Report to / Rapport au :

 

Planning and Environment Committee

Comité de l’urbanisme et de l’environnement

 

and Council / et au Conseil

 

17 March 2006/ le 17 mars 2006

 

Submitted by/Soumis par:  R.G. Hewitt

Acting Deputy City Manager / Directeur municipal adjoint intérimaire,

Public Works and Services / Services et Travaux publics

 

Contact Person/Personne ressource: Kenneth J. Brothers, Director / Directeur

Utility Services Branch / Services publics

(613) 580-2424 x22609, ken.brothers@ottawa.ca

 

Ward 10, 11, 12, 13, 16, 17, 18, 19

Ref N°:ACS2006-PWS-UTL-0007 

 

 

SUBJECT:     AUDIT REPORT – FINANCIAL STATEMENTS FOR IN-HOUSE SOLID WASTE COLLECTION - 2005

 

OBJET:          RAPPORT DE VÉRIFICATION – ÉTATS FINANCIERS POUR LA COLLECTE DES DÉCHETS SOLIDES PAR LA VILLE - 2005

 

 

REPORT RECOMMENDATION(S)

 

That the Planning and Environment Committee recommend Council receive this report for information. 

 

RECOMMANDATION DU RAPPORT

 

Que le Comité de l’urbanisme et de l’environnement recommande au Conseil de prendre connaissance de ce rapport. 

 

 

BACKGROUND

 

On September 23, 1998, Regional Council approved and awarded one zone of the five-year collection contract to City Staff (Zone C4) (hereafter referred to as “In-house”).

 

In approving the use of In-house Collection for Zone C4, Regional Council also approved:

 

“That Council require an annual audit of expenditures for works awarded to the Region, that Council require an annual information report, qualitative and quantitative in nature, relevant to this program, as suggested by the Regional Internal Auditor, and that such reports follow the usual Committee process.”

 

This report presents both the audited financial statement for the twelve (12) months, which ended May 31, 2005, and the Department’s performance report.  Both the financial statement and performance report are the responsibility of management.  The Auditor’s responsibilities are discussed in each section.

 

In accordance with Council direction, this report is normally submitted by Internal Audit.  However, at the request of the Auditor General since he was not involved in this process, this year’s report is submitted by Public Works and Services.

 

 

DISCUSSION

 

As in prior years, the methodology used to prepare the financial statements is consistent with the Managed Competition Protocol and with the former Regional Internal Auditor’s Report on incremental costs approved by Regional Council on May 27, 1998 and September 8, 1998.  There are four fundamental concepts used in preparation of the In-house Collection statements:

 

 

The Statement of Operations of the In-house Waste Collection for the twelve (12) months ended May 31, 2005, was audited by Ernst & Young LLP, the City’s external auditor.  Their audit was designed in accordance with generally accepted auditing standards to provide reasonable, rather than absolute assurance that the statements are free from material misstatement.  An unqualified opinion was issued on the statements.  The Statement of Operations and the Auditor’s Report are submitted under separate cover as Annex 1.

 

The In-house Waste Collection for Zone C4 resulted in an operating deficit of $300,729 for Year 6 (twelve (12) months end May 31, 2005).  This is due mainly to higher labour and fleet (fuel) costs, changes to the Leaf & Yard Waste Collection Program, as well as the fact that the In-house Operations included the costs of the organics pilot, which were not considered and included in the original bid prices.

 

Performance Report

 

In addition to the audited Statement of Operations for In-house Solid Waste Collection, management prepares an annual report on the performance of this contract for Committee and Council. The performance report includes both quantitative and qualitative assessments identified for the program.  Ernst & Young LLP has reviewed the performance information to ensure it was prepared on a consistent basis with prior years and accurately reflects the result of operations for Year 6.

 

In-house Financial Performance

 

The table below presents the cumulative contractual and overall savings to area residents for the first five years of operations.  Year 1 to Year 5 savings are as previously reported.  The contract is structured to be paid at the bid unit rate for the actual tonnage. 

 

 

Savings

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Total

 

1999-2000

2000-2001

2001-2002

2002-2003

2003-2004

2004-2005

 

 

 

 

 

 

 

 

 

(1) Savings from Regional Bid

 $    274,006

 $    251,322

 $  255,632

 $  214,534

 $  210,671

 $  161,338

 $   1,367,503

 

(2) Additional Savings from In-house Collection Operations

 $    119,104

 $    350,563

 $  278,905

 $   39,366

 $  (20,509)

 $ (300,729)

 $     466,700

 

 

 

 

 

 

 

 

Total Savings

 $    393,110

 $    601,885

 $  534,537

 $  253,900

 $  190,162

 $ (139,391)

 $   1,834,203

 

 

Total savings are a combination of the following:

 

(1)   savings as a result of the City’s bid price compared to the next closest bid, and

(2)   savings as a result of actual costs of the operation compared to the City’s bid price allocation (bid costs minus actual cost = operating savings). 

The overall actual cost per tonne in 2005 was $75.72 as shown in the Schedule to the Statement of Operations.  This represents a 6.86% increase over the 2004 cost per tonne of $70.86.  This increase is due to an increase in labour costs as well as a loss on the sale of two trucks. Nonetheless, the cost is still lower than the average per tonne cost of $81.00 for the contractors.

 

Across the City, actual tonnages were 16.93% above estimated quantities, with some variation between the five zones and the different waste streams.  For the year, in Zone C4 total tonnes for garbage and leaf and yard waste exceeded the tendered estimated quantities by 12.00%, and recyclable materials were a little lower than estimated in the tender.

 

The cumulative savings as a result of the City’s bid price (price per tonne) reflect aggressive pricing for garbage and recycling collection.  These savings can be attributed to route optimization and the reallocation of spare vehicles.  Operating results are under pressure mainly due to higher labour costs and from higher vehicle maintenance costs. Overall, the financial performance for the sixth year of the operation reflects continued operational efficiencies, and the productivity of dedicated and experienced staff, despite the implementation of the organics pilot, the costs of which are included in the results from October 2001 to present day.  Furthermore, it is important to note that the costs of the Compost Plus organics pilot program were not included in the bid prices mentioned above.

 

The Compost Plus program began in October 2001 to provide the City with an opportunity to implement an organics collection program in a number of defined and controlled environments.  This Council supported pilot program has been implemented in nine neighbourhoods, within four Wards.  Each area involves approximately 550 residents, allowing the City to benefit from the feedback from more than 5,000 residents.

 

The organic collection program costs were not included in the original tender submission.  All costs are documented and submitted to the Project Manager of the Compost Plus Pilot program for analysis. The cost of providing organics collection services in the participating neighbourhoods for the fiscal period ending May 31, 2005 was $169,115.  Included in this amount is the pro-rated cost of 2 waste collection vehicles that were modified to permit the automated collection of wheeled carts, staff time, and related overhead.

 

If the annual operating deficit was adjusted by removing the cost of the organics program (reflect the cost of providing the services that were included in the original waste collection contract) it would result in an operating deficit of only $131,614 for a total savings of $29,724.

 

Qualitative Assessment

 

In addition to the quantitative evaluation provided by the financial statements, a qualitative analysis has been conducted based on the information available in the Request for Services (RFS) software application.  The general procedure for handling and logging waste collection telephone inquiries can be described as follows:  calls that come into the City’s Call Centre are handled either directly by the operator and not recorded, or calls that require follow-up action by Solid Waste staff (Customer Clerk and/or Inspector) or action by the appropriate contractor, are logged.  The following table summarizes calls logged into the system that were deemed to be justifiable calls.

 

Table 2

Solid Waste Collection – Customer Calls

June 1, 2004 to May 31, 2005

 

Call Type

In-house

Services

Zone C4

% of City Total

Private Sector

(Zones C1, 2, 3 & 5)

% of City Total

City total

 

 

 

 

 

 

Households

55,405

22.0

196,774

78.0

252,179

Black Box collection

685

32.1

1,449

67.9

2,134

Blue Box collection

582

38.2

943

61.8

1,525

Garbage collection

1,074

23.3

3,542

76.7

4,616

Leaf & Yard collection

624

27.7

1,627

72.3

2,251

Total Calls/year

2985

28.3

7,561

71.7

10,546

 

 

 

 

 

 

Calls/1,000 homes

53.9

 

38.4

 

41.8

 

 

Both the In-house and private sector zones experienced increases over the year 5 (June 1, 2003 to May 31, 2004) figures.  In Year 6, calls per 1,000 homes were 53.9 for the In-house zone and 38.4 for private sector zones.  The implementation of the organics pilot project in 2001 in Zone C4 has had an impact on the In-house collection operations.  The main issues justifying the difference in call type data:

 

  1. The In-house numbers related to recycling collection (Blue and Black Box) are higher because City staff tend to be more involved with leaving some or all material behind if it is prohibited (i.e. styrofoam or film plastic).
  2. Many homeowners in the contracted service areas (exact number not tracked) call the contractor providing service directly (rather than the City’s call centre) to have complaints resolved. 
  3. Although leaf and yard waste collection was suspended for a time in 2004, the Compost Plus pilot area continued and all related calls received by the In-house operations were catalogued as “leaf and yard waste”. 

 

 

CONSULTATION

 

This report has been prepared in collaboration with the Solid Waste Services Branch of the Public Works and Services Department.  The financial statements and performance report are the responsibility of management.

 
 
FINANCIAL IMPLICATIONS

 

There are no financial implications from this report.

 

 

SUPPORTING DOCUMENTATION

 

Annex 1           In-house Waste Collection Statement of Operations and Auditor’s Report – May 31, 2005