Finding - CERP funding methodology reasonable but projections could be improved.
Finding - Total cost or life cycle purchase method not always used.
Finding - Lease vs. purchase analysis not performed or included in bid proposals.
Finding - Equipment maintenance records for surplused equipment not kept.
Finding - Solid Waste equipment inventory appears to be accurate.
Finding - Economic life estimate not based on economic analysis which reflects actual use and local conditions.
Finding - Equipment replacement decisions not supported by replacement vs. retention analysis.

To determine whether Solid Waste equipment was replaced economically, audit staff identified criteria which would provide reasonable assurance that equipment was replaced economically. The criteria included:

• Sufficient funds (reserves) to replace equipment when needed should be available.
• Equipment purchase should be bid on a total-cost basis.
• Lease vs. purchase analysis should be performed and included in bid requirements.
• Operating and maintenance cost information should be maintained for each piece of equipment.
• Current inventory and equipment information including date bought, projected replacement date, purchase price, make, model, etc., needs to be maintained.
• The replacement period should be based on industry standards or economic analysis.
• Replacement decisions need to be based on analysis of annual cost of retention versus annual cost of replacement.

Solid Waste conducts replacement reviews for each piece of equipment to determine annual contributions to its equipment replacement fund. This method is generally in accord with accepted methodologies, absent County policy. The audit found that projection of salvage value and replacement cost could be improved.

The audit recommended that Solid Waste consider recalculating payments annually or adjusting current payments by the previous years difference.

Finding 2. Total cost or life cycle purchase method not always used.

The total cost method of purchasing considers not only the purchase price of equipment but also its ownership cost. The audit found that life cycle costs were only partially used in the purchase of some equipment replaced in 1991. Review of more recent purchases, however, indicated application of the life cycle cost approach. In addition, the audit noted that the repair option was not considered as an alternative to purchase.

The audit recommended that Solid Waste request vendors to bid on all purchases on a total cost basis, and that bid documents include a repair option.

Finding 3. Lease vs. purchase analysis not performed or included in bid proposals.

Although lease vs. purchase analysis is required by the King County Code only whenever leasing is contemplated, it is audit staff opinion that leasing should be considered as an option to purchasing equipment as well.

The audit recommended that Solid Waste consider equipment leasing as an alternative to purchasing

Finding 4. Equipment maintenance records for surplused equipment not kept.

The Revised Code of Washington (RCW) requires that equipment maintenance records be kept for six years. Records are also important for accountability and economic analysis. However, Solid Waste did not maintain records of surplused equipment.

The audit recommended that the equipment maintenance records be kept for as long as the equipment is owned and for six (6) years after the equipment is replaced.

Finding 5. Solid Waste equipment inventory appears to be accurate.

The audit did not verify the accuracy of the equipment inventory. However, it was audit opinion that sufficient accounting controls and visibility were employed to provide reasonable assurance of accuracy.

Finding 6. Economic life estimate not based on economic analysis which reflects actual use and local conditions.

The economic life of equipment is a significant factor in determining the amount of the annual Solid Waste Operating fund transfer to CERP. Economic life used by Solid Waste is based on Motor Pool and Public Works standards which may not reflect Solid Waste equipment use. Economic life for some equipment is based on buy-back time which may not be the optimum period for replacement.

The audit recommended that Solid Waste develop procedures to estimate economic life for all equipment classes and/or types.

Finding 7. Equipment replacement decisions not supported by replacement vs. retention analysis.

The optimum time to replace equipment is when the annual cost of retaining equipment exceeds the annual cost of replacement. Solid Waste equipment replacement decisions were made based on the fact that equipment had reached or passed its assumed economic life (although not based on economic analysis) or the buy-back window.

The audit recommended that replacement decisions be supported by analysis of the cost of replacement vs. retention.

Updated: 06/24/02