perform new duties and use new equipment brought into the workplace. The County Safety Office provides equipment operator testing and training to reduce the threat of workplace injuries. LAO Follow -Up The Auditor recommends a performance review of internal training programs after they have been implemented to determine whether they have achieved their intended goals. o Ensure that staff has sufficient time and resources necessary to effectively perform their duties. DEM Response The Department's personnel specialist and /or process mapping consultant can assist the Division in assessing the types of duties to be performed, the amount of time necessary to complete the duties, and the number of staff necessary. The Division supervisory personnel will need to determine the appropriate equipment necessary to do the work. o Reallocate positions as necessary. DEM Response The Department's personnel specialist works with the Division in updating position descriptions and reallocating positions as the duties and needs change and will continue do so as requested. For example, a Business Services Manager was created similar to the position in DPW. The Recycling Specialist 1 position was reallocated to a Recycling Specialist 111 position. A Recycling Specialist 11 RECOMMENDATIONS - GENERAL FINDINGS position was created for West Hawaii. The Solid Waste Division Engineer position was also reallocated. o Analyze the cost - benefit of hiring additional County personnel versus continuing to outsource the recycling and diversion programs. DEM Response The personnel office in conjunction with the division can work on projecting the types of work to be performed, positions needed, the comparable compensation, and a timeline to hire. As the staff resources are available, the division and accounting office can perform the cost benefit analysis to determine the appropriateness of hiring staff internally or contracting for such services. However, this type of analysis may be more effectively performed by an independent third party entity. New position approval, however, is at the discretion of the County Council. • If the department determines that it cannot remedy the foregoing deficiencies within the next six months, DEM should consider procuring a private consultant to assist in "process map" development, restructuring, development of internal management policies and procedures, and training of its personnel as discussed above. DEM Response This is an excellent recommendation and will be implemented when the appropriate staff and funding are available. LAO Follow -up Contract Files: Significant improvement in the organization and completeness of contract files was noted. Files reviewed were compliant with required tax clearances and unemployment/temporaa disability, workers' compensation, and prepaid health care insurance certificates. However, files were inconsistent as to current certificates of general liability and /or automobile liability insurance for required coverages and contract periods. Contract Tracking System: Implementation of a contract tracking system using Excel spreadsheets was noted, but no evidence of its periodic reconciliation with the FRESH system. As a result, we noted inefficiencies with redundant data entry into multiple information systems and possible inaccuracies with data reporting in Excel not tied to the FRESH system. This problem is not unique to DEM and is discussed in audit reports for other departments. Also absent was evidence of regular and frequent reporting of financials to or by DEM managers. Communication Management System: No evidence was presented that an intra- and /or inter- departmental communication management system had been implemented for the handling of public inquiries or complaints. While the Recycling Coordinator has implemented a standard complaint/resolution form, the form is not utilized for all solid waste programs, with the Solid Waste Chief indicating that the form will be implemented department -wide in the future. However, before such implementation, a formal departmental policy for the handling of public complaints and proper use of the complaint /resolution form needs to be developed. Program Tracking System: No evidence was presented that a program tracking system had been implemented to proactively monitor compliance with contractual and regulatory requirements or changes in contractual obligations and governmental regulations. Noted in certain program files were warnings from the State Department of Health regarding continued non - compliance with permit requirements, suggesting a continued reactive approach by DEM to regulatory compliance. Program Assessment: No evidence was presented that a formal program assessment process and schedule had been implemented to measure performance in achieving objectives outlined in the 10 RECOMMENDATIONS - GENERAL FINDINGS County's Updated IWSMP, State Integrated Solid Waste Management Act, and federal EPA guidelines. A key to any meaningful program assessment is the Department's basic ability to accurately and independently measure waste flows by type. Organizational Re- Evaluation: No evidence was presented that an organizational re- evaluation using accepted needs analysis methodology had been undertaken to support the Department's request for additional personnel following issuance of our original audit report. General Findings Recommendation #4 We recommend that DEM consult with the Finance Department and the Corporation Counsel to develop written policies and procedures relating to procurement and contracting. Develop formal written policies and procedures related to contract procurement, including timing of the procurement process, eligibility of contractors and subcontractors, evaluation of contractors and subcontractors, and drafting of procurement and contract documents. Contract provisions should address reducing County exposure to contractor fraud and /or abuse by clearly delineating any process and reporting controls as well as the County's right to audit contractors and subcontractors. Contract provisions should clearly state that the County's right to audit is not limited to examination of contractor records, and may include, but not be limited to, site access, inspection, and process observation. DEM Response The County Department of Finance is responsible for County Purchasing and the County must adhere to State Procurement Laws. Since this recommendation is broad and would affect all County Departments, the recommendation should be pursued by Finance Department in conjunction with Corporation Counsel to determine if expansion of existing policies and procedures are necessary. DEM has included language in its future contracts that will allow audits on it contractors. LAO Follow -up The Auditor did note that at least one RFP may have been unduly restrictive by requiring that "bidders shall have a minimum of two years experience as a company owner or upper management of a firm whose primary business is recycling." Presumably, the intent of this clause is to reduce the risk that a bidder will be unable to meet the obligations of a recycling contract or program. However, since the RFP included sufficient requirements such as submittal of operations and safety plans, schedules for permit compliance, end - market user proposals, and the like, the inclusion of this clause only served to restrict competition. Develop formal written policies and procedures to ensure proper timing, review, recordation, and maintenance of transactions relating to contractor billings and payments in accordance with County policy and generally accepted accounting principles. DEM Response DEM agrees that formal written polices and procedures are important. This is an excellent recommendation that will be implemented to expand on existing policies and procedures established by the Department of Finance when appropriate staff and funding are available. 11 RECOMMENDATIONS - GENERAL FINDINGS • Develop formal written policies and procedures related to the award of grant monies to non - profit and for - profit entities. DEM Response DEM agrees that formal written polices and procedures are important. When the resources are available this will be pursued. In response to the audit, DEM eliminated the Diversion Grant Program and implemented the Diversion Incentive Program working with County Procurement Division, Department of Finance on Request for Proposal (RFP) #2298 and Invitation to Bid (IFB) #2299. The program services were expanded and the result was that the cost per ton for the services increased substantially from what DEM was paying for the services in the Diversion Grant Program. LAO Follow -up The Auditor's analysis of DEM's reported diversion tonnages and related costs shows otherwise. According to DEM's annual "Solid Waste Disposal Summary," the average cost per ton to recycle and /or divert has decreased 31% from $69.23 in FY 2003 -2004 to $47.67 in FY 2007 -2008. Furthermore, the tonnages claimed as diverted over the same period have increased 38% from 48,871 tons claimed in FY 2003 -2004 to 86,535 tons in FY 2007 -2008. Please see Appendix A: Analysis of Diversion by Commodity and Fiscal Year. General Findings Recommendation #5 We recommend that the County Council adopt an ordinance to clearly establish the County's authority to audit any entity with which it contracts, regardless of whether the procurement is subject to or exempt from State and County procurement code provisions. DEM Response We agree and recommend that this recommendation be pursued by the County Council, Department of Finance and Corporation Council. LAO Follow -up The majority of contracts reviewed now contain a "right -to- audit" clause. General Findings Recommendation #6 We recommend that DEM evaluate and implement processes and procedures to provide departmental capabilities for regular and continuous measurement of the volume of various waste types entering and being diverted from the County's solid waste system. DEM Response The Department's Solid Waste Division has procedures to measure the volume of waste landfilled from commercial and residential sources. It also provides the volume of materials diverted by commodity types like greenwaste, scrap metal, etc. (Refer to Attachment "C" Solid Waste Disposal Summary). Consultant CH2M Hill, as part of the ISWMP plan, completed a Waste Composition Report in September 2008 to determine the types of wastes that are being landtlled. A link to the 69 page report is http://www.hawaii- county.com /env mng/swmiswmo Waste %20Comoosition %20Reoort.,odf 12 RECOMMENDATIONS - GENERAL FINDINGS LAO Follow -up DEM has made progress in obtaining independent measurement of certain diversion flows. For green waste and scrap metal hauled from the South Hilo and Kea`au transfer stations, commodities are weighed at the County's Hilo landfill scale. In Kona, preen waste is paid by the load with visual verification by County -paid security services, together with daily reconciliation of security personnel and contractor load logs. However, for ADF -Mass and HI -5 beverage containers, we noted continuing problems with independent verification of contractor claims for recyclables. One contractor is permitted to make claims for commodity tonnages based on weight tickets produced by its own drivers on its own weight scale at its own facility. Moreover, the contractor is permitted to act as its own end - market user for diverted glass, which it crushes and stockpiles at its own facility, with no independent verification as to segregation of newly hauled and previously diverted glass. This lack of internal controls continues to create a significant risk of fraudulent claims for ADF and /or HI -5 tonnages being hauled and /or diverted. The same contractor has also received warnings from the State Health Department that its stockpile of crushed glass exceeds the limits of its DOH permit. DEM did include certain control measures in RFP #2299, "Collection of Recyclable Materials from Solid Waste Convenience Centers." However, it has not implemented RFP Specification No. II.K.3, which provides: "County will record container numbers of Contractor's containers while they are at the transfer station and the commodity being collected in each container, and will record when a container has been traded out for another." DEM advises that this control is not in place because not all convenience centers are staffed. Instead, a DEM employee inspects multiple transfer stations each morning and reports fill status by bin number to the respective County baseyard. The baseyard then reports the same information to the Solid Waste Division account clerk, who records it on a master status report that is faxed to the vendor by 10 a.m. for notification as to which bins need to be picked up. DEM indicates that random reconciliation of DEM's internal logs against vendor weight tickets and billings was performed for July 2008. The Auditor reviewed the sample reconciliation documents submitted by DEM for the day of July 16, 2008, and found numerous discrepancies with some of the bins reported as full on that date not lopped as having been picked up through the end of the month. DEM has also not implemented RFP Specification No. II.C.3.1, which provides: "Conduct all contracted work activities only during regular transfer station operating hours unless prior written approval from the County is received." The purpose of this control is to provide visual verification of contractor activities. Instead, review of contractor weight tickets shows frequent activity outside regular operating hours, sometimes at 3 and 4 a.m., with no evidence of written approval from the County. Upon inquiry, the Recycling Coordinator stated that she had given the vendor verbal authorization, but had not followed up with written approval. Failure to enforce the foregoing contract specifications for documentation of bin collection and conduct of work activities combine to create an environment open to abuse or fraud. General Findings Recommendation #7 We recommend that DEM include accurate descriptions and measurements of the volumes of specific waste types to be processed under each procurement and contract document, as well as specific requirements for diversion, recycling, and /or reuse of waste types under each procurement and contract document. 13 RECOMMENDATIONS - GENERAL FINDINGS DEM Response The Department's new procurements including any Request for Proposal (RFP) and Invitation to Bid (IFB) will include the volumes of waste based on the current Solid Waste Disposal Summary reports or other data. LAO Follow -up The majority of new RFPs and contracts reviewed during our follow -up review more clearly delineated specific commodities, volumes, and requirements for diversion, recycling, and /or reuse. However, DEM continues to lack sufficient controls to ensure that diversion weights claimed are factual, accurate, and claimed only once. 14 RECOMMENDATIONS - DIVERSION GRANT PROGRAM RECOMMENDATIONS — DIVERSION GRANT PROGRAM Diversion Grant Program Recommendation #1 We recommend that the County obtain a legal opinion regarding the award of grants and grant contracts by County agencies and the applicability of HRS §1 03D-1 02(b)(2)(A), Hawaii County Code chapter 2, article 25, and other statutory, code, and charter provisions. Policies should be updated as necessary to ensure compliance with State and County procurement and other applicable laws. • More specifically, the auditors would recommend a legal opinion be obtained regarding the issuance of grant monies by County departments and agencies to non - profit and for - profit entities since the majority of diversion grants awarded by the Department of Environmental Management have historically been to for - profit entities. DEM Response It was determined that grant monies may be awarded to non - profit entities. Since the Diversion Incentive Grant Program awarded funds to both non - profits and for - profit entities, the decision was made to conduct procurement for these services through the County Purchasing Division. The Department Director hired consultant, Rifer and Associates to assist in the development of procurement documents including the Request for Proposal (RFP) to replace the "Diversion Grant" program. The result was Request for Proposal #2298 and Invitation for Bid #2299. LAO Follow -up Use of the RFP process to procure services appears to have addressed two main issues: compliance with State procurement law and legal authority of an administrative department to "grant funds" whether to a non - profit or for - profit entity. However, one professional services contract awarded to a consultant for an "Electronic Waste Recycle Education Program" actually paid for recycling and diversion of electronic waste. Specifically, funds were paid to a non - profit entity that subcontracted with a for - profit entity for diverting ewaste from County landfills. While the subcontractor has done an exemplary mob, funds were awarded for public outreach and education. Based on invoices submitted, the County should have submitted the program to IFB /RFP procurement for recycling and diversion services. Diversion Grant Program Recommendation #2 We recommend that the County review the issues of "conflict of interest" and "related party transactions" adopting any necessary revisions to the County Code in order to reduce the risk of abuse and /or fraud or perception of impropriety by the public. DEM Response We agree and recommend that this issue be taken up with the Mayor's office and County Council. LAO Follow -up Certain RFP documents included basic conflict of interest clauses as follows: "Vendors participating in the program must disclose any interest they have in the end market user of the commodity diverted. If the vendor has an interest in the end market user, a document stating the extent of the interest in the end market user must be submitted with all Claim Reports, failure to do so would result in exclusion of those commodities from calculations of payments to the vendor. In the event that the 15 RECOMMENDATIONS - DIVERSION GRANT PROGRAM processor and the end market user are the same entity or substantially related entities, end market weight scale tickets must be obtained at an independent third party certified weight scale." However, this clause may be too limited to adequately address the need for an "arm's length transaction," that is, a transaction between two parties with shared interests who act independently as if otherwise unrelated or unaffiliated. In one contract, the vendor lists no "conflicts of interest," yet the end - market user states on its website that it had financed the vendor's processing facility and equipment and the vendor's vice president was a former employee of the end - market user. As such, the vendor should have disclosed its affiliated party relationship, and DEM should have implemented additional and /or alternative controls to minimize the risk of abuse, fraud, or collusion. In discussions with DEM managers, the Solid Waste Division Chief indicated that he was aware of the affiliated party relationship, but felt it was more important to implement the diversion program than to worry about the risk related to that relationship. While DEM's commitment to provide the benefit of these services is commendable, it is not acceptable for the County to ignore State procurement law or its responsibility to provide public programs and services in a fiscally prudent and accountable manner. In discussing implementation of internal controls to reduce the acknowledged risks of "related /affiliated party" relationship between contractors and end - market users (as well as commodities being weighed and claimed more than once), the "Tone at the Top" communicated by the Solid Waste Division Chief and Recycling Coordinator was that providing diversion and recycling services was more important than "worrying about the lack of controls we don't have the manpower to implement." Again, while the Auditor agrees that there are significant environmental, social, and operational benefits to diverting commodities from the County's waste stream, County government is not relieved of its responsibility to provide public programs and services in a fiscally prudent and accountable matter. Diversion Grant Program Recommendation #3 We recommend that DEM establish a standardized policy pertaining to program file documentation, including: • Documentation of all communications, including, but not limited to, letters, e- mails, notes, and /or documents received and generated by the department regarding all actions taken to resolve any violations and /or discrepancies that may occur during a contract period. Documentation of the review and reconciliation of the contractor claims reports including, for example, a checklist indicating that scale tickets were reviewed for errors, totaled and reconciled as to tonnage invoiced, and that any deviation from contract requirements was duly authorized. • Documentation and reporting of vendor performance. DEM Response Please refer to the response in Chapter 2. General Findings, Recommendation #2 (page 5). LAO Follow -up Contract files reviewed were well - organized, with only minor exceptions as to completeness of contract and claims report documentation. Implementation of a stamp- and - signature procedure to indicate review of claims reports and approval of payments was noted without exception. However, 16 RECOMMENDATIONS - DIVERSION GRANT PROGRAM as discussed above, DEM's ability to reconcile and /or independently verify claimed tonnages remains an issue in certain contracts. Diversion Grant Program Recommendation #4 We recommend that DEM ensure the timely procurement of its contracts so that a valid contract is issued prior to commencement of work. A spreadsheet or other type of tracking system needs to be utilized to assist in monitoring of timelines for procurement and contract related tasks. DEM Response Working closely with the County's Purchasing Division to follow this recommendation. DEM Business Services Section has an open recruitment for a position for Contracts Clerk to assist with these activities. Although the Department notes that the County has implemented a hiring freeze, the Department will work closely with the Mayor's office to acquire approval for filling this position. LAO Follow -up Of the16 contracts and supplements reviewed that included specific contractual start- and end - dates, 12 were signed after their contractual start- dates. One purpose of written contracts is to specify the rights, protections, and responsibilities of the parties and the deliverables, benchmarks, and timelines for performance by the parties. Therefore, permitting a vendor to perform work without an executed contract exposes the vendor and the County to liability issues and monetary risks. We strongly recommend that all contracts be fully executed prior to commencement of work or services and that departmental procedures related to contracting be implemented to minimize delays in the contract execution process. Diversion Grant Program Recommendation #5 We recommend that DEM review all contracts to ensure the accuracy and completeness of each contract. There should be no sections left incomplete within any contract. Every effort must be made to ensure that each contract is complete before execution and that program files contain at least one copy of the contract in its entirety. DEM Response We are working closely with the County Purchasing Division to follow this recommendation. DEM Business Services Section has an open recruitment for a position for Contracts Clerk to assist with these activities. Although the Department notes that the County has implemented a hiring freeze, the Department will work closely with the Mayor's office to acquire approval for filling this position. LAO Follow -up No exceptions as to completeness of contracts were noted. 17 RECOMMENDATIONS - DIVERSION GRANT PROGRAM Diversion Grant Program Recommendation #6 We recommend that the County and DEM consider whether a dedicated personnel position is warranted to be tasked with the responsibility to: • Ensure that the procurement process is begun and completed in a timely manner. • Research industry best practices, establish benchmarks, and design program requirements and controls. • Ensure that all procurements are made in accordance with State and County procurement codes. • Ensure that procurement documents (RFPs, IFBs, etc.) and contracts contain sufficient controls and protections. • Update the department and its contractors as to applicable federal, State, and County permitting and regulatory requirements. • Monitor and report on contractor performance and compliance with contractual and regulatory requirements on an ongoing basis. DEM Response We are working closely with the County Purchasing Division to follow this recommendation. DEM Business Services Section has an open recruitment for a position for Contracts Clerk to assist with these activities. Although the Department notes that the County has implemented a hiring freeze, the Department will work closely with the Mayor's office to acquire approval for filling this position. LAO Follow -up The majority of new RFPs and contracts reviewed during our follow -up review more clearly delineated specific commodities, volumes, and requirements for diversion, recycling, and /or reuse. However, DEM continues to lack sufficient controls to ensure that diversion weights claimed are factual, accurate, and claimed only once. A formal checklist is recommended to ensure that all contracts contain sufficient specifications, performance expectations, and protections. Diversion Grant Program Recommendation #7 We recommend that DEM review current contracted operations to identify areas of control deficiencies that increase the risk of contractor abuse and /or fraud, and implement corrective measures to ensure accuracy of claims and fiscally responsible use of grant monies. • Grant Guidelines and contracts should be revised to standardize the minimum information requirements for vehicle identification, tare weights, and scale tickets, and require the weighing of trucks before and after hauling of any commodity to ensure adequate weight verification. • The department should investigate mechanisms for accurate ongoing measurement of waste stream volumes to provide for: o Independent verification of current diversion claims. 18 RECOMMENDATIONS - DIVERSION GRANT PROGRAM o Ability to more accurately assess waste stream volumes to be processed for future diversion contracts. o Better data for benchmarking, long -term planning, and public education. DEM Response We are working closely with the County Purchasing Division to follow this recommendation. DEM Business Services Section has an open recruitment for a position for Contracts Clerk to assist with these activities. Although the Department notes that the County has implemented a hiring freeze, the Department will work closely with the Mayor's office to acquire approval for filling this position. LAO Follow -up Minimum weight ticket information requirements were noted in the procurement documents reviewed. However, as discussed above, improved internal controls for measurement of waste types diverted from landfills and independent verification of contractor claims for recyclables remain outstanding. 19 RECOMMENDATIONS - ADF -GLASS CONTAINER RECOVERY PROGRAM RECOMMENDATIONS —ADF -GLASS CONTAINER RECOVERY PROGRAM ADF Glass Container Recovery Program Recommendation #1 We recommend that the County obtain a legal opinion as to whether the ADF and Diversion Grant programs are, in fact, exempt from the State procurement code under HRS §1 03D-1 02(b)(2)(A). DEM Response Please refer to the response in Chapter 3, Diversion Grant Program, Recommendation #2 (page 10). Contracts that include payments for ADF glass diversion were awarded in 2007 to all the entities that submitted a proposal including, Atlas Recycling, Business Services Hawaii and Club Shoyu. LAO Follow -up This recommendation and related finding are no longer applicable, since DEM no longer "grants funds" for its recycling /diversion programs and now procures services through the Purchasing Division. As such, the Finance Department's "General Terms and Conditions for Goods and Services" were incorporated in all contracts reviewed without exception. ADF Glass Container Recovery Program Recommendation #2 We recommend that the County amend its Code to clearly establish its authority to audit any entity with which it contracts, regardless of whether the procurement is subject to or exempted from State and County procurement code provisions. • Language should include clarification that an audit entails more than a review of documents and records. For example, it may include, but should not be limited to, inspection of contractor premises, processes, controls, and records. Consideration should be given to language contained in HAR §3- 122 -166 and §3- 122 -167. The County needs to review and develop rules and conditions applicable to procurements exempted from State and County procurement codes, and address possible gaps in remedies and protections normally afforded under the "General Rules and Conditions" of the codes. DEM Response We agree and have incorporated this language in the Diversion Incentive Contracts issued in 2007, specifically Request for Proposal (RFP)# 2298 and Invitation to Bid (IFB) # 2299. LAO Follow -up As stated earlier, a majority of contracts now contain a "right -to- audit" clause. ADF Glass Container Recovery Program Recommendation #3 We recommend that the County incorporate into all contracts exempted from State and County procurement codes, excerpts from the "General Terms and Conditions" of said codes which afford the County better protections and remedies against collusion, abuse, and fraud without subverting the flexibility intended by the exemptions. For example, Section 4, "Performance of Contract," contains 20 RECOMMENDATIONS - ADF -GLASS CONTAINER RECOVERY PROGRAM language that permits the procurement officer or purchasing agency to reserve its right to suspend a contractor from bidding on any or all County contracts with due cause. DEM Response We agree and will include this in any future contracts that are awarded and exempt from State and County procurement codes. LAO Follow -up This recommendation and related finding are also no longer applicable, since DEM no longer "grants funds" for its recycling /diversion programs and now procures services through the Purchasing Division. As stated above, the Finance Department's "General Terms and Conditions for Goods and Services" were incorporated in all contracts reviewed without exception. ADF Glass Container Recovery Program Recommendation #4 We recommend that DEM revise Grant Guidelines and subsequent monitoring practices to ensure accuracy of contractor claims and to reduce the risk of errors, abuse and /or fraud. • Require that all contractor reports of diverted source streams be quantifiable and verifiable. • Include specific language delineating the County's right to audit contractor records and operations and to conduct random inspections of contractor operations for the purpose of verifying claims and delivery to end markets. • Include specific language addressing related party transactions, defining who qualifies as a "related party ", requiring related party disclosures, and delineating additional documentation and control procedures required for related party transactions, contracts, and subcontracts. • Require submittal of a process flow plan for each recycling facility, including measurement procedures for inflow sources, segregation of non - program eligible materials, and verification of end market user deliveries. • Clarify that contractor documentation of its buy -back incentive payments to the recycling public will be required, specifying acceptable documentation such as signed receipts. • Clarify that contractor documentation of its program development efforts will be required, specifying acceptable documentation such as newspaper ads, educational literature distributed, and testimonial letters from participating community groups. • Monitor and enforce grant and contract requirements. o DEM needs to develop a comprehensive monitoring and control plan for all programs. If sufficient controls are "built in" at the IFB, RFP, grant guideline, and contract phases, the burden of operational oversight, monitoring and inspection can be reduced. This is not to say that additional personnel may not be required to implement the necessary oversight and monitoring procedures. DEM Response This section is the ADF -Glass Container Recovery Program which has been a focus of concern and has received public complaints. Prior to the Deposit Beverage Container Program (aka H15) the only 21 RECOMMENDATIONS - ADF -GLASS CONTAINER RECOVERY PROGRAM State subsidized program for glass was the Advanced Disposal Fee (ADF) as defined in HRS Chapter 342G -81 Advance disposal fee. Beginning in October 2004, the glass advance disposal fee only applied to glass containers that are not part of the glass deposit beverage containers (H15). The result was a substantial reduction in the ADF funds available for County programs. For example in 2003 our County received $298, 000 and it decreased in 2007 to $56,879. The other result is that the majority of the glass recycling in the County is managed and paid directly by the State through the H15 Program. The County manages the smaller portion of the glass recycling through the ADF program. In the State Department of Health's Office of Solid Waste Management's REPORT TO THE TWENTY -THIRD LEGISLATURE STATE OF HAWAII 2006 dated December 2005 is states "The OSWM administers a statewide glass recovery program that is funded through an advance disposal fee (ADF). The department collects the fee from distributors of products contained in glass containers. The department then contracts with each county to establish glass buy back programs that divert glass from the waste stream and direct it to recycling. As directed by statute, the funds are distributed to the counties based on de facto population. Each county is allowed enough flexibility to structure its glass - recycling program to maximize recycling of the glass. The Glass ADF Program has been directly affected by implementation of the Container Deposit Program. Beginning October 1, 2004, glass beverage containers were transferred from the purview of the ADF program to that of the Deposit Beverage Container Program, and redemption of deposit containers began on January 1, 2005. In FY 2004 -05 the transfer of glass beverage containers to the deposit program reduced the number of containers covered by the ADF Program by approximately 55 %, with a corresponding decrease in program revenue. The start of redemption for deposit containers also affected ADF recovery rates, as recyclers had to adjust their operational procedures in order to segregate ADF product from DBC product. The department has reduced the amounts of the county contracts in accordance with the decrease in program revenue. Current year (FY2005 -06) funding has been reduced by 25 %. The department expects ADF revenue to continue its decline through at least the FY2005 -06 year before stabilizing. Projections indicated that annual revenue might fall below $1 million. The department will continue to analyze the impacts of the DBC program on the ADF revenue and recovery rates to determine when equilibrium between the programs has been reached. The department will make whatever adjustments necessary to optimize program performance. We also note that a transfer of $2,000,000 was made in December 2004 from the Environmental Management Special Fun (Advanced Glass Disposal Fee portion) fund to the general fund in accordance with Act 52 of the 2004 legislature. " The bottle bill legislation, Deposit Beverage Container Program, HRS Chapter 342G -101 through 123 has increased recycling in the County dramatically for glass as well as plastic and aluminum beverage containers. In 2008, our County had achieved the highest redemption rate in the State — 90 %. However, it has also complicated glass recycling in that there are now two different funding programs, ADF Glass and DBC (H15) Glass. Even with the one program, ADF Glass, it was challenging to implement procedures that would prevent recyclers from weighing the same glass multiple times. Now, the challenge is even greater, in as much as the recycler has to maintain records separately for ADF and DBC glass containers. They also must maintain records separately for the "end- market" uses of the glass. The County currently has three (3) recyclers participating in the DBC program, Atlas Recycling, Business Services Hawaii and Reynolds Recycling. Atlas and Reynolds are also participating as Certified Redemption Centers (CRC). Business Services currently is not a Certified Redemption Center and has a sub - contract agreement with the Arc of Hilo who provides the Certified Redemption Center services. In addition, there are three companies participating in the County's ADF Glass 22 RECOMMENDATIONS - ADF -GLASS CONTAINER RECOVERY PROGRAM Recycling through RFP #2298 which include Atlas Recycling, Business Services Hawaii and Club Shoyu. Also, Business Services Hawaii was the sole bidder for IFB #2299 to provide the collection and hauling of the bins of glass containers as part of the County's 2 -Bin Recycling Program. The audit sites that they were allowed to make a site visit to the Atlas Recycling Facility in Hilo and observed their operation. In the report it was also noted that based on a discussion with Mr. Peter Bloom, DOH Environmental Health Specialist noted "He has a random basis reconciled the residential redemption receipts to Altas' H15 weight claims and found no material exceptions. However, he further indicates that since Atlas reports /claims H15 containers collected from commercial sources for which no deposit refund is paid and no record of incoming weight is generated, verification that ADF -glass is not included in H15 claims in not possible. The audit sites that they were denied access to make a site visit to Business Services Hawaii at the date and time requested. It is unclear as to whether Business Services Hawaii was willing to give access to their site or records at an alternate date and time. Since Business Services is not a Certified Redemption Center, the submission for payment by the State is through Arc of Hilo. The County reconciles the invoices submitted by the companies participating in the ADF programs, verifying that the calculation of the weights is accurate and that the end - market weights reconcile. Recently, the County has implemented another reconciliation procedure for Business Services Hawaii for their submission of invoices for IFB #2299. This Invoice Verification Report (Refer to Attachment "D') reconciles the Solid Waste Division's Status of Recycling Bins at Transfer Stations report (Refer to Attachment "E') with the BSH invoice. The County does not have full -time staff at each Transfer Station to monitor the recycling activities and track the hauling of the recyclables. The procedure is that the Transfer Station Attendants (TSA) are required to report to their baseyard the recycling bin number and the status of the recycling bins as to one of following; full, % full, % full, % full, full or overfull. This information is transmitted to the Solid Waste Division Administrative Assistant. In a random audit of July 2008, the invoice was verified that on the date BSH submitted a weight ticket, the same bin number matched the Division's report. The Division is reviewing its staffing resources to determine if this step can be implemented as part of a monthly invoice reconciliation procedure. The issues of weighing, stockpiling and appropriate end uses for recycled glass are State -wide and on- going. The DOH had a meeting in June 2008 to discuss these issues and proposed changes to their rules /policies regarding glass recycling. As a result, DOH changed the rules to increase payment for glass used for remanufacturing which does not exist within the State requiring that it must be shipped. Atlas Recycling ships the majority of the recycled glass it collects to a remanufacturer (Strategic Materials). Club Shoyu reuses its glass bottles and Business Services uses the recycled glass on- island for construction and fill materials. The new DOH changes will reduce the payment for these types of on- island end -uses. The County Solid Waste Division Engineer has been actively working with local contractors and the construction industry to develop on- island use of recycled glass in place of mining native aggregate. (Refer to Attachment "F" Letter to DOH from SWD Engineer, Terin Gloor). LAO Follow -up Please see our discussion at Recommendation No. 6 — General Finding related to improvement of internal controls for measurement and independent verification of contractor claims for ADF glass. As stated above, while the majority of new UPS and contracts reviewed during our follow -up review more clearly delineate specific commodities, volumes, and requirements for diversion, recycling, and /or reuse, DEM continues to lack sufficient controls to ensure that weights claimed are factual, accurate, and claimed only once. 23 RECOMMENDATIONS - ADF -GLASS CONTAINER RECOVERY PROGRAM ADF Glass Container Recovery Program Recommendation #5 We recommend that DEM review its ADF program for glass source streams that are not currently being measured, and implement corrective actions to provide greater accountability without causing undue hardship to contractors or County personnel in their application. DEM Response The Department believes that the cost and time to implement this recommendation is not warranted at this time. LAO Follow -up As discussed above, without the basic ability to accurately and independently measure waste flows by type, an accurate assessment of the County's recycling /diversion efforts cannot be performed. ADF Glass Container Recovery Program Recommendation #6 We recommend that DEM determine whether additional positions will be required to meet timelines for procurement and contract issuance and to conduct necessary oversight and monitoring of contractor performance under procurement and contract agreements. DEM Response We are working closely with the County Purchasing Division to follow this recommendation. DEM Business Services Section has an open recruitment for a position for Contracts Clerk to assist with these activities. To implement sufficient oversight and monitoring of contractor performance may require the addition of operations staff. The Department has recently discussed the possibility of using cameras and other new technology for monitoring of the recycling activities of its contractors. The cost of acquisition of this type of software and /or equipment compared with the additional personnel costs needs to be analyzed. Also, to be determined is the risk assessment and the cost(benefit analysis. Although the Department notes that the County has implemented a hiring freeze, the Department will work closely with the Mayor's office to acquire approval for tilling the Contracts Clerk position. LAO Follow -up As discussed above, no evidence of an organizational re- evaluation was presented to support DEM's request for additional personnel following our original audit report. ADF Glass Container Recovery Program Recommendation #7 We recommend that DEM research utilizing the project accounting module of the County's FRESH accounting system to assist in more efficient financial monitoring and reporting. DEM Response The Department's Business Services Section has determined that the project accounting module of the County's FRESH accounting system is not the best application for monitoring and reporting on our recycling programs. 24 RECOMMENDATIONS - ADF -GLASS CONTAINER RECOVERY PROGRAM LAO Follow -up Please see our discussion at Recommendation No. 3 — General Findings related to implementation of a contract tracking system. ADF Glass Container Recovery Program Recommendation #8 We recommend that DEM develop a formal policy and procedure for authorization, documentation, and systematic recordation of changes to its contracts and budgets. DEM Response We agree with this recommendation and are currently reviewing issues specific to our Department that would affect such a policy and procedures. LAO Follow -up Improved documentation of contract authorizations, contract amendment requests, and contract changes was noted. ADF Glass Container Recovery Program Recommendation #9 We recommend that DEM establish a formal policy and procedure whereby financial status reports at contract and program levels are regularly and timely provided to and monitored by a designated budget responsible manager within the department. DEM Response We agree with this recommendation and are currently reviewing issues specific to our Department that would affect such a policy and procedures. LAO Follow -up Please see our discussion at Recommendation No. 3 — General Findings related to implementation of contract and program tracking systems. ADF Glass Container Recovery Program Recommendation #10 We recommend that DEM obtain specific written clarification from DOH as to whether its "glasscrete" projects will satisfy all or portions of the "glassphalt" paving requirement under HRS §342G- 86(a)(2). DEM Response §342G -81 Definitions states "Glassphalt" means an asphaltic concrete mixture utilizing crushed glass, under controlled gradation conditions, as a substitute for a percentage of the aggregate in the mix. Based on this definition, we would interpret that the "glasscrete" projects are acceptable for the same reason that they are utilizing the recycled glass and protecting natural resources by substituting glass for raw materials normally used. A confirmation from the State Department of Health has been requested and is pending. 25 RECOMMENDATIONS - ADF -GLASS CONTAINER RECOVERY PROGRAM ADF Glass Container Recovery Program Recommendation #11 We recommend that DEM work closely with DOH and other counties to address data deficiencies and possible solutions such as, reporting of ADF glass imported or manufactured at both the county and State levels. • DEM should implement the necessary procedures to obtain accurate estimates of volumes to be processed. DEM Response This is a valid recommendation that will be implemented when appropriate staff and funding are available. LAO Follow -up DEM should devise other means to ensure that the same glass is not claimed multiple times or under both the ADF and H15 programs. Please see our discussion at Recommendation No. 6 — General Findings related to independent verification of diversion claims and segregation of ADF and HI -5 tonnages from diverted glass tonnages. ADF Glass Container Recovery Program Recommendation #12 We recommend that DEM further research the history of ADF accounting within the State Environmental Management Special Fund and inquire: • How were annual allocations to the counties calculated? DEM Response Annual allocations to the counties were made based on population. • How and why was a surplus accumulated if counties needed to supplement ADF programs with their own funds? DEM Response (updated 219109) In December 2007 DOH issued their Annual Solid Waste Management Report which included the explanation of the Glass Advance Disposal (ADF) Program (Refer to Attachment "G" — State Annual Solid Waste Management Report). In 2003, the total allocations were $2,265,000 with Hawaii County allocated for $283,000 or 13 %. Beginning October 1, 2004, glass deposit beverage containers were transferred from the purview of the ADF program to that of the Deposit Beverage Container (DBC) Program. This reduced the number of containers covered by the ADF program by approximately 80% and brought with it a corresponding decrease in revenue, thereby reducing the allocations to each County. By 2007, the total allocations were reduced to $454,080 with Hawaii County allocated approximately $56, 000. • Why were surplus funds transferred to the General Fund when ADF funds were insufficient to cover ongoing glass recovery? 26 RECOMMENDATIONS - ADF -GLASS CONTAINER RECOVERY PROGRAM DEM Response As a result of the reduction in the allocations from the State ADF Glass funds, the County subsidized glass recycling to maintain the recycling of non DBC glass and to increase diversion of glass from the landfills. LAO Follow -up This recommendation was made in reference to the severe cut in annual allocations to the Counties following the reallocation of $2 million from the State Environmental Management Special Fund to the State General Fund by the Governor in 2004. The Auditor requested a breakdown of County General Fund versus State funding sources for ADF expenditures for the last five years. However, as of March 18, 2009, DEM has not provided the requested information. ADF Glass Container Recovery Program Recommendation #13 We recommend that the department and the County address issues created by the severe reduction or possible discontinuation of State funding for the ADF program. DEM Response Please refer to the response to Chapter 3 — ADF Glass Container Recovery Program, Recommendation No. 4, (pages 13- 16). LAO Follow -up DEM's response should discuss how the ADF program is currently being funded based on reduced funding from the State. 27 RECOMMENDATIONS - H16 - BEVERAGE CONTAINER DEPOSIT PROGRAM RECOMMENDATIONS — H15 - BEVERAGE CONTAINER DEPOSIT PROGRAM H15 - Beverage Container Deposit Program Recommendation #1 We recommend that DEM work with DOH to establish certified redemption centers in those areas currently unserved or under - served as required by HRS §342G- 113(d) and /or HAR §11- 282- 62(a). DEM Response We have been working closely with DOH and the County Certified Redemption Centers. Service is now daily (7 days per week) in Hilo. Atlas Recycling now offers "mobile redemption centers" for the rural communities in Ocean View and Na'alehu. Reynolds Recycling recently acquired a truck equipped with a Reverse Vending Machine and has done redemption activities at rural sites around the island. We plan to open a redemption center at the Volcano Transfer Station and increase the frequency of service in Hawi. Kadota Liquors in Hilo was recently awarded grant monies to purchase Reverse Vending Machines and construction at the future Certified Redemption Centers (CRCs) is currently under way. Other private companies are currently looking at other underserved areas for future sites. H15 - Beverage Container Deposit Program Recommendation #2 We recommend that DEM work with other counties and DOH to assess current program deficiencies at all levels and to formulate countermeasures and procedures to address them. DEM Response Prior to the County of Maui and Kauai losing their HI 5 staff, quarterly meetings were held on Oahu or by teleconference for all Counties. County of Hawaii staff is still in contact with DOH and other Counties by email or phone to discuss any matters regarding the Bottle Bill Program. DOH inspectors make quarterly redemption site and/ or retail inspections to the Big Island where matters are further discussed. H15 - Beverage Container Deposit Program Recommendation #3 We recommend that DEM work more closely with ARC to ensure that sufficient control mechanisms are in place and that regular review and reconciliations are performed to confirm accuracy of data collected and reduce the risk of contractor errors or abuse. DEM Response County of Hawaii Bottle Bill staff does monthly inspections of Certified Redemption Centers (Refer to Attachment "H" — CRC Site Visit Summary) located on the Big island and meets with the Arc of Hilo as- needed to improve service and discuss any matters regarding the Bottle Bill Program. A master internal checklist was created and any discrepancies require resolution prior to approving invoice payments. LAO Follow -up Please see our discussion at Recommendation No. 6 — General Finding related to improvement of internal controls for measurement and independent verification of contractor claims for H15- beverage containers. While the majority of new RFPs and contracts reviewed during our follow -up review more clearly delineate specific commodities, volumes, and requirements for diversion, recycling, and /or 28 RECOMMENDATIONS - H16 - BEVERAGE CONTAINER DEPOSIT PROGRAM reuse, DEM continues to lack sufficient controls to ensure that weights claimed are factual, accurate, H15 - Beverage Container Deposit Program Recommendation #4 We recommend that DEM continue to support ARC'S efforts to make transfer station redemption centers and public participation projects more convenient and user - friendly. DEM Response We have been working closely with DOH and the Arc of Hilo to improve the customer experience. The County sought and was awarded additional funds in FY07 -08 to provide glasscrete pads at the Certified Redemption Centers. For FY08 -09, the County was awarded funds to provide more attractive, substantial structures for the Certified Redemption Centers at transfer stations. In FY07- 08, the Arc of Hilo adjusted the amount of cash each Certified Redemption Center is given so that the majority of redemption payments can be paid in cash instead of vouchers, improving customer service. H15 - Beverage Container Deposit Program Recommendation #5 We recommend that DEM prepare a master internal check list/review form to accompany contractor payment requests. This form should be modified as needed to reflect specific documentation and reconciliations required for a particular program or contract. DEM Response The County has two (2) Recycling Specialist 11 positions funded by the H15 program. Currently, there is a vacancy for one position. Although, the County has implemented a hiring freeze, because this position is funded by State Grant funds, we anticipate approval of the position so the County will not lose momentum in this very successful and popular diversion program. As recommended by the audit, the Department's Recycling Section developed an invoice checklist for the invoices submitted by the Arc of Hilo to verify that the contractor has submitted all the required documents and reports prior to approving payment of the invoice. (Refer to Attachment 'T' — Arc of Hilo Invoice Checklist). H15 - Beverage Container Deposit Program Recommendation #6 We recommend that the County Council clarify by ordinance the County's authority to audit any and all of its procurement contracts including any sub -tier contracts. DEM Response We agree with the recommendation and suggest that the County Council consult with the Finance Department on this matter. LAO Follow -up The majority of contracts reviewed now contain a "right -to- audit" clause. 29 RECOMMENDATIONS - GREEN WASTE PROGRAM RECOMMENDATIONS — GREEN WASTE PROGRAM Green Waste Program Recommendation #1 We recommend that a cohesive vision be developed to address solid waste management in Hawaii County, including input from the general public, Environmental Management Commission, Department of Environmental Management, the Mayor, and the County Council. The Updated ISWMP needs to be revised to reflect this vision. Most importantly, a "working plan" needs to be developed to supplement the County's Updated ISWMP that addresses, at a minimum, a detailed task schedule and implementation of a formal process for frequent progress review. DEM Response The County of Hawaii is currently updating the ISWMP. A cohesive vision will be developed as part of the plan as a result of obtaining input from the general public, the Environmental Management Commission, the Mayor and County Council. The update to the ISWMP will include an implementation plan and schedule and associated cost to implement the plan. LAO Follow -up Although no "new" procurements and contracts have been issued for this particular program since our original audit, we note that the majority of new contracts issued in other programs contain a "right -to- audit" clause_ Green Waste Program Recommendation #2 We recommend that the Hawaii County Code be amended to address the banning of household and commercial green waste from County landfills in accordance with Hawaii Administrative Rules §11- 58.1- 65(b). DEM Response The County currently has only three (3) locations that accepts greenwaste for recycling, Hilo, Kona & Keaau. The County has plans to have a Compost and Biodiesel operation at the West Hawaii Sanitary Landfill in FY08 -09. Towards this end, the Department, in conjunction with the Purchasing Division, developed RFP #2481. At the same time that RFP # 2481 was is issued, another RFP #2479 was issued for establishment of greenwaste collection sites at transfer stations. Evaluation of both RFPs is underway as of this writing. The Solid Waste Division has plans to modify the solid waste regulatory permits for the convenience centers (aka transfer stations) to allow acceptance of greenwaste. Once greenwaste recycling collection sites are established at more communities, the plan will be to pursue banning greenwaste from the transfer stations and landfills. LAO Follow -up We noted no documentation of a cost - benefit analysis comparing in -house collection of green waste from transfer stations versus outsourced collection of green waste from transfer stations, or a cost - benefit analysis comparing in -house collection and processing of green waste versus outsourced collection and processing of green waste. If the County's goal is to move as close as possible to zero waste, then recycling and diversion of green waste is an ongoing need and warrants consideration of the most cost - effective method of providing these services. 30 RECOMMENDATIONS - GREEN WASTE PROGRAM Green Waste Program Recommendation #3 We recommend that Landfill operation plans need to be updated in accordance with current statutory and regulatory requirements and the County's Updated ISWMP, and communicated to landfill management, operations personnel, contractors, and the general public. DEM Response The South Hilo Sanitary Landfill operation plans were updated and were made part of the permit submittal as required to the State Department of Health. The West Hawaii Sanitary Landfill operation plans were updated as part of the permit renewal submitted by Waste Management to the State Department of Health. These will be communicated to operations personnel when the permits are approved and issued by the State Department of Health. LAO Follow -up As part of its response, DEM should establish a plan and procedure to ensure timely and ongoing notification and education of landfill management, operations personnel, contractors, and the general public of landfill permit and other regulatory changes. Green Waste Program Recommendation #4 We recommend that DEM develop and implement formal policies and procedures for responses to any and all regulatory agency warnings and violation notices, including to whom and when these warnings and notices should be communicated, and procedures to ensure timely follow up and resolution. DEM Response We agree and have implemented a method to assure timely follow -up with regulatory agency warnings. Any notification or warning letter received from the DOH is assigned a numerical number in MS Outlook and is tracked by the DEM Secretary until an appropriate response or resolution from the Department, Division or Vendor. The greenwaste site at the Kealakehe Transfer Station is inadequate, creating challenges for the contractor to stay in compliance with DOH. DEM is working closely with the current contractor, EKO, on these issues and communicates regularly with the DOH on issues of mutual importance. LAO Follow -up The Auditor continues to note State Department of Health warning notices regarding contractor non- compliance with permit requirements. Green Waste Program Recommendation #5 We recommend that DEM determine whether a dedicated personnel position should be tasked with the responsibility for monitoring of contracts and contractor compliance. Oversight duties would include ensuring: • All procurements are made in accordance with State and County procurement codes. 31 RECOMMENDATIONS - GREEN WASTE PROGRAM • All procurement documents (RFP's, IFB's, etc.) and contracts contain sufficient controls and protections. • The procurement process is initiated and completed in a timely manner. • Compliance with applicable permitting and other regulatory requirements. • Compliance with contractual requirements and evaluation of contractor performance. DEM Response We are working closely with the Purchasing Division to follow this recommendation. DEM Business Services Section has an open recruitment for a position for Contracts Clerk to assist with these activities. To implement sufficient oversight and monitoring of contractor performance may require the addition of operations staff. The Department has recently discussed the possibility of using cameras and other new technology for monitoring of the recycling activities of its contractors. The cost of acquisition of this type of software and /or equipment compared with the additional personnel costs needs to be analyzed. Also, to be determined is the risk assessment and the costibenetit analysis. Although the Department notes that the County has implemented a hiring freeze, the Department will work closely with the Mayor's office to acquire approval for filling the Contracts Clerk position. LAO Follow -up All preen waste contracts incorporated the Finance Department's "General Terms and Conditions" without exception. Improvement was also noted in timely execution of supplements to this contract. However, given liability issues and monetary risks, all contracts should be fully executed prior to commencement of work or services. Green Waste Program Recommendation #6 We recommend that DEM establish standardized internal policies and procedures for program documentation and reporting. • Program file documentation should be complete and current as to any and all intra- and inter- departmental, regulatory agency, and vendor communications. Program files should also include a chronology of complaints or violations and documentation of their resolution. • Program file documentation should be complete and current as to any permits, reports, plans, and other program documents submitted by the department or contractors in accordance with governmental or regulatory agency requirements. Program files should also include a schedule of what reports are required, when they are due, and to whom they need to be distributed as well as written procedures detailing source data required for each report and how data is to be collected and compiled. DEM Response Please refer to response to similar recommendation in the Chapter on General Findings. LAO Follow -up Although contract files for this specific commodity were not reviewed during our follow -up review, those contract files reviewed showed significant overall improvement in organization and 32 RECOMMENDATIONS - GREEN WASTE PROGRAM completeness. However, we found no program tracking or "tickler" system to assist DEM personnel in identifying program and regulatory requirements and deadlines. Green Waste Program Recommendation #7 We recommend that DEM establish standardized policies and procedures to permit verification of contractor claims reports and reduce the risk of fraud and /or abuse including but not limited to: • Implement necessary policies and procedures to accurately measure in -flow volumes of green waste. • Delineate information required on scale tickets. • Require identification of all contractor vehicles, including vehicle description, license number, and tare weights. • Require contractor vehicles to be weighed at a County scale house before and after deliveries. • Place County personnel at processing sites to monitor weighing of unprocessed and processed mulch. • Develop a checklist for approval of contractor claims, including review for mathematical errors, reconciliation with scale tickets, and authorization of any deviation from contract requirements (i.e.; minimum processing weights). • Consult with the Finance Department and Corporation Counsel on the process and documentation required for removal of contractors from "acceptable vendor" status for non- performance. DEM Response We have developed a new system for verifying the invoices submitted for EKO, the current greenwaste vendor and to accurately verify the material weights. Because there is no scale at the current Kealakehe Site, payment is made on "per load" based on scaled weights of the specific vehicle. Random (unannounced visits) to obtain weights is being done. The Department's Recycling Section has developed procedures to verify the invoices for accuracy and required documentation (Refer to Attachment "J" Greenwaste Operations Policies and Procedures). LAO Follow -up This is an improvement in internal controls. However, current procedures still do not accurately verify material weights, but only verify the number of loads hauled, and do not prevent counting of loads more than once. Accurate measurement of all preen waste from all sources (household and commercial) or internal controls to ensure that commodities are weighed only once are necessary to ensure that the contractor cannot claim more tonnage than it received for processing. Green Waste Program Recommendation #8 We recommend that DEM establish standardized policies and procedures for monitoring and documenting vendor compliance with other contractual obligations including but not limited to: 33 RECOMMENDATIONS - GREEN WASTE PROGRAM • Review certificates of insurance provided by contractors for accuracy and dates of coverage. • Require documentation of advertising efforts undertaken by contractors, including samples of promotional and educational materials and invoices from newspapers and other media sources to confirm their publication and distribution. DEM Response Please refer to the response in Chapter 2. General Findings, Recommendation #2 (page 5). LAO Follow -up We note the continuing lack of current documentation of general liability and automobile insurance coverage and sufficient documentation of outreach and promotional expenditures. Green Waste Program Recommendation #9 We recommend that DEM obtain accurate estimates of green waste volumes to be processed for inclusion in procurement documents. DEM Response We have obtain accurate reports from the current contractor, Big Island EKO, as to the volumes of greenwaste processed in both Hilo and Kona with their monthly invoice. This information was provided in greenwaste and compost procurements documents developed for FY08 -09. LAO Follow -up Without proper controls in place, the accuracy of contractor claims cannot be assured. As with ADF- Glass Containers and H15- Beverage Containers, independent verification of green waste tonnages at some point in the process needs to be implemented. 34 RECOMMENDATIONS - SCRAP METAL PROGRAM RECOMMENDATIONS — SCRAP METAL PROGRAM Scrap Metal Program Recommendation #1 We recommend that DEM ensure that the award entity is a "legal" entity prior to contract award and that there is sufficient documentation in the program file to explain inconsistencies between the names of original bidders and names of vendors awarded contracts during the procurement process. DEM Response The Department understands that Corporation Counsel and the Purchasing Division when reviewing the contract and approving them are sufficient checks and balances to assure that the award is legal. DEM does not have the legal expertise to implement this recommendation. We will continue to work with the Purchasing Division and Corporation Counsel to provide necessary documentation to resolve inconsistencies. LAO Follow -up The Auditor agrees that this recommendation is more appropriately addressed to the Corporation Counsel as it relates to all contracts executed by the County. Scrap Metal Program Recommendation #2 We recommend that DEM ensure that personnel with sufficient training and expertise are assigned to supervise the contract procurement process, including, but not limited to, preparation of contractor reporting requirements specifying format, content, and frequency of reports. DEM Response We are working closely with the Purchasing Division to follow this recommendation. DEM Business Services Section has an open recruitment for a position for Contracts Clerk to assist with these activities. Although the Department notes that the County has implemented a hiring freeze, the Department will work closely with the Mayor's office to acquire approval for filling this position. Scrap Metal Program Recommendation #3 We recommend that DEM ensure that personnel with sufficient training and expertise are assigned to monitor each contract after issuance to ensure departmental and contractor compliance with all contractual, regulatory, and operational requirements. DEM Response Ensuring that personnel with sufficient training and expertise are assigned to monitor each contract to ensure contractor compliance is an excellent recommendation that will be implemented when appropriate staff, facilities and funding are available. LAO Follow -up Inclusion of sufficient controls at the procurement phase can reduce the number of personnel required to monitor contracts and programs. 35 RECOMMENDATIONS - SCRAP METAL PROGRAM Scrap Metal Program Recommendation #4 We recommend that DEM ensure that proper permits are obtained prior to any contractor commencing work on any contract on any County property. DEM Response We agree and have been working with vendors and /or DOH to obtain copies of current permits before contractor commences work. Scrap Metal Program Recommendation #5 We recommend that DEM ensure that contractors obtain necessary permits and provide documentation of work performed before disbursing any County funds. DEM Response We agree and have been working with vendors and /or DOH to obtain copies of current permits before contractor commences work. Scrap Metal Program Recommendation #6 We recommend that DEM develop and implement policies and procedures to adequately verify the accuracy and integrity of the contractor's claims of scrap metal removed from County storage sites. At a minimum, policy and procedure should address sealing of disposal containers and end -user verification that the seals are intact upon receipt of containers. DEM Response Developing standard policies and procedures to adequately verify the contractor's claims is an excellent recommendation that will be implemented when appropriate staff, facilities and funding are available. LAO Follow -up DEM indicated it is aware that a "related /affiliated party" relationship exists between the contractor and the end - market user that verifies weights of off - island shipments. However, as noted in our discussion at Recommendation No. 2 for the Diversion Grant Program, no mitigating controls have been implemented, and no formal written policies and procedures on this issue have been developed and communicated to staff. Scrap Metal Program Recommendation #7 We recommend that DEM address any warning letter received from DOH -SHWB or any other regulatory agency in a timely manner to avoid assessment of fines and penalties and possible termination of permits. DEM Response We agree and have implemented a method to assure timely follow -up with regulatory agency warnings. 36 RECOMMENDATIONS - SCRAP METAL PROGRAM Scrap Metal Program Recommendation #8 We recommend that RFP and contract documents require contractors to respond within a given time to any communications pertaining to complaints or deviations from program, permit, or other regulatory requirements. It is also essential to document in the program file any responses from and corrective actions taken by contractors. DEM Response We agree and have implemented clear and concise language in contracts about the need for timely communication and follow -up. A form for Contractor Complaints was developed and is used to document complaints through the associated corrective actions implemented. LAO Follow -up DEM managers indicate that a newly developed "complaint /resolution form" has been utilized only by certain staff to document complaints pertaining to programs under their purview. DEM needs to standardize its complaint resolution policy, process, and form for implementation department -wide. Scrap Metal Program Recommendation #9 We recommend that DEM document any operational problem with a contractor during the administration of a contract. All correspondence, together with a chronology of events and their resolution, should be documented in the program file. DEM should require contractors to respond to any communications pertaining to operational problems. Adequate follow -up procedures should also be implemented to ensure that contractor performance remains in compliance with all contractual and regulatory requirements. DEM Response We agree and will implement a chronology of events and their resolutions. A form to document operational problems will be developed and will be used to document operational problems with a contractor during the administration of a contract. LAO Follow -up DEM has implemented an "inspection report form" for use by departmental personnel on contract or site visits for certain programs. The form needs to be standardized for all programs and accompanied by an assessment process with contractor performance reported back and incorporated into evaluations for future procurement awards. Scrap Metal Program Recommendation #10 We recommend that DEM document its own departmental responses and corrective actions taken to resolve operational problems. The department should develop and implement a training program for its personnel regarding standardized procedures for reporting and documentation of events and their resolution. 37 RECOMMENDATIONS - SCRAP METAL PROGRAM DEM Response This is an excellent recommendation that will be implemented when appropriate staff and funding are available. LAO Follow -up Significant improvement in documentation was noted. Scrap Metal Program Recommendation #11 We recommend that DEM adhere to contractual provisions particularly regarding vendor compensation. Payment should not be made if a good or service is not covered under the subject contract. A standardized payment checklist attached to the front of each contract folder would be helpful in tracking eligible payments, including a list of contract requirements and timelines and a column for initialing completion of tasks. DEM Response We agree that a payment should not be made if it is not covered under the contract. A standardized payment checklist is an excellent method to track payments. The position of Contracts Clerk once filled would be instrumental in assisting with this activity. As of this writing, the County has implemented a hiring freeze. Although the Department notes that the County has implemented a hiring freeze, the Department will work closely with the Mayor's office to acquire approval for tilling this position. LAO Follow -up No exceptions noted. Scrap Metal Program Recommendation #12 We recommend that DEM reconcile contractor invoices against supporting documentation before processing payment. In the event that contractor invoices are resubmitted for payment, DEM should require written verifiable documentation of revised amounts and properly document departmental payment authorizations. DEM Response We agree that contractor invoices should be reconciled prior to submitting for payment. LAO Follow -up Contractor invoices were reviewed against supporting documentation without exception. However, as discussed above, without independent verification of diversion weights, the effectiveness of this control is limited. 38 RECOMMENDATIONS - SCRAP METAL PROGRAM Scrap Metal Program Recommendation #13 We recommend that DEM monitor fund balances to ensure that funds are available to pay contractor invoices. DEM should properly post journal entries according to dates of approval. No journal entry should be posted in advance of its date of approval by an authorizing body. Accounting entries are regulated by GAAP, and it is improper to post items prior to approval by an authorizing body. DEM Response Fund Balances are monitored upon receipt of contractor invoices. Estimates of future expenditures are determined based on past records and current operations. All accounting entries are posted by the Department of Finance after receiving proper approvals. Scrap Metal Program Recommendation #14 We recommend that DEM implement processes and procedures to permit ongoing and accurate measurement of incoming tonnages. DEM Response We measure outgoing tonnages to end markets. We don't agree that measuring incoming tonnages has sufficient value at this time. It would be costly and time consuming for the value generated. LAO Follow -up The Auditor recommended independent verification of incoming tonnages as a countermeasure to mitigate the "related /affiliated party" relationship between the contractor and the end - market user, which was known to the Department. If implementation of this countermeasure is too costly, a more cost - effective control should be developed and implemented. Scrap Metal Program Recommendation #15 We recommend that DEM implement necessary changes to obtain accurate estimates of volume to be processed for inclusion in procurement documents. DEM Response We will have accurate volumes at the end of the current 10 -year contract, for inclusion into future procurement documents if the operations in the future are comparable to the current operations. We don't anticipate changing the current contract unless the end market is unable to receive the current tonnages produced. LAO Follow -up Without proper controls in place, the accuracy of contractor claims cannot be assured. As with ADF- Glass and H15- Beverage containers and preen waste, independent verification of scrap metal weights needs to be implemented. While the majority of new RFPs and contracts reviewed during our follow - up review more clearly delineate specific commodities, volumes, and requirements for diversion, recycling, and /or reuse, DEM continues to lack sufficient controls to ensure that weights claimed are factual, accurate, and claimed only once. 39 RECOMMENDATIONS - SCRAP METAL PROGRAM Scrap Metal Program Recommendation #16 We recommend that DEM implement standardized project accounting utilizing the County's FRESH financial accounting system to better monitor fund balances and to create reports for dissemination to proper personnel on a regular and timely basis. DEM Response The Department's Business Services Section has determined that the project accounting module of the County's FRESH accounting system is not the best application for monitoring and reporting on our recycling programs. A combination of spreadsheets and FRESH expenditure reports are a more suitable reporting alternative. LAO Follow -Up As discussed earlier, DEM has implemented a separate billing and payment tracking system that is not reconciled with the County's FRESH accounting system, giving rise to inefficiencies of redundant data entry and possible inaccuracies absent data reconciliation among multiple information systems. Other audit work indicates that project accounting needs to be addressed County -wide. Scrap Metal Program Recommendation #17 We recommend that DEM explore the possibility of exercising its right to assess fines and penalties against contractors to enforce compliance with contractual terms and conditions. Hawaii County Code §2- 204(a) provides: "(a) If the Director determines that any person has violated or is violating any provision of this article or chapter 20 or 21 or any rule adopted pursuant to these chapters, the director may do any one or more of the following: (i) Issue an order assessing an administrative penalty for any past of current violation; (ii) Require compliance immediately or within a specified time; and (iii) Commence a civil action in the circuit court for appropriate relief, including a temporary, preliminary, or permanent injunction, the imposition and collection of civil penalties or other relief." DEM Response DEM has explored the possibility of assessing fines and penalties, but it doesn't appear that under the current rules and regulation, DEM has this particular enforcement authority to issue an order to contractors as a way to enforce compliance with contractual terms and conditions. LAO Follow -up Insufficient contractual provisions and failure to enforce contractual and other legal provisions relating to vendor non - performance or non - compliance have been issues in audits conducted of other County departments. Therefore, the Auditor recommends that the Corporation Counsel and Finance Department implement standardized policies and procedures to ensure that all County contracts are reviewed for and contain sufficient provisions for vendor performance evaluations and remedies for failure to deliver contracted goods or services. These standardized policies and procedures should also outline duties and responsibilities on the part of County departments to document vendor performance. 40 RECOMMENDATIONS - HOUSEHOLD HAZARDOUS WASTE PROGRAM RECOMMENDATIONS — HOUSEHOLD HAZARDOUS WASTE PROGRAM Household Hazardous Waste Program Recommendation #1 We recommend that DEM together with the County review current procedures and research possibilities for new economically feasible technologies, facilities, and procedures that would identify and prevent hazardous wastes from entering County landfills. DEM Response We agree and in FY07 -08 the new RFP #2297 for Household Hazardous Waste Collection included fluorescent lights which contain a small amount of mercury and prescription medications. Prior to this, the materials were ending up in our landfills. Unfortunately, the RFP yielded only one proposal. The Department's Recycling Section applied for and was awarded a CDBG grant to conduct a HHW event in Pahoa for the first time in March 2008. In addition, the program expanded to include a Waimea HHW in March 2008, funded by the County. The County has 6 annual Household Hazardous Waste collection events which are insufficient to support a total ban from landfills which currently allows Household Hazardous Waste and Small Quantity Generators. The County encourages residents to dispose of these materials at one of the HHW events and discourages disposal at the transfer stations or at the landfills. The County contracted with R. W. Beck to design transfer stations with the plan to offer permanent HHW collection sites at transfer stations. Additionally, the County publicizes HHW collection programs offered by local businesses. Home Depot accepts batteries and fluorescent lights during normal business hours. Other businesses accept car batteries. The County has also discussed Extended Producer Responsibility (EPR) legislation for HHW as it is the most expensive diversion program on a per ton basis. As discussed in the Chapter on General Findings, the ISWMP will address HHW options. LAO Follow -up DEM has made significant efforts to increase the types and amounts of household hazardous waste being diverted from County landfills. The Updated ISWMP should include a plan and implementation schedule for each waste type to be eliminated from County landfills to ensure that diversions are successfully executed and comply with EPA standards. Household Hazardous Waste Program Recommendation #2 We recommend that the County establish permanent sites for ongoing collection of both household and commercial hazardous wastes. DEM Response DEM Response (updated 219109): We agree, but funding for the additional Solid Waste Division staff and resources are not available at this time. The Department has contracted with R. W. Beck to design transfer stations with the intent to provide permanent HHW collection sites at transfer stations. LAO Follow -up DEM should perform cost - benefit analyses for multiple scenarios to address this ongoing need, including incorporation of hazardous waste collection in current programs and the assumption of new Programs by County personnel versus private contractors. 41 RECOMMENDATIONS - HOUSEHOLD HAZARDOUS WASTE PROGRAM Household Hazardous Waste Program Recommendation #3 We recommend that DEM clarify the applicability of HRS chapters 342G and 342J to the County's household hazardous waste program, and either bring the program into compliance with statutory requirements or obtain a legal determination that compliance is being waived by the State. DEM Response Please refer to the letter from former Department Director, Barbara Bell dated July 10, 2006, pages 6 & 7, HOUSEHOLD HAZARDOUS WASTE PROGRAM. DEM and the auditors have an unresolved issue about the interpretation of the HRS Chapters and DEM will research the issues further when staff is available. While DEM's efforts to provide the public with convenient and safe disposal alternative for HHW, it is noted that currently the County of Maui has no County- funded programs for residents to collect household hazardous wastes and the City and County of Honolulu provides collection events every 2 months. The cost of HHW collection programs is very expensive and DEM receives many requests from residents to expand the program. LAO Follow -up Again, the Auditor recommends that cost - benefit analyses be conducted to compare continuing to outsource 100% of hauling and diversion activities versus having County personnel assume all activities up to and including delivery of commodities to private diversion contractors or having County personnel assume all hauling and diversion activities. That other Counties are not in statutory compliance with waste diversion regulations should not be a justification for non - compliance by Hawaii County. Household Hazardous Waste Program Recommendation #4 We recommend that DEM implement procedures for reconciliation of contractor collections reports with shipping manifests and delivery receipts from certified reuse and disposal facilities. DEM Response This is a valid recommendation that will be implemented when appropriate staff and funding are available. LAO Follow -up While collection and disposal of commodities are better documented in the Household Hazardous Waste Program, not all collection reports could be reconciled to weight claims, shipping manifests, and end - market user receipts. As discussed above, while the majority of new RFPs and contracts reviewed during our follow -up review more clearly delineated specific commodities, volumes, and requirements for diversion, recycling, and /or reuse, DEM continues to lack sufficient controls to ensure that diversion weights claimed are factual, accurate, and claimed only once. 42 RECOMMENDATIONS - WEST HAWAII MATERIAL RECOVERY PROGRAM RECOMMENDATIONS — WEST HAWAII MATERIAL RECOVERY PROGRAM West Hawaii Material Recovery Program Recommendation #1 We recommend that DEM retain in its program file any and all documentation pertaining to changes noted on any County form or contract. Should any Contractor or Consultant mark or change any County form, documentation and authorization needs to be provided. DEM Response All contract documents are filed with the project and changes that are recommended by the Contractor or Consultant are reviewed by Corp. Counsel prior to acceptance. LAO Follow -up In our follow -up review, no instances requiring this comment were noted. West Hawaii Material Recovery Program Recommendation #2 We recommend that DEM require a Contractor or Consultant to comply with contractual timelines for submittal of required plans and applications and should document said compliance in the program file. The program file should also include complete copies of submitted plans and applications, any agency comments and approvals generated after plan and application review, and any responsive communications or revised plans and applications submitted by the Contractor or Consultant. DEM Response Consultants rely on timely interaction with County personnel and regulatory agencies and they are not always able to maintain their proposed schedule. Because the nature of the work requires this interaction, and the consultant has no control over the time taken by the other stakeholders, the time line will often be adjusted. It is the County personnel that have the responsibility to assure that the project is progressing satisfactorily. County personnel will adjust the schedule as necessary in contract supplements. LAO Follow -up DEM's response demonstrates why processes and procedures for procurement contracting and program monitoring are so critical to ensure that procurements are initiated and completed in a timely manner and contract specifications, expectations, and outcomes are complete to provide uninterrupted service to the public. Reliable project monitoring and documentation are critical to meeting contractual timelines, determining responsible stakeholders, and keeping contract supplements and project costs to a minimum. West Hawaii Material Recovery Program Recommendation #3 We recommend that DEM assign specific personnel to track and monitor a Contractor's or Consultant's performance and compliance with contractual requirements prior to payment of any invoices for services. DEM should not accept invoices that do not document scope of work completed within contractual timelines. It is further recommended that a checklist of project tasks and timelines be attached to the front of each contract or program file to facilitate monitoring by department staff. 43 RECOMMENDATIONS - WEST HAWAII MATERIAL RECOVERY PROGRAM DEM Response The project tasks are included in the scope of work in the contract documents. The method of determining the appropriate progress payments is also established by said contract. Some are based on time and materials, others are based on a schedule of tasks and values, and some are based on the percent complete. In most cases County personnel receive a monthly progress report that provides the required information to determine if the invoiced amount is appropriate. LAO Follow -up This recommendation was made in reference to contractual requirements for the disposal of household hazardous wastes by the contractor and provision of documentation to DEM within specific periods of time. At the time of the original audit, the vendor had not fully complied with contractual requirements before receiving payment from the County. However, during our follow -up review, no material exceptions were noted. As discussed above, the majority of new RFPs and contracts reviewed during our follow -up review more clearly delineated specific commodities, volumes, and requirements for diversion, recycling, and /or reuse. However, DEM continues to lack sufficient controls to ensure that diversion weights claimed are factual, accurate, and claimed only once. 44 RECOMMENDATIONS - TIRE RECYCLING PROGRAM RECOMMENDATIONS — TIRE RECYCLING PROGRAM Tire Recycle Program Recommendation #1 We recommend that the County Code, Updated ISWMP, and DEM landfill operations manuals be reviewed and further updated to be consistent with the State ban of used tires from County landfills. DEM Response We agree and in FY07 -08 the County Council passed Ordinance No 07 -182 that bans tires and tire parts from solid waste landfills in Hawaii County. The effective date is June 26, 2008. LAO Follow -up DEM's response should also discuss the status of updates to the ISWMP and DEM landfill operations manuals to include the State ban on tires. The Auditor also requested an update on the effectiveness of the tire ban at Countv landfills and an exDlanation of obstacles to comDliance. if anv. Tire Recycle Program Recommendation #2 We recommend that DEM implement a process to ensure that all interested parties are included in the IFB process to ensure strict adherence with procurement laws and to enable the County to contract for quality services at reasonable prices. DEM Response We have been working closely with the Purchasing Division to follow this recommendation. DEM Business Services Section has an open recruitment for a position for Contracts Clerk to assist with these activities. Although the Department notes that the County has implemented a hiring freeze, the Department will work closely with the Mayor's office to acquire approval for filling this position. LAO Follow -up Before hire of additional contracts personnel, DEM should develop department- specific polices and procedures, including a procurement checklist and timeline, to guide new staff in the performance of their assigned duties. Tire Recycle Program Recommendation #3 We recommend that the Purchasing Division and DEM determine whether file documentation can be improved to develop a priority list for procurements. DEM Response We have been working closely with the Purchasing Division to follow this recommendation. DEM Business Services Section has an open recruitment for a position for Contracts Clerk to assist with these activities. Although the Department notes that the County has implemented a hiring freeze, the Department will work closely with the Mayor's office to acquire approval for filling this position. 45 RECOMMENDATIONS - TIRE RECYCLING PROGRAM LAO Follow -up Again, before hire of additional contracts personnel, DEM should develop department- specific polices and procedures for establishment of a complete list of potential vendors, including reports of current and past vendor performance, to be utilized for future procurements and vendor notifications. Tire Recycle Program Recommendation #4 We recommend that DEM implement formal policies and procedures for program review and contractor evaluation to better determine whether a current contract should be extended or a new procurement process should be initiated: • Including a cost/benefit analysis of contract extension versus new procurement. • Allowing sufficient time for a proper competitive procurement process. • Providing for timely execution of a contract extension or issuance of a notice of procurement. • Providing internal and external procedures and forms for documentation, authorization, and communication of contract awards. DEM Response We have been working closely with the Purchasing Division to follow this recommendation. DEM Business Services Section has an open recruitment for a position for Contracts Clerk to assist with these activities. Although the Department notes that the County has implemented a hiring freeze, the Department will work closely with the Mayor's office to acquire approval for filling this position. LAO Follow -up Some consideration of current vendor performance should be immediately incorporated into the contract "extend or re -bid" decision process. Documentation of vendor performance should be an established component of program oversight and monitoring, and not solely the responsibility of a Contracts Clerk. Tire Recycle Program Recommendation #5 We recommend that DEM determine why timeliness in its procurement is problematic and implement appropriate countermeasures to ensure that: • Responses to written requests from the Purchasing Division regarding procurements, contract awards, and contract extensions are communicated in a timely manner. • Procurements are initiated and completed in a timely manner. • Contracts are awarded in timely manner. 46 RECOMMENDATIONS - TIRE RECYCLING PROGRAM DEM Response We have been working closely with the Purchasing Division to follow this recommendation. DEM Business Services Section has an open recruitment for a position for Contracts Clerk to assist with these activities. Although the Department notes that the County has implemented a hiring freeze, the Department will work closely with the Mayor's office to acquire approval for filling this position. LAO Follow -up Inclusion of sufficient controls at the procurement phase can reduce the number of personnel required to monitor contracts. As discussed above, while the majority of new RFPs and contracts reviewed during our follow -up review more clearly delineated specific commodities, volumes, and requirements for diversion, recycling, and /or reuse, DEM continues to lack sufficient controls to ensure that diversion weights claimed are factual, accurate, and claimed only once. Tire Recycle Program Recommendation #6 We recommend that DEM develop formal procedures and forms for authorization of contract - related changes such as account balance liquidation. DEM Response We agree with this recommendation and the Business Services Section has an open recruitment for a position for Contracts Clerk to assist with these activities. Although the Department notes that the County has implemented a hiring freeze, the Department will work closely with the Mayor's office to acquire approval for filling this position. LAO Follow -up The DEM Accountant confirms that a formal procedure for authorization of contract - related changes is now in place. Tire Recycle Program Recommendation #7 We recommend that DEM review documentation submitted by contractors for compliance with contractual and regulatory permit requirements. DEM Response We agree with this recommendation and the DEM Business Services Section has an open recruitment for a position for Contracts Clerk to assist with these activities. The Department notes that the County has implemented a hiring freeze. Although the Department notes that the County has implemented a hiring freeze, the Department will work closely with the Mayor's office to acquire approval for filling this position. Tire Recycle Program Recommendation #8 We recommend that DEM develop policies and procedures pertaining program incident resolution and reporting. 47 RECOMMENDATIONS - TIRE RECYCLING PROGRAM DEM Response We agree with this recommendation and the DEM Business Services Section has an open recruitment for a position for Contracts Clerk to assist with these activities. Although the Department notes that the County has implemented a hiring freeze, the Department will work closely with the Mayor's office to acquire approval for filling this position. LAO Follow -up Again, inclusion of sufficient controls at the procurement phase can reduce the number of personnel required to monitor contracts. Tire Recycle Program Recommendation #9 We recommend that DEM provide staff with clearly defined job responsibilities and adequate training and policy guidance regarding transfer station operations and contractor monitoring duties. DEM Response We agree as this recommendation is critical to appropriate operations in compliance with the State solid waste regulatory permits. This is a valid recommendation that will be implemented when appropriate staff and funding are available. LAO Follow -up Please see our discussion at Recommendation No. 6 — General Findings related to contractor monitoring duties at transfer stations and landfills. Tire Recycle Program Recommendation #10 We recommend that DEM implement the changes necessary to provide the capability to obtain accurate estimates of volumes to be processed for inclusion in procurement and contract documents. DEM Response We are tracking the volumes and future procurements will include this information. LAO Follow -up The Auditor confirms improvement in the specificity of procurement and contract documents, but as discussed earlier, improved controls are needed regarding verification of weights claimed as diverted. Tire Recycle Program Recommendation #11 We recommend that DEM implement a mechanism for ongoing measurement of inflow volumes. 48 RECOMMENDATIONS - TIRE RECYCLING PROGRAM DEM Response We agree and are tracking the volumes. LAO Follow -up The Auditor agrees progress is being made in tracking volumes, but improved controls are needed to confirm actual compliance with State law banning tires from County landfills. 49 RECOMMENDATIONS - EPA GRANTS - PHASE I Kea`au Recycling and Reuse Center (KKRC) RECOMMENDATIONS — EPA GRANTS — PHASE I Kea`au Recycling and Reuse Center (KKRC) EPA Grants Phase I Recommendation #1 We recommend that the County as EPA Grant awardee monitor and review all procurement processes and obtain sufficient documentation to provide assurance that all procurements are made in accordance with applicable grant and procurement laws and regulations. EPA Grants Phase I Recommendation #2 We recommend that DEM ensure the timely procurement of its contracts and /or agreements, so that a valid contract is issued prior to commencement of work. A spreadsheet or other tracking method should be implemented to ensure completion of the procurement process prior to commencement of each contract. EPA Grants Phase I Recommendation #3 We recommend that the County consider revision of the County Code and procurement rules relating to "conflict of interest" and "related party" issues on the part of employees, contractors and subcontractors, which specifically addresses definitions, required disclosures, and conditions under which such relationships are prohibited or permitted. EPA Grants Phase I Recommendation #4 We recommend that DEM implement policies and procedures for monitoring and control of contractor performance to ensure that contractual obligations to the County are being fulfilled and public funds are being properly expended. EPA Grants Phase I Recommendation #5 We recommend that DEM assign personnel to reconcile contractor claims and authorize payment of invoices. DEM should require itemization of invoiced amounts and sufficient supporting documentation which clearly reconciles to each itemized amount. For invoices resubmitted for payment, careful review is needed to ensure that no double- or over - billing has occurred. EPA Grants Phase I Recommendation #6 We recommend that DEM include in its program file any and all documentation pertaining to any complaints, improprieties, or discrepancies that may occur during a contract period, including a chronology of the resolution process. DEM Response The County has closed EPA Grant Phases 1 & 11 and filed the final reports with EPA. DEM will implement recommendations for future grants. LAO Follow -up The Auditor confirms closing of EPA Grants, Phases I and 11, for the Kea`au Recycling and Reuse Center (KKRC). In the future, the Auditor recommends that DEM pursue alternate funding and directly administer the associated program, thereby minimizing excessive loss of funds to multiple lavers of agencies for administrative rather than program activities. 50 RECOMMENDATIONS - EPA GRANTS PHASE II Kea`au Recycling and Reuse Center (KKRC) RECOMMENDATIONS — EPA GRANTS — PHASE II Kea`au Recycling and Reuse Center (KKRC) EPA Grants Phase II Recommendation #1 We recommend that DEM re- evaluate its procurement process to ensure that all performance requirements and tasks are sufficiently communicated to all potential providers and that process volume estimates are realistic. • To ensure fairness in the procurement process. To allow for accurate budgeting and contracting and reduce the need for issuance of supplemental funding contracts. EPA Grants Phase II Recommendation #2 We recommend that DEM document issues related to supplemental contracts when two different fund sources are involved. Documents should include a detailed chronology of events that necessitated the funding action and a written analysis of the decision to authorize commitment of additional funds. EPA Grants Phase II Recommendation #3 We recommend that DEM reconcile contractor invoices with supporting documentation and contractual requirements and should require that revised invoices be accompanied by written clarification of increased amounts. Supplemental contracts should only be based on increases to contract scope at the County's request. EPA Grants Phase II Recommendation #4 We recommend that DEM re- evaluate its administration of grant programs and analyze the cost - benefits of hiring additional personnel for grant management versus contracting private service providers. The analysis should weigh the procurement of one contractor for a specific contract against the dedication of an internal personnel position(s) for the administration of multiple contracts. EPA Grants Phase II Recommendation #5 We recommend that DEM review and monitor its contracts to ensure that all applicable governmental permits are obtained prior to commencement of work on County property. Permits must also be timely obtained by DEM to avoid assessment of sanctions and penalties against the County and the waste of public funds. EPA Grants Phase II Recommendation #6 We recommend that DEM ensure that all documentation relating to grant and contract administration is current and complete in the program file. Documentation should include, but not be limited to, all intra- and inter - departmental communications, communications to and from State and federal regulatory agencies, all governmental permit application and approvals, all regulatory agency evaluations and inspection reports, and all correspondence, plans, and reports from program contractors and subcontractors. EPA Grants Phase II Recommendation #7 We recommend that DEM document any deficiencies relating to operations under its contracts. Documentation should include, but not be limited to, a chronology of events, the cause of 51 RECOMMENDATIONS - EPA GRANTS PHASE II Kea`au Recycling and Reuse Center (KKRC) deficiencies, corrective actions implemented to remedy deficiencies, and final resolution of said deficiencies. DEM Response The County has closed EPA Grant Phases 1 & 11 and filed the final reports with EPA. DEM will implement recommendations for future grants. LAO Follow -up The Auditor confirms closing of EPA Grants, Phases I and 11, for the Kea`au Recycling and Reuse Center (KKRC). In the future, the Auditor recommends that DEM pursue alternate funding and directly administer the associated program, thereby minimizing excessive loss of funds to multiple lavers of agencies for administrative rather than program activities. 52 RECOMMENDATIONS - EPA GRANTS PHASE III Waste Reduction and Recycling Project (West Hawaii) RECOMMENDATIONS — EPA GRANTS — PHASE III Waste Reduction and Recycling Project (West Hawaii) EPA Grants Phase III Recommendation #1 We recommend that DEM initiate a complete assessment of waste reduction, recycling, and reuse capabilities at County transfer stations. • For those transfer stations with waste reduction capability, identify necessary repairs and related costs to continue diversion, recycling, and reuse activities. • For those transfer stations lacking waste reduction capability, evaluate design, permitting, cost, timeline, and manpower issues for implementation of diversion, recycling, and reuse activities. EPA Grants Phase III Recommendation #2 We recommend that DEM implement internal policies and procedures for grant management, including: • Oversight of contractor and subcontractor performance and billings • Tracking of compliance with funding agency requirements, including completion, review, and submission of reports in a timely manner. • Review and approval of all press releases and outreach and educational materials for compliance with grant requirements prior to publication and dissemination. • Monitoring of contracts to enable timely negotiations for contract extensions or new procurements. EPA Grants Phase III Recommendation #3 We recommend that DEM consider revising HIEDB's project scope or reduce its contract amount under the MOA, since establishment of the model recycling or reuse center in West Hawaii will not be implemented prior to expiration of the EPA Grant III funding period. EPA Grants Phase III Recommendation #4 We recommend that DEM review departmental policy relating to multi -tier subcontracting, and determine whether the practice is a cost effective use of grant monies. EPA Grants Phase III Recommendation #5 We recommend that as the designated recipient of EPA grant funds, the County should re- evaluate the cost - benefit of hiring additional departmental personnel over outsourcing program management and outreach and education components. DEM Response The County has closed EPA Grant Phases 1 & 11 and filed the final reports with EPA. The County has requested a no -cost extension for Phase 111 through December 2009. The Phase 111 Workplan was also revised in that the County will be using the balance of funds, $170,000, to provide Reuse Shelters at the County Transfer Stations. EPA Phase IV funds were paid directly to HIEDB. The Department's Recycling Section is working closely with EPA and the DEM Business Services Section 53 RECOMMENDATIONS - EPA GRANTS PHASE III Waste Reduction and Recycling Project (West Hawaii) to follow the recommendations and improve the management of the EPA grant funds. DEM Business Services Section has an open recruitment for a position for Contracts Clerk to assist with these activities. Although the Department notes that the County has implemented a hiring freeze, the Department will work closely with the Mayor's office to acquire approval for filling this position. LAO Follow -Up The Auditor confirms that remaining Phase III funding for the Waste Reduction and Recycling Project (West Hawai'i) will be utilized for reuse shelters at County transfer stations and Phase IV funding was granted directly by the EPA to HIEDB. In the future, the Auditor recommends that DEM pursue alternate funding and directly administer the associated program, thereby minimizing excessive loss of funds to multiple lavers of agencies for administrative rather than program activities. 54 Analysis of Recycling and Diversion by Commodity and Fiscal Year ** Special Diversion a) Reuse Exchange b) Household Hazardous Waste c) Used Motor Oil d) E -Waste e) Latex Paint f) Waste Reduction /Recycling - EPA Totals Less Recyclables Collection Services Cost Per Ton Percent of Total SW Recycled /Diverted y APPENDIX "A" FY 2003 -2004 FY 2004 -2005 FY 2005 -2006 2006 -2007 Volume 2007 -2008 Volume 134.49 Volume 176.04 Commodity (tons) Cost (tons) Cost (tons) Cost Greenwaste 17669.43 611,007.05 34217.17 1,251,581.85 48290.33 1,756,098.64 Metal /Automobiles 14003.93 1,194,943.16 10060.18 811,025.60 17584.13 1,948,078.92 Tires 0.00 - 168.34 40,401.60 193.34 69,602.40 Paper 3849.23 158,050.71 6230.02 263,408.70 5904.22 248,406.24 Plastics 1 & 2 22.00 4,400.00 32.95 6,095.75 718.38 186,453.00 Cooking Oil 247.48 9,899.22 247.09 14,825.58 245.82 14,749.54 Glass 1572.90 318,048.94 1400.57 228,571.76 5178.10 401,368.50 Recycling Education 76,722.48 & Outreach 92,000.00 C� 76,000.00 C� 92,652.00 Mixed Recyclables 368.83 44,259.60 826.86 66,148.80 Recyclables 80599.34 5,308,345 70970.44 4,719,365 92037.60 Collection Services 1256.86 8 130,160.00 Special Diversion a) Reuse Exchange b) Household Hazardous Waste c) Used Motor Oil d) E -Waste e) Latex Paint f) Waste Reduction /Recycling - EPA Totals Less Recyclables Collection Services Cost Per Ton Percent of Total SW Recycled /Diverted y APPENDIX "A" 196.23 Appendix "A" 18,000.00 FY 2006 -2007 FY 2007 -2008 Volume 134.49 Volume 176.04 (tons) Cost (tons) Cost 37894.02 1,438,141.98 45552.78 1,685,452.86 15633.99 1,301,866.52 24395.72 112,149.42 352.51 134,386.50 348.50 130,620.60 6757.74 281,605.07 6542.95 155,249.12 1008.35 227,358.62 1039.78 273,176.17 322.17 19,329.75 246.42 14,784.89 5955.53 334,051.90 6116.99 293,565.42 60,044.06 178,250.00 128,250.00 115,365.38 653.92 52,313.40 1869.63 114,382.89 1874.59 8 163,500.00 5502.77 8 718,884.00 196.23 18,000.00 170.37 74,596.99 142.47 84,394.49 134.49 146,932.25 176.04 184,737.75 53.23 140,036.00 86.32 137,740.00 117.14 143,989.89 141.41 172,277.78 97.39 205,760.00 49.34 61,205.00 49.81 67,500.00 50.78 63,333.00 68.79 60,502.12 70.13 65,000.00 78.25 33,000.00 C� 86.82 60,044.06 165.18 128,250.00 76.90 55,370.16 4.09 1,044.25 7.75 3,876.88 1.60 800.00 41821.34 76,722.48 37663.77 2,607,590 53109.90 3,049,007 80599.34 5,308,345 70970.44 4,719,365 92037.60 4,125,299 - 1256.86 8 - 1874.59 8 - 5502.77 8 79342.48 $5,308,345 69095.85 $4,719,365 86534.83 $4,125,299 $69.23 ae $57.41 ae $66.90 $68.30 $47.67 37663.77 Baseline 53109.90 41.01% x 79342.48 110.66% x 69095.85 83.45% x 86534.83 129.76% x 15.70% 19.10% 26.20% 23.70% 29.20% 55 APPENDIX "A" DEM Summary did not include this amount in total cost of Recycling and Diversion calculation Per DEM these weights have already been included in the commodity weight totals. DEM's reported cost per ton were $66.79 & $ $55.36 respectively, difference is due exclusion of the items at c} . X Percent increase over baseline tonnage (2003) of commodities claimed as recycled /diverted. Per DEM annual "Solid Waste Disposal Summary" report. Taken from DEM's "Solid Waste Disposal Summary" reports for each fiscal year. 56