INTERNAL AUDIT DIVISION CLERK OF THE CIRCUIT COURT

Transcription

1 INTERNAL AUDIT DIVISION CLERK OF THE CIRCUIT COURT AUDIT OF ULTRA LOW FLOW TOILET PROGRAM Ken Burke, CPA* Clerk of the Circuit Court Ex officio County Auditor Robert W. Melton, CPA*, CIA, CFE Chief Deputy Director Internal Audit Division Audit Team Ronald Peters, CIA, CISA Internal Audit Manager Deborah Cross-McCray, CIA Internal Auditor II SEPTEMBER 28, 2006 REPORT NO *Regulated by the State of Florida Internal Audit Division, Clerk of the Circuit Court

2 September 28, 2006 The Honorable Chairman and Members of the Board of County Commissioners We have conducted an audit of Ultra Low Flow Toilet Program. This program is a five year program for water customers of Pinellas County. Our objectives involved compliance with laws, policies, procedures, and good business practices. We conclude that noncompliance with County Purchasing Procedures resulted in areas of weak documentation to support processes for internal controls. The Program s mission and goals were adequately met. Our report contains 8 recommendations for improvement. Respectfully Submitted, Approved: Robert W. Melton, CPA*, CIA, CFE Chief Deputy Director Internal Audit Division Ken Burke, CPA Clerk of the Circuit Court Ex Officio County Auditor *Regulated by the State of Florida

3 Audit of Ultra Low Flow Toilet Rebate Program INTRODUCTION Synopsis The ULFT (Ultra Low Flow Toilet) Rebate Program has been meeting the goals and objectives for reducing water consumption of Pinellas County residents. Phases I and II of a five phase project has resulted in a reduction of water use of 1.38 million gallons per day of the two million gallon goal for the Pinellas County project. The Utilities Department did not comply with some of Pinellas County s purchasing internal controls for documenting procurement solicitation steps and unit price negotiation, but the noncompliance did not affect the overall selection process. In addition, Pinellas County was not receiving timely reimbursement from South West Florida Water Management District (SWFWMD) grant funds. As of November 28, 2005, eight grant reimbursement requests totaling $859,000 were outstanding between 101 to 325 days. Scope and Methodology The Scope of our review included evaluations, analyses and tests of the ULFT program s mission, objectives and goals; policies and procedures; and contractual requirements. We ascertained if the Administrative Consultant, VoltVIEWTech, Inc. (VVT), complied with the requirements of the contract agreement, including but not limited to application processing, activity reporting and invoice processing. In addition, we reviewed Pinellas County Utilities (PCU) management s responsibility for monitoring the Administrative Consultant s contract and invoices submitted for payment. We reviewed PCU s compliance with SWFWMD Cooperative Funding Program grant requirements for reimbursement requests and periodic reporting. We performed other procedures as required under professional auditing standards. The objectives of our audit were to: Determine if Pinellas County procurement procedures were followed to obtain the Administrative Contract Services for the ULFT Project. Ascertain if the Administrative Consultant was in compliance with the terms and the contract policies and procedures for the ULFT program customer application processing. Ascertain if the contractor invoices submitted for payment were approved at the appropriate level of PCU management and sufficiently documented to insure the accuracy and compliance of the rebate program. Determine if PCU adequately monitors the mission s objectives/goals of the rebate program and the requirements of the Administrative Consulting Contract. Ascertain if requirements of the SWFWMD grant agreement are met, including the accuracy, timeliness and completeness of required reports and reimbursement requests. Internal Audit Division, Clerk of the Circuit Court 3

4 Audit of Ultra Low Flow Toilet Rebate Program INTRODUCTION Our audit was conducted in accordance with the International Standards for Professional Practice of Internal Auditing and, accordingly, included such tests of records and other auditing procedures as we considered necessary in the circumstances. The audit period was 10/01/2003 through 09/30/2005. However, transactions and processes reviewed were not limited to the audit period. Overall Conclusion PCU noncompliance with the Pinellas County Purchasing Procedures resulted in areas of weak documentation to support required procurement processes for internal controls. The Program mission s goals and objectives, including the requirements of the policies and procedures, and related contract terms of the ULFT rebate program, were adequately met. PCU oversight of the contract and invoice review was proper. Even though PCU s billings were in the proper format and timely, payments for grant revenue due from SWFWMD were untimely and not in compliance with the Florida Prompt Payment Act requirements stated in the County agreement with the State Agency. Our audit disclosed some opportunities for improvement that are presented in this report. Background Under Article II, Section 3.01, Regional Cooperation, of the Governance Agreement between Tampa Bay Water and the Member Governments to continue cooperative efforts to develop and implement effective conservation programs in order to reduce per capita demand for water, the PCU Department, as a member of the Tampa Bay Water, has committed to report annually specific water conservation efforts under the permit. As part of the conservation effort, Pinellas County issued Resolution that establishes a five year program for the ULFT Rebate Program for water customers of Pinellas County. The resolution for the program was approved by the Board of County Commissioners (BCC) on May 15, 2001 and would continue through May 15, As of August 16, 2005, the resolution has been amended to extend the program through September 30, The objective of the program was to reduce water consumption by two million gallons per day over the program period, by replacing 93,000 high flow toilets using 3.5 gallons or more to low-flow toilets using 1.6 gallons per flush. The following chart depicts the goals and accomplishments of the rebate program reported by management as of August 5, 2005: Internal Audit Division, Clerk of the Circuit Court 4

5 Audit of Ultra Low Flow Toilet Rebate Program INTRODUCTION Program Year Rebate Participation Goal Rebates Issued Single Family Multi-Family Commercial Total 09/01-8/02 09/02-9/03 09/03-8/04 09/04-8/05 09/05-8/06 20,000 20,000 18,000 18,000 18,000 9,980 15,938 12,937 7,700 n/a 8,335 1, n/a 3,039 2, n/a 21,354 19,640 14,173 8,831 n/a Total 93,000 46,555 10,446 6,997 63,998 Just prior to implementing the ULFT program in 2001, KPMG conducted a two phase pilot study that began in 1999 to evaluate water-savings effectiveness and customer satisfaction by replacing high-flow (3.5 gallons or more per flush) toilets with ultra lowflow (maximum 1.6 gallons per flush) toilets. The study was used as a guide in developing the current program. The administration of the program was contracted through VVT (an administration consultant) under a piggy back Request for Proposal with Hillsborough County Government. The contract was executed on July 18, 2001, and continues through to the duration of the program at a cost of $45.50 per housing unit and a rebate of $ for each toilet installed and inspected. The main responsibilities of the contract were to provide promotional materials to the community, inspection services, processing of rebate applications and reporting of program activities. The PCU management s budget for the program was not to exceed $13,531,500 based on study projections provided by KPMG. On an annual basis, SWFWMD under the Cooperative Funding Grant agreement is committed to providing 50% of the funding for program rebates and administrative costs of the VVT contract, while all other administration costs will be absorbed by Pinellas County. As of the August 2005 total, cumulative project expenditures were $7,894,278 and cumulative grant funds earned were $3,422,708. Internal Audit Division, Clerk of the Circuit Court 5

6 Audit of Low Flow Toilet Program OPPORTUNITIES FOR IMPROVEMENT Our audit disclosed certain policies, procedures and practices that could be improved. Our audit was neither designed nor intended to be a detailed study of every relevant system, procedure or transaction. Accordingly, the Opportunities for Improvement presented in this report may not be all-inclusive of areas where improvement may be needed. 1. Utilities Did Not Comply With Some Procurement Documentation Requirements Of The Pinellas County Purchasing Procedures When Obtaining The Services Of VVT That Resulted In Weak Documentation Supporting The Procurement Process And Service Pricing Issues. The procurement process for the contract services was driven by the originating department with the Pinellas County Purchasing Department only involved in segments of the normal procurement procedures. The situation resulted in the by-passing of some of the required written process documentation that is part of the County's internal controls for contract procurement services. Without formal documentation, we were unable to confirm that some procedures were followed; Purchasing Director approvals were obtained and adequate price negotiations took place. The PCU Alternative Water Sources department required a contractor to provide the daily administrative services for the County's ULFT Rebate Program Project. The department elected to "piggy back" on the contract obtained by Hillsborough County for the administrative services for the same type of County program. The Pinellas County Purchasing Department Contract File documents show that the originating department, PCU, did not utilize the services of the Purchasing Department prior to seeking BCC s approval of the VVT contract. The following concerns resulted from the contract processing: A. Contract Pricing - There is a lack of written documentation that supports the determination of the contract pricing for the services procured. When Pinellas County awarded the contract (May 18, 2001), the pricing was $45.50 per unit, that was consistent with the Hillsborough County contract price at that time. However, there were other factors related to the unit pricing that should have been considered. Pinellas County hired a consultant (KPMG) to perform a cost benefit analysis of the ULFT Rebate Program with the report published in September of The KPMG report estimated outsourcing costs based on the existing cost to other governments for the same services at $37 per application. KPMG estimated that Pinellas County would spend $45 per application for total administrative costs ($37 outsource administration plus $8 other administration costs). The awarded price of the VVT contract was $45.50 per unit, which exceeded KPMG'S estimate by $8.50 per unit. There was no documentation that justified accepting the impact of Pinellas County Internal Audit Division, Clerk of the Circuit Court 6

7 Audit of Low Flow Toilet Program OPPORTUNITIES FOR IMPROVEMENT contracting for approximately $425,000 greater than estimated by KPMG to outsource the administration of the rebate program (based on the original projected volume of 50,000 administrative units). The validity of the Hillsborough contract pricing is also unclear. In documentation received from Hillsborough County, the current unit pricing was $45.50 but the price was increased from $38.00 in their previous year's contract, because Hillsborough requested the contractor to supply additional project performance reporting. There is no documentation that states that Pinellas County was receiving the same additional information to justify the higher rate. In addition, there is no written documentation to support price negotiations conducted by Pinellas County Purchasing Department or the originating department with VVT. B. Piggy Back Process - The normal analysis required by the Pinellas County Cooperative Purchasing Procedures was not documented. The procedures required that the election to use other government contracts should benefit the County in some way (i.e. cost savings, time saved or services provided) and should be documented. The contract files did not contain written documentation from the originating department and approval by Pinellas County Purchasing Department to use another government contract for the program services. In addition, one key factor about the Hillsborough County Request for Proposal process for the contractor was not recorded. VVT was the only contractor that responded to the Hillsborough solicitation, so there was limited competition for the procured services and pricing of the contract. This factor increases the need to formally document the price negotiation for the contract. C. Contract File Documentation - Documentation required by Pinellas County Purchasing Policies and Procedures were not present in their Purchasing Contract File. However, we found the documentation was present in the PCU Contract Services department contract files. Service contracts of this type require all related information on the contract to be filed with the Pinellas County s Purchasing Department, not the originating department. Management stated that the PCU Contract Services department no longer handles this type of contract procurement. Future procurement will be processed through the Pinellas County Purchasing Department. Pinellas County Purchasing ordinance grants the Pinellas County Purchasing Department the responsibility for handling all procurement for the County within policy guidelines. In addition, purchasing policy No. 1.7 requires that the Purchasing Director, jointly with the Department Director or designee, determine if Cooperative Purchases with other governments Internal Audit Division, Clerk of the Circuit Court 7

8 Audit of Low Flow Toilet Program OPPORTUNITIES FOR IMPROVEMENT meets the needs of Pinellas County, i.e. savings in time, cost and due to a larger volume purchase. PCU processed the procurement of the contract outside of the Pinellas County s Purchasing Department procedures. Some of the procurement services internal controls were not complied with resulting in possible additional contract cost to the County not justified and incomplete contract documentation of proper process analysis. In addition, BCC contract approval was based on the assumption that Pinellas County Purchasing Policies and Procedures were complied with in procuring the service contract. We Recommend management follow their new policy of using Pinellas County Purchasing for the procurement of this type of contract. The use of qualified purchasing staff ensures that appropriate procurement procedures are consistently followed. In addition, PCU forward to the Pinellas County Purchasing Department, copies of documentation that is not currently in their Contract File. 2. The PCU Did Not Have Supporting Documentation That The Contractor Was In Compliance With The Insurance Requirements Under The Agreement. We did not find any documentation and/or copies of the insurance policies found in the Pinellas County Purchasing or the PCU department Contract Files to document the required insurance coverage and endorsements were obtained by the contractor. In the normal contract procurement process, the Pinellas County Purchasing Department would secure proof of insurance for the start up of the contract with the oversight department having monitoring responsibility for the subsequent time frame. Since this contract did not go through the normal procurement process, proof of insurance was not obtained for this contract. At the time of procuring the VVT contract, no one assumed the responsibility for obtaining documentation to support compliance with the contract insurance requirements. Over the contract s life cycle, PCU management did not specifically assign responsibility for insurance monitoring to insure that insurance coverage and endorsements were current. When insurance requirements are not properly verified and enforced, the County increases potential exposure to losses that should be covered under the contractor's insurance policy. PCU management stated that they did have the proof of insurance for 2001 through 2004 in their Contract Financial Finance file that was not supplied to us when we were reviewing insurance requirements. Internal Audit Division, Clerk of the Circuit Court 8

9 Audit of Low Flow Toilet Program OPPORTUNITIES FOR IMPROVEMENT At our request, the PCU department obtained the current proof of insurance from the contractor, but the required endorsements on the policies were not obtained. Management did follow up to obtain the proper endorsements. Section 14, Insurance Coverage and Indemnification, contract with VVT, specifies insurance provisions and endorsements to the policy as required by the County. We Recommend management assign an appropriate staff member to monitor insurance requirements throughout the life of opened contracts to insure that required certificates and endorsements are obtained as required by the agreement. 3. The Cooperative Funding Grant Receipts Are Not Processed by SWFWMD Timely In Accordance With The Florida Prompt Payment Act Requirements. The Utilities Department has not been receiving timely payment from SWFWMD under the grant. As of 11/28/2005, there were eight outstanding grant reimbursement requests totaling $858, ranging from 101 to 325 days old. PROJECT PHASE # SWFWMD S OUTSTANDING GRANT RECEIPTS DATE REQUEST SUBMITTED AMOUNT OF RECEIVABLE # DAYS OUTSTANDING A/O 11/28/2005 Ph III-2 1/07/2005 $ 156, Ph III-3 1/18/2005 $ 136, Ph III-4 3/11/2005 $ 81, Ph III-5 4/12/2005 $ 86, Ph III-6 5/18/2005 $ 79, Ph III-7 6/01/2005 $ 52, Ph IV-1 7/05/2005 $ 129, Ph IV-2 8/19/2005 $ 137, TOTAL $ 858, At the time of the audit, neither PCU Finance and Business Support Services department nor the Alternative Water Sources department performed a formal reconcilement of the grant request versus the grant revenue received by the County and deliver the written information to PCU management (this procedure has been installed since the audit). A grant receivable ledger would provide a Internal Audit Division, Clerk of the Circuit Court 9

10 Audit of Low Flow Toilet Program OPPORTUNITIES FOR IMPROVEMENT strong control to keep track of outstanding receipts for timely follow up. There was also no formal documentation to support that PCU Management brought the untimely grant payment issue to the proper management level of SWFWMD. The grant agreement requires grant payments be disbursed in accordance with section F.S. Prompt Payment Act guidelines. The Project Manager indicated that grant receipts were not monitored for timeliness because SWFWMD was understaffed and could not process funds timely. In effect, grant receipts are not available for Pinellas County use and investment income from available funds is lost due to the delay in grant funding. We Recommend PCU management make collection efforts under the authority of section 218 F.S. Prompt Payment Act guidelines and install procedures to bring the untimely receipt of grant funds to the attention of SWFWMD's Senior Management for corrective action. 4. The Quality Control Review Process Of The Contractor Did Not Include Three ULFT Rebate Eligibility Criteria On Their Check List. We found three criteria not included in the quality control review processes checklist performed by VVT that affect the Customer eligibility requirements of the rebate program. Prior to the contractor submitting the application to the County for the rebate and administration fee payment, PCU requires predetermined criteria related to the rebate program is confirmed, by a contractor quality control (QA) function, for each customer. The following three criteria are: A. Property Ownership Eligibility - There was no criteria provided in the quality control checklist to have the QA function verify property ownership or assigned agent of the applicant was met. Paragraph III, section B of the PCU policies and procedures for the ULFT program states: "...The applicant must be the owner or agent of the property where the water service is delivered." In addition, Paragraph III, section C.2 states: " Rebates may not be issued to persons other than the property owner, or assigned agent. The Project Administrator will verify the customer water account information and process the application." In addition, the Ownership Eligibility risk factor has been increased by PCU installed procedures allowing applicants to assign rebates over to licensed plumbers in the application document. B. Licensed Plumber Eligibility - There was no criteria provided in the quality control checklist that has the QA function verify if the licensed plumber requirements for non-owner occupied properties were met. Paragraph IV, section 6 of the PCU policies and procedures indicates, if a plumber is utilized to install the ULFT, then the plumber must be licensed. If proper Internal Audit Division, Clerk of the Circuit Court 10

11 Audit of Low Flow Toilet Program OPPORTUNITIES FOR IMPROVEMENT verification is not performed, installers of ULFTs may not be properly licensed as required by the program and the application should be rejected. PCU management stated that they considered the plumber receipt and inspection documentation provided the needed confirmation and the quality assurance check was not needed. C. Old Toilet Eligibility - The quality control criteria list did not have a place to have the QA function confirm the old toilet eligibility. A single family property must meet the old toilet requirement prior to the application processing (i.e. old 1.6 gallon toilets do not qualify for the rebate program). Paragraph III, section C.5 and 6 of the PCU policies and procedures indicates that the old toilet verification would take place after the toilet installation and new toilet verification. Paragraph IV, section 7 states: "If the applicant is disposing of the old high flow toilet, they must provide proof of appropriate disposal of the toilet prior to receiving the rebate." Even though the procedures in place for the three criteria, prior to the possible QA review, are adequate, noncompliance with these criteria may permit rebates to be issued in error for the replacement of non-high flow toilets, (if not sufficiently verified), inclusion in the QA review could be warranted. Opportunity For Improvement #5 covers additional issues with the old toilet process. We Recommend management revise the quality control checklist documents to ensure the additional three eligibility requirements are verified in the contractor s quality control review process. 5. The Administrative Consultant (VVT) Had Three isolated Errors In Compliance With The Post Implementation Contractual Term; Confirming That The Old Toilet Complied With The Standards Rebate Program. VVT experienced three operational errors in complying with the contract obligations for verification of the old toilet requirements of the rebate program. In our testing of VVT's compliance to the contract terms, five percent (3 of 60) of application files tested did not include documented verification of the old toilet as qualifying for the rebate program. The VVT procedure followed for the old toilet confirmation is adequate, but as stated in Opportunity For Improvement #4, the QA process does not include a second check for compliance to this criteria. Documentation required for our criteria test was the inspector's signature certifying the toilet pick-up or a signed statement from the owner that the old toilet was a high flow toilet. For the "owner s statement," the PCU written policies and procedures were silent on allowing participants to waive VVT s inspections by owner signature. A verbal procedure change was made by PCU to use the Internal Audit Division, Clerk of the Circuit Court 11

12 Audit of Low Flow Toilet Program OPPORTUNITIES FOR IMPROVEMENT "owner's signed statement." The process change is not included in the written PCU program policies and procedures, but that did not affect the errors. Paragraph 3.7(a) of the VVT contract specifically states: "During the inspection, VoltVIEWTech, Inc. will perform, at a minimum, the following tasks: Determine if the old unit is a high flow unit of 3.5 gallons per flush or greater." To compensate for the owner disposing of the old toilet prior to inspection, a verbal procedure was added by PCU that required the applicant to sign a statement attesting that the old toilet was a qualifying high flow toilet. PCU implementation of the waived inspection form opens the program to a risk that the replaced toilet was not a high flow unit (the old units may be Low Flow Toilets that are not entitled to be replaced under this rebate policy, thus the expense does not meet the objectives of the County program). However, if the home owner, in error, had disposed of the old toilet prior to the inspection, it would not be in the best interest of the program not to approve the rebate. As stated above, the old toilet check that was overlooked by the contractor had procedures in place to prevent this situation from occurring. The issue shows that for this requirement, a strong internal control is needed to confirm compliance. Note that the requirement is not part of the VVT Quality Control Checklist. We Recommend management inform VVT of the operating error and add the verbal procedure requirement to PCU policies and procedures. In addition, add the inspection criteria to the contractor Quality Control Checklist as recommended in Opportunity For Improvement #4. 6. Multiple Applications Policy For The Same Service Address For Program Participants That Are Contributing To An Increase In Administration Fees Paid By The County Should Be Reviewed By PCU. Our review of rebates issued on the same service addresses, for program participants, found that VVT was processing multiple rebates for the same service address when the owner submitted a second application for an additional toilet to be replaced in the residence. This process seems to be in conflict with the policy requirement that only "one application per service address" is permitted. In discussion with PCU management, the policy restriction was intended to limit the administration fee for processing an application when more than one toilet was being replaced at the same time. The restriction did not cover the situation when the property owner submitted an application for replacement of one toilet and then at a later date submitted a second application for another toilet to be installed. Internal Audit Division, Clerk of the Circuit Court 12

13 Audit of Low Flow Toilet Program OPPORTUNITIES FOR IMPROVEMENT In order to evaluate the issue, we selected a limited random sample of 15 sets of rebate applications accepted and processed by VVT for the same service address. Thirty-three percent (5 of the 15) of the groups reviewed were inspected less than 30 days of one another, thus pointing to the processing policy set by the County may need additional review. The application of this policy increases the contractor s volume of applications processed and thus increases the administrative fees paid by the Program. However, the application of the policy has no benefit to VVT since they must perform the same process for the two applications. Under the terms of the contract, VVT is to charge $45.50 for each application processed for administration of the program. Using the results of our limited testing, projecting this trend against the total actual/projected applications that have been/will be processed for the Program, the administration costs paid by the County to VVT would be an additional cost of approximately $96,000. If the policy was changed, setting a time frame for the remainder of the VVT contract, the impact would be a savings of approximately $25,000 in administration fees. The impact of the additional fees should not exceed the program budget estimate because most of the single family units are processed with one application. Paragraph IV.5 Application Procedures Requirements, of the PCU policies and procedures states: "The applicant must return the signed application (one application per service address) to the Program Administrator, along with the purchase receipt for the ULFT." In addition, the VoltVIEWTech, Inc. contract language requires the contractor to check the database for previously rebated applications for the same service address. There is nothing in the consumer information distributed by the County that prevents the property owner from replacing more than one toilet at different times and not qualify for the rebate. Since the application process by VVT is the same for both applications, the contractor is entitled to receive the administrative fee for each installation. PCU management was aware of VVT processing multiple applications, but did not consider the issue was a problem that should be evaluated under the project procedures. Because of this, PCU management did not perform a formal evaluation of the issue and assess the additional cost to the program. Another issue that management should consider is if the policy was changed, the property owner would be limited to one application per service address (time frame limitation), thus it could be counter productive to the Program s overall objective of reducing the consumer's water usage. Internal Audit Division, Clerk of the Circuit Court 13

14 Audit of Low Flow Toilet Program OPPORTUNITIES FOR IMPROVEMENT We Recommend management evaluate the issue and the effect of the current policy for multiple applications for the same service address, relate the evaluation to the overall project objectives and take corrective action if justified. 7. Access Security Standards For The Protection of Pinellas County Customer Information Are Not Covered In The Current VVT Contract. The Pinellas County contract with VVT is silent on minimum industry standards for securing data access where the Pinellas County customer information is maintained. Some of the customer information related to the rebate program is not considered public record and should not be available to unauthorized persons. The access risks observed were related to the VVT application system, and discussed with PCU management. Rebate applications are made to the County through a contractor procured by the County. The County could be considered indirectly responsible for the security of customer personal information contained in application data. We found the contract does not adequately address data access securities standards to protect customer information under the rebate program, thus resulting in potential unauthorized access to PCU customer personal information maintained on VVT's information system. We Recommend PCU management inform the contractor of the control concerns and recommend VVT take steps to correct the problems found. In addition, in future contracts, where customer information is shared, PCU should require minimum industry standards be followed under related County programs. 8. VVT Is Not Distributing Low Flow Showerheads And Faucet Aerators As Required By The Contract Agreement. Pinellas County Utilities Management Waived The Contract Requirement Without An Amendment To The Contract. As part of the Rebate Program, the contract requires VVT to install and distribute low flow showerheads and faucet aerators during toilet inspections. We verified with the PCU Alternate Water Sources Program Manager that the contractor was not distributing any low flow units on behalf of Pinellas County. Also, the Program Manager indicated that the clauses in the contract should have been deleted because PCU did not require distribution. Management indicated that this task was handled by the PCU Consumption Resources department. We found that the showerhead distribution effort was no longer being promoted extensively by the Conservation Resources department. PCU concluded that VVT's participation in the distribution effort would not facilitate installation of the devices and additional water conservation savings. VVT was informed that they Internal Audit Division, Clerk of the Circuit Court 14

15 Audit of Low Flow Toilet Program OPPORTUNITIES FOR IMPROVEMENT were not required to distribute low flow showerheads, but PCU did not believe that an amendment to the contract was required. Paragraph 2.7 of the VoltVIEWTech, Inc. s contract requires the reporting of: "(i) Number of low-flow showerheads distributed/installed;" and "(s) Names, addresses, and telephone numbers of customers requesting low-flow showerheads which will be distributed by the County." In bi-weekly reporting, VoltVIEWTech, Inc. will provide the names and addresses of customers who requested low-flow showerheads and faucet aerators where a ULFT installation verification was not required. These reports will be provided at an agreed upon time with the Program Manager. We Recommend that management take no action on this issue since the VVT contract will expire in a year. Internal Audit Division, Clerk of the Circuit Court 15

16 APPENDIX A MANAGEMENT S RESPONSE 16

17 Appendix A OPPORTUNITIES FOR IMPROVEMENT Finding 1: Utilities did not comply with some procurement documentation requirements of the Pinellas County Purchasing procedures when obtaining the services of VVT that resulted in weak documentation supporting the procurement process and service pricing issues. Response: We disagree with this finding. All of the documents supporting the procurement of VVT and service pricing are in the Utilities ULFT Rebate Program files. The Utilities Business Development and Support Section, existent at the time the VVT contract was procured, initiated procurement of the VVT contract for administrative services for the ULFT Rebate Program. On May 15, 2001 the BCC adopted Resolution 01-81, approving and authorizing implementation of the ULFT Rebate Program policies and procedures and outsourcing of program administration. Through that BCC action, the Board conceptually approved piggybacking the Hillsborough County contract with VVT for program administration of Hillsborough County s ULFT rebate program. On May 17, 2001 the Utilities Business Development and Support Section contacted Hillsborough County stating Pinellas County was going to piggyback the Hillsborough County ULFT rebate program and requested copies of Hillsborough County s bid package and BOCC action/approval, specifically for the administrative price per unit. During the period May 18 through May 23, 2001, the contract review transmittal slip for the Ultra Low Flow Toilet Rebate Program-Volt View Tech-Piggyback of Hillsborough County RFP/Administrative Services was circulated through the County contract review process. Attachments to the contract review transmittal slip were: 1) The BCC agenda memo, dated May15, 2001, for adoption of Resolution establishing the Pinellas County ULFT Program, including proposed resolution and proposed ULFT Program Policies and Procedures, 2) The Hillsborough County Purchasing Department Recommended Action for the Hillsborough County BOCC meeting of March 21, 2001 for award of RFP for Hillsborough County s ULFT rebate program to VVT, 3) the page from the VVT response to Hillsborough County s RFP for ULFT administrative services confirming the unit pricing for the contract ($45.50), 4) copy of the letter from Hillsborough County to the Director of Pinellas County Utilities, dated May 23, 2001, expressing no objection to VVT offering to provide services to Pinellas County at the same terms and conditions, including pricing, that are contained in Hillsborough County s contract for its toilet rebate program, 5) copy of the letter from VVT, dated May 16, 2001, to Robert Peacock confirming that the cost to Pinellas County for ULFT administrative services would 17

18 Appendix A be $45.50 and that the contract for similar services with Hillsborough County is for one year with renewal options for three additional one year periods and 6) copy of a letter from VVT to Robert Peacock, dated May 24, 2001, stating that VVT would honor the pricing for program administration that VVT was receiving from Hillsborough County for 5 years. The contract review transmittal slip was signed (approved) by the Purchasing Department Director (5/18/01), the Clerk s Finance Department (5/21/01), the Office of the County Attorney (5/21/01), Risk Management (5/18/01) and Utilities (5/18/01). The Utilities Business Development and Support Section also responded to the contract review comment of the Purchasing Department Director by securing copies of the Hillsborough County RFP for ULFT administrative services, VVT s proposal submitted in response to Hillsborough County s RFP and a copy of the Hillsborough County/VVT agreement for ULFT administrative services. On July 10, 2001, the Pinellas County BCC approved the agreement with VVT to provide professional administration services for the ULFT rebate program. On July 31, 2001 a purchase requisition for professional administration services for the ULFT Rebate Program was forwarded to the Purchasing Department by the Utilities Business Development and Support Section. The Purchasing Department issued a Purchase Order to VVT on August 15, In addition, there were two amendments to the VVT agreement, one for a time extension and another for change of corporate identity for VVT. PCU records confirm that both of these amendments were processed through normal purchasing procedures. The contract review transmittal slips for both amendments were signed by the Director of the Purchasing Department, the Clerk s Finance Department, and the Office of the County Attorney, Risk Management and PCU. As I stated previously: from review of PCU ULFT Rebate Program records, it is quite evident that there was good coordination between PCU and the Purchasing Department regarding acquisition of ULFT Rebate Program administrative services Clearly, there were several opportunities for checks and balances to be applied in the procurement process before approval of the VVT contract by the BCC and the issuance of the VVT purchase order by the Purchasing Department. The fact that the procurement process went relatively quickly and smoothly suggests that appropriate purchasing protocols were followed. At the time of the audit, the Purchasing Department did not have a complete set of files regarding the ULFT Rebate Program. The Internal Audit Division of the Clerk of the Circuit Court considers the Purchasing Department files to be the official project files and, since these files were incomplete, issued the statement that some procurement documentation requirements were not complied with and that there was weak documentation supporting the procurement process and service pricing issues. The Purchasing Department has been provided with a complete duplicate set of our ULFT Rebate Program files. 18

19 Appendix A A. Contract Pricing: The audit report criticizes the award of the piggyback contract with Hillsborough County, even though the KPMG estimate of $37.00 per unit administration costs was developed over one year prior to the award. An audit finding that program costs were excessive because a bid from the marketplace exceeded an estimate over one year old is unacceptable. There is an error in the determination of potential greater cost for VVT program administrative services over costs estimated by KPMG. The difference in the KPMG estimate of $37.00 for program administrative cost per unit versus the $45.50 PCU is actually paying is a difference of $8.50. The KPMG report estimated an additional administration cost of $8.00 per unit that Pinellas County Utilities would incur for ULFT Rebate Program promotional and marketing efforts and program oversight. However, the contract with VVT provides that VVT will be responsible for considerably more program promotion and marketing than was contemplated in the KPMG report. VVT, as described in the contract Scope of Services ( Project Description and Professional Requirements ), was required to distribute ULFT program promotional materials to interested customers. In addition, the Scope of Work ( Promotional and Marketing Requirements ) required VVT, upon award of contract, to promote and market the ULFT rebate program. Further, the Scope of Work ( Public Information and Outreach ) requires VVT to distribute promotional materials to interested customers and to develop a method for informing plumbing retailers, wholesalers and installers about the rebate program and to mail program announcement letters to prospective program participants, including plumbing wholesalers, retailers and suppliers, home improvement centers and other related companies and to develop a marketing strategy to reach commercial customers. Finally, VVT was required to maintain contact with all the aforementioned parties throughout the term of the program with updates and progress reports. VVT performed all tasks required of the firm by the agreement. Although AWS maintained the responsibility for overall program oversight, VVT was required to perform additional administrative duties over those projected by KPMG in the area of program marketing, promotions and public outreach. These additional responsibilities performed by VVT would easily have added an additional $8.00, or more, to the $37.00 per unit administration cost estimated by KPMG. Comparing the additional administration costs estimated by KPMG for program promotion, marketing and oversight that were ultimately contracted to VVT to the actual current VVT costs that include these additional administration services, results in a cost difference of $0.50. Therefore, the estimated potential greater cost for administrative services for the program for the original 50,000 toilet installations estimated by KPMG is on the order of $25,000, $400,000 less than the amount stated in the audit report. Typically, long term (5 years or more) contracts include a Consumer Price Index (CPI) escalation clause. PCU was able to secure a fixed 5 year ULFT Rebate 19

20 Appendix A Program administrative charge from VVT and, as a result, PCU has been able to save a considerable amount of money for VVT administration services for the program. Current costs for other communities utilizing VVT to administer their ULFT rebate programs are approaching $60.00 per unit replaced. The audit should have found that the we will save money over the life of the program as a result of the 5 year fixed charge that PCU enjoys for VVT program administration. The KPMG program administrative cost estimate is an estimate that was derived during the period 1998/99 and included in their September 29, 2000 ULFT report. It would be reasonable to expect that program administrative costs would have increased due to inflation between the time KPMG developed their program cost estimates and the time PCU piggybacked the Hillsborough County contract for ULFT Rebate Program administrative services. Regardless, the administrative costs were set by Hillsborough County s contract. B. Piggyback Process: The audit report states that documentation from the originating department supporting the use of another government s contract for program services and approval by the County Purchasing Department was not present in the contract (Purchasing Department) files and that there was limited competition for the procured services and pricing of the contract. As discussed previously in this response, the determination to piggyback the Hillsborough County/VVT contract for ULFT administrative services is well documented in PCU files. Certainly the benefit of the election to use other government contract services was to save time in implementing the program and to save on administrative cost (a comparative analysis of VVT costs versus the cost of PCU administering the ULFT rebate program revealed a savings of approximately $2.00 per unit replaced). Support for using another government contract came in the form of the Purchasing Department Director and other department reviewers signing the contract review transmittal slip. Hillsborough County solicited competitive proposals for administrative services for its ULFT rebate program. The fact that Hillsborough County only received one proposal in response to their solicitation still represents a competitive process, not a sole source selection. This finding was discussed with the Purchasing Department Director; he confirms that the Hillsborough County contract for ULFT rebate program administrative services is a valid, competitively bid contract. He saw no need to duplicate a competitive bid effort 2 months after Hillsborough County went through the process. 20

21 Appendix A C. Contract File Documentation: The audit report states:...documentation required by Pinellas County Purchasing Policies and Procedures were not present in their Purchasing Contract File. The audit report continues However, we found the documentation was present in the PCU Contract Services department contract files. The audit report further states that PCU processed the procurement of the contract outside of the Pinellas County Purchasing Department procedures. This latter statement was discussed with the Purchasing Department Director. It is his opinion that the purchasing requirements were followed in the procurement of VVT for PCU s ULFT Rebate Program administrative services. However, he requests that, in the future, service contracts requiring BCC action be taken to the BCC by the Purchasing Department. In response to the former statement: The PCU contract files are complete as is necessary to properly manage the ULFT Rebate Program. PCU has supplied a complete duplicate of the PCU ULFT Rebate Program files to the Purchasing Department. Finding 2. The PCU did not have supporting documentation that the contractor was in compliance with the insurance requirements under the agreement. Response: When the lack of an insurance certificate for 2005 was brought to our attention, VVT quickly provided the required insurance certificate. An insurance certificate for 2006 has also been obtained from VVT. Our files are currently up-to-date in this regard. Finding 3: The cooperative funding grant receipts are not processed by SWFWMD timely in accordance with the Florida Prompt Payment Act requirements. Response: As stated earlier in my response, the suggestion that a grantee assess late payment penalties to a grantor on a continuing (annually renewable) grants program in which grants are awarded on a subjective basis is unacceptable. 21

22 Appendix A Since program inception, PCU has submitted 27 reimbursement requests to the SWFWMD, amounting to a total of approximately $4.2 million. PCU has received approximately $3.7 million in reimbursements from the SWFWMD, the most recent reimbursement in the amount of $163, having been received on August 8, Currently, there is approximately $478,000 in cooperative funding reimbursements that have been requested but not yet received. All the outstanding reimbursements shown on the table on page 8 of the audit report (SWFWMD S OUTSTANDING GRANT RECEIPTS) have been received. The reimbursement requests that PCU submits to the SWFWMD are typically voluminous and complex. The submittals are supported by documents detailing thousands of toilet replacements. The reimbursement requests are submitted to the SWFWMD Accounting Office. The request then goes through a rigorous detailed review by the SWFWMD project manager, reconciling supporting documentation with the ULFT activity summary for the reimbursement period. Upon approval of the reimbursement request by the SWFWMD project manager, the approval and request to issue a reimbursement is transferred to the SWFWMD Finance Office for processing. In consideration of the volume of supporting documentation that accompanies a typical SWFWMD reimbursement request, it is probably unreasonable to expect the reimbursement check to be received within 30 days. The PCU ULFT Rebate Program manager maintains records of all reimbursement requests submitted to SWFWMD and the reimbursements received and knows at any given time the number and amount of outstanding grant receipts. Finding 4: The quality control review process of the contractor did not include three ULFT rebate eligibility criteria on their checklist. Response: The audit presents a fairly lengthy critical discussion on this finding and then in the paragraph prior to the recommendation states that the procedures in place for the three criteria are adequate. The language in the paragraph then goes on to discuss potential errors in issuance of rebates, if the criteria are not complied with. VVT has done an excellent job of insuring the eligibility criteria are checked and adhered to. The ULFT Policies and Procedures identified three criteria for determining eligibility for ULFT program participation and for rebate issuance: 1) application is from the property owner/assigned agent, 2) a licensed plumber installed the toilet(s) in leased or rented single family or multi-family/commercial buildings and 3) a high flow toilet was replaced. Although not neatly packaged 22

23 Appendix A in a single check list, all the information necessary to verify program and rebate eligibility is collected and reviewed by VVT to confirm compliance with program requirements before rebates are issued. VVT has copies of PCU s ULFT Rebate Program policies and procedure and has been coached by the PCU program manager in the requirements for program participation and rebate eligibility. The PCU program manager monitors the performance of VVT in adhering to these criteria through weekly record reviews with the manager of VVT s local office. A. Property Ownership Eligibility In the sixth line of this paragraph in the audit report there is a reference to language in Paragraph III, Section C.2 of the PCU policies and procedures for the ULFT Rebate Program, incorrectly stating: Rebates may not be issued to persons other than the property owner, or assigned agent. This language does not appear in the PCU policies and procedures of the ULFT Rebate Program. The ULFT Rebate Program application form includes a certification that the applicant must sign, stipulating that the applicant is the owner or the owner s authorized agent. This information is confirmed by VVT prior to issuing the rebate. B. Licensed Plumber Eligibility The ULFT rebate program application form includes a certification that the applicant must sign, stipulating that the applicant will abide by all the program policies and procedures. The certification further advises the applicant that: A licensed plumber must be used when replacing any toilet in a leased or rented single family, multifamily or commercial property. A receipt (documentation) showing material and installation costs and the plumber s name, address, phone number and license number must be provided in order to receive a rebate. The documentation provided to confirm the use of a licensed plumber is verified by VVT prior to issuing a rebate. C. Old Toilet Eligibility VVT uses an Installation Verification Form to confirm the installation of an approved ULFT. The VVT inspector confirms that the new toilet(s) has been installed and visually inspects the old toilet to insure it was a high water use unit, meeting rebate criteria. The inspector certifies on the Installation Verification Form that he/she has checked the old (previous) toilet and confirms it was not a 1.6 gallons per flush model. If the old toilet is not available for inspection, the VVT inspector has the owner sign an affidavit acknowledging that a high flow toilet was replaced with a low flow unit (and by a licensed plumber, if not single family-owner installed). 23