HomeMy WebLinkAboutFCS-17-009 - 2Q Audit Status ReportStaff Report
rR finance and Corporate Services Department www.kitchener.ca
REPORT TO: Audit Committee
DATE OF MEETING: June 26, 2017
SUBMITTED BY: Corina Tasker, Internal Auditor, 519-741-2200 ext. 7361
PREPARED BY: Corina Tasker, Internal Auditor, 519-741-2200 ext. 7361
WARD(S) INVOLVED: All
DATE OF REPORT: June 9, 2017
REPORT NO.: FCS -17-009
SUBJECT: 2nd Quarter Audit Status Report
RECOMMENDATION:
No recommendation required. The following information is being provided as an
update and assurance on internal audit matters, in accordance with the Audit
Committee Terms of Reference.
BACKGROUND:
The following report provides a summary of the Internal Audit activities completed
during the period of April 2017 to June 2017. The chart below shows the audits
contained in this report.
The following items are currently in progress and will be brought forward at a future
audit committee meeting:
Revenue comprehensive audit
*** This information is available in accessible formats upon request. ***
Please call 519-741-2345 or TTY 1-866-969-9994 for assistance.
2-1
REPORT:
1. Aggregates — Cost/Benefit Analysis
Complete: June 5, 2017
Background Information:
Objective
The timing of this review was driven by the decision to cease the concrete and asphalt
crushing / recycling operation at Battler Yard as this location was chosen as the new
snow storage and disposal facility (SSDF). All aggregates were moved from Battler
Yard to the Kitchener Operations Facility (KOF) to make room for construction to begin
for SSDF and as such a decision must be made whether to allocate space at the KOF
yard to the recycling operation or whether to pursue other options for handling these
scrap materials and sourcing product to be used in City projects.
The purpose of this analysis is to examine the cost/benefit of various aggregate
handling options in order to recommend a sustainable and efficient process going
forward.
Scope
This review focuses on the disposal of scrap concrete and asphalt and supply of
concrete product for City projects. It does not include any other types of stockpiled
materials such as top soil or other landscaping materials or excess soils.
Methodology
The following activities were performed as part of this review:
• Literature review of relevant internal and external documents including past
reports to Council regarding aggregate recycling operations
• Consultation with staff and internal stakeholders (including Fleet, Supply
Services, Council, DCAO's/CAO, Operations — Roads and Traffic, Kitchener
Utilities, and Engineering)
• Risk assessment — to identify and rate the likelihood and impact of risks affecting
the service
• Benchmarking related to service delivery models
• Identification and cost/benefit analysis of aggregate handling options
Findings:
Definitions
According to the "Aggregate Recycling Ontario Best Practices Guide 2015", aggregate
is granular material used in construction as defined in OPSS 1010. The product can be
natural, manufactured or recycled. Reclaimed Concrete Material (RCM) is material
that is removed or processed old hydraulic cement concrete. Reclaimed Asphalt
Pavement (RAP) is a processed hot mix asphalt material that is recovered by partial or
full depth removal.
2-2
For the City, the term `aggregate' typically refers to crushed concrete materials, and/or
crushed asphalt materials. As part of the City's core services related to right of way
maintenance and gas and waterworks, staff use aggregates. They also generate
material that can be transformed into recycled aggregates (concrete or asphalt) by
crushing the scrap materials.
City projects
generate scrap
concrete, asphalt and
other debris
y
ConcreteA'
ai:sphalt can b.
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turned
into
can then be .d
a variety of other
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Sources of Aggregates
The majority of concrete material is generated through the following activities:
• removing sidewalks for replacement
• removing concrete curbs as a result of curb repair, sewer, and watermain/gas
repairs
• removing concrete pads from playgrounds
In new subdivisions the driveway aprons are now concrete instead of asphalt. This will
generate additional scrap concrete material in the future if these aprons need to be
removed during any maintenance work.
Asphalt material is generated through the following activities:
• utility cuts made to repair watermain breaks and to install water/gas services
• catch basin and manhole repairs
• sewer repairs
• road repairs
• sidewalk and curb repairs
Uses of Aggregates
Recycled concrete aggregate can be used in the following instances:
• as bedding materials around sewers, gas lines, and watermains;
• to backfill holes created by utility cuts made to repair watermain breaks and
install water/gas services
• to backfill deep potholes
• as base structural materials for replacement or new trail construction
2-3
• as base structural materials for sportsfields or to repair gravel shoulders
Recycled asphalt aggregate can be used in the following instances:
• to backfill holes created by utility cuts made to repair watermain breaks and
install water/gas services
• to repair gravel shoulders
Capital engineering projects that are tendered out typically source their own supply and
disposal of aggregates externally in order to have more control over cost, quantity and
quality.
Contrary to previous understanding, an opinion from a qualified person has
recommended that virgin materials are not specifically required in any City applications
currently and recycled aggregates may be used. However, recycled asphalt material
consists of high concentrations of petroleum hydrocarbons and other contaminants, and
would not meet the applicable soil criteria in a potable groundwater environment here in
the Region of Waterloo.
Their recommendation was that recycled asphalt may be used in the road base;
however it may not be used below the water table for any applications. This means
that the specifications for any recycled concrete aggregate that we may produce
through crushing or purchase from a 3rd party must indicate the requirement to not
contain any recycled asphalt. If this condition is not met, then virgin material would
need to be purchased for some (but not all) applications.
Supply of Aggregates
Historically the majority of recycled aggregates have been sourced through crushing
scrap materials generated by City projects. Other options include purchasing either
new (virgin) or recycled aggregates externally. The inventory of new or recycled
aggregates is managed by the Supply Services — Stores division.
Regardless of which option is ultimately chosen, there will always be a need for a tender
to supply materials. The tender includes the supply of multiple building and landscaping
materials (including aggregates) up to specified maximum amounts. There is no
requirement to actually purchase the maximum amounts. Therefore even though
aggregates may be listed on the tender, if the City is recycling aggregates then limited
supply would be needed, if any at all. The only time when the City would need to
purchase either virgin or recycled aggregates is if the supply of internally crushed
aggregates was depleted.
And although the City has attempted to sell excess quantities of recycled aggregates in
the past, they are not in the business of selling aggregates nor should they be. The
core business of the City in this instance is to maintain the City infrastructure only. Sale
of excess recycled aggregates should only be done as a means to maintain adequate
space at the KOF, and not as primary focus of the recycling process.
2-4
Historical Process Pros and Cons
Until recently, staff from Operations - Roads & Traffic, Operations — Environmental
Services and Kitchener Utilities (KU) divisions hauled concrete and asphalt materials
(also known as removals materials) from a variety of core service activities, as
described above, to the Battler Yard for crushing and reuse.
The removals materials were stockpiled until a sufficient amount was available for
crushing. Every two years a contracted crusher was mobilized to the Battler Yard
through a tender process to crush the materials into a granular material (concrete
aggregate and asphalt aggregate) with the intent for reuse.
Stakeholders to this process were asked to comment on the pros and cons of the
Battler Yard process in order to understand what was working well in the old process
and what could be improved if the recycling operation was moved to the KOF. The
followina feedback was aathered:
Pros of Battler Yard process
Cons of Battler Yard process
Cost effective
Yard was closed at 3pm which meant
contractors and staff had nowhere to pick-
up or dispose of materials.
Complete control over the process and
Lack of process and controls around use
incoming materials.
of materials (i.e. not weighed or applied to
work orders; cost divided evenly between
user groups when physical inventory
done).
No waste — material was recycled and very
Yard loader staff had other duties, such as
little was shipped offsite.
winter maintenance, that pulled him away
from Battler so he was not available when
needed.
Large area to stockpile materials.
No controls to ensure loads were properly
tested and disposed of in compliance with
legislation.
Ease of disposal and procurement.
Lack of data integrity regarding volume of
materials generated and used.
Close proximity to work locations and
Some areas were ordering this product
close access to the highway.
rather than using the recycled stockpiles.
Battler Yard became a dumping ground for
scrap material — metal, plastic, brush, soil,
etc.
Concern that the end recycled product
may not have met all end user needs in
terms of quality and content.
2-5
Analysis:
Process Steps
The following flow chart shows the disposal and supply of aggregates. The process of
disposing of scrap concrete and asphalt from work sites can be broken down into three
steps, with decision points at each step. There is also one step related to supplying
material for the use in City projects (shown as step 4 on the flow chart).
Please note that the volumes of material required to be supplied are not related in any
way to the volume of material generated. They are shown on the same diagram simply
because the decisions made in steps 1-3 determine what options are available for
supply of material in step 4.
2-6
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2-7
Analysis of Options
In order to analyze the best course of action, the information was looked at in two
different ways. First, the options at each step were evaluated against each other to
determine which option was better.
Second, each of the eleven combinations of options or scenarios was scored using an
evaluation matrix (see below in Evaluation Matrix section) to attempt to assign a value
to each of the criteria and objectively determine which scenario is best overall.
The criteria used included:
• Cost per tonne and total cost for three volume scenarios
• Environmental impact due to emissions from equipment /vehicles and ability to
recycle material
• Degree of control over where the material is used and ability to test for
contamination
• Impacts on staff and equipment
• Relative amount of land required at the KOF
• Other pros and cons
• Number of high risks
Step 1 — Removal of scrap materials from the work site:
The options include either having City staff haul the scrap material to: (A) the KOF or
(B) to a disposal site such as the Regional landfill. Through conversations with various
suppliers it was determined that it is not possible to have City staff haul the material
directly to a pit for recycling as they can only accommodate processing of unsorted
incoming materials on their schedule. It is also not feasible to have suppliers pick up
the material directly at the work site because it would not happen on our schedule and
material would end up piling up at the work site.
Option A is better than Option B for all criteria except for the amount of space required
at the KOF. It is significantly cheaper as landfills do not want this material since their
capacity is limited. It will, however, require space at the KOF to place the piles of
incoming material.
Step 2 — Sorting:
When material is generated at the work site, a variety of materials end up in the trucks
such as soil and other debris in addition to the concrete or asphalt. Assuming the
material has been hauled to the KOF, the next decision point is whether to: (A) sort the
material or (B) not sort it.
Option B is better for all criteria except that it does not provide the ability to recycle or
use recycled material.
2-8
Step 3 — Disposal of material (i.e. what happens to the material once it is at the
KOF):
Step 3.1 — This relates to material that has been brought to the KOF and sorted. There
are three options to choose from at this step: (A) — crush / recycle the material; (B) —
City staff haul it to a pit to be recycled; or (C) — 3rd party hauls it to their pit to be
recycled.
Option A is better or the same in all criteria except for the amount of space required at
the KOF. Recycling will generate additional piles of crushed aggregates. However, it
could be argued that the space for those piles would be required in Step 4 anyways if
material is purchased.
Step 3.2 — This relates to material that has been brought to the KOF and not sorted.
There are two options to choose from at this step: (A) — City staff haul it to a disposal
site; or (B) — 3rd party hauls it to their disposal site.
There is no clear better option in this step, although option A is cheaper. Neither option
allows for the recycling of material.
Step 4 — Supply of material:
When aggregate material is required in City projects there are three options for supply:
(A) use the recycled product (if the City has sorted and crushed the incoming material);
(B) — purchase virgin material; or (C) purchase recycled material.
Option A is the best in all criteria.
Evaluation Matrix
As noted above, the eleven combinations of options / scenarios were scored using an
evaluation matrix, similar to ones used in environmental assessments (EAs). For each
criterion, all eleven scenarios were compared and the best combinations were given a
score of 10. Combinations which had a negative impact on the City received a score of
1 and any combinations which had an impact somewhere in between the best and worst
case (or neutral), were assigned a score of 5. In this approach, a higher overall score
would represent a preferred solution. Each criterion was weighted equally for simplicity
and because this is the standard approach taken in EA's.
The resulting scores are shown below -
2 -9
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Recommendations:
Disposal and Supply of Aggregates
It is clear from the analysis that the best option is for City staff to haul material from the
work site to the KOF, sort it, crush it and use the recycled materials.
This option has the lowest cost per tonne and total cost. The difference between the
next closest option is approximately $115K more per year or $11 per tonne.
Furthermore, environmentally this is the best option. It limits the amount of hauling as
material only travels from the work site to the KOF. There is no additional hauling to
dispose of it or to supply materials to use. This means less emissions and impact on
green -house gases in total and for the City as a contributor. It also allows the scrap
material to be recycled rather than taking up space in a landfill, which is better for the
environment.
By bringing the material to the KOF it gives the City the ability to properly sort and test
for contamination. Since the material is then being crushed and used in City
applications, the City retains complete control over where the material is used and the
quality of the material.
This option has no impact on City staff as the crushing is done by a 3rd party.
Purchasing a crusher for City staff to use was cost prohibitive.
Regardless of whether this option was chosen or not, there will always be a requirement
for one or more staff to run the loader to load and unload trucks with various materials.
Therefore no additional staff or equipment are needed.
In terms of impact on equipment, other than additional wear and tear on the loader,
there is no impact. No additional pieces of equipment or vehicles are required. Since
there is no additional haulage there is also no additional risk to CVOR points.
While this option does require the most amount of land at the KOF, there is currently
sufficient space for this and this risk can be mitigated by crushing more frequently,
organizing the yard in the most space efficient manner, and disposing of any unneeded
material on a regular basis. City staff are currently working on creating a site plan for
the KOF yard to allocate adequate space to all stakeholders, including aggregate
recycling. This option will also require a better process and controls to manage the yard
including weighing incoming and outgoing loads.
2-12
Other Recommendations
In order for this operational model to work, the following actions are recommended:
1. Refer to Aggregate Recyclers Ontario for best practices when developing the
details for many of the following recommendations.
2. Establish and document the weighing process. This should include:
a. A method of informing Stores staff of incoming and outgoing loads
b. A review of Cityworks templates to ensure material generated and used
gets recorded appropriately using the weigh scale
c. Physical barriers / controls that ensure trucks must go over the weigh
scale
d. Training for staff including educating front-line staff and management
regarding the importance and impact of weighing the incoming and
outgoing loads.
e. Periodic audit / monitoring by supervisors to ensure the process is being
followed
3. Set-up raw material part numbers in SAP for the incoming loads. Determine and
set the maximum limit for raw materials in the system to trigger the crushing
activity (i.e. to ensure the raw material piles do not get too large).
4. Determine and set the maximum limit for recycled aggregates in line with the
internal demand for the product in order to trigger sale or disposal of excess
supply in a timely manner. Over time this limit can be adjusted as more accurate
usage information becomes available.
5. Complete the KOF yard plan to ensure the most effective layout of piles. This
should include areas for raw materials waiting for sorting / testing, sorted raw
material, and crushed aggregates. All piles should be clearly labeled and
delineated where required. Thought should be given as to whether protective
lining is required for the unsorted piles to protect the land from possible
contamination.
6. Develop signage and maps of the yard that can be given to staff indicating the
proper location for dropping off loads as well as where each of the material types
are stored.
7. Revisit the quality standards set out in the crushing tender prior to re -issue to
ensure they meet the needs of all users. Test the output to ensure standards are
met.
8. Further investigate whether permits are required for crushing activities in order to
ensure that the City remains compliant with the Environmental Protection Act.
9. Document roles and responsibilities of the loader position as well as other roles
within Utilities and Operations with respect to material handling duties. Include
the responsibility for supervisors to discuss loading / unloading locations for
materials during daily tailgate discussions.
2-13
10.Testing for contamination and advising on proper disposal of contaminated loads
requires specialized knowledge from a qualified person. The quantity of this
work would not justify a position at the City. Therefore, contract out testing of
incoming loads. Build the cost of testing into the Utilities and Operations
maintenance plan budget.
Conclusion
This thorough analysis has concluded that it is best to resume the practice of recycling
concrete and asphalt for use in City projects. Operations — Roads and Traffic
management will be responsible for facilitating the implementation of the above
recommendations which will involve collaboration with the other stakeholder groups.
A status update must be provided to the Internal Auditor a year following this report.
2. Stores, Tool Crib — Physical Inventory
Completed. June 5, 2017
Background:
A tool crib is a location which stocks frequently used tools which can be loaned out to
staff for their work and returned when they are finished using them. Typical tools in the
tool crib range from larger dollar items such as ladders and small power tools, to lower
cost items such as rakes, shovels, and hand tools. Having a central lending location
allows work areas to share tools and maximize their use, rather than each area
purchasing the same tools which may not be used to their full capacity. However, if an
area uses a particular tool on a daily basis they may purchase it outright and keep it in
their work area.
Many years ago a tools database was created internally by I.T. staff which is used to
track the location of tools that have been loaned out. Although this is used daily, there
has never been a process to follow up on tools not returned, and no physical inventory
has ever been done to compare the database to what is on hand.
In 2008, when the Kitchener Operation Facility was built, three previously separate tool
cribs were consolidated into the one location and physically located within the Stores
warehouse. This way staff can pick up both their tools and their supplies at the same
location each day, rather than traveling to two different locations as was done
previously.
Audit Objective:
To review and improve the controls and management of tools. As part of this exercise,
clean up the existing tool inventory to confirm tools in stock and in the field and retire
any tools no longer in existence.
Methodology:
The following activities were conducted as part of this review:
• Interviews with Stores staff regarding current process
• Review of database capabilities with I.T. staff
2-14
• Full physical inventory of all tools within the tool crib and out in the field;
subsequent cleanup of database
• Discussion with Financial Planning regarding proper accounting treatment of
tools inventory
• Development of new process and controls
Findings:
The physical inventory found that the majority of the tools that are currently out in the
field are required on a daily basis and staff has no intentions of returning the tools to the
tool crib. They have previously been expensed to the operating areas. The database
will be cleaned up to remove these tools from the tool crib and the operating areas will
maintain responsibility for these tools.
The majority of the tools physically in the tool crib are listed correctly in the database as
being available for lending. However, over 50% of the tools listed in the database as
being in the field were not found anywhere. These could be old tools that were
damaged and disposed of but the database never updated. Given the lack of controls it
is also not possible to rule out theft of some tools. Since financial costs are not listed for
every tool in the database it is difficult to estimate the value of these missing tools.
However, based on the volume of tools and the average price of a tool, the value is
thought to be under $100K.
Looking back at past accounting records there was inconsistent treatment of the
purchase of new tools. The majority were expensed to the operating areas that initially
requested the tool and journal entries were made to transfer to other accounts if multiple
areas utilized the tool. Some purchases, however, were also charged to the Stores cost
centre. A consistent process is required going forward.
Recommendations:
1. Draft a current state map and future state map to explain the current process flow
and the recommended changes. Share this with affected stakeholders (i.e.
divisions who sign out tools) and get their input.
2. Once the database has been cleaned up and only contains tools available for
lending, start using the "Return By" field in the database to indicate when the tool
is expected to be returned based on user input. The default is 2 weeks if no
other date is given.
3. On a weekly basis Stores staff should run a report from the database to show
any tools that were not returned by the expected date. Staff would then follow up
with the operating areas to determine if an extension is warranted, or whether the
tool has been broken / disposed of, in which case it would be retired from the
system and a request for purchase of a new tool could be made if required.
2-15
4. Develop a process for the purchase of new and replacement tools as part of the
future state process map. This would include a decision regarding how to budget
and account for the cost of the tools.
5. Management should be informed when tools are retired and / or purchases are
made to ensure visibility to these purchases and why they are being made. For
example, to replace a lost or broken tool. This will allow management to monitor
staff usage of tools and hold them accountable if they repeatedly break or lose
tools.
Conclusion:
This exercise has enabled the City to have an accurate listing of available tools. By
implementing the follow-up on the expected return date and by informing management
of retired or purchased tools this will allow for better control of tools.
3. CSD Administration — Capacity Review - Status Report
Complete: March 10, 2017
Background:
The objective of the original review, completed in August 2012, was to assess all
administrative roles within the CSD Administration section to determine capacity and
resourcing needs prior to filling a vacancy left by a retirement in the section.
It was found that there was excess capacity in some roles while other roles were
overburdened and lacked trained back-ups. The primary recommendation focused on
combining and redistributing duties among staff in order to eliminate one full time
position. Other recommendations focused on process improvements that would
decrease workload and on training back-ups for every role to allow coverage during
vacations and absences.
Audit Objective:
In order to hold staff accountable for implementing audit recommendations a status
update is conducted at least one year following the completion of the audit. The
purpose is to assess the outcome of the audit in terms of which recommendations have
been implemented and comment on what the impact to the division has been. This will
help determine if a further follow-up or direction to the division is required.
Audit Statistics:
Date original audit completed
August 1, 2012
# of Recommendations
9
# of Recommendations complete
6
# of Recommendations in progress
0
# of Recommendations not started
1
# of Recommendations not required*
2
2-16
*Recommendations not required — the recommendation does not require any action, or
it is no longer relevant and no work will be done to implement it.
Positive Impacts:
• Cost savings realized due to elimination of 1 full time position. The position was
declared redundant and approved as a new position during the 2017 budget
process — Neighbourhood Strategy Engagement Associate.
• Phone calls not intended for the division have decreased due to removing the
zero -out target for other divisions and discussions with the corporate contact
centre regarding which calls to transfer to this division.
• Staff are trained on back-up responsibilities which allows for coverage during
absences.
• Due to Canada Revenue Agency decisions, child fitness tax receipts are no
longer required which reduces workload.
Next Steps:
There are no new recommendations in this report and no further follow-up audits will be
conducted.
4. Kitchener Utilities Operations Centre and Corporate Contact Centre Functions
— Status Report
Complete: March 9, 2017
Background:
The objective of the original review, completed in December 2012, was to examine the
options available for providing dispatch and alarm monitoring services across the
corporation to determine the best service delivery model.
It was recommended that all non -utilities dispatch work and corporate alarm monitoring
be transitioned to the corporate contact centre (CCC) and the CCC would operate on a
24/7 basis. Resourcing was to be adjusted to support the new model. The Kitchener
Operations Centre would operate from 8 a.m. Monday to Saturday and all after-hours
utilities dispatch work would be handled by the CCC.
Audit Objective:
In order to hold staff accountable for implementing audit recommendations a status
update is conducted at least one year following the completion of the audit. The
purpose is to assess the outcome of the audit in terms of which recommendations have
been implemented and comment on what the impact to the division has been. This will
help determine if a further follow-up or direction to the division is required.
2-17
Audit Statistics:
Date original audit completed
December 3, 2012
# of Recommendations
18
# of Recommendations complete
16
# of Recommendations in progress
1
# of Recommendations not started
1
Positive Impacts:
• Improved service levels for both internal and external customers with easy to
access 24/7 service
• Improved dispatching function
• Improved alarm monitoring — mitigating risk, better controls
• Up to date processes and procedures — live documents constantly updated
• Employee satisfaction as they have the most current and up to date tools
available
• KU Dispatch - improved employee morale as they no longer are burdened with
non -KU work and no longer has to work the night shift.
Unaddressed Recommendations:
Kitchener Utilities still needs to create a business continuity plan for the Operations
Centre and continue to implement key performance indicators. This will be started once
current staffing transitions are complete, likely within the next six months.
Next Steps:
There are no new recommendations in this report and no further follow-up audits will be
conducted. Management should begin implementing the remaining recommendations
and continue to use key performance indicators to assess future resourcing needs.
ALIGNMENT WITH CITY OF KITCHENER STRATEGIC PLAN:
This report supports the achievement of the city's strategic vision through the delivery of
core service.
FINANCIAL IMPLICATIONS:
There are no financial implications related to this report.
COMMUNITY ENGAGEMENT:
INFORM — This report has been posted to the City's website with the agenda in
advance of the council / committee meeting.
ACKNOWLEDGED BY: Dan Chapman, Deputy CAO, Finance and Corporate Services
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