City management requested this audit to validate financial information related to the City’s recycling contract terms as the subcontractor is requesting adjustments to the terms. Using data from the May 2018 through April 2019 period, the audit estimated the subcontractor’s proposed fee and “share price” changes would have cost the City approximately $1.7 million.
The audit found that the subcontractor’s financial analysis did not agree to the underlying accounting data it provided. As well, supporting documentation was not provided for labor costs, which represented approximately sixty percent of total costs, and about $418,000 of the documented expenses were questionable.
Further, the audit found the subcontractor contributed a higher percentage of the rejected recyclables, which increases processing costs. Contaminants in recycling loads require significant manual labor in addition to the automated sorting machinery. Based on the most recent available data, the cities of Scottsdale and Mesa, both of which use this recycling facility, have recycling contamination rates of less than ten percent. Given the amount of rejected materials, the audit estimated the subcontractor’s own contamination rate as 57 to 98 percent. Both cities operate public education programs, while the subcontractor simply provides a recycling web page.