Follow-up review. Environmental Protection Division, review of the Solid Waste Trust Fund

FOLLOW-UP REVIEW

Environmental Protection Division Review of the Solid Waste Trust Fund
July 2003

Russell W. Hinton, State Auditor

Performance Audit Operations Division 254 Washington St. S.W.

Department of Audits and Accounts

Atlanta, GA 30334-8400

This is a Follow-Up Review of the June 2001 Performance Audit on the Review of the Solid Waste Trust Fund conducted by the Performance Audit Operations Division.
Purpose of the Solid Waste Trust Fund
The purpose of the Solid Waste Trust Fund (SWTF) is to provide funding for preventative, corrective, and emergency actions necessary to ensure that solid waste does not adversely affect the health of the public and degrade the state's environment. The SWTF also finances the Scrap Tire Management Program (Program).
The Department of Natural Resources' Environmental Protection Division (EPD) has developed a number of initiatives to assist local government, business, and industry in the proper management of their waste through a combination of regulatory (prevention) and assistance programs (technical and financial) that encourage waste reduction and recycling. These initiatives include financing grants to local governments, contracting with other state agencies, and operating the Program, which is responsible for the cleanup of scrap tire dumps and the regulation of scrap tire disposal.
Scrap Tire Regulation and Cleanup
Due to the health threats posed by scrap tires, the 1990 Comprehensive Solid Waste Management Act (Act) and subsequent amendments to the Act banned whole tires from landfill disposal and mandated the regulation of scrap tires. The threats posed by scrap tires include the tires' potential to catch fire and release toxic gases into the atmosphere and toxic chemicals into the water supplies. Scrap tires also serve as ideal breeding grounds for disease-carrying mosquitoes and rodents.
The Scrap Tire Management Program was created by the Act and funded through the SWTF. The Program is responsible for ensuring that all new scrap tires are disposed of properly and that the illegal scrap tire dumps that accumulated prior to the new regulations are cleaned up. Program personnel estimate that annually one scrap tire is generated for every citizen of the state (approximately 8.4 million in Calendar Year 2001).

Financial Information
The SWTF is designed to fund the state's costs associated with the cleanup of scrap tire dumps, the regulation of scrap tire disposal, and other waste reduction activities. The SWTF is not required to lapse funds at the end of the fiscal year, allowing growth of the fund balance. For this reason, appropriations and expenditures for individual years are not equal. The SWTF has no limit on unencumbered funds and had a reserve balance of approximately $17.9 million on July 1, 2002.
The SWTF's primary source of funding is an annual appropriation that is based on specific collections of one dollar per new replacement tire sold in Georgia. Revenues from the tire fee are collected quarterly, deposited into the state's General Fund and then appropriated from the General Fund to the SWTF by the General Assembly on an annual basis. In addition, the SWTF also receives the interest earned on the balance of the SWTF and fines levied against any public authorities or private citizens that violate the Comprehensive Solid Waste Management Act of 1990. Unlike the $1 fee, the fine and interest revenue are deposited directly into the SWTF and are not subject to the appropriation process. However, it should be noted that the interest must be spent on the state solid waste management program in the same fiscal year it was earned. If the interest is not fully expended, the remaining amount lapses into the General Fund. See the Exhibit on page 3 for details on the SWTF's revenues and expenditures.

Status of Findings and Recommendations

Finding (as reported in 2001): The Scrap Tire Management Program has cleaned up the

majority of illegal scrap tire dumps that have been identified.

Current Status: The original audit found that the efforts of the Scrap Tire Management Program

to clean up illegal scrap tire dumps had been successful, with 96% of the tires identified cleaned

up. At the time of the audit, approximately 8.5 million scrap tires had been identified and an

estimated 342,000 scrap tires remained

to be cleaned up. Since the audit,

Scrap Tire Inventory

approximately 325,000 tires have been

9.0 million Tires

cleaned up and an additional 491,000 scrap tires have been identified. The estimate of tires remaining to be cleaned up at the time of the audit has also been revised upward by about 36,000 tires.
In summary, as of January 2003, the Program has identified approximately

Identified as of January 2003

8.5 million scrap tires have been cleaned up by the SWTF
and responsible
parties.

94 %

6 %

543,592 scrap tires are still in
need of cleanup.

9.0 million scrap tires in known dumps

with approximately 544,000 tires still to

be cleaned up. A majority (94%) of the

known illegal scrap tires have been cleaned up. The Program is continuing to identify and clean

up illegal scrap tire dumps and should be commended for its efforts.

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Follow-Up Review of the Solid Waste Trust Fund

Finding (as reported in 2001): The Environmental Protection Division should develop a long-range strategic plan on how the projected SWTF revenue will be spent. Current Status: The original audit recommended that SWTF program staff assess the need for SWTF funding and develop a strategic plan to guide the expenditures. The original audit noted that as the SWTF's focus has shifted away from cleaning up illegal scrap tire piles, the SWTF has funded other activities such as solid waste reduction grants, local government scrap tire enforcement grants, and recycling promotions. Program staff indicated that EPD currently does not have a formal, separate plan and that EPD's expenditure strategies are included in the work plans for the contracts, grants, and EPD Regions.
The following exhibit shows the SWTF revenue and expenditures for FYs 1993 to 2002 with the percentage of the total expended.

Georgia's Solid Waste Trust Fund for FYs 1993 to 2002

State-Imposed Fee $1.00 per tire sold Revenue

Solid Waste Trust Fund
$52.9 million appropriated $1.4 million in fines
$5.9 million interest earned $42.3 million expended $17.9 million balance

Fines for violating the Solid Waste Management Act Revenue

activities funded

activities funded

40%
Department of Natural Resources,
Environmental Protection Division: $17.1 million
expended for administration of the SWTF($6.5 million) and cleaning up illegal scrap tire piles ($10.6 million)

20%
Georgia Environmental Facilities Authority: $8.4 million for local government waste reduction grants

13%
Local Government Enforcement and Education Grants: $5.3 million for local tire enforcement and education
grants

6%
Department of Natural Resources, Pollution Prevention Division: $2.5 million for developing programs to encourage business and industry to
recycle

3%
Department of Community Affairs: $1.3
million for planning and technical assistance to local
governments on solid waste/recycling

3%
Other Grants and Contracts during FYs 1994 to 2002: $1.2 million expended Department of Administrative Services: $350,000 expended for developing policies and specifications for purchasing recycled products Department of Agriculture: $265,000 expended for pesticide container recycling program and safety education Local Government Market Development and Special Projects: $176,195 expended for local government waste market development and special projects Department of Transportation: $127,255 expended for research on using modified rubber asphalt and rubber chips as mulch University of Georgia: $109,500 expended for research on using rubber chips as mulch Department of Corrections: $125,198 expended for food waste compost program at prisons
Source: EPD records

15%
Special Projects/Interest Expenditures: $6.5 million expended Special Projects: $694,054 expended for projects such as the removal of houses, cleanup of a hazardous waste site, a feasibility study, cleanup of a processing facility, and landfill projects Interest Expended: $5,851,529

Follow-Up Review of the Solid Waste Trust Fund

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In its response for the follow-up, EPD indicated that they plan to continue funding: The Local Enforcement and Education Grant program The Recycling and Waste Reduction grant program administered by the Georgia Environmental Facilities Authority The Pollution Prevention Assistance Division of the Department of Natural Resources The contracts with the Departments of Community Affairs and Corrections.
EPD also has FY 2003 contracts with the Wildlife Resources Division (enforcement and education in rural counties), the Parks and Historic Sites Division (market development for recycled scrap tire products), and the University of Georgia (recycling education program and environmental education certification for teachers). EPD's spending plan would be modified should the fee not be extended beyond FY 2005.
In March 2003, the Budgetary Responsibility Oversight Committee recommended that "legislative authority be reasserted over the SWTF's FY 2004 appropriation." During the legislative process, the SWTF appropriation for FY 2004 was removed by the General Assembly. EPD personnel have indicated that the Program will present a new spending plan to the Department of Natural Resources Board in September that would limit the Enforcement and Education grants to the present applicants and would reduce funding for both the Recycling and Waste Reduction Program and the Pollution Prevention Division. According to Program staff, funding for the SWTF's FY 2004 activities will come from the balance of the fund.
Finding (as reported in 2001): The Scrap Tire Management Program agrees that the current system of tracking scrap tires is inadequate to ensure the proper disposal of scrap tires. Current Status: The original audit recommended that the Program develop a system to track tires from generation to disposal, enforce the reporting requirements of the system, and follow up with documentation reviews to ensure accuracy.
The Program has taken several actions to improve its system of tracking tires. The Program is drafting proposed rule changes that would require generators to keep a copy of the manifest and include a comparison between the number of tons sent and the number received by a processor. According to Program staff,
The required quarterly reporting has greatly improved with 100% of the processors currently submitting their required reports.
The Program has targeted carriers for inspections that were unresponsive to Notice of Violation letters and hired a Technical Assistant to monitor carrier reporting.
Improvements are also being made to the inspection process, including increasing their frequency, targeting the inspections based on potential problems or failure to comply, using the Scrap Tire Database to track inspections, and performing audits of District compliance officers.
Although the Program has made several improvements, most notably in enforcement, it should continue improving its system of tracking tires in order to ensure that all scrap tires are disposed of properly.

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Follow-Up Review of the Solid Waste Trust Fund

Finding (as reported in 2001): EPD should continue to improve its information collection process in order to assess the effectiveness of its activities, including the impact of the SWTF's grants to local governments and contracts with other state agencies. Current Status: The original audit found that EPD had not collected or analyzed sufficient data to determine if the local government grants or the state agency contracts were effective in meeting the purposes of the SWTF. In its response for the follow-up, EPD stated that it has implemented an accountability model with all of its partners that includes a work plan and regular reporting of progress.
Reporting information has been improved for several of the contracts and grants. However, EPD should continue to improve what information is required by the Program to assess the impact of their funding. Significant improvements have been made in the collection of information from the local enforcement and education grantees, including standardized work plans with key dates and expected outcomes, improved submission of quarterly reports, and audits of selected grant recipients. Data submitted by the Pollution Prevention Assistance Division and the Department of Corrections has also improved. However, the reports for the Recycling and Waste Reduction grants and the other state agency contracts have provided limited information about the impact of their activities. The Georgia Environmental Facilities Authority, which administers these grants, is working to improve the data they collect from the grantees.
Finding (as reported in 2001): EPD is working to improve its grant management procedures for Enforcement and Education grants in order to ensure that the funds are being used as intended. Current Status: EPD has made significant progress improving its management procedures for the Enforcement and Education grants. The original audit found that there was a lack of involvement in training new Enforcement and Education grantees, that grantees were given wide latitude in the equipment they purchased, and that the grant recipients were not submitting their required quarterly activity reports. EPD currently offers an orientation for prospective grantees, two to three days of one-on-one training that involves actual inspections and investigations, required annual classroom training for the grantees, and a training manual. Program staff indicated that both EPD's financial unit and their grant administrator review the reimbursement requests for appropriateness and eligibility of the expenses. Improvements to the language of the grant agreements have allowed EPD to have greater control over equipment purchases and to directly link reimbursements to activity reports. A sample review of 16% (6 out of 38) of the FY 2001 Enforcement and Education grantees found that 83% (5 of 6) had submitted all of their quarterly reports, compared to 0% for the 1998 and 1999 grantees. EPD personnel also track the arrival of activity reports from grantees each quarter to ensure that they have been sent.
Finding (as reported in 2001): EPD should improve the process for collecting scrap tire fees. Currently, EPD is unable to provide reasonable assurance that the correct amount of SWTF fees is being collected. Current Status: The original audit recommended that EPD consider improving the fee payment process by outsourcing the auditing of fee payers to the Department of Revenue, actively following up on non-fee payers, periodically visiting generators to review their records, and investigating fluctuations in generator fee payments to identify those not paying the correct amount. While EPD has taken action to improve the fee payment process, EPD cannot currently

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provide reasonable assurance that the correct amount of SWTF fees is being collected. EPD sent a letter to the Department of Revenue (DOR) in April of 2003 about discussing the possibility of a contract to collect the fees. However, DOR indicated that it would not be able to collect the fees due to funding concerns. Additionally, the Scrap Tire Management Program is revising its database so that it will be able to review fee payment history and trends. The database would also automatically generate a non-payment list each quarter and permit targeted inspections of records. The Program intends for these revisions to be in use during the first quarter of fiscal year 2004.
Finding (as reported in 2001): The Scrap Tire Management Program agrees that scrap tire processors should be required to provide some form of financial assurance that would offset the cost of cleaning up the processor's site should the processor cease operations. Current Status: The original audit recommended that the Program pursue requiring all approved processors to purchase a bond to cover the costs of cleaning up their site should they cease operations. Program staff indicated that requiring financial assurance from all processors would involve amending the Comprehensive Waste Management Act. Although the Program cannot require financial assurance from all the processors, the Program did require a processor to provide financial assurance to cover an increase in their permitted tire storage limit in FY 2003. The assurance was only for the amount of the increase.
The Program is also instituting other methods of ensuring limited liability for the Program should a processor cease operations. New processors are required to have a pre-application meeting to advise them on planning issues and Program regulations. Proposed changes to the Scrap Tire Management Program's rules include a shorter term of tire storage for the processors, reducing the number of tires legally on-site. Program staff also indicated in the original report that the monthly inspections of the processors allow the Program to address tire stockpiles before they become a problem.
Finding (as reported in 2001): The Environmental Protection Division (EPD) agrees that the SWTF interest revenue has not been expended in accordance with the state law, and the EPD has agreed to institute management controls to ensure interest revenue will be spent correctly. Current Status: The original audit recommended that EPD ensure compliance with the state law requiring SWTF interest revenue to be expended only for the administration of the solid waste management program. A review of FY 1999 expenditures of interest revenue in the original audit found payments for rent, office furniture, and building improvements for EPD's Water Protection Branch that totaled $274,000. A sample review of about $490,000 in FY 2002 expenditures of interest revenue found approximately $90,000 that was not related to solid waste administration. These expenditures included a position within the Air Protection Branch and legal services for a program within the Water Protection Branch. Personnel approving the expenditures of SWTF interest revenue stated that they believed that the funds could be expended within the Land Protection Branch. However, the law allows for interest only to be expended for administration of the solid waste management program.

For additional information or to request a copy of the performance audit,

contact Paul E. Bernard, Director, Performance Audit Operations Division, at 404-651-8855

or go to our website: www2.state.ga.us/departments/audit/pao/pao_main.htm.

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Follow-Up Review of the Solid Waste Trust Fund