King County Solid Waste and Wastewater Treatment Utility Operations docx

King County
Solid Waste and Wastewater Treatment Utility Operations
Performance Audit Report
September 16, 2009
Washington State Auditor Brian Sonntag, CGFM
Report No. 1002103
www.sao.wa.gov
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What we found
Overarching Issues
• TheCountyoverchargestheSolidWasteDivision,theWastewaterDivision,transitand
otherdepartmentsforcentralservices.TheCountyalsochargesthesedepartments
questionablefeesforgeneralgovernmentservices.
• Theutilitiesdonotadequatelycontrolemployees’overtime.Inaddition,theutilities
overbudgetthenumberofemployeepositionstheyneed.Bydoingso,theyareinating
thegeneralgovernmentcoststheCountychargestotheutilitiesbecausethefeesare
basedonbudgetedratherthanactualexpenses.
• TheWastewaterTreatmentDivision:
• Hasnotensureditscapitalinvestmentsinbiogasgenerationarecost-eective
• Hasopportunitiestomaximizerevenuefromthesaleofbiosolidsasfertilizerand
methanegeneratedfromthetreatmentofwastewater.
• TheSolidWasteDivision:
• Coulduselandllrunotogeneraterevenuefromthesaleofmethaneandincrease
capacity,extendingthelifeofthelandll.
• Spendsmorethannecessaryonanddoesnotadequatelymanageeetoperations.Fleet
facilitiesoccupylandllspaceandshouldberelocatedtoextendthelifeofthelandll.
• Informationsystemcontrolweaknessescallintoquestiontheaccuracyofdata
managementusestomonitorandmakedecisionsaboututilityoperations.
Potential cost savings
Weidentiedatotalof$78.8millionto$82.4millioninpotentialcostsavingsand$4.8million
to$6.8millioninrevenueopportunitiesinfollowingareas:

• SolidWasteDivision:Costsavingsrangingfrom$67.1millionto$70.7millionandrevenue
opportunitiesrangingfrom$1.1millionto$3.1million.
• WastewaterTreatmentDivision:Costsavingsupto$6.6millionandrevenueopportunities
of$3.7million.
• SolidWasteandWastewaterTreatmentDivisions:
• Acombined$1.4millionincost-savingsiftheCountychargesforcentralservices
basedonactualcostsratherthanbudgetedcosts.
• TransitDivision:
• Costsavingstotaling$3.7millioniftheamountchargedforCentralServicesreected
theactualcostsoftheservices.
Overarching recommendations
• TheCountyshouldchargeutilitiesandotherdepartmentsforservicesthatdirectlybenet
themandreectthetruevalueoftheservicesprovidedandtheactualcostofoperations.
• TheSolidWasteDivision’sFleetMaintenanceshouldfocusonpreventativemaintenance
ratherthanemergencyrepairs.
• TheCountycouldrecirculateleachateandrelocatetheSolidWasteDivision’sFleet
MaintenancefacilitytomaximizethelifeofCedarHillsRegionalLandll.TheCountywill
needtoobtainapprovalfromthestateDepartmentofEcologyforapermitchangeto
implementthisrecommendation.
• TheCountyshouldreviewconstructionpracticesandcostestimationtoensureitdoesnot
committoprojectsbeforetheyaredeterminedtohaveacostbenet.
• TheCountyshouldensureinformationtechnologycontrolsareadequateandconsistent
withbestpracticestoensuredataintegrityissafeguardedandpreserved.
Cover photos, left to right:
Brightwater Wastewater
Treatment Plant, Cedar
Hills Regional Landll, West
Point Treatment Plant;
courtesy of King County
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Why we did this audit
W
echosethisauditduetoitspotentialtoidentifycostsavings,revenue-generating
opportunitiesandecienciesthatcouldreducetheutilityratesorpostponefuturerate
increasesto1.2millionKingCountyresidentswhopayforsewerandgarbageservice.Someof
thoseresidentsareprovidedservicesdirectlybytheCountyandsomereceiveservicesfrom
theCountyviaacityorsewerdistrict.
KingCounty’stwolargestutilitiesaretheWastewaterTreatmentandSolidWasteDivisionsof
theCountyDepartmentofNaturalResourcesandParks.Utilityratesaredeterminedbythe
utilities’operationscostsandapprovedbytheKingCountyCouncil.
TheWastewaterTreatmentDivisiongeneratesapproximately$250millionfromoperations
atacostofapproximately$170millioneachyear.TheSolidWasteDivisiongenerates
approximately$91millionandspendsapproximately$100millionperyear.Theseguresare
basedon2007nancialdata.
Scope and Objectives
WereviewedKingCounty’sSolidWasteDivisionandWastewaterTreatmentDivision
operationsfromscalyears2005through2008toanswerthefollowingquestions:

• HoweectiveareKingCountyUtilitiesinlimitingadministrativeexpensessuchas
administrativesalarieschargedagainstthemandlimitingadministrativestanglevelsto
thosenecessaryforthelegal,reliableandsafeoperationoftheirutilities?
• HoweectiveisKingCountyinoperatingtheseutilitiesinthemostecientand
economicalmannerpossible?
• HoweectivehasKingCountybeeninlimitingoverheadallocationsandother
expenditureschargedagainstutilitiestothosethatareallowedbystatelawandmunicipal
codeandarereasonableandnecessary?
WeconductedthisauditinaccordancewithGenerallyAcceptedGovernmentAuditing
Standards,prescribedbytheU.S.GovernmentAccountabilityOce.Thosestandardsrequire
thatweplanandperformtheaudittoobtainsucient,appropriateevidencetoprovidea
reasonablebasisforourndingsandconclusionsbasedonourauditobjectives.Webelieve

theevidenceobtainedprovidesareasonablebasisforourndingsandconclusionsbasedon
ourauditobjectives.Wealsoconductedthisauditinaccordancewiththerequiredelements
ofInitiative900,detailedinAppendixA.
Theauditcost$1.3million.
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Central Service and Finance overhead charges
EachCountydepartmentpaysaportionofoverheadcostsforcentralservices,suchas
accountingandhumanresources.TheSolidWaste,Wastewater,Transitandotherdivisionspay
moreofthesecoststhantheyshould.
TheCounty’sOceofManagementandBudgetcalculatesoverheadcostsandtheCounty’s
FinanceandBusinessOperationsallocatesthecoststoCountydepartments.Thecalculations
arebasedoneachdepartment’sbudgetedamountsandareneveradjustedtoreectactual
expenses.Theutilities’rates,inturn,arebasedontheiroperationalcosts.
IftheCounty’sadjusteditsoverheadchargestoreectactualexpensesforcentralservices,the
utilities’overheadchargeswouldbereducedby$1.4millionoverthenextveyears.Wealso
identied$3.7millioninsavingsoverveyearsthroughthereductionintheamountcharged
toKingCountyTransit.
Inaddition,CountydepartmentsarechargedcostsassociatedwiththeKingCountyCouncil,
theCouncilAdministratorandtheCountyExecutive’sOce.TheCountydoesnotsupport
thesechargeswithdocumentationtoshowthechargesarereasonable.Overthepastve
years,thesecoststotaled$9.6millionforbothutilitiesand$27.3millionfortransit.
Fleet maintenance management and operations
TheSolidWasteDivision’seetoperationscostmorethannecessaryandtheDivisioncan
improveitsmanagementofeetcosts.
TheDivision’seetmaintenanceoperationsemployeeschargesignicantamountsof
unmonitoredovertime.TheDivisiondoesnotmeasurestaperformanceagainstestablished
goals.Additionally,theDivisionmakesexcessiveemergencyrepairsincomparisonto
preventativemaintenance;doesnothaveaformalprocessforinspectingmajorrepairs;does
nottrackdamagereports;anddoesnotmonitoraccumulatedrepaircostsforequipment.Sta
memberschargemoretimetotasksnotassociatedwithmaintainingvehiclesthanisallowed

accordingtoitsStandardOperatingProcedures.
FleetmaintenancedevelopedaStandardOperatingProceduresmanualin1999thatsets
performancegoalstohelpmanagementmonitoroperationsandstaproductivity.The
manualisnotused.Forexample,itrequires90percentofallmajorrepairstoundergoaquality
reviewprocess,andclassiesthisasahighpriority.Managementdoesnothaveawayto
determinewhetherthisoccurs.
Fleetmaintenancespends82percentofitstimeonemergencyrepairsand18percent
ofitstimeonpreventativemaintenance.Bestpracticeistospend80percentoftimeon
preventativemaintenanceand20percentoftimeonemergencyrepairs.Weestimate
maintenancecostscanbereducedby$8.8millionto$12.4millionoverthenextveyearsby
emphasizingpreventativemaintenanceoveremergencymaintenance.
Fleet facilities and Cedar Hills Regional Landll
Fleetfacilitiestakeuplandllspaceandshouldberelocatedtoextendthelifeofthelandll.
TheCountyprojectsitsCedarHillsRegionalLandllwillbefullbetween2016and2018.Based
onworktheSolidWasteDivisioninitiatedbeforethisaudit,weestimatethelandllcould
Summarized Audit Issues
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remainopenfortwomoreyearsifthemaintenanceshopatthelandllwereremovedand
thespaceusedforgarbage.ThiswouldresultintheCountysavingapproximately$25million
duringthetwoyearsbynotpayingtohaulgarbagetoanothersite.
Additionally,thelandlldischargeswastewaterintotheseweratacostofapproximately$1
millionperyear.Thelandllcouldcapturethewastewaterandrecirculateitoverthetopofthe
landlltohelpexistinggarbagedecayfasterandcompacttighter,creatingadditionalairspace
thatwillextendthelifeofthelandll.Weestimatebycreatingthisextraspace,thelandll
couldsaveanadditional$31.1millionstartingbetween2016and2018bynottransporting
garbagetoanotherlocation.
Thelandllcouldcaptureandselladditionalmethanegeneratedfromtherecirculationof
wastewaterintothelandll.Weestimatethelandllcouldgeneratefrom$1.1millionto$3.1
millioninrevenueinmethanesalesoverveyears.
TheSolidWasteDivisionwillneedtopursueregulatoryapprovalfromthestateDepartmentof

Ecologytomodifyitspermitbeforeitcaninstitutetheserecommendations.Thepotentialcost
savingsdonotincludepotentialcostsforimplementingtherecommendations.
Biogas use
TheWastewaterTreatmentDivisionhasnotensureditscapitalinvestmentsinbiogas
generationarecost-eective.
In2004,theWastewaterTreatmentDivisiondevelopedaplaninresponsetoaKingCounty
ExecutiveOrdertoconstructawaste-to-energysystematitsWestPointPlanttocollect
methanegasgeneratedfromwatertreatmentanduseittogenerateelectricalpower.
In2004,theDivisionpurchasedtwogeneratorsfor$4.8millionbeforeitobtainedanaccurate
estimateofhowmuchitwouldcosttocompletetheproject.Thecosttocompletetheproject,
whichwasestimatedat$6.1millionin2004,grewto$39.2millionin2009.Theprojectis
currentlyonhold.
Inadditiontousingthebiogasbyproducttogenerateelectricity,theDivisioncouldclean
impuritiesfromthegasandsellaportionofthegastolocalutilitiesthroughtheexisting
pipeline,asitdoesattheSouthPlant.AlthoughtheCountystatedthepipelinecouldnot
handletheadditionalgaspressure,itdidnotconsiderapartialdistributiontotheutility.We
estimateiftheplantsoldportionofitsbiogasasacommodity,itcouldgenerate$2.7million
overthenextveyears.
Overtime Expenses
Theutilitiesdonotadequatelycontrolormonitoremployees’overtimeandtheutilities
overbudgetthenumberofemployeepositionstheyactuallyll.Asaresult,theutilitiesare
payingexcessivegeneralgovernmentcostschargedbytheCounty.
TheWastewaterTreatmentDivisionbudgetsformoreemployeesthanithires.Thenumberof
budgetedfull-andpart-timeemployees–598.7–hasnotchangedsinceatleast2005.The
actualnumberofemployeesduringtheauditperiodrangedfrom566to553.
Theutility’sbudgetedcostsdrivetheutilityratesandresultinrateincreasesthatarenotbased
ontheactualcostofoperations.Theperpetuallyvacantpositionsalsoincreasetheamountof
overheadchargestheCountyallocatestotheutility.
Theutilitycouldsave$5.8millionoverthenextveyearsbyadjustingitsbudgettoreectthe
6

Commendations
Division’sactualnumberofemployees.
Theutilitycanreduceovertimethroughoversightandmonitoring.Wedidnotexaminethe
reasonswhyovertimewasincurredinallcases,thereforewecannotquantifytheamount
ofovertimethatcouldbeavoidedbyeectivemonitoringversusovertimethatcouldbe
eliminatedbyhiringemployees.
Information technology
WefoundweaknessesintheCounty’sinformationsystemthatcallintoquestiontheaccuracy
ofdatathatmanagementusestomakedecisionsaboututilityoperations.
TheweaknessesintheCounty’sinformationsystemmayalsohaveaectedthedatawe
collectedfortheauditanduponwhichwebasedourndingsandrecommendations.
WeidentiedmanyleadingpracticesattheCountyandtheutilities.
King County
• Itsperformancereportingmodelisaleadingpracticeinprovidingthepublicwith
informationontheperformanceofallCountydivisions.
Solid Waste Division
• Collectsandsellslandllgasasacommodity.
• Appliesleadingpracticestomaximizethelifeofitlandll.
• Incorporateslong-rangeplanningintotheconstructionofitslandlls.
Wastewater Treatment Division
• Reusesheatgeneratedbyitspumps.
• CollectsandsellsbiogasasacommodityattheSouthPlant.
• Usesreclaimedwaterforoperationsatbothtreatmentplants.
• Publishesreal-timeoperationalinformationtothepublicregardingoverowsite
conditions.
• Achieved100percentcompliancewithNationalPollutionDischargeEliminationSystem’s
reportingrequirementsforthepastthreeyears.
• ItsbiosolidsprogramprovidesoversightforWashingtonsitesthatusebiosolidstoensure
theymeetstaterequirements.
Fleet Administration Division

• Usestrackingsoftwareandperformancemeasurestomonitoroperationsandeet
replacement.
• NearlyallmechanicsarecertiedbytheNationalInstituteforAutomotiveService
Excellence(ASE)andhaveanumberofnationalawardsrecognizingthequalityofservice.
For more information
Americans with Disabilities
In accordance with the Americans with Disabilities Act, this
documentwillbemadeavailableinalternateformats.Pleasecall
(360)902-0370formoreinformation.
Washington State Auditor  
BrianSonntag,CGFM

(360)902-0360
Director of Audit 
ChuckPfeil,CPA
 
(360)902-0366
Communications Director
MindyChambers

(360)902-0091
To request a public record:
MaryLeider,PublicRecordsOcer
 
(360)725-5617
Main phone number
(360)902-0370
To receive electronic notication of audit reports, sign up at
www.sao.wa.gov
Toll-free hotline for reporting government waste and abuse

1(866)902-3900
To nd your legislator    
/>


Performance auditreport for 
KingCountyUtilities
September15,2009

A member firm of Ernst & Young Global Limited

Ernst & Young LLP
Suite 3500
999 Third Avenue
Seattle, WA 98104-4086
Tel: +1 206 621 1800
Fax: +1 206 654 7799
www.ey.com



Mr.BrianSonntag September15,2009
WashingtonStateAuditor
WashingtonStateAuditor’sOffice
3200CapitolBoulevardS.W.
P.O.Box40031
Olympia,Washington98504‐0031
DearMr.Sonntag:
WehavecompletedPhaseIIIoftheperformanceauditofKingCountyUtilities.Ourengagementwasperformedinaccordancewith
ourContractNo.0408‐C‐K31,datedAug

ust6,2008.Ourprocedureswerelimitedtothosedescribedinthatletter.
Background
In2005,thevotersofWashingtonstatepassedInitiative900(I‐900)authorizingtheWashingtonStateAuditor’sOffice(SAO)tobegin
conductingperformanceauditsofvariousWashingtonstateandlocalgovernmententities.Thepu
rposeoftheseperformanceaudits
istopromoteaccountabilityandcost‐effectiveusesofpublicresourcesthroughidentificationofopportunitiesforpotentialcost
savings.
Scopeofourwork
TheSAOengagedErnst&YoungtocompletetheKingCountyUtilitiesperformanceauditinaccordancewithGenerallyAccepted
GovernmentAuditingStandards.Theauditshalladdressthefollowingobje
ctivesfromtherequestforproposal(RF
P):
• Administration–Atthetimeofthisaudit,howeffectivearetheKingCountyUtilitiesinlimitingadministrativeexpensessuchas
administrativesalarieschargedagainsttheirutilities,andlimitingadministrativestaffinglevelstothosenecessaryforthelegal,
reliableandsafeoperationoftheirutilities?
• Operations–Atthetimeofthisaudit,howeffectiveisKingCountyinoperatingtheseutilitiesinthemostefficientandeconomical
mannerpossible?Thisauditobjectiveincludes,butisnotlimitedto,operationalcostsassociatedwith:solidwastecollection,
processinganddisposal;andcollection,treatmentandconveyanceofwastewaterandsewage.
• Overheadallocation–Overthepastthreeyears,howeffectivehasKingCountybeeninlimitingoverheadallocationsandother
expenditureschargedagainstutilitiestothosethatareallowedbystatelawandmunicipalcodeandarereasonableandnecessary?
Thisincludes,butisnotlimitedto,centralserviceallocationsandcharg
esfromothercountydepartments.

A member firm of Ernst & Young Global Limited


Page 2

September 15, 2009

The performance audit shall also address the following I-900 objectives:
• Identifying cost savings.
• Identifying services that can be reduced or eliminated.
• Identifying programs or services that can be transferred to the private sector.
• Analyzing gaps or overlaps in programs or services and recommendations to correct them.
• Assessing the feasibility of pooling the entity’s information technology systems.
• Analyzing the roles and functions of the entity and recommendations to change or eliminate roles or functions.
• Recommending statutory or regulatory changes that may be necessary for the entity to properly carry out its functions.
• Analyzing the entity’s performance data, performance measures and self-assessment systems.
• Identifying leading practices.
The above objectives are focused on the county’s operations and exclude the county’s wastewater and solid waste construction
management practices. The performance audit is delivered in four phases: diagnose current state, define and design audit plan,
execute audit plan and summarize communication and report results.
Results of our work
From October 2008 to February 2009, Ernst & Young executed the audit plan designed for the selected list of risk areas in Phase II of
the performance audit. Based on information gathered using data analytics, flow charts, interviews, testing and benchmarking, we
identified issues and leveraged our subject matter resources to recommend leading practices and or to create suggested standard
procedures, processes, controls and recommendations to King County.

A draft performance audit report was delivered to the State Auditor’s Office on April 13, 2009. An updated report was shared with
King County on August 14, 2009, which contained our recommendations for the County and was the basis for the County’s responses.
Restrictions on the use of our report
Ernst & Young assumes no responsibility to any user of the report other than the Washington State Auditor’s Office. Any other
persons who choose to rely on our report do so entirely at their own risk.
We appreciate the cooperation and assistance provided to us during the course of our work. If you have any questions, please call
Michael Kucha at +1 206 654 7741.
Very truly yours,

Contents
Background 1
Objectives 1
Methodology 2
Scope
SummaryofImpactofRecommendations
4
5
 
KingCountyUtilitiesbackground 
SolidWasteDivision(SWD)backgroundandhistory 7
WaterTreatmentDivision(WTD)backgroundandhistory 10
 
CentralServiceandFinanceoverheadcharge
Auditareabackground 11
Issuesandrecommendations 13‐16
 
Fl
eetmaintenancemanagement 
Auditareabackground 17
Issuesandrecommendations 19‐39
 
Leachaterecirculation 
Auditareabackground 40
Issuesandrecommendations 42‐44
 
Overtimeexpenses 
Auditareabackground 45
IssuesandRecommendations 48‐54


Biogasuse

Auditareabackground 55
Issuesandrecommendations 56‐63

Biosolidsmanag
ement

Auditareabackg
round 64
Issuesandrecommendations 67‐74
 
InformationTechnology 
Auditareabackground 75
Issuesandrecommendations 76‐80
 
AppendixA–Initiative900elements 81
AppendixB–SummaryofleadingpracticesbySolidWasteandWastewaterTreatmentDivisions 82
AppendixC–Auditareabenchm
arking 85

AppendixD–OrganizationalstructureofKingCountyUtilities 91
AppendixE–Solidwastetreatmentprocessdiagram 93
AppendixF–WestPlantwastewatertreatmentprocessdiagram 94
AppendixG–Recommendedfleetperformancemetrics 95
AppendixH–Glossaryofacronymsusedinthisreport 96
AppendixI–KingCountyresponsestoauditfindings 98

Ernst & Young LLP 1
Introduction

Background
InNovember2005,thevotersofWashingtonStatepassedInitiative900authorizingthestateauditor’sofficetobeginconducting
performanceauditsofvariousWashingtonstateandlocalgovernmententities.Thepurposeoftheseperformanceauditsistopromote
accountabilityandcost‐effectiveusesofpublicresourcesbyidentifyingopportunitiesforpotentialcos
tsavings.Thesesa
vingscanbe
achievedinanumberofways,suchasreducingoreliminatingservices,implementingleadingpractices,changingoreliminatingrolesand
functionsandpoolingofinformationtechnology.Inadditiontotheseopportunities,Initiative900seeksrecommendationsforstatutoryor
regulatorychangesthatmaybenecessaryforanentitytocarryoutitsfunctionsproperly.
Wehaveconduc
tedaperformanceauditofKingCountySolidWasteandWastewaterTreatmentDivisionoperationsfortheperiodof
January1,2005toDecember31,2007toexaminetheefficiencyandeffectivenessofbiosolidsmanagement,biogasuse,leachate
management,centralserviceandfinanceoverheadcharg
es,overtimeapprovalan
dfleetmanagementoperations.
WeconductedthisperformanceauditinaccordancewithgenerallyacceptedGovernmentAuditingStandards.Thosestandardsrequire
thatweplanandperformtheaudittoobtainsufficient,appropriateevidencetoprovideareasonablebasisforourissuesandconclusions
basedonourau
ditobjectives.Webelievethattheevidenceobtainedprovidesareasonablebasisforourissuesandconclusionsbasedon
ourauditobjectives.
Objectives
• Administration‐Atthetimeofthisaudit,howeffectiveisKingCountyinlimitingadministrativeexpensessuchasadministrativesalaries
chargedagainsttheirutilities,andlimitingadministrativestaffinglevelstothosenecessaryforthelegal,reliable,andsafeoperationof
theirutilities?
• Operations‐Overthepast3years,howeffectivehasKingCountybeeninlimitingoverheadallocationsandotherexpenditurescharged
againstutilitiestothosethatareallowedbystatelawandmunicipalcode,andarereasonableandnecessary?Thisincludes,butisnot
limitedto,centralserviceallocationsandchargesfromotherCountydepartments
.
• Overhead‐Atthetimeofthisaudit,howeffectiveisKingCountyinoperatingtheseutilitiesinthemostefficientandeconomicalmanner
possible?Thisauditobjectiveincludesbutisnotlimitedtooperationalcostsassociatedwithsolidwastecollection,processingand

disposal;andcollection,treatmentandconveyanceofwastewaterandsewag
e.
Theperformance
auditwasalsoplannedandperformedtoaddressthenineelementsinInitiative900
1
:
• Identifyingcostsavings
• Identifyingservicesthatcanbereducedoreliminated
• Identifyingprogramsorservicesthatcanbetransferredtotheprivatesector
• Analyzinggapsoroverlapsinprogramsorservicesandrecommendingtocorrectionstogapsoroverlaps
• ExaminingthefeasibilityofpoolinginformationtechnologysystemswithinKingCountyUtilities
• AnalyzingtherolesandfunctionsofKingCountyUtilitiesandmakingrecommendationstochangeoreliminaterolesorfunctions
• RecommendingstatutoryorregulatorychangesthatmaybenecessaryforKingCountyUtilitiestoproperlycarryoutitsfunctions
• AnalyzingofKingCountyUtilities'performancedata,performancemeasuresandself‐assessmentsystems
• Identifyingofleadingpractices

1
AmatrixidentifyingtheseelementswithrespecttotheauditareasispresentedinAppendixA.

Ernst & Young LLP 2
Methodology
Weconductedthisperformanceauditinaccordancewithgenerallyacceptedgovernmentauditingstandards(GAGAS).Thosestandards
requirethatweplanandperformtheaudittoobtainsufficient,appropriateevidencetoprovideareasonablebasisforourfindingsand
conclusionsbasedonourauditobjectives.Weplannedandperformedtheperformanceauditto:
• Obtainanunderstandingoftheareabeingaudited
• Considerlegalandregulatoryrequirements
• Identifyandreviewmanagementcontrolsapplicabletothearea
• Identifycriterianeededtoevaluatemattersubjecttotheaudit
• Identifyandexaminesufficient,appropriatesourcesofevidencetoprovideareasonablebasisforourissuesandconclusionsbasedon
ourauditobjectives

• Determinetheneedfortechnicalprofessionalassistance
• Theneedsofgovernmentofficials,ratepayersandotherusers

Inplanningouraudit,Ernst&Youngdevelopedamulti‐phasedstatementofwork.Theprojectwasconductedinfourphases:
1. Phase1–Conductaperformanceandriskassessmenttoidentifyimprovementopportunitiesintheformofleadingpracticesand/or
issues(Leadingpracticesarei
dentifiedinAppendixB).Identifyareasthathavethegreatestopportunitytoreducecostsandimprove
efficiency.
2. Phase2–DevelopaworkplanforthehighestriskareasidentifiedinPhase1todetermineissuesandrecommendations.
3. Phase3–Executetheworkplan.
4. Phase4–Issuethefinalperformanceauditreporttothestateauditor’sofficeandassistthestateauditor’sofficewithpresentations
tostatelegislators,legislativecommitteesorKingCountyCouncilmembers.

Ourworkincluded:
• Conductinginterviewswithmanagersandstaff
• Identifyingapplicableregulatoryrequirementsandcontrols
• Validatingourunderstandingofcontrolsbywalkingthroughprocessesandprocedureswithcontrolowners
• Performingabenchmarkinganalysistodeterminehowwelltheutilitiesbeingreviewedperformrelativetotheirpeers(Abenchmarking
analysisispresentedinAppendixC)
• Testingtransactionsandrecordsforeffectivenessofcontrolsandadherencetopolicy
• Reviewingpoliciesandprocedures
• ReviewingSolidWasteandWastewaterTreatmentreports
• Surveyingemployees
• Analyzingprocessestoidentifypotentialcostsavingsorefficiencies
• ReviewingITgeneralcontrolsforsystemspertinenttoourissuesandconclusions
• Developingtablesidentifyingelementsofaissueforallissueareas

Theissuesandconclusionswithinthisreportincludesectionsthatidentifypotentialcostsavings.Weusedmultipleprocedurestocalculate
potentialcostsavings,includingreviewofdatageneratedbyITsystemsinseveraloftheissues.Aspartofourauditprocedures,we
reviewedtheITgeneralcontrolsforthese

systems.TheITreviewidentifiedseveraldeficienciesininternalcontrolwithrespecttotheseIT
systems.TheidentifiedITgeneralcontroldeficienciescreatepotentialuncertaintyregardingtheaccuracyofpotentialcostsavings
calculations,whichareshownunderthediscreteheading“Ef
fectsofrecommendation‐potentialcostsavingsandotherimpacts.”The

Ernst & Young LLP 3
potentialcostsavingsthatarebasedoncomputer‐generatedinformationmaybeaccurate,ormaybeeitherhigherorlowerasaresultof
theITgeneralcontroldeficienciesandareconsideredtobeinformationalonly.TheITcontroldeficienciesareidentifiedasseparateissues
inourreport.

Theseissuesinclude:

• InformationTechnologysystemchangecontrolsdonotmeetindustrystandards
• InformationTechnologyaccesscontrolsdonotmeetindustrystandards
• Accesstodatacentersandenvironmentcontrolsinthedatacentersdonotmeetindustrystandards

TheissuesthatcontainpotentialcostsavingsbasedonITgenerateddatainclude:

• CentralServiceandFinanceoverheadcharge(OH.1,OH.2)
• ApprovingOvertime(OT.1,OT.2,OT.4)
• Fleetmaintenancemanagement(FL.2,FL.3,FL.4,FL.7)

Webelievethattheevidenceobtainedprovidesareasonablebasisforourfindingsandconclusionsbasedonourauditobjectives.

Ernst & Young LLP 4
Scope
TheperformanceauditfocusedontwoKingCountyUtilityoperations:
• KingCountySolidWasteDivision(SWD)
• KingCountyWastewaterTreatmentDivision(WTD)


Ernst&Youngtesteddataandrecordsmainlyrelatedtofiscalyear2005‐2008,althoughErnst&Youngalsoobtaineddatarelatedtothe
currentfiscalyearforcertaintestsandanalyses.Alloperationsincludedinthisperformanceaudithaveafiscalyearmatchingthecalendar
year.Ernst&Youngbegan
theperformanceauditinAugust2008andcompletedfieldworkinFebruary2009.
TheperformanceauditanalyzeddatafromDecember31,2005throughDecember31,2007.Ernst&Youngconductedaninitialrisk
assessmentoftheentireSWDandWTDDivisionstoidentifythebestopportunitiesfori
mprovement.Potentialissueswereidentifiedin
theplanningoftheauditandErnst&YoungworkedwiththeWashingtonStateAuditor'sOffice(SAO)inselectingtheissuestoincludein
theauditscope.Furtherauditstepsresultedinadditionalrefinementoftheauditscopetoincludethefollowingissuear
eas:
• CentralServiceandFinanceOverheadCharges(Note‐inordertoreviewthechargesmadetotheutilities,itwasnecessaryto
performacomprehensivereviewoftheallocationprocessacrossKingCounty.Duringthisprocess,wenotedthatallocationsto
Transitandotherfundsweresignificantandwehaveincludedthoseconclus
ionsinourfindings)
• FleetMaintenanceManagement
• LeachateRecirculation
• OvertimeExpenses
• BiogasUse
• BiosolidsManagement
• InformationTechnology


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Summaryofimpactofrecommendations
Thetablesbelowidentifypotentialcostsavings,revenueopportunities,andreductionsingeneralfundcostsallocatedtotheutilitiesthat
couldberealizedoverafiveyearperiodfollowingimplementationofrecommendedactions.Inaddition,weidentifiedquestionable
generalgovernmentcostsallocatedtotheutilitiesandtootherCountyfunds.Exceptionsinclud
emeasuresa
ssociatedwithfleet
operationsorlandfillleachaterecirculationthatwillextendtheoperationallifeoftheCedarHillsLandfill.Savingsintheseareaswouldbe

realizedafter2018whichrepresentsthedateoflandfillclosureunderthepresentcondition.Whereapplicable,costallocationvalues
relatedtotheissueareasareals
oidentified.
AsnotedintheMethodologyparagraphabove,weidentifieddeficiencieswiththeITgeneralcontrols.Thepotentialcostsavingsarebased
oncomputer‐generatedinformationandmaybeaccurate,ormaybeeitherhigherorlowerasaresultofthesecontroldeficiencies.A
summaryofpotentialcos
tsavings,revenueopportunitiesandreallocationofgeneralfundcosts,arepresentedinthenextthreetables:

Centralservicesoverheadcharges
2
:
TodeterminetheamountsofquestionedcostsallocatedtotheWTDandSWD,itwasnecessarytoidentifyallcostsallocated.Basedon
thatwork,weidentifiedcostsavingsbasedonuseofactualexpenses.Wealsoidentifiedquestionablegeneralgovernmentcostsallocated
outsideoftheCounty’sgeneralfund.

IssueArea 5‐YearPotentialCostSavings
3
 Questionablecostsallocatedoverthepast
5years
4

SolidWasteDivision $650,000 $4,852,335
WastewaterTreatmentDivision $750,000 $4,818,183
Transit $3,700,000 $27,334,015
County‐wideEffect $10,200,000 $60,427,761



2
Estimate based on analysis of 2005 – 2009 financial information.

3
The reductions in costs that could be achieved if central service costs allocated were adjusted to reflect actual expenses.
4
Questionable cost allocations to non general fund departments may in whole or in part correspond with services provided
but these charges are unsupported.

Ernst & Young LLP 6

OtherAuditAreas
:
Thefollowingsummarizethe5‐yearpotentialcostsavingsandpotentialrevenueopportunitiesidentifiedintheauditfindingsfortheaudit
areasof
SolidWasteDivision:
IssueArea 5‐YearPotentialCostSavings 5‐YearPotentialRevenueOpportunities
Fleetmaintenancemanagement$36,000,000to$39,600,000
5

6
‐
Leachaterecirculation $31,100,000
7
 $1,150,000to$3,150,000
Overtimeexpenses NotQuantified
8

Totals $67,100,000to$70,700,000 $1,150,000to$3,150,000


WastewaterTreatmentDivision:
IssueArea 5‐YearPotentialCostSavings 5‐YearPotentialRevenueOpportunities

Overtimeexpenses $6,650,000‐
Biogasuse‐$2,700,000
9

Biosolidsmanagement‐$1,000,000
Totals $6,650,000 $3,700,000

The figures above do not include any potential costs related to implementation of the recommendations, which will partially
offset the cost savings noted in this report. Although this performance audit was not structured to include detailed
implementation plans, we feel that King County has the experience and expertise to develop the specific steps necessary to
implement the recommendations.




5
The range of savings includes an estimated$25,000,000 the SWD can avoid by relocating the fleet maintenance facilities from the Cedar
Hills landfill, thereby creating airspace and extending the life of the landfill by two years. This amount is in addition to the savings the Division
can realize by recirculating leachate, as described in footnote 7 but does not include costs for siting a new maintenance operation.

6
The range of savings also includes up to $2,200,000 associated with the fleet maintenance meeting their goal of 20% indirect time charged
by staff.

7
The SWD can reduce their expenses by $1,850,000 over the next 5 years by re-circulating leachate that the Division is currently paying to
have disposed in the sewer system. The SWD can generate an additional $1,150,000 to $3,150,00 over the next 5 years by capturing and
selling the gas byproduct of the landfill. Based on historical activity, the SWD can avoid costs of $29,250,000 by extending the life of the
landfill, which would be realized starting in 2019. These figures do not include expenses to install or operate the re-circulation system which
will partially offset the savings.

8
Our audit did not examine the reasons why overtime was incurred in all cases, therefore we cannot quantify an amount of overtime that
could be avoided by effective monitoring versus overtime that is necessary and could be eliminated by using additional staff paid at straight-
time. Please see OT.4 for details.

9
The WTD incurred an additional $540,000 of costs based on the type of generator they selected. This affect on utility rates is discussed in
Issue BG-2.


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
KingCountyUtilitiesbackground
WithintheKingCountygovernment'sorganization,boththeSolidWasteDivision(SWD)andWastewaterTreatmentDivision(WTD)reside
intheDepartmentofNaturalResourcesandParks(DNRP).Inturn,theDNRPreportstotheOfficeoftheKingCountyExecutive.
DepartmentsandorganizationswithKingCountyaresupportedbyinternalagencies.Internalserviceprovidersperformingprimarily
administrativefunctionsarecommonlyreferredtoasce
ntralservic
eswhichareexternaltotheSWDandWTD.Furtherdetailsonthese
serviceprovidersarediscussedintheCentralServiceandFinanceoverheadsectionofthisreport.InternalCentralServiceCostsare
allocatedbasedonKingCounty’scos
talloca
tionplantodepartmentswithinthecounty.OperationsspecifictotheSWDandWTDare
detailedinthefollowingtwosections.
SWDbackgroundandhistory
TheKingCountySWDstrivestoprovideitsratepayersefficientandreliablesolidwastetransferanddisposalservices.SWDaimstoprotect
humanhealthandtheenvironmentandprovidevaluetothetaxpayer.TheSWDisalsoaconscientiousstewardoftheenvironment,
supportingwastepreventionandrecyclingprograms,greenbuildingandsu
stainabledevelopmen

t.
TheSWDisanenterprisefundwithintheKingCountyDNRP.Itemploysapproximately420full‐timeemployeesandprovidessolidwaste
transferanddisposalservicesfor1.2millionresidentsand637,000whoareemployedandworkinKingCounty.Theorganizational
structureoftheutilityispresentedinAppe
ndixD.TherearenineunionswithinSWD’soperations,andabout95%oftheworkforceis
representedbytheseunions.TheSWDcurrentlyserves37of39citiesinKingCounty,aswellasorganizationofunincorporatedareas.The
citiesofSeattleandMiltonarrangefortheirownwastedisposal
.
TheoperationsoftheSWDareillustrate
dinAppendixE.Privatethird‐partycontractorsareusedforcurbsidecollectionandtransportof
wastetotransferstations.TheSWDtransportswastefromthetransferstationsanddropboxestotheCedarHillsRegionalLandfilland
managestheincorporationofwasteandmainte
nanceofthelandfill.AsillustratedinFigureSWD‐1,thedivision'seighttransferstationsare
locatedinAlgona,BowLake,Enumclaw,Factoria,Houghton,Renton,ShorelineandVashonIsland.Theruraldropboxesarelocatedin
CedarFallsandSkykomish.Inaddition,theSWDalsoprovidesrecyclingcollectionservicesatma
nyofitsfacilitie
sandmanagesrecycling
programsandeducationforcommunitiesandbusinesses.Furthermore,thedivisionhelpswithspecialwastecollectionanddisposal,and
maintainscustodialoperationsatnineclosedlandfills.Atalllandfillfacilities,theSWDmustcontinueongoingenvironmentalmonitoringof
groundwater,surfacewater,wastewaterandlandfillgastoprotecthumanhealthandtheenvi
ronment.

Ernst & Young LLP 8

FigureSWD.1.LocationsofSWDmanagedwastetransferstations,dropboxesandtheCedarHillsLandfill.

Ernst & Young LLP 9
CedarHillsRegionalLandfillstartedoperationsintheearly1960's.Atthattime,therewerefewregulationstogovernthedesignand
operationsofalandfill;however,environmentalawarenessandnewstateandfederalregulatorycontrolshavesincebeenadoptedand
implemented.Currently,therearestricterrequirementsformanaginglandfills,suchasusinglandfillli

ners
,impermeablecapsand
environmentalmonitoring.
TheSWDoperatestheKingCounty‐ownedCedarHillsRegionalLandfill;itistheonlyactivelandfillinKingCounty.Thelandfillcovers920
acresandislocatedinMapleValley—20milessoutheastofSeattle.Thelandfillreceivesnearlyonemilliontonsofsolidwasteperyear
fromKingCount
y’seighttransferstationsandtwodropboxes.However,thelandfillisnotopentothegeneralpublicforthedisposalof
garbage.Somematerialsnotacceptedatthetransferstationsmaybeacceptedatthelandfill,butonlywithanapprovedwastec
learanc
e.
CurrentandfutureoperationsperformedbytheSWDaredepictedintheprocessdiagrampresentedinAppendixE.SWDtransfertrucks
hauling18‐tontrailersdeliverthegarbagetoanactiveareaofthelandfillwhereitisthentampeddownbylargebulldozersandtemporarily
coveredinanactivesegm
entor"cell"withinthelandfill.Oncethecellisfilledtoitspermittedcapacity,itiscappedwithanengineered
capthatislayeredwithhigh‐densitypolyethylene(HDFE)andsoiltoinhibitrainfallinfiltrationandcontactwiththewaste.
Oneoftheharmfulby‐productscreatedbythedecompositionofsolidwasteislandfillgas,whichpr
im
arilyconsistsofmethane,a
recognizedgreenhousegas.Historically,thegaswascollectedinaseriesofundergroundpipesthatcarriedittoanabove‐groundflare
stationwhereitwasburned.However,theSWDrecentlycompletedconstructionofalandfillgastoenergyprojec
t.Thisnewsyst
em
convertsthemethaneintopipeline‐qualitynaturalgas.Operationofthissystemisbeingperformedbyathird‐partyserviceprovider,
Ingenco(doingbusinessasBioEnergyLLC).BioEnergyLLC'ssystemdistributesprocessedlandfillgasthroughanexistingWilliams
Northwestnaturalgaspipelinelocate
dadjacenttothelandfill.TheSWDanticipatesreceivingannualpaymentsofmorethan$1million
associatedwiththesaleofprocessedlandfillgastoWilliamsNorthwest.
CedarHillsRegionalLandfillisexpectedtoreachitspermittedcapacityin2018.TheSWDiscurrentlyresearchingmethodstoprolongthe
lifeofthelandfillbeyondthisdat
e.However,oncethelandfillhasreachedcapacity,theSWDplanstoexportitssolidwastetoout‐of‐

countylandfills.
TheSWDisanenterprisefund,andoperationsareprimarilyfinancedthroughtippingfeeschargedtocustomersattransferstationsandat
theCedarHillsRegi
onalLandfill.Tippingfeesrepresentacostpertonchargeasmeasuredatthescalehousesatthetransferstationsand
landfill.Thecurrenttippingfeeis$102.05pertonaftertaxesandapplicablesurcharges.
Thetotaloperatingrevenuesandoperatingexpendituresfor2006and2007areasfollows:

 2006
2007
Totaloperatingrevenu
e $90.9Million $91.9Mill
ion
Operatingexpenditures $93.7Million
$100.1Million


Ernst & Young LLP 10
WaterTreatmentDivision(WTD)backgroundandhistory
TheWTDisoperatedbytheKingCountyDNRPthroughtheWaterQualityenterprisefund.Asanenterprisefund,watertreatmentis
fundedandoperatedseparatelyfromotheroperationsofthecountyandtheuseofitsrevenues,bondproceedsandgrants‐in‐aidis
restrictedbypurpose.InaccordancewithRCW3
5.58,theWaterQualityfundisus
edtoprovidesewagetreatmentandwaterpollution
abatementservicestotheurbanizedareasofthecounty.TheWTDservesabout1.4millionpeoplewithina420‐square‐mileservicearea
thatextendsthroughoutabroadareaofKingCountyandintoportionsofPie
rceandSnohomishCounties.
TheWTDhaslong‐termsewage
treatmentagreementswith17citiesand17sewerdistrictsthatoperatesewagecollectionsystemswithintheWTDservicearea.Thesecity
andregionalcollectorspaymonthlysewagedisposalchargestotheWTDpercontract,whicharedeterminedbasedonoperatingcos
tsand

debtserviceofth
eWTD.Inadditiontothesewercharges,theWTDcollectsacapacitychargeonallhomeownersandbuildingownersin
thecounty'sserviceareawhohaveconnectedtothesewersystemonorafterFebruary1,1990,perRCW35.58.570andKingCountyCode
No.28.84.050.Th
esearecollectedona15‐year,monthlypaymentschedulewiththeoptiontoexerciseanearlypayoff.
TheWTD’smajorfacilitiesincludethetworegionaltreatmentplants,theWestPointandSouthTreatmentPlants,aswellastwosmaller
treatmentplantsonVashonIslandandinCarnation.TheBri
ghtwaterTreatmentPlantlo
catedinthenorthernpartoftheregionis
scheduledtobecompletedin2010withoperationsstartingin2011.Adailyaverageof200milliongallonsofwatertreatmentfromhomes,
industriesandstreetsreachthecounty’stworegionaltreatmentplantsthrough47pumpstations,19regulatorstationsandmorethan335
mile
sofsewerpipe
s.OperationsbeyondwatertreatmentarealsoperformedbytheWTD.Theseactionsincludebiosolidswaste
processing,reclaimedwaterprojects,odorcontrol,aswellastestingalternativetreatmenttechnologies.
ThebasicwatertreatmentprocessisdepictedintheprocessdiagraminAppendixF.Althoughthisdiagramisspe
cifictotheWestPoint
Plant,itsbasicoperationsaresimilartothoseattheSouthPlant.Asshowninthisdiagram,waterthatcomesintotheplantsundergoesa
seriesofprocesses,including:
• Preliminarytreatment:wherelargedebrisandinorganicgarbageareremoved.
• Primarytreatment:wherewastewatersareskimmedandgravityissettled.Solidsareremovedandsenttodigestersforprocessinginan
oxygen‐free(anaerobic)environment.
• Secondarytreatment:whereabiologicalprocessisusedtoconsumethesuspendedanddissolvedorganicmaterial,leavingthe
remainingwaterorsecondaryeffluentatleast85%cleanerthanwhenitenteredtheplant.
• Disinfection:theremainingpathogensarechemicallydestroyedbeforethefinaleffluentisreleasedintoPugetSound.
TheWTDemploysabout600full‐timeemployeesandabout40temporaryemployees.ThecapitalassetsfortheWTD,asofits2007
financialstatements,were$2,744million.Theoperatingrevenuesandexpendituresforthelasttw
oyearsareasfollows:
 2006
2007

Operatingrevenues $241.3
million
$262.9million
Operatingexpenditures $166.9million
$170.4million

Ernst & Young LLP 11
CentralServiceandFinanceoverheadcharges
Auditareabackground
Duringourauditwelookedatcostallocationsoriginatinginthreedifferentareas:CentralCostallocations,FinanceandBusinessOperations
allocationsandDNRPadministrativeallocations.Inordertoreviewthechargesmadetotheutilities,itwasnecessarytoperforma
comprehensivereviewoftheallocationprocessacrossKingCounty.Duringthisproc
ess,wenotedthatallocati
onstoTransitandother
fundsweresignificantandwehaveincludedthoseconclusionsinourissues.
KingCountyCentralcostallocations
KingCounty’sCentralcostallocationplanallocatesinternalcentralservicecostsoriginatingingeneralfund(CX)departmentstoother
departmentsthroughoutthecounty.Centralse
rvicecostsarethoseamountsex
pendedbythecentralservicedepartmentsfor
administrativeactivitiesthatbenefitthewholeCounty.Thesefunctionsaretypicallycentralizedforefficiencypurposes.Thecost
allocationmethodconsistsof12costpoolsallocatedtobothCXandnon‐CXdepartments.

Theallocationmethodologyusedforthe12cos
tpoolsareguid
edbytheKingCountyCodeandmustbesubmittedtotheKingCounty
executiveandtheCouncilforreviewandapprovalonanannualbasis.In2008,theallocationmethodologyisasfollows:
AllocationbasisCostpools

2006Adjustedoperatingexpenses Generalgovernment,budgetservices,strategicplanning,

2008ProposedFTEs
 personnelservice
s,buspasssubsidy,mailservices,
recordsmanagement,andemergencyservices

2006ComplaintsOmbudsman

2006AssetvalueFixedassetmanagement

2006ARMS/IBIStransactions  Stateauditor

2008Projectedsquarefootage Buildingoccupancy
DNRPAdministrativecostallocations
TheDNRPoverseesfourlargedivisions,plustheGeographicInformationSystemsgroup,whichisaninte
rnalservicefund.Thefour
divisionsinclude:SolidWaste,WaterTreatment,WaterLandResourcesandParksandRecreation.TheoverheadcostsinDNRP(DNRP
Admin)consistofassistanceandservicesprovidedbythedirectorandthepersonnelfromherofficeincludingpublicrelations,human
resources,publicoutreach,administrativestaffan
dthedeputydirector.Thedirector’sofficeemploysapproximately30peopletooversee
thedivisionsundertheDNRP.
TheDNRPAdminbudgetisproposedduringthedepartment’sbudget‐settingprocessinOctober,whichisbroughttothecountyexecutive
andmustbeapprovedbytheKingCountyCouncil.Anestimateofeac
hDNRPdivision’sshareofDNRPAdminisalsodevelopedusingthe
operatingbudgetasapercentagebaseforallocation.Thepreviousyear’sbudgetfromthedivisionsisusedtocomeupwiththecurrent
allocationpercentagebase.

DNRPoverheadchargesareinvoicedquarterlytothedivisionsba
sedonthebud
getingprocessdescribedabove,butthetotalannual
expendituresare"trued‐up"toreflectactualexpenditures.SWDandWTDmakeadjustmentstotrue‐uptheirportionofDNRPAdmincosts

toactualresultsaftertheendoftheyear.

Ernst & Young LLP 12
FinanceandBusinessOperationscharges
TheFinanceandBusinessOperations(FBO)divisionsupportsallcountyagencieswithtreasuryservices(propertytaxcollection,investment
pooling),procurementandcontractservices,benefitsservicesandaccountingandpayrollservices.FBOisaninternalservicefundthat
recoversitsexpensesthroughbillingstootherKingCountyorganizations.Thosebilling
sarebasedoncostallocationscalculatedto
representtheservicesprovidedtothereceivingorganizations.
FBOusesaninternalratemodeltoestablishitsannualoverheadallocationsforbilling.EachdirectorindirectserviceperformedbyFBO
willhavearelatedallocationbasis.Duetothetimingoftheb
udgetingprocesstodeterminetheallocations,likecentralserviceallocations,
FBOusesdatafromtwoyearspriortodeterminethecurrentcharges.Forinstance,forthe2008allocationcharges,FBOwillhavetouse
2006datafortheallocationbase.Thisisbecausethe2008budgetprocessisperformedinthemi
ddleof2007,resultinginnotbeingable
touse2007
dataaswell.
FBOrebate
Aspartofitsbudgetingprocess,FBOcalculatesitstotalbudgetintwoseparateways:througha“bottoms‐up”budgetbasedonwhatthe
expectedannualneedsare,andalsothroughasimplecalculati
onbased
ontheprioryear’stargetbudget,escalatedbyamandatedfactor.
Thesetwomethodstypicallyproducedifferentresults,butFBOisonlyallowedtoallocateexpensestoreceivingorganizationsbasedonthe
mandatedtotal.Therefore,ifthebottoms‐uptotalisgreaterthanthemandatedtotalFBOmustei
therreduceitsbottoms‐upbudgetor
useitsfun
dbalance(cashremaininginthefundduetopreviousbudgetunder‐runs)tomakeupthedifferencetofundannualoperations.

WeexaminedFBOallocationsfortheyears2005,2006,and2007.FBOinitiallycompletesitsannualallocationmodelusingthebottomsup
budget.Ineac

hoftheseyearsFBO’sbottoms‐upbudgetwasgreaterthanthemandatedbudget.FBOchosetouseitsbottoms‐upbudget
ineachoftheseyears,usingitsfundbalancetooffsetthedifferencebetweenthebudgets.SinceoutsidedepartmentsreceivingFBO
allocationsmayonlybecharg
edthemandatedtotalandtheinitialallocationmodelusesthebottomsupbudget,FBOmustperforman
analysistocalculatearebateamounttoreceivingdepartments.Aftertherebateapplications,theFBOallocationsarebasedonthetotal
allowablefigureratherthanonthebottoms‐upbudgetedtotal.Therebateiscalculate
dbasedonaprocesswithseveralstep
s:

FBOrebatecalculationelements

 PreviousyearCXbaserate
Plus: Allowablerateincrease
 CurrentyeartargetCXamount
Plus: Specialprogramrevenueallowed
 CXrevisedtarget
Less: ActualcurrentyearCXamountpermodel
 AmountofCXrebate
Divide: CXpercentagesh
ar
eofrebate
 Totalrebate

Therebateamountcalculationsareallocatedbasedonthepercentageofthetotalamountoriginallychargedtoeachagencyusingcharges
fromthepriortwoyears.Forexample,the2007rebateallocationbaseiscalculatedusing2005budgetaryinformation.

Ernst & Young LLP 13
Issuesandrecommendations–CentralServiceoverheadcharge
IssueOH.1.KingCountycostallocationsforcentralservicesarenotadjustedtoreflectactualexpensewhichhas
resultedinincreasedcoststoratepayersfrom2005,2006and2007.Allocationsforfinanceandbusiness

operations(FBO)expensesalsoarenotadjustedtoreflectactualexpenses.
Background
KingCounty’scentralcostallocationsprocessbeginswitheachproposedbudgetphaseasthecountygatherselementsfromeachareato
developallocations.Whenthefinalbudgetisapproved,theOfficeofManagementandBudgetwillallocatechargesbasedontheadopted
budgetnumbers.
DuringwhatKingCountycallsits13thand14thmonth(JanuaryandFebruaryofthefollowingyear),itdoesadjus
tforactualexpensesin
manyareas
.Duringthistimeframeagenciesaremakingcalculationstoaccountfortheactualexpendituresoftheprioryear.Forexample,
DNRPAdminexpensesareadjustedforactualexpendituresasdescribedabove.Incontrast,theOfficeofManag
ementan
dBudgetdoes
notre‐performthecentralservicesallocationprocesstoadjustforactualexpenditures.Duringourauditweaskedfor,andKingCounty
calculatedandprovided,theactualallocationexpensedatafromcentralservicesfortheyears2005,2006,and2007.Weusedthi
sdatato
calculatethedifferencebetwee
nthebudgetedallocationsandtheactualexpensesfortheseyears.ThisexerciseindicatesthatCentral
Servicesisconsistentlyunderrunningitsannualbudgetedexpenses,meaningtheyoverchargedthedepartments/organizationsthat
receivedcostallocations.
WealsoattemptedtoobtainactualFBOexpenses,howeverthedivisionwasunab
letoprovidethedata,inatimelyfashion,duetothe
comple
xityofitsallocationmodel.Inlieuofadjustingforactualexpenses,FBOcomputesarebateamountforitsallocationsthat
representstheunfundedportionofitsrequiredbudget.Therebatetotalis,ineffect,areductionintheFBOfundbalance.FBOfu
nd
balancesfor2005,2006
and2007were$1,693,000,$1,849,000,and$663,000respectively.Therefore,whiletherebateprocesshelpsto
controlthefundbalanceitisnotacalculationtotrueuptheallocationsforactualexpenditures.Thisresultsincontroldeficienciesinthe
completenessan
daccuracyoftheFBOallocationadministrationprocesswhichmaycauseaninequitabledistributionofFBOexpenses.In

addition,FBOusesdatathatistwoyearsoldwhendevelopingseveralofitsallocationbases.Usingbudgetedinformationfromthecurrent
periodwouldprovideamoreaccurateandequitabledistributionofexpen
ses.
Co
ndition
Thecountyaccumulatesandallocatesseveralcostpoolsatacentrallevel.Thesecostpoolsincludegeneralgovernment,personnel
services,buspasssubsidy,ombudsman,fixedassetandrealpropertymanagement,countywidemailservices,countyauditor,state
auditor,budgetservices,businessrecoveryandeconomicdevelopment(BRED),buildingoccupancy,recordsmanagementandeme
rg
ency
services,andtheFBOdivision.Currentpracticesforcostrecoveryincludedevelopmentofallocationsusingeachannualadoptedbudget.
Thisresultsinallocationstoreceivingorganizations,whichcontinuesthroughouttheyearwithnoadjustments.Thebudgetedamountsare
neveradjustedforactualexperienceeitherduringtheyearoraf
tertheyear‐endclose.Finally,severaloftheallocationsusedatafortheir
allocationbasethatistwoyearsold.Forexample,the2007allocationsuse2005informationfortheirallocationbases.
Criteria
Bestpracticesindicatebudgetedcostallocationsshouldbe"trued‐up"foractualexperience.Inaddition,OMBCircularA‐87requires
adjustment
sofbilledce
ntralservices,stating"Acomparisonoftherevenuegeneratedbyeachbilledservice(includingtotalrevenues
whetherornotbilledorcollected)totheactualallowablecostsoftheservicewillbemadeatleastannually,andanadjustmentwillbe
madeforthedifferenceb
etweentherevenueandtheallowablecosts.Theseadjustmentswillbemadethroughoneofthefollowing
adjustmentmethods:(a)acashrefundtotheFederalGovernmentfortheFederalshareoftheadjustment,(b)creditstotheamounts
chargedtotheindividualprograms,(c)adjustmentstofuturebillingrates,or(d)adjustmentstoallocate
dcentral
servicecosts."
Cause
KingCounty’scurrentcentralcostandFBOallocationpracticedoesnotrequireadjustmenttobilledcostallocations
Recommendations

Ernst&YoungrecommendsthatKingCountydevelopandimplementapolicythatrequiresadjustmentstobilledcostallocationsto
accountforactualexperi
enceforbothcostpoolandallocationbases,pref
erablyassignificantdiscrepanciesbetweenbudgetandactual

Ernst & Young LLP 14
expensesarediscovered.Ataminimum,itshouldbedoneinthebeginningofthesubsequentfiscalperiod.Werecommendthisbeapplied
tobothCentralServicesandFinanceandBusinessOperationswheresimilarconditionswereidentified.
Effectsofrecommendation‐potentialcostsavingsandotherimpacts
Centralservices‐OuranalysisoftheKingCountyce
ntralservicescostallocationsfoundthatthecountyunder‐ranitsbudgetforthethree
years2005,2006,and2007.Weusedouranalysisoftheseyearstocomputeapotentialfiveyearcostsavingstotalof$10,200,000forall
centralservices.Thepotentialfive‐yearimpacttoWTDandSWDwouldbe$750,000and$650,000respectively,$3,700,000charg
edto
Transit
andtheremainderallocatedtootherfunds.
FBOWecouldnotperformacalculationoftheestimatedsavings,ifany,thatcouldbeachievedbyadjustingfinanceandbusiness
operationsallocationstoreflectactualexpenses,asthecomple
xityoftheallocationmodelusedwouldrequireextensiveeffortand
modificationtoperform.However,fortheyears2005,2006,and2007FBOallocatedatotalof$79,900,000toreceivingorganizations,
whichaveragestoa$133,100,00totaloverfiveyears.Amorecurrentcostbasisforexpenseallocationswillimprovetheoverallprocess
andincre
ase
accountabilitybyamoreaccuratedistributionofexpensestoreceivingdepartmentsororganizations.Costsavingsestimates
arepartiallybasedonsupportcollectedfromITsystems.AsnotedintheMethodologysectionandintheInformationTechnologysection
ofthisreport,theaccuracyofthepotentialcostsavingscalculati
onsmaybeaffectedbyidentifiedITgeneralcontroldeficiencies.
KingCountyresponse
KingCountyconcurswiththerecommendationandisimplementingaprocesstoadjustbilledamountsforactualexpensesforbothcentral
servicesandFBOallocations.SeeAppendixIfortheCounty’sfullresponse.

Auditor’srejoinder
WeappreciatetheCounty’sresp
onse
andcooperationduringtheaudit.WecontinuetorecommendthatKingCountydevelopand
implementaformalpolicydescribingitsprocessofadjustingforactualexpenses.

