An internal audit of the city's recycling center shows widespread problems with management and accounting — including excessive overtime, overpayments to a private contractor, and safety and security concerns.
The audit shows that the city has never had contracts with surrounding counties and cities to process other jurisdictions' recycled goods and does not have a contract with Bluegrass Regional Recycling Center, the broker that markets the recycled goods to sellers.
That's been a problem for nearly a decade.
City auditors cited the city in an August 2004 audit for failing to have contracts with other entities and Bluegrass. It was never corrected.
Mayor Jim Gray said Tuesday that the 20-page audit gives the city an opportunity to make changes.
"It gives us an opportunity to fix the problem and make improvements," he said. "We have done a good job in the past three years addressing management issues. We know that we have areas in government that we can improve."
Council members voted Tuesday during the Urban County Council Work Session to send the audit to the council's Environmental Quality Committee for further review.
"I want to see a corrective action plan," said Councilwoman Peggy Henson.
Henson, who made the motion to put the audit into committee, said she "was blown away" by the number of problems cited in the audit. "We've got to do better."
Charlie Martin, acting commissioner of environmental quality and public works, said the city had made key changes at the recycling center, but "we want to make sure these changes are sustainable."
Martin was not acting commissioner during the time covered in the audit, which included the past three fiscal years. Still, Martin said, he knew that some of the issues in the Jan. 24 audit had been mentioned in the 2004 audit. Recycling is under environmental quality and public works.
The Material Recovery Facility, or the recycling center, receives recycling from Fayette County residents and surrounding counties, cities and the University of Kentucky. The recycling center on Thompson Road charges about $35 a ton to those counties and cities for separating and processing the recycling. The recycling center then contracts with Bluegrass, which acts as a broker to sell the recycled product — such as plastic — to buyers. Money from the sale of those materials is returned to Fayette County and counties and cities that contract with Fayette County for recycling.
Fayette County residents pay for the recycling service through their property taxes. Although the operation generates revenue, it is not self-supporting. For example, for the fiscal year that ended June 30, the facility generated $1.9 million in revenue but cost roughly $2.52 million to run. The recycling center has been on Thompson Road since 1992.
Auditors had 12 different findings regarding management at the recycling center; many of those findings were centered on improving inventory and financial controls. Because of the lax controls, it was difficult for auditors to determine the accuracy of the amount of money Fayette County and surrounding counties received from the sale of recyclable goods.
For example, auditors noted that Bluegrass received an overpayment of $9,341 in May and June because of problems with the recordkeeping and accounting for how much recycling was sold. Bluegrass later repaid the city when notified of the overpayment, the audit said. There was an excessive amount of overtime at the center during the past three years, auditors found. For example, overtime totaled $140,470 in 2012. But the overtime did not exceed the overall payroll for the department, the audit noted.
In its response, solid waste officials said capacity at the recycling center was expanded several years ago but staffing was not, particularly in maintenance and operational support.
Auditors also discovered there were several safety violations at the center. The report did not provide details about those safety violations. Moreover, the city's division of risk management had found several violations in 2012 that never were corrected, the audit said.
Security also was lax. Auditors found that one door in the back of the center was broken and that there had been multiple keys given to people at the center, but no one kept track of the keys.
Auditors recommended an overhaul of the management structure and the hiring of an accountant to help the center better track inventory and billing. The center was overseen by a senior program manager who has since left.
"Everything is on the table," Martin said of possible changes at the recycling center. Martin said they were working with Bluegrass and with the surrounding counties to develop contracts. They also are considering not using Bluegrass as a broker and moving those operations in-house.
An accountant is on site to help the recycling center strengthen its accounting procedures.
Getting its financial recordkeeping in order is a top priority, Martin said.
The city is advertising for a new director of waste management. Steve Feese, the longtime director, retired last year. The new director of waste management should have input on hiring someone to oversee the recycling center, Martin said. The city needs a plant manager to manage the facility who has authority to make changes and decisions, he said.
"We need someone with manufacturing experience," Martin said.
Risk management has been brought in to look at some of the safety concerns. Cameras have been installed and other changes have been made to ensure the security of the facility, according to responses in the audit.
Bruce Sahli, director of the city's office of internal audit, said auditors would return in coming months to ensure that problems identified in the report are fixed. A specific date on when that follow-up will occur has not been set.
The audit was not prompted by a specific complaint. Sahli said that during an annual risk assessment of city operations he decided to examine operations of the recycling center. The Internal Audit Board, which oversees the internal audit division, gave the green light to proceed with the audit in January 2013.