Audit Report on the Department of Environmental Protection’s Billing of Hotels for Water and Sewer Usage

Executive Summary

We conducted this audit to determine whether the Department of Environmental Protection (DEP) is accurately billing hotels for water and sewer usage and whether it is making efforts to collect all outstanding water and sewer usage fees from those properties.

DEP delivers 1 billion gallons of drinking water on average each day to New York City’s 8.5 million residents, 200,000 businesses, and thousands of schools and other institutions.  DEP maintains the City’s water supply system, which includes 19 reservoirs and 3 controlled lakes situated north and west of the City.  This upstate water system provides about 110 million gallons of drinking water each day to approximately one million residents in the counties of Westchester, Putnam, Orange, and Ulster, in addition to the water it provides to the residents, businesses, and institutions of the City of New York.  DEP also protects the City’s environment by treating an average of 1.2 billion gallons of wastewater per day at 14 water pollution control plants.

DEP’s Bureau of Customer Services manages 834,000 water and sewer customer accounts, which include 1,866 accounts related to 1,211 hotels, motels, hostels, college dormitories, and co-living spaces.   This audit focuses on these categories of properties, which are often large consumers of water and sewer services.

DEP bills its water and sewer customers based on either their actual metered water consumption or through an older, annual flat-rate system, called frontage billing.  A metered DEP account can have either one or several meters assigned to it, which measure the water used by either the entire building or by specific areas within it.  Although the vast majority of DEP’s accounts are metered, approximately five percent are instead billed through the annual flat-rate method, in which the water and sewer bill is calculated based on the size of the building and the number of plumbing fixtures it contains (i.e., sinks, toilets, showers, and faucets).  Finally, some accounts, including those established for not-for-profit organizations, public places of worship, non-public schools (pre-k through grade 12), and military veterans’ associations, are exempt from paying for water and sewer usage through exemptions created by New York State Law.

 Audit Findings and Conclusions

Our audit found that DEP properly billed 1,180 (97 percent) of the 1,211 hotels and similar properties located in New York City for their water and sewer usage in accordance with its policies and procedures and the New York City Water Board Water and Wastewater Rate Schedule.  However, we found that the remaining 31 accounts we reviewed (3 percent) were not properly billed.  As a result of our finding, communicated to DEP during the audit, the agency inspected the 31 properties and rebilled 26 of them a total of $2,162,693 for previously-unbilled and underbilled water and sewer usage.  The 26 undercharges were a result of 3 types of errors or omissions: (1) underestimated usage for 23 accounts, mostly hotels; (2) a failure to bill 2 hotels; and (3) an inapplicable exemption allowed for 1 college dormitory.  In addition, DEP credited two hotels for $750,424 after determining that it had previously overestimated their water consumption.

 Audit Recommendations

The audit resulted in five recommendations, specifically, that DEP:

1. Inspect the remaining three hotels where the audit identified questionable bills and rebill them for the appropriate water and sewer usage fees.
2. Consider reducing the lag time—from 999 days to 180 days—before accounts receiving estimated bills are forwarded for review by staff of the Billing Exceptions Unit, removed from the automated billing cycle, and billed based on their actual usage.
3. Consistently enforce the rule that requires plumbers to obtain and, upon completion, return permits for the installation of water meters, including by imposing penalties for violations.
4. Consider requiring owners of properties listed as exempt from water and sewer charges to file for renewal yearly and attest to their continued entitlement to the exemption in order to better ensure that the properties still qualify for the exemption.
5. Continue to track outstanding charges for water and sewer usage.

 Agency Response

In its response, DEP stated, “We have reviewed the Report and in large part agree with the findings and recommendations.”