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Audits: a double-edged sword

Friday, January 30, 2009

Marshall County commissioners' decision to audit Waste Management's payment of host fees for deliveries to Cedar Ridge Landfill might generate unexpected consequences, according to information from a company leader who said a little professional courtesy might help.

Audits are a double-edged sword, he indicated. Winnett Associates, the Shelbyville-based accounting firm, was hired for $7,500 to find out if Waste Management has paid what it should to the county. That could go either way. The company might have under-paid the county, but it might have paid more than what was due.

It's happened before.

"We actually overpaid Johnson City to the tune of a couple hundred thousand dollars," Waste Management Business development Director Robert Cheney said Tuesday afternoon.

The night before, the Marshall County Commission voted 15-2 to accept its Solid Waste Committee's recommendation to hire Winnett for an audit of solid waste funds, money the county receives from Waste Management in host fees because the landfill is here. It's part of a long-term contract that's never been checked, Commissioner Don Ledford said to support the recommendation from the committee he chairs.

"This is a good business practice," Ledford said, emphasizing a point made by Commissioner Larry McKnight who was unable to attend the monthly meeting of the Commission. "We've had a 20-year relationship with this company and don't have an audit."

Commissioner Stitt offered information to support Ledford's position.

"I did ask (landfill spokeswoman) Terri Douglas if they'd open their books and she said yes," Stitt told the Commission.

While Cheney challenges Stitt's interpretation of that exchange between the commissioner and Douglas, he concludes his point about the company's experience in East Tennessee.

After Johnson City's audit of Waste Management's payments to that municipality revealed overpayments, the company requested a refund, Cheney said.

"And they said no," Cheney said. "So, we would want that agreement on the front end" of any audit to be performed by Winnett Associates on host fees stemming from deposits at Cedar Ridge Landfill.

The agreement might include a clause saying that if the company over paid the host fee, then it would be entitled to a refund.

That agreement would, according to Cheney, stem from discussions on whether the company would open its books for the audit.

Furthermore, he said, "The host fee agreement between Waste Management, Cedar Ridge Landfill and he county does not have a provision for auditing...

"They have the ability to (audit)," Cheney continued. "According to state regulations, we have to make our information available to the Tennessee Department of Environment and Conservation." (TDEC)

Waste Management's records at Cedar Ridge "have not" been audited by the state, he said.

State data, however, may supply an answer to the county's questions, Cheney said.

"There's almost a reconciliation in the state," he explained. "When we report the tonnages to the state... we provide county of origin as well as tonnage information.

"The counties file their reports to the state on how much waste was generated in the county and where was it disposed," he continued. "You can take those two numbers and compare them, so there's a built-in check and balance in place."

Other audits have been conducted on various aspects of county finances. There's an annual audit by a company the county must hire. That's in accordance with state law for records maintained by the Comptroller of the Treasury. It has the authority to conduct special audits of its own. A private firm that looks for underpayment of taxes conducted other audits of revenue streams. Such a firm is paid on a contingency fee basis, so the county doesn't pay more. It accepts a lower return on taxes that had been charged, but not collected.

"If the landfill has not been reporting accurately," Commissioner Tony White asked, "what happens?"

Commission Chairwoman Mary Ann Neill replied, "They'd be charged for the difference."

Following such discussion, the 15-2 vote for the audit revealed Commissioners Rocky Bowden and Scottie Poarch as the two who voted no.

"It's been stated that auditing is just good business," Cheney commented the day after the vote. "While that's good business, there's also good business etiquette.

"There should have been a request from the solid waste committee" for an audit, he said, returning to the commissioner's report to his fellow commissioners about having access to Waste Management records.

Cheney reported that Stitt, "who is not a member of the Solid Waste Committee... leaned back in the chair (during a Solid Waste Committee meeting) and asked Terri Douglas, 'Would you all be willing to do it?'

"Her response was, 'If a formal request is made, we will certainly consider a formal request,'" Cheney continued as he reported the company's view of that chain of events.

"We will not (open our books) until a formal request is made," Cheney said. "The request has not come from the committee, the committee chairman, nor the county mayor.

"There's privileged information on pricing, and privileged information on customers," Waste Management's business development director said.

"And also," he asked, "will the county be in a position to refund any overpayments?

"It's not a contractual requirement that we agreed to an audit.

"It was never brought up" when the contract was written, he said. "There is no mechanism within our current agreement that allows for an audit, or sets out parameters for an audit."

Cheney then returned to the issue of business etiquette.

"It is a common courtesy to management that there be a formal request that we participate," he said. "Until there is that formal request, there's not much that we can do.

"We've had landfills audited before, and we are not opposed to it, but there are parameters that have to be set. Until there's a meeting and discussion on what those are, there's not much we can do.

"We want to cooperate, but we want to be asked and treated with a little respect," Cheney said. "A letter requesting cooperation will go a long way and it certainly would get the ball rolling."

Meanwhile, he has a suggestion.

"Somebody ought to request the records from the state," he said.

Those records, Cheney said, will indicate what Waste Management reported and, therefore, what it paid to the county.

If the state records indicate a volume that reflects an underpayment of host fees, then the company might well anticipate a request for access to landfill records for the audit by Winnett Associates.

In other matters relating to the landfill:

* Waste Management's request for a permit to expand use of property it owns at Cedar Ridge is still being processed by TDEC officials at the department's field office in Columbia.

* While a county consultant is about to resume testing of springs and well water at properties around the landfill, Cheney says, "There has been testing of water wells and springs around the landfill for two years and there has been no contamination of these sites where you can point to he landfill and say it's because of the landfill."



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