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The Lane Report

A More Efficient Local Government?

The FY 2005 LFUCG general fund budget, approved by the Council, authorized two more auditors in the city's Division of Internal Audit.

Internal Audit's primary goals are to make sure taxpayer's dollars are being expended in a legal and cost effective manner. Providing information to taxpayers on how efficiently local government is operating, is a powerful way to motivate better government.

In September, the Council voted to have the Division of Internal Audit provide copies of each audit to all council members, the mayor, chief administrative officer, and to electronically publish audits on the web.

The most recent internal audit reviewed employment practices in the Division of Solid Waste. Selected quotes from the summary of audit findings are noted below in quotations. Obviously, the mayor, the CAO and Council will need to address compensation issues detailed in this report.

Solid Waste Division's Incentive Compensation Plan
"The Division of Solid Waste utilizes an Incentive Program designed to motivate field workers to complete garbage collection routes in a timely manner...'The incentive system is the driving force behind the collection of refuse. It ensures that the refuse will be collected with a minimum of overtime'. Solid Waste time reports indicate that all field workers assigned to refuse collection routes participate in the Incentive Program. This program guarantees wages will be paid based on a forty hour workweek rather than actual hours worked, i.e. employees assigned to collection routes are allowed to clock out and leave work after their assigned route is completed, while still receiving pay for a full day's work. We [Internal Audit] were informed by Solid Waste management that the use of such an Incentive Plan is a standard industry practice."

Undertime
"The Division of Internal Audit therefore performed a detailed search for such benchmarks and located a Best Practices Report published in 2000 by the Department of Public Works in Los Angeles, CA...That report included survey responses from three cities indicating they employ an incentive program similar to LFUCG's, including the use of ten hour work shifts and undertime. Undertime is defined as employee hours paid for but not worked as authorized by management, and the report stated that undertime was a concern for several of the cities surveyed.

The average route time for those three cities having an incentive program similar to LFUCG's was 7.5 hours, indicating an average of 2.5 hours of undertime. By contrast, the results of this audit indicate that the LFUCG Solid Waste Division averages 5.6 hours of undertime for a ten hour shift, ranging from 2.2 to 8.9 hours of undertime during the first five months of calendar 2005."

Overtime Expenditures
"...in recent years overtime expenditures have increased significantly within the Division of Solid Waste. With FY 2000 being used as a baseline year, the following overtime costs and percentage increases have occurred:

Fiscal Year       Overtime Costs                        Percent Increase over Prior Year

FY 2000           $165,598                                              ---

FY 2001           $243,625                                              47.1%

FY 2002           $271,407                                              11.4%

FY 2003           $966,595                                            256.1% (Ice Storm)

FY 2004           $417,481                                             (56.8%)

FY 2005           $631,687                                              51.3%

During FY 2005, Solid Waste also paid $307,950 to temporary employment agencies to cover routes when assigned employees did not report for work."

Solid Waste Management's Justification of Overtime
"Explanations for overtime costs included the running of additional unassigned routes, work performed on the same day under other pay codes (e.g. route workers clocking out under their route pay code and clocking back in to work in recycling), safety training, equipment training, and other work assignments performed during assigned days off...it was standard practice for Solid Waste supervisors to simply provide the divisions payroll coordinator with a list of employees authorized to work overtime that did not actually specify authorized overtime hours worked. Those figures were written in later by the payroll coordinator herself. This practice indicates a lack of management oversight of overtime.

Section 22-25 of the LFUCG Code of Ordinances relating to Unclassified Civil Service positions specifically states, "Overtime compensation shall only be paid for more than forty (40) hours actually worked within a workweek". The Department of Law has determined that, per this ordinance, employees who have not worked forty actual hours do not qualify for overtime payments."

Management Response Received from Director of Solid Waste
"As mentioned in your report, "The Division of Internal Audit recognizes that incentive programs allowing for authorized undertime exist within the Solid Waste industry." Having been in this industry for close to thirty (30) years, I can remember when this concept was accepted nationwide by municipalities. You mentioned that undertime for LFUCG Solid Waste field personnel averaged from 2.2 to 8.9 hours. This is correct, due to the fact that the first quarter of the year is normally an off-peak season for solid waste collection (garbage, recycling, yard waste, etc.). From March to the end of the year are considered peak solid waste collection times because citizens are doing yard work, spring cleaning, and have more outdoor activities. The route incentive practice encourages employees to be more productive because they can leave work when they have finished their assignment.

The route incentive is in clear violation of Section 22-17 regarding overtime expenditures. Since the late 1960's, the incentive program has been in place in the LFUCG Solid Waste Division. It is my understanding that the practice has been in place for over twenty eight (28) years and has been challenged in the past. Because of the uniqueness of the solid waste route incentive program, most cities that have route incentive programs do pay their employees overtime whey they report to work on their off time."

The foregoing excerpts indicate a revised work plan for the Division of Solid Waste is needed. Local government must be innovative. Equitable compensation plans for employees must be continually evaluated and updated when appropriate. Lexington's solid waste division has state of the art equipment that is highly automated. The cost efficiencies gained from equipment have not necessarily benefited our community, because employment practices that have been in place for 28 years evidently have not been modified. It clearly appears that the Solid Waste Division is not operating at an acceptable level of cost effectiveness.

The audit reveals that the compensation plan for solid waste employees needs to be adjusted. More efficient operations should create a surplus in the Solid Waste Division and a potential decrease in fees charged to property owners for solid waste services.

A full copy of the solid waste internal audit report is also published here.

Your comments and suggestions are always appreciated.




If you would like to contact Ed Lane he can be reached via at EdLane@LFUCG.com ; and by letter at 200 East Main Street, Lexington, KY 40507.

Councilman Ed Lane represents the 12 th District on Lexington Urban County Council. He is the owner of a commercial real estate services firm and publishes a statewide business magazine.

“I want to conservatively spend our tax dollars,
eliminate waste, and bring sound business ideas
to local government.”

To contact Ed Lane's 12th district council offices, e-mail him at edlane@lfucg.com.