Highlands County Board of County Commissioners...(RAP) to make RAP/RAS. RAP/RAS is used as a co...

Highlands County Board of County

Commissioners

ASPHALT PLANT FOLLOW-UP INTERNAL AUDIT REPORT NO. 11-01

November 21, 2012

Prepared by:

Robert W. Germaine Highlands County Clerk of Courts

Compliance and Internal Audit Division

ASPHALT PLANT FOLLOW-UP INTERNAL AUDIT

TABLE OF CONTENTS

i

EXECUTIVE SUMMARY

Background ......................................................................................................................................1

Statement of Standards ....................................................................................................................7

Audit Objectives ..............................................................................................................................7

Scope & Methodology .....................................................................................................................7

Audit Conclusion .............................................................................................................................8 STATUS OF PREVIOUS FINDINGS AND RECOMMENDATIONS

Finding 1 – Financial reporting of negative cash balance ...............................................................9 Finding 2 – Under billing of asphalt product .................................................................................10

Finding 3 – Asphalt costing based upon incomplete and estimated data. .....................................11

Finding 4 – Costing of waste asphalt .............................................................................................12 Finding 5 – Commingling of inventory - Waste asphalt (containing a value) produced by the Asphalt Plant is commingled with other debris and stored behind the Landfill Office .................14 Finding 6 – Fuel discrepancy .........................................................................................................15 Finding 7 – Landfill gas percentage overstated .............................................................................16 Finding 8 – Noncompliance with DEP permit requirements - Hours of operation .......................17 Finding 9 – Asphalt Plant expenses charged to incorrect cost centers. .........................................18 Finding 10 – Computer records are not backed-up ........................................................................19 Finding 11 – Personnel time ..........................................................................................................20 Finding 12 – Labor and equipment start-up costs not capitalized .................................................20

Opportunity for Improvement 1 – Organizational Structure - Joint operation of the Asphalt Plant creates a disconnect between financial, regulatory and operational activities. ....................21

ASPHALT PLANT FOLLOW-UP INTERNAL AUDIT

TABLE OF CONTENTS

ii

Opportunity for Improvement 2 – Inventory tracking - Flowmeter not installed on asphalt cement tank heater .........................................................................................................................22 Opportunity for Improvement 3 – Asphalt Plant totalizer / accumulator not activated ................23

Opportunity for Improvement 4 – Insufficient detail to support payment on consulting invoices (PBS&J) .........................................................................................................................................24 Opportunity for Improvement 5 – Early payment discount ...........................................................25

Opportunity for Improvement 6 – Mix design testing ...................................................................26

APPENDIX A – Asphalt Production Phases ......................................................................................28 AUDIT REPORT APPROVAL ........................................................................................................30

Robert W. Germaine, Clerk of Courts Compliance and Internal Audit Division Asphalt Plant Follow-Up Internal Audit Highlands County, Florida Report No. 11-01

Executive Summary 1

BACKGROUND On September 18, 2007 the Highlands County Board of County Commissioners (Board) approved the purchase of a hot mix asphalt plant from Gencor Industries. On October 2, 2008 the County began producing asphalt for use by the Road and Bridge Department or vendors to maintain, pave, and repair County roads. Since the Asphalt Plants inception the County intended to sell asphalt to municipalities (i.e. cities) within the County or to vendors under contract with the municipalities, in accordance with Florida Statute 336.41(3). As of the release date of this audit the Asphalt Plant has begun selling asphalt to the City of Sebring, Town of Lake Placid, Spring Lake, and Sun-n-Lake of Sebring (via an interlocal agreement). Highlands County is the only county in the State of Florida to own and operate an asphalt plant. Following the purchase of the asphalt plant, State legislation was passed which prohibits other counties from owning or operating an asphalt plant (Florida Statute 336.41(3)). Asphalt Plant operations are funded by revenues from the sale of asphalt. The Board has established an enterprise fund (Energy Recovery Fund – fund 420, cost center 4230) to account for revenues and expenses associated with Asphalt Plant operations. The initial operation of the Plant was managed by the Solid Waste Department and the Road and Bridge Department. In June of 2010 the Road and Bridge Department assumed sole responsibility for Plant operations. Functions of the Asphalt Plant are noted below.

• Determines asphalt mix design to produce • Coordinates bidding of raw materials (i.e. aggregate, asphalt cement, sand, etc.) • Orders materials • Produces and handles asphalt product • Calculates costs of finished asphalt product • Ensures regulatory compliance • Tests raw materials for moisture • Tests finished asphalt product


Executive Summary 2

Highlands County Asphalt Plant

Asphalt Production - FY 2009-2010 & FY 2010-2011 During FY 2009-2010 and FY 2010-2011 the County produced and billed 31,428 tons and 27,547 tons of viable asphalt respectively. This product was billed to the Road & Bridge Department and utilized by County crews or vendors to maintain, repair, and pave County roads. During the course of production any waste generated is placed into inventory and is used as a component to make recycled asphalt product (RAP). During FY 2009-2010 the Energy Recovery Fund (fund 420) recognized the following:

• Revenues from the sale of asphalt totaled $2,438,5391 • Expenses totaled $2,100,4441 • Cash had a debit (positive) balance of $283,755

During FY 2010-2011 the Energy Recovery Fund (fund 420) recognized the following:

• Revenues from the sale of asphalt totaled $2,302,4211 • Expenses totaled $2,005,6911 • Cash had a debit (positive) balance of $538,858

Since revenues were greater than expenses, in both FY 2009-2010 and FY 2010-2011, the Energy Recovery Fund (fund 420) did not incur a loss as was noted in the initial Asphalt Plant Audit (issued 1/29/2010) during FY 2008-2009. 1Information was obtained from the 2010-2011 Comprehensive Annual Financial Report for Highlands County, available online at: http://www.hcclerk.org/Img/Documents/2011%20CAFR.pdf


Executive Summary 3

The County produced and billed several different mix designs (types) of Asphalt in FY 2009-2010 and FY 2010-2011. Since the initial audit the County has taken a pro-active continuous improvement approach for the costing of asphalt produced. This approach is particularly important when dealing with an entity that is set-up as an enterprise fund (which receives no money from the county’s General Fund and must cover its own costs). The control structure around costs is strengthened with ongoing monitoring. Viable asphalt produced and prices billed in FY 2009-2010 and FY 2010-2011 are noted in the chart below.

Asphalt Mix FY 09-10

Viable Tons FY 09-10

Average Price FY 10-11

Viable Tons FY 10-11

Average Price Limestone 12,995 $63.56 N/A N/A Limestone RAP 11,989 $63.45 12,160 $64.93 RAP/RAS 5,871 $62.08 14,498 $60.66 Concrete 574 $71.54 889 $61.88

Note: “Average Price” is the average cost billed by the Asphalt Plant which includes debt service. This pro-active cost approach benefited the County greatly in FY 10-11. Cost fluctuations in both asphalt cement and aggregate could have negatively impacted the County’s ability to purchase asphalt materials and produce budgeted asphalt (used for paving county roads) for the fiscal year. Management’s costing improvements and the ability to make necessary changes quickly saved significant funds. Asphalt management’s use of recyclable materials and the implementation of additional recyclable materials saved funds and had a stabilizing impact on the budgeted price per ton. The chart below notes cost fluctuations throughout each year based upon lowest and highest price per ton.

Material

FY 09-10 % Change in Cost Per Ton

FY 10-11 % Change in Cost Per Ton

Asphalt Cement 2% 22% Limestone 132 1% 18% Limestone 89 1% 19%


Executive Summary 4

Alternative Energy Sources and Recycling The County utilizes several recyclable materials in the production process. Materials used in FY 2009-2010 and FY 2010-2011 are noted below and detailed in this report section. • Methane Gas • Recycled Asphalt Product • Recycled Asphalt Shingles • Concrete Methane Gas The County’s Asphalt Plant has the ability to produce asphalt utilizing diesel fuel as the only energy source. However, the Plant was constructed at the County Landfill with the intent of using methane gas (via a methane blower), produced by the landfill, as a secondary energy source for powering the Plant. On August 19, 2008 the County was awarded a $1,650,000 Innovative Recycling and Waste Reduction Grant to partially fund the purchase of the Plant. As of September 2011, the County had received $1,650,000 of the grant funds.

Asphalt Plant Methane Blower


Executive Summary 5

During FY 2009-2010 and FY 2010-2011, the County produced asphalt using both diesel and a diesel / methane combination. The chart below details average gallons per ton, average diesel cost per ton, gallons of fuel consumed, total days of production, and total tons produced for both years combined.

Fuel Source

Average Gallons Per

Ton

Average Diesel Cost Per Ton*

Gallons of Fuel Consumed

Total Days of Production

Total Tons Produced

Diesel 2.46 $6.66 65,844 94 26,738 Methane and Diesel 2.10 $5.68 72,745 81 34,575 *Note: $2.71 combined average diesel cost per gallon for FY 2009-2010 and FY 2010-2011 Data in the chart above indicates that the utilization of methane saves (on average) 0.36 gallons of fuel per ton of asphalt produced. For FY 2009-2010 and FY 2010-2011, this translated into an estimated cost savings of approximately $70,970 based upon the average fuel cost of $2.71 per gallon. Recycled Asphalt Product (RAP) The Asphalt Plant has also utilized recycled asphalt product (RAP) since inception. RAP is often the result of millings from road reconstruction work. Using RAP reduces the amount of asphalt cement needed (by approximately two percent) and the amount of aggregate required (by approximately thirty-five percent). Both asphalt cement and raw aggregate are considerably more expensive per ton than RAP. In FY 2009-2010 and FY2010-2011 the County used RAP as a component of asphalt produced with a combined total estimated average savings of $269,967. The chart below notes RAP production and savings for FY 2009-2010 and FY 2010-2011.

Fiscal Year RAP

Produced

Average Cost

Asphalt Cement Per

Ton

Average Cost Asphalt

Limestone 89 Per Ton

Average Cost Asphalt

Limestone 132 Per Ton

Average Cost Savings

Per Ton

Total Estimated Average Savings

2009-2010 12,160 $525.00 $16.36 $15.37 $7.16* $85,878 2010-2011 11,989 $580.49 $17.77 $17.17 $15.14 $184,089

*Note: “Average Cost Savings Per Ton” was reduced as a result of prior FY 08-09 incomplete costing related to waste generated from asphalt production.


Executive Summary 6

Recycled Asphalt Shingles (RAS) In addition to the use of methane gas and RAP the Asphalt Plant began utilizing asphalt shingles in FY 2009-2010. The recycled asphalt shingles (RAS) are ground and mixed with recycled asphalt product (RAP) to make RAP/RAS. RAP/RAS is used as a component in the mix design of asphalt and reduces the amount of asphalt cement required (by approximately two percent). The high cost of asphalt cement makes the use of RAP/RAS very advantageous. RAP/RAS asphalt was produced in both FY 2009-2010 and FY 2010-2011 with a combined total estimated average savings of $171,677. The chart below notes RAP/RAS production and savings for FY 2009-2010 and FY 2010-2011.

Fiscal Year RAP/RAS Produced

Average Cost Asphalt Cement

Per Ton Average Cost

Savings Per Ton Total Estimated Average Savings

2009-2010 5,871 $525.00 $7.38 $43,359 2010-2011 14,498 $580.49 $8.85 $128,318

Concrete The Asphalt Plant began using concrete as a component of asphalt produced in FY 2009-2010. Concrete is crushed and is used like aggregates such as limestone or granite. When concrete is used it reduces the percentage of aggregate required (by approximately nineteen percent). RAP/RAS/Concrete asphalt was produced in both FY 2009-2010 and FY 2010-2011 with a combined total estimated average savings of $4,036. The chart below notes RAP/RAS production and savings for FY 2009-2010 and FY 2010-2011.

Fiscal Year RAP/RAS/Concrete

Produced

Average Cost Limestone Per

Ton

Average Cost Savings Per

Ton Total Estimated Average Savings

2009-2010 574 $16.36 $2.55 $1,460 2010-2011 889 $17.77 $2.90 $2,576 Recyclable Savings (Estimated) The County’s use of recyclable materials has resulted in a substantial cost savings. The chart below displays total estimated savings through the use of recyclable materials.

Fiscal Year FY

2009-2010 FY 2010-2011 Total RAP $85,878 $184,089 $269,967 RAP/RAS 43,359 128,318 171,677 Concrete 1,460 2,576 4,036 Total $130,697 $314,983 $445,680


Executive Summary 7

STATEMENT OF STANDARDS The Clerk’s Compliance and Internal Audit Department observes the International Standards for the Professional Practice of Internal Auditing, issued by the Institute of Internal Auditors. We believe that our audit provides a reasonable basis for the conclusions and recommendations presented herein. AUDIT OBJECTIVES The objective of the follow-up audit is to determine the adequacy, effectiveness, and timeliness of actions taken by Board management in response six (6) opportunities for improvement and twelve (12) control weaknesses noted in the original audit. The objectives of the original audit were to:

1. Determine whether adequate internal controls exist over the purchase and use of materials required for asphalt production; including purchasing procedures, storage and safeguard of materials, and documentation of resources / materials consumed.

2. Determine whether historical production costs are an accurate reflection of the cost incurred by the County to produce asphalt and ensure all costs are accurately reflected within the Energy Recovery Fund (fund 420).

3. Determine current production cost and evaluate process used to trend future expected cost. Determine whether operations of the Asphalt Plant meet compliance issues; including Board policies and various State, Federal and Environmental regulations

SCOPE & METHODOLOGY The scope of the audit included all activity related to the Energy Recovery Fund (fund 420) and Asphalt Plant operations for fiscal year 2009-2010 and fiscal year 2010-2011 (unless otherwise noted). The audit included a review and evaluation of the policies, procedures and internal controls noted below.

• Purchase, storage, and use of materials required for asphalt production • Asphalt production cost • Internal billing - Sale of asphalt to the Road and Bridge Department • Compliance with Board Policies and various regulatory requirements • Processes used to validate the viability of asphalt produced

Audit procedures performed included:

• Staff discussions and observations • Review of system documentation, policies and procedures, regulatory requirements • Review and testing of transactions, data and systems • Analytical procedures


Executive Summary 8

AUDIT CONCLUSION As noted in the original audit operation of an Asphalt Plant is an uncommon activity for a government entity. Highlands County is the only county in the State to own and operate an asphalt plant. Since the original audit the County has substantially modified the operation of the Asphalt Plant. Management monitors cost fluctuations and incorporates changes on an ongoing basis. Research of potential recycled materials is analyzed for efficiency and effectiveness prior to determining whether to utilize the material. Asphalt Plant Management has effectively implemented controls and process improvements in responses to the initial audit. The initial Asphalt Plant Audit identified six (6) Opportunities for Improvement and twelve (12) internal control weaknesses that were considered significant in nature. Follow-up audit status has concluded that remediation of four (4) Opportunities for Improvement and eleven (11) internal control weaknesses have been fully implemented, one (1) internal controls weaknesses has not been implemented, one (1) Opportunity for Improvement was partially implement, and one (1) Opportunity for Improvement was not applicable as of the release date of this audit. The partial implementation related to mix design testing and the not applicable implementation related to insufficient detail to support payment on consulting invoices. The control weakness with no remediation related to labor and equipment start-up costs not capitalized. Internal Audit encourages management to continue process improvements and implement controls where feasible. Any minor findings, not included in this report, were communicated to Management and/or corrected during the audit process. Follow-up status to each finding has been inserted after the respective finding and recommendation. We would sincerely like to thank the Road & Bridge Department, County Administration, the OMB Department, the Clerk’s Payable/Receivables Department, the Clerk’s Information Technology Department, and the Clerk’s Accounting Department for their cooperation throughout this audit.


Status of Previous Findings and Recommendations 9

FINDINGS, RECOMMENDATIONS, AND MANAGEMENT RESPONSES Finding 1: Financial reporting of negative cash balance During FY 2007-2008 the Energy Recovery Fund (fund 420) experienced a negative cash balance of $588,880; which increased to $1,153,972 during FY 2008-2009. The negative cash balance in FY 2007-2008 was a result of unfinanced plant setup. The increase in the negative cash balance during FY 2008-2009 was largely a result of Asphalt Plant expenses exceeding revenues. Revenues are primarily generated from the sale of asphalt to the Road and Bridge Department. As a result of the cash deficit, expenses of the Asphalt Plant have been financially supported by the surplus of other County funds. Since a credit (negative) cash balance cannot be reported for financial statement purposes, it has been Board Management's policy to record credit (negative) cash balances as a voucher payable. Although the payable was reported for FY 2007-2008, a corresponding receivable to another County fund was not reported for financial statement purposes. The surplus of other County funds is $1,153,972 (as of FY 2008-2009) short cash due to funds being utilized by the Energy Recovery Fund (fund 420). The Energy Recovery Fund (fund 420) owes another unidentified County fund $1,153,972. At present, there is no loan or transfer documented and terms of repayment have not been established. Audit of State and Local Governments 5.25 states: "When one fund has overdrawn its share of an internal investment pool, that fund should report an interfund liability to the fund that the government's management deems to have lent the amount to the overdrawn fund. The fund deemed to have lent the amount should report an interfund receivable from the borrowing fund. This treatment is unaffected by whether the lending and borrowing funds are of the same or different fund types or categories. However, in the government-wide financial statements, those interfund accounts should be eliminated as required for internal balances by GASB Statement No 34, paragraph 58. If a cash account for the government is overdrawn in total, the balance should be classified as a liability in the fund and governmental-wide financial statements.” It should be noted that the current reporting method does not disclose the existence of the negative cash balance nor does it disclose the financial support (subsidy) provided from the surplus of other County funds. Recommendation - Implemented: Board Administration and the Office of Management and Budget should review the Energy Recovery Fund (fund 420), the credit (negative) balance in the cash account, and the current method utilized for reporting credit cash balances for this fund in the financial statements. Applicable standards should be reviewed and a determination made whether a negative cash balance should be reported as an "interfund payable / receivable" to ensure that the financial statements provide an accurate depiction of the financial position of the affected funds; in this case the Energy Recovery Fund (fund 420) and an unidentified County fund. During the review process the Clerk’s Accounting Department should be consulted concerning any potential changes or concerns related to the current reporting method.



Two (2) potential solutions to correct the negative cash balance are noted below. • Obtain an interfund loan from another County fund to the Energy Recovery Fund (fund 420) with

established interest and re-payment terms. • Obtain an interfund transfer from another County fund to eliminate the negative cash balance within the

Energy Recovery Fund (fund 420). With this option, reviewing the stability of the Energy Recovery Fund annually to determine the feasibility of the Energy Recovery Fund (fund 420) transferring the funds back to the originating fund would be encouraged.

County Administration Management Response: Management concurs that the negative cash balance must be resolved. A second loan to assist with initial operations was not secured during FY08-09. This has caused the negative cash balance in the Energy Recovery Fund. Management request from the Clerk’s Business Services the preparation of quarterly statements to include Statement of Net Assets; Statement Of Revenues, Expenses And Changes In Fund Net Assets; and Reconciliation Of Net Operating Income (Loss) To Net Cash Provided By Operating Activities as necessary in maintaining an accurate review of the interim status of the Energy Recovery Fund. Management will seek approval for an operating loan to eliminate the negative cash balance for FY09-10 going forward. The fund balance of the Energy Recovery Fund is satisfactory and not in a negative status. Finding 1 – Follow-up Status: Following the initial audit an interfund loan was established from fund 401 (Solid Waste Fund) to fund 420 (Energy Recovery Fund). During FY 09-10 and FY 10-11 fund 420 had a positive cash balance as a result of the interfund loan and BOCC managements revised product costing methodology. County Administration Management Follow-up Response: Management concurs with the Follow-up Status. Fund Balance of the Energy Recovery Fund is satisfactory and not in a negative status.

~~~~~~~~~~~~~~~~~~~~~ Finding 2: Under billing of Asphalt Product. Asphalt Plant total expenses (including depreciation) for FY 2008-2009 were $2,205,214 and revenues (from the sale of asphalt) were $1,937,413. On average, asphalt was sold to the Road and Bridge Department at a per ton cost of $68.98; however, if all expenses were included the average cost to produce asphalt was $78.51 per ton. This resulted in an estimated under billing of $267,801. The under billing of asphalt product contributed to the credit (negative) cash balance in the Energy Recovery Fund (fund 420). The negative cash balance increased from $588,880 at the end of FY 2007-2008, to $1,153,972 at the end of FY 2008-2009.



Costing of asphalt product should be reflective of production costs. Per ton cost of asphalt billed to the Road and Bridge Department should include all actual costs. Energy Recovery Fund (fund 420) expenditures should be supported by the sale of asphalt product. Recommendation - Implemented: Asphalt Plant Management, the Office of Management and Budget and Board Administration should develop / adopt a cost model that includes all data (i.e. raw materials, labor, equipment, other overhead, depreciation or debt service, etc.) to determine the per ton cost of asphalt. Costs should be monitored on an ongoing basis and adjusted for changes in mix designs, raw materials price fluctuations, and estimated tons of asphalt required. Expenses of the Asphalt Plant should be supported by revenues generated from the sale of asphalt. County Administration Management Response: Management concurs that costs should be monitored on an ongoing basis and adjusted for changes in mix designs, raw materials price fluctuations, and estimated tons of asphalt required and expenses of the Asphalt Plant should be supported by revenues generated from the sale of asphalt. Finding 2 – Follow-up Status: Following the initial audit BOCC Administration and Management developed a detailed costing methodology which was presented and approved by the BOCC. This methodology includes all related costs and outstanding debt. Internal Audit performed independent calculations for costing in FY 09-10 and FY 10-11 and concluded the current costing methodology is a reliable and reasonable approach. County Administration Management Follow-up Response: Management concurs with the Follow-up Status. Asphalt Plant Management continues to monitor potential changes in mix designs and raw material price fluctuations to make sure those expenses of the Asphalt Plant are supported by the sale of asphalt.

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Finding 3: Asphalt costing based upon incomplete and estimated data The current cost methodology utilized was developed by Solid Waste Management and does not include all actual data related to the production of asphalt product. This methodology was initially developed and continued to change at the beginning of the Asphalt Plant startup. During the initial few months of production, all actual costs may not have been identified, and some estimates may have been necessary. During FY 2007-2008 some actual data was used (i.e. current bids of aggregate, asphalt cement, fuel cost, etc.), some estimates were used, only a portion of overhead was included, and depreciation appeared to be



understated (see “Additional Issues Requiring Further Consideration by the Board”). An incomplete cost model can result in the underbilling / overbilling of asphalt, understated / overstated inventory and inaccurate account balances. In addition, Management decisions concerning mix designs to produce and future project viability may be greatly impaired. Recommendation - Implemented: Asphalt Plant Management, the Office of Management and Budget and Board Administration should develop / adopt a cost model that includes all data (i.e. raw materials, labor, equipment, other overhead, depreciation or debt service, etc.) to determine the cost of asphalt. Cost should be monitored on an ongoing basis and adjusted for changes in mix designs, raw materials fluctuations, and estimated tons of asphalt required (should be compared to the Road and Bridge Departments project list and budgeting / funding). County Administration Management Response: Management concurs that the cost model should include all data and should be monitored routinely for changes that will impact the pricing of the asphalt to each project. The data has been monitored and adjusted monthly since March, 2009. Finding 3 – Follow-up Status: Following the initial audit BOCC Administration and Management developed a detailed costing methodology which was presented and approved by the BOCC. This methodology includes all related costs and outstanding debt. Costing is based on actual cost incurred each month. County Administration Management Follow-up Response: Management concurs and continues to track expenses attained at the Asphalt Plant on a monthly basis. Costing is based on the month’s expenditures, with debt service included.

~~~~~~~~~~~~~~~~~~~~~ Finding 4: Costing of waste asphalt During the production of asphalt a portion of the final product is not viable and is accounted for as waste asphalt. The waste asphalt can be used to produce RAP (recycled asphalt product) which can be used (as a raw material) in various design mixes to produce asphalt. Waste asphalt becomes part of inventory and has been assigned a cost using a formula developed by the Solid Waste Director. The value that has been assigned to waste asphalt includes only materials and not overhead costs. Overhead costs are assigned to the respective days finished asphalt product. When the waste inventory is processed into RAP and used in production, the cost of materials used in the initial creation of the waste are billed to the Road and Bridge Department. Due to the lag time in the processing of waste and use of RAP material in production, expenses



are not being recouped timely which impacts the current credit (negative) cash balance in the Energy Recovery Fund (fund 420). Recommendation -Implemented: Asphalt Plant Management and the Office of Management and Budget should ensure all costs associated with the production of asphalt are accounted for timely. Even though the waste asphalt is not viable and cannot be used for paving, it is still a cost of producing asphalt and should be included as a cost of the current day’s price per ton. A potential solution to account for waste cost would be to include a waste/loss percentage (FY 2008-2009 waste/loss percentage was 6.23%) in the cost per ton calculation. The value of waste in inventory will become nominal and all cost will be accounted for timely. When waste asphalt is processed and crushed with road base, concrete, or other material these processing cost can be reflected in the cost of the RAP material. County Administration Management Response: Management concurs with the finding and recommendation. Several joint meetings between Board staff and Clerk’s Office staff were conducted prior to the start-up of the asphalt plant to ensure proper accounting and this issue was discussed. Based on input from the Clerk’s Accounting staff, all overhead and production costs were to be included and collected in the unit cost of product sold to Road and Bridge. Waste asphalt costs will be included in the actual cost of product sold and then the waste asphalt will be tracked as a separate inventory item and assigned a minimal value. When the pile of waste asphalt is reprocessed into RAP, the cost of materials and processing cost are used to determine the RAP cost in inventory. The establishment of inventory and related cost tracking were all done in compliance with the Clerk’s Accounting Department. Finding 4 – Follow-up Status: Following the initial audit BOCC Administration and Management developed a detailed costing methodology which was presented and approved by the BOCC. This methodology includes all related costs and outstanding debt. Waste accumulated during the production process is included in the per ton cost of asphalt for the month in which it occurred. As a result, the Asphalt Plant no longer has outstanding costs associated with waste inventory. County Administration Management Follow-up Response: Management concurs with the Follow-up Status and continues to include the cost of waste during production in the per ton cost of asphalt, for the month in which it occurred.

~~~~~~~~~~~~~~~~~~~~~ Finding 5: Commingling of Inventory - Waste asphalt (containing a value) produced by the Asphalt Plant is commingled with other debris and stored behind the Landfill Office.



Waste asphalt generated during the asphalt production process is not maintained in a separate pile, preferably at the Asphalt Plant. Waste asphalt, currently containing a value, is taken from the Asphalt Plant and dumped with a pile of debris (containing large pieces of concrete, road base, etc.) behind the Landfill Office. This pile is then primarily used by the Landfill Department as cover material, with a small percentage being processed to create RAP. This is significant since the waste asphalt is an inventory item to the Energy Recovery Fund (fund 420). Commingling waste asphalt with the pile of debris creates an inability to accurately track and account for the waste inventory. Recommendation - Implemented: Asphalt Plant Management is encouraged to identify a separate location (preferably at the Asphalt Plant) to maintain waste asphalt. The waste asphalt should not be commingled with debris used for cover at the Landfill. County Administration Management Response: Management concurs that the waste asphalt or RAP should be maintained in a separate location from material that may be used for landfill cover or road base around the landfill cells. There is inadequate space at the asphalt plant to segregate waste asphalt from the plant and asphalt road base brought to the landfill. The combined materials are processed in the RAP for use in asphalt production at the plant. Asphalt road base that comes to the landfill has not been used to build roads on the landfill or for cover material since the asphalt plant was constructed because of the value in the waste asphalt pavement being used in RAP for asphalt production. Finding 5 – Follow-up Status: An Asphalt Plant site visit was performed and separate piles of each inventory item were noted. There were no commingled inventory items. County Administration Management Follow-up Response: Management concurs and continues to keep the waste asphalt pile separated during each production year. At the end of each production day all waste material generated is weighed and then transported to the waste pile just behind the Asphalt Plant.

~~~~~~~~~~~~~~~~~~~~~ Finding 6: Fuel Discrepancy A review of fuel usage and inventory records for the 15,000 gallon diesel fuel tank (fuel #2 tank) located onsite, noted an overnight discrepancy of 27.5 inches or approximately 1,628 gallons of fuel. On October



29, 2008 (in the afternoon following production) a landfill employee read fuel tank #2 at 70.5 inches. The next morning, October 30, 2008 (before production began) the same employee read fuel tank #2 at 43 inches. The only method to track the amount of diesel fuel consumed by the Plant is by reviewing fuel deliveries and manual readings (number of feet/inches) from the diesel fuel tank that were taken by staff on production days. Manual readings create a reduction in accuracy, the potential for error in fuel usage, an overstatment/understatment of inventory, and inaccurate product costing. Recommendation - Implemented: Asphalt Plant Management is encouraged to define a process to continuously review fuel usage and address unexpected variations timely. In addition, researching/activating the Asphalt Plant’s totalizer/accumulator (see "Opportunity for Improvement - Asphalt Plant totalizer/accumulator not activated") to track fuel usage would be beneficial. County Administration Management Response: Management concurs that a better process is needed, has improved upon the manual fuel use tracking methodology and has had a digital fuel flow meter installed on the thermo-fluid heater plus had the asphalt plant manufacturer install a computer module that tracks fuel use by the mixing drum burner. There is now redundancy in tracking fuel use for the asphalt plant. Finding 6 – Follow-up Status: Asphalt Plant staff manually record fuel readings and utilize the totalizer/accumulator (activated/installed since initial audit) to ensure fuel readings are reasonable. Internal Audit reviewed fuel usage for FY 09-10 and FY 10-11 and no discrepancies were noted. County Administration Management Follow-up Response: Management continues to monitor fuel usage by manually recording fuel readings at the beginning and the end of each day and also by utilizing the Totalizer (mixing drum burner) during production and Accumulator (thermo-fluid heater) on a daily basis.

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Finding 7: Landfill gas percentage overstated. Information provided to Board Administration and the Board indicated the use of landfill gas resulted in a 79.2% decrease in diesel fuel consumption. Solid Waste Management indicated that prior to the utilization of landfill gas, the County produced asphalt and used 6.26 gallons of diesel fuel per ton. Management noted that after the installation of the landfill gas, diesel consumption decreased from 6.26 to 1.30 gallons per ton, and that this was a direct result of landfill gas. Internal Audit reviewed the methodology used and noted several concerns in the calculations. The following issues were identified: • Ending diesel fuel inventory as of January 31, 2009 was not considered. As of January 31, 2009 there

was an estimated 7,906 gallons of diesel fuel remaining in inventory. The fuel consumption reading of 22,540 should have been reduced by the ending inventory of 7,906.

• During the first 18 days of production (October 2008 – January 2009; diesel fuel only), the average daily production was 199.88 tons per day (3,597.91 / 18 = 199.88). This is less than half of the average daily production for the period of March thru May 2009. It should be noted that the gallons per ton used during production is inversely related to the number of tons produced.

• Asphalt was only produced on 18 days during the four (4) month period of October 2008 thru January 2009. During the remaining 105 days, diesel was utilized by the heater to maintain the temperature of the asphalt cement. It is estimated that the heater burns approximately 49 gallons of diesel per day. This results in the use of approximately 5,145 gallons of diesel (or 35.2% of the diesel consumed) during non-production days and reduces the gallons per ton for production by an additional 1.43 gallons.

Compliance & Internal Audit considered the information noted above and calculated (for the same period reviewed) that production with only diesel used 2.52 gallons per ton and production with diesel and landfill gas was 1.14 gallons per ton. Note: Calculations were based on fuel consumption and production during the period of October 2008 thru January 2009 (diesel) and March thru May 2009 (landfill gas supplement). Recommendation Implemented: Asphalt Plant Management is encouraged to evaluate the methodology used to calculate landfill gas percentage. County Administration Management Response: Management concurs that the methodology should be evaluated. After evaluation of the methodology, data errors were identified that caused an incorrect result. Staff has been instructed on the importance of good data and validation of the data. Finding 7 - Follow-up Status:



Internal Audit independently calculated the landfill gas percentage for FY 09-10 and FY 10-11. In addition, discussions with Asphalt Plant management’s calculation methodology and results appear reasonable. County Administration Management Follow-up Response: Management tracks the percentage of Landfill Gas utilized during production compared to diesel fuel only. The percentages vary depending on rainfall. Calculations have shown as much as a 30% reduction in diesel fuel consumption.

~~~~~~~~~~~~~~~~~~~~~ Finding 8: Noncompliance with DEP Permit Requirements - Hours of Operation The County has a permit with the DEP (Permit 0550046-006-AO) for the operation of an 80,000 ton per year hot mix asphalt plant on the existing Non-Title V landfill facility. The permit establishes a maximum operating schedule of 400 hours per year. Section 3.36 of the permit reads: "The owner or operator shall maintain records to document the monthly and the twelve-month rolling totals of tons of asphalt concrete produced, the gallons of fuel oil consumed, and the hours of operation. Such records shall be retained for five years. [Rule 62-210.300(3) (c)2.g., F.A.C.]." Although the County maintains information related to days of production, records were not properly maintained to track actual daily hours of operations. Hours of operation has been determined by taking the amount of tons produced and dividing by the estimated tons per hour (at the start of FY 2008-2009 tons per hour was estimated at 120; however, this figure was not updated monthly). The County is therefore unable to ensure that the Asphalt Plant did not operate more that 400 hours during the year. Based on production records, asphalt was produced on 94 days during FY 2008-2009. Recommendation - Implemented: Asphalt Plant Management should establish a process to track actual hours of operation, maintain all permit requirements, and ensure that all permit requirements are being satisfied. County Administration Management Response: Management concurs that the permit requirements should be followed and satisfied. A part of the asphalt plant’s air-quality permit, Solid Waste Management established a landfill gas use tracking system in February, 2009 as directed by DEP staff. Audit staff was not aware of this document. Quarterly data is submitted to DEP on the hours of operation and there have been no problems noted in return. Finding 8 – Follow-up Status: The current DEP Air Quality Permit remains valid through May of 2014. An outside vendor performs air quality testing and results are remitted to DEP to ensure the Asphalt Plant is in compliance with regulatory



standards. In 2010, following a slightly elevated air quality reading, a structural defect was discovered in the baghouse. Asphalt Plant management took immediate action, repaired the defect, and had the vendor retest the Asphalt Plant emissions. As of the date of this report the Plant is in compliance. County Administration Management Follow-up Response: Management concurs with the Follow-up Status regarding the current Air Quality Permit. After the slightly elevated air quality reading in 2010 by an outside vendor, DEP suggested Asphalt Plant Management develop a general maintenance form to ensure proper routine inspection/maintenance is completed on the baghouse. Should DEP request inspection of the forms, asphalt plant staff keeps the completed forms onsite.

~~~~~~~~~~~~~~~~~~~~~ Finding 9: Asphalt Plant expenses charged to incorrect cost centers. The County established an enterprise fund (fund 420 / cost center 4230) to account for all activity (revenues and expenses) of the Asphalt Plant. Expenses related to Asphalt Plant operations were incorrectly charged to Refuse Disposal (cost center 4210), Solid Waste Administration (cost center 4212) and the Road and Bridge Department (cost center 4102). Asphalt Plant expenses (cost center 4230) were understated; whereas Refuse Disposal (cost center 4210), Solid Waste Administration (cost center 4212) and Road and Bridge (cost center 4102) expenses were overstated. The Energy Recovery Fund (fund 420) does not provide an accurate depiction of Asphalt Plant operation costs. Identified expenses totaled $64,539 and were incurred during FY 2007-2008 and 2008-2009. Recommendation - Implemented: All activity of the Asphalt Plant should be properly recorded under the Energy Recovery Fund (fund 420 / cost center 4230). County Administration Management Response: Management concurs that expenses should be properly allocated to the appropriate cost center. Staff has been instructed to review invoices and payment authorizations for proper allocation going forward. Finding 9 – Follow-up Status: Following the initial audit BOCC management improved processes to ensure expenses are charged to the correct cost center. A review of invoices following the implementation of the improved processes noted no discrepancies. County Administration Management Follow-up Response:



Management continues to track expenses to ensure those expenses are charged to the correct cost center.

~~~~~~~~~~~~~~~~~~~~~ Finding 10: Computer records are not backed-up The Asphalt Plant has a computer system that maintains data related to daily operations; including asphalt production, disposition tickets, date/time, waste produced, asphalt mix produced, etc. This data is maintained on a stand alone computer that is not connected to the County network. As a result, data is not routinely backed-up by the Clerk's IT Department's automated processes. This situation creates the potential for partial or complete loss of production data if the stand alone computer is compromised. Without production data, an impairment to the billing of asphalt, inventory tracking, and production trending may result. Recommendation - Implemented: Asphalt Plant Management is encouraged to develop a formal / routine process that ensures the system is backed-up daily. Discussion with the Clerk's IT Department concerning the feasibility of a network connection or other method to back-up data would be beneficial. It should be noted that upon communicating this concern to Management, the Solid Waste Department and the Clerk’s IT Department implemented a process to back-up computer records. County Administration Management Response: Management concurs that the computer records must be backed up regularly. Much of the system was already backed-up regularly and improvements were implemented by the IT department for full back-up compliance. Finding 10 – Follow-up Status: Following the initial audit the Clerk’s Information Technology Department in conjunction with BOCC management and staff took immediate action to begin a back-up process for the computer located at the Asphalt Plant. Asphalt Plant staff regularly back-up Asphalt Plant data. To date the Asphalt Plant computer is still a stand alone and not connected to the network; however, the equipment needed to connect the Plant computer to the network was purchased in FY 2012-2013. Completion of the network connection is expected in FY 2012-2013. County Administration Management Follow-up Response:



Asphalt Plant Management has been working with the Clerk’s Information Technology Department to connect the asphalt plant computer to the network. Several items were purchased through the asphalt plant cost center during the 2011/2012 fiscal year and installation is all that remains.

~~~~~~~~~~~~~~~~~~~~~ Finding 11: Personnel Time Landfill Department time spent on Asphalt Plant operations are currently not billed to the Asphalt Plant cost center. All time spent is paid for by the Landfill Department. In addition, the Clerk's Payables / Receivables Department has spent excessive time processing inventory and finished product billings. Costs associated with the operation of the Asphalt Plant are currently not reflective of actual expenses and the calculation of cost per ton of asphalt is impacted. It should be noted this is the first year of production and time spent on Asphalt Plant operations are likely to decrease as processes are established and refined. Recommendation - Implemented: Asphalt Plant Management and Board Administration are encouraged to identify a process to track Landfill Department time spent on Asphalt Plant operations and charge the cost to the Asphalt Plant cost center (4230). In addition, potential reimbursement to the Clerk's Payables / Receivables Department should be considered. County Administration Management Response: Management concurs with the recommendation. The plant will be included in the next Cost Allocation Plan conducted by the consultant. Finding 11 – Follow-up Status: Since the initial audit, allocation of employee’s time spent on the operations of the Asphalt Plant has been appropriately charged to the correct cost centers. County Administration Management Follow-up Response: Management concurs and continues to monitor and track employee’s time to ensure appropriate cost centers are charged.

~~~~~~~~~~~~~~~~~~~~~ Finding 12: Labor and Equipment Start-up costs not capitalized. Labor and equipment costs (totaling $37,873) incurred by the Road and Bridge Department during Plant



construction have not been reimbursed or capitalized. This results in capitalized costs that are not reflective of costs incurred. Recommendation – Not Implemented: Asphalt Plant Management and Board Administration are encouraged to evaluate costs incurred by the Road and Bridge Department, reimburse costs associated with Plant construction, and communicate with the Clerk's Accounting Department any necessary changes to asset capitalization. County Administration Management Response: Management concurs that all costs for construction of the plant should be capitalized and depreciated. Solid Waste Management’s reviewed the billings to identify construction expense. Finding 12 – Follow-up Status: As of the date of this report the Road and Bridge Department has not been reimbursed for the labor and equipment costs incurred during the Asphalt Plant Construction. County Administration Management Follow-up Response: Management concurs with the Follow-up Status. Board Staff has been working with the Clerks Finance Department to identify the best possible solution regarding reimbursement of the funds.

~~~~~~~~~~~~~~~~~~~~~ Opportunity for Improvement 1: Organizational Structure - Joint operation of the Asphalt Plant creates a disconnect between financial, regulatory and operational activities. The Asphalt Plant is jointly operated by the Solid Waste Department and the Road and Bridge Department. Costing, bidding of materials, purchasing, and regulatory compliance is performed by the Solid Waste Department. Daily production, product testing, and handling of asphalt is performed by the Road and Bridge Department. The organizational structure has created a disconnect between the financial and operational aspects of the Asphalt Plant. The Road and Bridge Department is responsible for Asphalt Plant operations; however, has no input when it comes to budgeting or costing. During FY 2008-2009, budgeting and costing was based on estimates, not on actual activity / expenses. Utilization of estimates were expected during the initial months of production; however, as actual data became available it should have been utilized to revise the estimates. As a result of using estimates, the per ton cost to produce asphalt has been understated and under billed. Expenditures of the Asphalt Plant have exceeded revenues, resulting in a negative cash balance.



Recommendation - Implemented: To increase operational efficiencies, Compliance and Internal Audit recommends that management and operation of the Asphalt Plant be handled by a single department. It should be noted however, that if complete operation is managed by the Road and Bridge Department, then there is the potential for an impairment to independence / segregation of duties (if a single individual is responsible for costing asphalt and billing of asphalt) if compensating controls are not established. County Administration Management Response: Management will take the recommendation under consideration. All departments have worked together successfully in the construction, start-up, and operation of the plant. Opportunity for Improvement 1 – Follow-up Status: During the FY 09-10 BOCC Administration realigned the reporting structure of the Asphalt Plant to the Road and Bridge Superintendent. In addition, to reduce the likelihood of an impairment to independence when costing asphalt, BOCC Administration and Asphalt Plant management have implemented a process which includes a review of the per ton price by OMB Department or Administration. County Administration Management Follow-up Response: Management concurs with the Follow–up Status regarding structure realignment of the Asphalt Plant. In June of 2010 the Road and Bridge Department assumed sole responsibility for Asphalt Plant Operations. Billing of asphalt is reviewed by Administration on an as needed basis.

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Opportunity for Improvement 2: Inventory Tracking - Flowmeter not installed on asphalt cement tank heater. The Asphalt Plant uses asphalt cement in the production of asphalt. A heater is used to maintain the temperature of the asphalt cement tank. The heater draws fuel from an auxiliary fuel tank (267 gallon capacity) which is connected to a 15,000 gallon diesel tank. The heater operates (turning on and off as needed) as long as there is asphalt cement in the storage tank and is estimated to use 6.92 gallons of diesel per hour. The heater was not equipped with a flowmeter (or other method) to track the volume of fuel used to maintain the temperature of the asphalt cement. It is estimated that a flowmeter would cost approximately $2,000. The auxiliary fuel tank is filled approximately every three (3) days (from the 15,000 gallon diesel fuel tank) and is estimated to use 49 gallons of diesel per day. The only method to track fuel usage is to estimate based on the estimated daily fuel usage (49 gallons) multiplied by the total number of days in the year. If the



auxiliary fuel tank was filled during production hours, the gallons would be double counted and fuel usage overstated. This method creates a reduction in accuracy, potential for error in fuel usage, an overstatment/understatment of inventory, and inaccurate product costing. Recommendation - Implemented: Asphalt Plant Management is encouraged to contact the Plant vendor (Gencor) and determine the cost and viability of installing a flowmeter on the asphalt plant cement heater. It should be noted that this recommendation was made by the Clerk's Office during preliminary meetings with Solid Waste Management related to the Asphalt Plant. As a result of issues identified during the course of the audit, Solid Waste Management contacted the vendor and began the process of having a flowmeter installed. County Administration Management Response: Management concurs with the recommendation. As stated in the response to Finding 6, a digital flow meter was installed on the thermo-fluid heater fuel oil supply line. Opportunity for Improvement 2 – Follow-up Status: A digital flowmeter was installed on the thermo-fluid heater fuel oil supply line, prior to the issuance of the original audit. Internal Audit also performed a site visit to ensure that the flow meter was installed and functional. County Administration Management Follow-up Response: Management concurs with the Follow-up Status. The digital flow meter (Accumulator) on the thermo-fluid heater is practical and functioning to ensure accountability related to fuel usage.

~~~~~~~~~~~~~~~~~~~~~ Opportunity for Improvement 3: Asphalt Plant totalizer / accumulator not activated. The Asphalt Plant is equipped with a totalizer / accumulator that can track the amount of diesel fuel burned by the Plant during the production of asphalt. The information can be transmitted to the Plants computer. This function was not activated during installation. The only method to track the amount of diesel fuel consumed by the Plant is by reviewing fuel deliveries and manual readings (number of feet/inches) from the diesel fuel tank that were taken by staff on production days. Manual readings create a reduction in accuracy, the potential for error in fuel usage, an overstatment/understatment of inventory, and inaccurate product costing.



Recommendation - Implemented: Asphalt Plant Management is encouraged to contact the Plant vendor (Gencor) and determine the cost and viability of activating the totalizer / accumulator. It should be noted that Solid Waste Management has contacted the vendor to begin this process. County Administration Management Response: Management concurs that the installation of a totalizer/accumulator will eliminate problems in determining fuel usage on a daily basis when the plant is in use. The asphalt plant was not equipped with said device so it could not be turned on. Solid Waste Management has had the plant manufacturer install a module on the plant’s computer for this purpose. Opportunity for Improvement 3 – Follow-up Status: Internal Audit performed a site visit and observed a totalizer/accumulator installed and active. County Administration Management Follow-up Response: Management concurs with the Follow-up Status. The Totalizer on the asphalt plant burner is practical and functioning to ensure accountability related to fuel usage.

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Opportunity for Improvement 4: Insufficient detail to support payment on consulting invoices (PBS&J). The County contracts with PBS&J (thru task authorizations) for various consulting services. The billing of tasks authorizations are issued under the terms and conditions of an Agreement dated August 17, 1999. The County entered into two (2) different agreements with PBS&J for consulting services related to the Energy Recovery Fund (Task 20 and 22). Task 20 was for procurement documents, site development plans and permitting of an asphalt plant at the County Landfill and was later modified to include design and testing of asphalt mix designs. Task 22 was to provide consulting services for landfill gas utilization as an alternative fuel feasibility study. As of December 3, 2009 the County had expended $80,169.81 and $22,265.94 related to Task 20 and 22, respectively. Compliance and Internal Audit reviewed PBS&J payments and noted that invoices provided by PBS&J do not provide sufficient detail to support payments. Invoices are submitted on a monthly basis and only provide the total number of hours work, by employee, during the month. Detail related to the specific days worked, activities completed, etc was not provided. This situation creates an inability to determine whether services rendered were within the terms of the agreement.



Additionally, during review and discussions with Solid Waste Management it was discovered that two (2) payments were invoiced by PBS&J, approved by Solid Waste Management, and paid under the incorrect task and purchase order. The invoices, totaling $4,216.74, were incorrectly invoiced under Task 22. As a result, it appears that the purchase order related to Task 22 has been overpaid. Recommendation – Not Applicable: Asphalt Plant Management is encouraged to ensure sufficient detail is provided with invoices to allow for adequate review and approval. Invoices should include detail related to the specific tasks performed and hours worked. Adequate detail should be provided to ensure that activities are being billed under the correct tasks. Review and evaluation of payments made under the current PO and communication with the Clerk’s Payables / Receivables Department to ensure payments are associated with the correct task would be beneficial. County Administration Management Response: Management concurs with the recommendation. Normal billing by consultants does not include timesheets for all work performed, but does include a detailed summary. Timesheets are normally available for audits and were provided by PBS&J in this audit. A review of the detailed billing will be completed and necessary adjustments will be processed. Opportunity for Improvement 4 – Follow-up Status: No payments to PBS&J were made since the issue date of the original audit.

~~~~~~~~~~~~~~~~~~~~~ Opportunity for Improvement 5: Early Payment Discount A diesel generator was purchased for the Asphalt Plant at a cost of $156,824.15 (Invoice 3644004249). The payment terms provided a 1% discount for payment within 20 days, net 30 days. The Invoice was dated April 24, 2008 and paid by check (#242017) on May 20, 2008. Had payment been made within 20 days (by May 14, 2008) the County would have saved $1,568.24 and recognized an 18.43% return on investment. It should be noted there appears to have been a significant delay from the date the invoice was generated / sent by the vendor and the date the invoice was received at the Landfill. The invoice date was April 24, 2008, but it was not stamped as received by the Landfill Department until May 12, 2008. The invoice was received by the Payables / Receivables Department on May 14, 2008, and paid by the Payables / Receivables Department on May 20, 2008. Since the County was unable to receive the discount a total of $1,568.24 was forfeited. Additionally, the full cost of the generator was financed thru the revenue bond which the County is incurring interest on at a rate



of 4.39%. Interest on $1,568.24 is estimated at $348. Recommendation - Implemented: The payment process is a joint effort between Board staff and the Clerk's Payables / Receivables Department. Invoices are initially reviewed and approved for payment by Board staff and then forwarded to the Clerk's Payables / Receivables Department for review and payment. During the payment process all parties should diligently review invoices noting available discounts and when feasible, expedite processing to ensure that discounts can be realized. County Administration Management Response: Management concurs that prompt payment of invoices may result in cost savings. In the instance noted, the invoice was not received by staff until 18 of the 20 days had already passed. Board and Clerk staff promptly acted on paying this bill when it was received. As noted, there was much lost time in the mail. Opportunity for Improvement 5 – Follow-up Status: Following the initial audit BOCC management improved processes to ensure discounts are taken on applicable invoices. A review of invoices following the implementation of the improved processes noted no discrepancies. County Administration Management Follow-up Response: Management concurs with the Follow-up Status. Asphalt Plant Management/Clerical Staff reviews invoices and cost savings are recognized as a result.

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Opportunity for Improvement 6: Mix Design Testing Asphalt produced is tested approximately every 500 to 1,000 tons of production for compliance with certified mix designs. If test results are not within defined ranges, the asphalt is retested. Although, mix designs are tested on an ongoing basis and results out of range are monitored and retested, there is currently not a defined written procedure to monitor mix designs test results. Recommendation – Partially Implemented: Asphalt Plant Management is encouraged to develop a written procedure to ensure consistency in the monitoring of mix design test results. County Administration Management Response:



Management concurs that a written procedure should be developed. The Solid Waste Director is a licensed professional engineer and experienced with asphalt mix designs. Asphalt plant operations staff have been instructed to contact the Solid Waste Director with any abnormalities or problems, including problems with mix testing results. This practice will be formalized into a written procedure. Opportunity for Improvement 6 – Follow-up Status: Asphalt Plant Staff continue to perform testing. Discussions with Asphalt Plant Management noted preliminary evaluation of possible asphalt density testing and documentation of testing procedures. To date, there is not a formal written procedure. County Administration Management Follow-up Response: Management concurs with the Follow-up Status. Testing occurs on an as needed basis regarding moisture content in aggregate, asphalt cement content and gradation.


Appendix A 28

APPENDIX A

Asphalt Production Phases Asphalt production is composed of several different phases noted below. • Mix Designs • Raw Materials • Production • Mix Design Testing Mix Designs The initial phase of asphalt production begins with the development and certification of a product mix design. A mix design details the quantity / percentage of each raw material needed to produce viable asphalt. The County has nine (9) mix designs which are used to produce asphalt. Certified designs include virgin mixes, recycled asphalt product (RAP) mixes, recycled asphalt product/recycled asphalt shingles (RAP/RAS) mix, and RAP/RAS/Concrete mix. These mix designs were developed by Post Buckley Schuh & Jernigan (PBS&J), Caltec and Conrad Yelvington. Several factors are considered when choosing the mix design to use for production. For the County, the primary driver in mix design choice has been cost. An additional factor is product quality which is partially driven by state regulations for DOT maintained roads. The roads maintained by the County are not required to comply with DOT regulations. As a result, the County does not always produce asphalt mix designs which meet DOT regulatory standards. Raw Materials Several raw materials are used in a mix design to produce asphalt. The primary components include aggregates (i.e. granite rocks, limestone rocks, etc.), fines (i.e. sand), and asphalt cement (i.e. liquid / solid material refined from crude oil) to bind the dry materials. Recyclable materials (i.e. RAP, RAS, concrete) are now commonly used which reduces the amount of aggregates and asphalt cement required. The stability of production costs is traditionally impacted by commodities that have high price volatility. To lessen this uncertainty the County has incorporated the use of recyclable material. The purchase of all materials required for production flow through the County’s Purchasing Department. Aggregates, sand (currently not bid due to the use of sand available on County property) and asphalt cement follow the formal bidding process and annual bids are awarded. The purchase price of aggregates and sand are stable during the bid year. Asphalt cement is awarded by bid; however, the price is adjusted monthly by the FDOT Fuel and Bituminous Price Index. Fuel purchases are made by requisition and awarded to the lowest bidder. In addition, different mix designs require different quantities / percentages of asphalt cement and aggregates. For example, aggregates for granite mix designs cost more than aggregates for limestone mix designs; however, granite mix designs requires less asphalt cement than limestone mix designs. Since the price of asphalt cement is very volatile there is point at which it may be less expensive to produce asphalt using a granite mix design than a limestone mix design.


Appendix A 29

Production Once the mix design is chosen and raw materials are purchased, asphalt production can begin. The Asphalt Plant is operated by three (3) County employees from the Road & Bridge Department. One individual is inside the control house. The control house utilizes a Windows 2000 based operating system that tracks Plant start-up, asphalt production, and Plant shutdown. Another individual operates a loader and continually adds raw materials to cold feed bins. A third individual tests asphalt product, performs general maintenance, removes debris caught in cold feed bins and operates the dump truck containing waste asphalt. The start-up process requires heating the mixing drum (to approximately 1,000 degrees), the inlet temperature to 315 degrees, and the outlet temperature for the baghouse to 212 degrees (to evaporate any moisture). Asphalt production begins following start-up. Raw materials are fed through several cold feed bins down a conveyor belt and are mixed with heated liquid asphalt cement in the mixing drum. Asphalt coming out of the mixing drum is monitored for constancy and temperature to determine when the asphalt is viable. Material not meeting requirements is considered waste asphalt and is released into a dump truck. The waste material is dumped into a separate pile at the Asphalt Plant (once the dump truck is full or production for the day has ended) and is combined with RAP at a later date when needed. Once the material meets requirements, it travels along an elevated conveyor to one of two silos. Asphalt can be stored in the silos for about 24 hours or released into dump or patch trucks for paving. Mix Design Testing During asphalt production the mix design of the asphalt being produced is tested for compliance with mix design specifications. Six (6) County employees have received training from the University of Florida to ensure competency in mix design testing. The process of testing asphalt product is noted below. • Weighing initial test sample • “Burning off” asphalt cement in a 1,000 degree ceramic lined oven • Washing and drying (in an oven) material • Shaking material through a series of graduated sieves • Weighing the amount of dried material that did not pass through each sieve size • Comparing test sample results with mix design specifications It should be noted that the County is not required to perform testing since County roads do not fall under the requirements of FDOT regulations. The County should be commended for taking the initiative to comply with certified mix designs. Additional testing that can be performed includes viscosity testing and penetration grading. Viscosity is the measurement of a fluid’s resistance to flow. Since viscosity testing is only measured at one temperature (in a controlled lab environment) it does not completely characterize an asphalt binder’s consistency over the expected range of construction and service conditions. Penetration grading characterizes the consistency of semi-solid asphalts1. At present, the County is not performing viscosity testing or penetration grading. 1Information was obtained online at www. pavementinteractive.org

AUDIT REPORT APPROVAL

Highlands County Board of County Commissioners

Asphalt Plant Follow-Up Internal Audit Report No. 11-01

Issuance Date: November 21, 2012

Approved for Issuance By:

R bert W. Gennaine Highlands County Clerk of Courts

and Auditor to the Board

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