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HomeMy Public PortalAboutExhibit MSD 70F - Process Review of DEC Industrial Pretreatment - August 2022This report is intended solely for the use of The Metropolitan St. Louis Sewer District (“MSD”) and is not intended to be and should not be used by any other parties without the prior written consent of MSD. Process Review of DEC – Industrial Pretreatment FY 2022 AUDIT PLAN Metropolitan St. Louis Sewer District Process Review of Division of Environmental Compliance (DEC) – Industrial Pretreatment August 2022 Exhibit MSD 70F This report is intended solely for the use of The Metropolitan St. Louis Sewer District (“MSD”) and is not intended to be and should not be used by any other parties without the prior written consent of MSD. Process Review of DEC – Industrial Pretreatment I FY 2022 AUDIT PLAN Process Review of Division of Environmental Compliance (DEC) – Industrial Pretreatment August 2022 Table of Contents Overview and Scope .............................................................................. 1 Objectives .............................................................................................. 3 Methodology ........................................................................................... 5 Overall Conclusion and Results ............................................................. 8 Opportunities for Improvement ............................................................... 9 Acknowledgements .............................................................................. 11 OVERVIEW AND SCOPE This report is intended solely for the use of The Metropolitan St. Louis Sewer District (“MSD”) and is not intended to be and should not be used by any other parties without the prior written consent of MSD. Process Review of DEC – Industrial Pretreatment 1 FY 2022 AUDIT PLAN The Division of Environmental Compliance (DEC) was first established in 1988 in a response to an increase in the number of regulations and other obligations designed to protect the environment. The DEC is currently a division of the Engineering Department. The DEC is divided into five overall groups: 1. Regulatory Affairs Unit (RAU): Manages and oversees environmental compliance for the District’s various facilities. Audited 2015 and 2020 2. Stormwater Unit (SWU): Oversees activities associated with the MS4 Stormwater Permit for the District, St. Louis County, and 58 other entities covered by the permit. Monitors compliance with the six minimum control measures listed in the permit. Audited 2015 and 2020 3. Emergency Response Unit (ERU): Responsible for investigating and initiating corrective actions when instances occur in which untreated sewage from the collection system or treatment plants enters the environment. Performs preventative investigations such as routine inspections of food service establishment (FSEs) and performs follow-up investigations when grease, etc. is identified in the system by the Operations Department. Audited 2015 and 2020 4. Industrial Pretreatment Group (IPG): Implements the Federally mandated Industrial Pretreatment Program for the District, which requires DEC to inspect and sample industrial customers and enforce the District’s Sewer Use Ordinance (District Ordinance #15048). Investigates illicit discharges at regulated industrial sources. Collects stream samples for environmental testing. Responsible for calculating, maintaining, and providing data that is utilized in the billing process for industrial customers. Data involves items such as extra strength surcharge and reduction factor information. Audited 2017 and 2022 (this report) 5. Laboratory Group: Performs testing and analysis of water samples and other types of samples. Supports the other four groups and the Operations Department.  This engagement focused on the operations of the Industrial Pretreatment Group. OVERVIEW AND SCOPE This report is intended solely for the use of The Metropolitan St. Louis Sewer District (“MSD”) and is not intended to be and should not be used by any other parties without the prior written consent of MSD. Process Review of DEC – Industrial Pretreatment 2 FY 2022 AUDIT PLAN Scope: The scope for this engagement focused on the processes and procedures utilized by the DEC’s Industrial Pretreatment Group (IPG). The operations of the IPG consist of two main areas: 1. Compliance: Federally-mandated program to monitor, ensure, and enforce compliance by industrial customers: Processes and procedures are designed and performed to ensure industrial customers are/remain in compliance with the following: o EPA requirements (40 CFR Chapter One, Subchapter N)  MDNR requirements (incorporate Federal requirements of EPA) • District Pretreatment Program (enforced through District Ordinances) 2. Cost Recovery Program: The administration of the program includes processing and maintaining information and data for the following areas: 1. Extra Strength Surcharges (ESS) 2. Reduction Factors 3. Special Discharge Accounts 4. Special Handling Accounts 5. Hauled Waste Activities 6. Compliance Charges 7. Permit Issuance (Industrial Wastewater Discharge permit)  The above areas all provide/calculate information or data that is communicated to and used by the District’s billing system as part of the District’s billing process.  For testing purposes, transactional data was selected from portions of 2020, 2021 and 2022. OBJECTIVES This report is intended solely for the use of The Metropolitan St. Louis Sewer District (“MSD”) and is not intended to be and should not be used by any other parties without the prior written consent of MSD. Process Review of DEC – Industrial Pretreatment 3 FY 2022 AUDIT PLAN Objectives 1. Compliance: Ensure:  The District as a POTW (publicly-owned treatments works) is in compliance with the requirements contained in the following: o 40 CFR (Code of Federal Regulations) ‒ NPDES permits (National Pollutant Discharge Elimination System) ‒ CSR (Code of State Regulations) o Meeting requirements for:  Identifying and classifying Industrial Users (IUs): • Significant Industrial Users (SIUs) • Categorical Industrial Users (CIUs) • Non-Significant Categorical Industrial Users (NSCIUs)  Processing and issuing permits and certifications (NSCIUs)  Monitoring • Inspection and sampling frequencies  Reporting  Enforcement  District implements the above requirements through the Sewer Use Ordinance #15048, Required Permits Ordinance #14853, and the Hauled Waste Ordinance # 13701. District systems and processes are effective in tracking, capturing, and communicating/reporting compliance data and information for the Industrial Pretreatment Program. OBJECTIVES This report is intended solely for the use of The Metropolitan St. Louis Sewer District (“MSD”) and is not intended to be and should not be used by any other parties without the prior written consent of MSD. Process Review of DEC – Industrial Pretreatment 4 FY 2022 AUDIT PLAN 2. Cost Recovery: Ensure:  Procedures and controls around each Cost Recovery process area are adequately designed and implemented. No process/control gap or separation of duty issues exist for the seven (7) main areas of the Cost recovery Program: 1. Extra Strength Surcharge (ESS) 2. Reduction Factors (Return Factors) 3. Special Discharge 4. Special Handling 5. Hauled Waste 6. Compliance Charges 7. Permits  Specifically ensure: 1. Data is captured accurately and stored securely. 2. Calculations are performed accurately and timely. 3. Data/information is communicated in a timely, accurate and complete manner from the DEC systems to the ECIS+ billing system. (DEC data = Billing Data.) METHODOLOGY This report is intended solely for the use of The Metropolitan St. Louis Sewer District (“MSD”) and is not intended to be and should not be used by any other parties without the prior written consent of MSD. Process Review of DEC – Industrial Pretreatment 5 FY 2022 AUDIT PLAN 1. Compliance: To accomplish the engagement objectives, Internal Audit (IA):  Through review of documentation and discussions, obtained an understanding of the various environmental regulations and permit requirements at the various jurisdiction levels: ‒ Federal requirements (40 CFR) o State requirements (10 CSR Part 20-6.100) o District requirements (Ordinances)  Held discussions, reviewed documentation, and performed walkthrough procedures with personnel of the IPG to gain an understanding of the procedures and processes utilized for: ‒ Identifying and classifying IUs, SIUs, CIUs, etc. ‒ Issuing permits and certifications. ‒ Monitoring, which includes performing inspections and sampling ‒ Reporting procedures. ‒ Enforcement procedures. ‒ Compiling, processing, and maintaining the large amounts of information and data related to the IUs under the District’s jurisdiction.  Obtained access to the documentation contained in the various District systems, which include: ‒ iPACS – industrial pretreatment data management system ‒ Laserfiche (scanned documentation such as inspections, lab result docs, correspondence, enforcement docs, etc.) ‒ SharePointe (guidance documentation, policies, templates) ‒ ECIS+ (District billing system) METHODOLOGY This report is intended solely for the use of The Metropolitan St. Louis Sewer District (“MSD”) and is not intended to be and should not be used by any other parties without the prior written consent of MSD. Process Review of DEC – Industrial Pretreatment 6 FY 2022 AUDIT PLAN  Performed detail testing as follows: o Tested the identification of and the classification of the various types of IUs (SIUs, CIUs, etc.). o Tested certification/recertification process for NSCIUs (Non-Significant Categorical Industrial Users). o Reviewed and tested the adequacy and timeliness/frequency of the monitoring process: ‒ Inspections ‒ Sampling ‒ Self-Monitoring ‒ Enforcement when violations identified, including: a. Notice of Violations (NOVs) b. Significant Non-Compliance Letters (SNCs) ­ Publication of Violators c. Administrative Orders (AOs) 2. Cost Recovery: To accomplish the engagement objectives, Internal Audit (IA):  Held discussions, reviewed documentation, and performed walkthrough procedures with personnel of the IPG to gain an understanding of the procedures and processes utilized for: o Calculating IU charges or IU data o Maintaining and storing that data o Communicating/delivering that data to the billing system ECIS + for the following categories: 1. Extra Strength Surcharge (ESS) 2. Reduction Factors (Return Factors) 3. Special Discharge 4. Special Handling 5. Hauled Waste 6. Compliance Charges 7. Permits METHODOLOGY This report is intended solely for the use of The Metropolitan St. Louis Sewer District (“MSD”) and is not intended to be and should not be used by any other parties without the prior written consent of MSD. Process Review of DEC – Industrial Pretreatment 7 FY 2022 AUDIT PLAN  Obtained access to the documentation contained in the various District systems, which include: ‒ iPACS – industrial pretreatment data management system ‒ Laserfiche (scanned documentation such as inspections, lab result docs, correspondence, enforcement docs, etc.) ‒ SharePointe (guidance documentation, policies, templates) ECIS+ (District billing system).  In regard to, the seven (7) categories mentioned above, performed detail testing as follows: o Reviewed the support for the data and the calculations performed. o Reviewed and tested the accuracy and timeliness of the calculations performed. o Reviewed and tested the accuracy, completeness, and timeliness of the resulting bills in the ECIS+ billing system. OVERALL CONCLUSION AND RESULTS This report is intended solely for the use of The Metropolitan St. Louis Sewer District (“MSD”) and is not intended to be and should not be used by any other parties without the prior written consent of MSD. Process Review of DEC – Industrial Pretreatment 8 FY 2022 AUDIT PLAN In the opinion of Internal Audit, in all significant respects, the controls and procedures utilized by the DEC Industrial Pretreatment Group are effectively designed and implemented. However, IA did note one matter that is an opportunity for improving the processes and procedures that are utilized for maintaining reduction factor percentages. This matter is discussed in detail in the Opportunities for Improvement section of this report. Initial Inherent Business Process Risk: High Risk # Overall Assessment of Engagement Results: Satisfactory ** ____________________________________________________ DEFINITIONS How Results Are Assessed ** Engagement results are evaluated as Satisfactory, Generally Satisfactory or Unsatisfactory. • Satisfactory (clean opinion) – No significant engagement findings2 or material weaknesses3 were noted. Engagement findings1 may have been noted. • Generally Satisfactory (qualified opinion, i.e., “except for”) – Results contain significant engagement findings2. No material weaknesses3 were noted. • Unsatisfactory (adverse opinion, immediate Management attention required) – Significant engagement findings2 and/or material weaknesses3 were noted. Types of Findings 1. Engagement Finding (#Low Risk): An engagement finding is a condition that could adversely affect the organization but is less severe than a significant engagement finding or significant deficiency. Classification includes process or control deficiencies that are not significant deficiencies as well as includes other low risk or low impact conditions. 2. Significant Engagement Finding (# Moderate to High Risk): A significant engagement finding is a condition that could adversely affect the organization. Definition includes all types of findings, such as irregularities, waste, ineffectiveness, conflicts of interest, illegal acts, errors, and significant deficiencies in internal control over financial reporting as well as other significant internal control weaknesses. A significant deficiency is defined as a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. 3. Material Weakness (# High Risk): A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the financial statements will not be prevented or detected and corrected in a timely basis. For internal audit purposes, the definition also includes material and/or severe irregularities, waste, ineffectiveness, conflicts of interest, illegal acts, errors, and other material control weaknesses, etc. (The term “material weakness” should be thought of as a serious category of significant engagement findings and/or significant deficiencies. However, not all significant engagement findings and significant deficiencies are material weaknesses.) ^ - Definitions are based on guidance from the IIA Standards, GAAS, and the PCAOB. # - Risk is assessed at the District (Entity) Level. (Risk to the District as a whole) OPPORTUNITIES FOR IMPROVEMENT This report is intended solely for the use of The Metropolitan St. Louis Sewer District (“MSD”) and is not intended to be and should not be used by any other parties without the prior written consent of MSD. Process Review of DEC – Industrial Pretreatment 9 FY 2022 AUDIT PLAN 1. Review/Recalculation of Reduction (Return) Factors by DEC Condition: Reduction factors (RFs) are calculated as follows: • Total annualized water consumption minus total annualized non-sewered water = total sewered water o Total sewered water is then divided by total annualized water consumption = Reduction factor percentage The objective of reduction factors is to reduce the volume charge for a commercial customer’s bill for the non-sewered water (only bill for the sewered water). Some examples of non- sewered water are: • Irrigation • Manufacturers using water in their product (beverage manufacturers, etc.) • Cooling Towers Based on internal District policy, reduction factors are to be reviewed/recalculated by DEC at least once every ten (10) years. During IA’s review of reduction factors, IA noted the following: • 171 reduction factors have not been reviewed since 2011 – per the 6/29/2022 listing of customers with reduction factors.  51 were last reviewed in 2011  75 were last reviewed in 2010  45 are older than 2010 (most are 2009 through 2007)  Improvements have been made in this area since the last audit. There were over 250 accounts that were 2004 or older at the time of the previous audit. Several steps have been taken by DEC to improve this area. However, more work remains. OPPORTUNITIES FOR IMPROVEMENT This report is intended solely for the use of The Metropolitan St. Louis Sewer District (“MSD”) and is not intended to be and should not be used by any other parties without the prior written consent of MSD. Process Review of DEC – Industrial Pretreatment 10 FY 2022 AUDIT PLAN 1. Review/Recalculation of Reduction (Return) Factors by DEC (Cont’d) Recommendation: To address this condition, IA recommends that DEC Management take the following steps: • Keep the addressing of the reduction factor backlog a priority. • Continue efforts to ensure adequate resources are available to address the backlog. o Involves balancing addressing new applications/requests with addressing backlog items.  Eliminate the remaining backlog. Risk Rating at District (Entity) Level: Low Risk Rating at Business Process Level: Moderate Process Owner Response: In 2017, following the prior MSD internal audit, additional staff labor was added to help address the RF backlog. This enabled us to eliminate the over 250 accounts that had been identified as over 13 years since their last reviews, while continuing the ongoing review of other RFs that reached their time to review. After completing the 2017 audit’s recommended action, we continued to use the staff person to assist with RF updates. The oldest RFs were generally the highest priority. Recently we also changed our process for initiating RF updates. With no communication often having been made for many years, it can take a relatively large amount of time to identify the appropriate contact person at the associated company and to start the update process. We now have a person to make initial contact to determine who the onsite point of contact will be for the RF account and initiate the process. This person also updates small, non-metered RFs that can performed through telephone calls and electronic submittals. Making this change allows other RF Engineers to focus on the more technical work and more quickly complete the more involved studies. We expect this process to increase our RF update rate by 50 RF updates per year, which would allow us to achieve the 10-year review goal by 2025. Date of Implementation: Already begun - April 2022 ACKNOWLEDGEMENTS This report is intended solely for the use of The Metropolitan St. Louis Sewer District (“MSD”) and is not intended to be and should not be used by any other parties without the prior written consent of MSD. Process Review of DEC – Industrial Pretreatment 11 FY 2022 AUDIT PLAN Internal Audit Engagement Team: MSD Internal Audit: Todd Loretta Armanino: Ron Steinkamp Bret Simmons Megan Cable We would like to thank District personnel for their excellent cooperation and assistance during this engagement. Specifically, we would like to express our gratitude to the following: Engineering: Rich Unverferth Jay Hoskins Doug Mendoza Brian Gibson