DENVER – Denver’s Wastewater Management Division is doing more to ensure taxpayers get what they paid for on the division’s construction projects, according to a follow-up report out today from Denver Auditor Timothy M. O’Brien, CPA.
“I am pleased to see Wastewater has added appropriate checks into its contracting process to ensure we get the best value possible,” Auditor O’Brien said. “I would like to see all agencies keeping an equally close eye on invoices for materials and labor as construction continues throughout the city.”
The Auditor’s Office contracted with audit firm CliftonLarsonAllen LLP to complete an examination of Wastewater’s contractor payment and hiring processes in July 2017.
Auditors made recommendations to ensure the city was paying a fair market price for construction materials, that the city is not paying sales tax for which it should be exempt, and that the city is able to confirm labor, equipment, and materials included on invoices from third parties.
One recommendation from the examination called for Wastewater to follow some recommended steps to ensure the city receives a fair market value for supplies used on projects. Specifically, the examination found the city had not received the best value for a purchase of asphalt.
Although Wastewater did not follow the specific recommended steps to ensure best value, we found the division did make changes to contract language to strengthen its process and ensure best value is received for asphalt and other construction materials.
New language in the contracts outlines the process for confirming the price quoted by a contractor is competitive and consistent with current market pricing and historical costs.
After the examination, Wastewater also made changes to require contractors to track labor and materials at work sites by recording daily inspection reports. The project manager with Wastewater can compare these daily inspections to the invoices from the contractor to confirm proper payments.
During our follow-up work, we found a need for these project manager reviews to be completed in a timely manner; however, we found the reviews were still completed before the contractor got paid.
We also found one recommendation from the examination was not implemented. The recommendation calls for Wastewater to adjust contract language to ensure the city is not paying sales and use tax and certain state, RTD, and cultural facilities taxes for which it should be exempt.
Wastewater did change the contracts; however, the division added language that actually makes it easier for the city to end up paying sales tax. The language allows the project manager from Wastewater to waive tax exemption requirements and reimburse the contractor when “in the best interest of the city.”
Wastewater says some stores only allow sales tax exemptions if an order is set up for store delivery, which could incur a delivery fee that is higher than paying the taxes. However, we found the city already allows for a 16%-18% markup for materials and applicable taxes, which should adequately cover contractors’ expenses.
“The city is exempt from paying sales tax,” Auditor O’Brien said. “Contractors should not be charging taxpayers extra to cover costs already covered in other parts of their contract.”
Although this recommendation was not implemented, we did review invoices and found sales tax was appropriately excluded anyway.