Final Letter Report on the New York City Department Of Environmental Protection’s Billing Of City-Owned Properties For Water And Sewer Usage

Executive Summary

The objective of this audit to determine whether the New York City Department of Environmental Protection (DEP) is properly billing and collecting outstanding water and sewer usage fees from City-owned properties.

DEP delivers one billion gallons of drinking water on average each day to New York City’s 8.4 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 three controlled lakes situated north and west of the City. Additionally, 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. DEP also protects the City’s environment by treating an average of 1.3 billion gallons of wastewater per day at 14 water pollution control plants.

DEP is also responsible for reading water meters and charging property owners City fees related to water and sewer usage that are established by the New York City Water Board, an entity created by State law independent of DEP. The revenue DEP collects through water and sewer payments funds the City’s water and sewer infrastructure.

City agencies occupy and use thousands of City-owned properties to carry out their responsibilities, and the City pays an annual fee for its own water and sewer usage, as described below. At the behest of the City, in March 2007, Amawalk Consulting Group LLC (Amawalk) prepared a report of City agencies’ water and sewer usage, in which it quantified the volume of water they consumed.  Based on the usage rate reflected in that report, the New York City Water Board, in consultation with Amawalk, established the water and sewer charge for the City for that year. In each succeeding year, DEP has relied on the Amawalk report’s “usage rate” as the City’s amount of consumption, and multiplied that by a separate “charge rate” established by the Water Board to determine the amount due from the City.

DEP’s Bureau of Customer Services manages 835,000 water and sewer customer accounts, which include 3,428 accounts related to metered City-owned properties. The billing and collection of funds related to these City accounts is the subject of this audit. DEP sends one bill annually to the City’s Office of Management and Budget (OMB) for all of the water and sewer charges related to City-owned properties.  For Fiscal Year 2019, DEP billed OMB $113,926,964 for the City’s water and sewer usage.

Audit Findings and Conclusions

DEP generally included the eligible City-owned properties located in the City in its annual charge to the City for water and sewer usage in accordance with DEP’s policies and procedures, which incorporate the New York City Water Board’s Water and Wastewater Rate Schedule. However, the audit found that DEP also included in its list of 3,428 metered City-owned accounts a number of properties that were not owned by the City in contravention of guidance from the New York City Water Board and without any established DEP procedures and authority. Specifically, we found that in its list of 3,428 metered City-owned accounts, DEP included 38 properties that the City had leased from private owners, and thus charged the City for these accounts.

Moreover, our review of DEP’s billings for all City-owned and leased properties listed on the City’s Department of City Planning’s website found 517 privately-owned properties leased to the City that were not part of the annual City rate but were instead billed to their private owners. DEP officials informed us that some of these properties should have been part of the annual City rate.

The audit additionally found that 216 out of the 3,428 metered City-owned accounts involved properties classified as residential buildings in classes A, B, C, or D, which apply to one-family residences, two-family residences, three- to six-family residences, and elevator apartments, respectively. Through further review, we found entries in DEP’s account records indicating changes of ownership from the City to private owners at 18 of those 216 properties, raising the issue of whether DEP had continued to bill the City, potentially incorrectly, for water and sewer usage at properties that appeared to have changed to private ownership.

In addition to the above-mentioned audit procedures and findings, we selected a random sample of 780 of the 3,390 City-owned accounts to ensure that they were eligible for inclusion in the City rate for water and sewage use.  From that sample we identified 19 questionable accounts that appeared to have had changes of ownership that would have rendered them ineligible for inclusion in DEP’s annual charge to the City for water and sewer usage.

After we informed DEP, the agency reviewed the 19 accounts we questioned and provided us with information that enabled us to verify the following: 16 of the 19 accounts were either properly billed or were inactive. However, as to the remaining 3 accounts, DEP’s information reflected that it had erroneously billed the City for 2 properties and that it was attempting to collect back-charges from the private owners and that DEP planned to inspect and follow-up as appropriate at the remaining property.

Specifically, DEP informed us that 8 of the 19 accounts involved City-owned properties that DEP properly included in the City rate. We verified that information by checking the relevant records through DEP’s BCIS system and ACRIS. In addition, DEP officials explained and provided records showing that it was already billing 6 of the 19 accounts to their private owners under different accounts and had not charged the City for their water and sewer usage following their changes to private ownership. DEP further informed us that 2 of the 19 accounts were inactive.

With respect to the 3 remaining accounts, DEP informed us that an inspection of one property was pending, after which DEP would determine the propriety of the billing. DEP agreed that it had improperly billed the City for water and sewer charges at two properties. In those two cases, as a result of our inquiry and its review, DEP had billed the private owners for up to four years of back payments totaling of $153,633.

Finally, the audit found that the City’s current rate for water and sewer usage is based on a formula that relies on 16-year-old data and has not been updated to reflect changes in City agencies’ headcounts, clients served, and operations. Specifically, in its 2007 report, Amawalk used data reflecting the numbers of agency employees, persons served, facilities used, and other relevant information from the 2005 Mayor’s Management Report. The company also obtained the numbers of City agency personnel working in leased spaces, by location, from OMB and the Department of Citywide Administration Services (DCAS) as of approximately 2007.

Audit Recommendations

The audit resulted in four recommendations. DEP should:

1. Follow the direction of the New York City Water Board’s Water and Wastewater Rate Schedule and properly charge the property owners for water and sewer usage. DEP should request input from the Water Board and written authorization for any digression from the rules and the Water Board’s published rate schedule.

2. Establish, subject to Water Board approval, written policies and procedures that set forth under what circumstances, if any, charges for water and sewer usage for privately-owned properties leased by the City should be sent directly to the City. DEP should clearly detail in the procedures how this information should be determined and recorded in its billing system. The procedures should also include how charges will revert to the private property owners in the event the lease is no longer in effect.

3. Ensure that a property’s transfer of ownership is reflected accurately and timely in DEP’s accounts and monitor this process to ensure that the proper owner is charged appropriately for water and sewer usage.

4. Update its population data when calculating the City charge for water and sewer usage. In this regard, the current number of City employees, those working in City-owned properties, and those working in City-leased properties should be used in determining the cost of water and sewer usage for City properties.

Agency Response

In its response, DEP did not directly address two of our four recommendations and generally agreed with the remaining two recommendations, stating that the audit “identified several areas in which DEP can make improvements in its processes” and that DEP is “pleased with the positive results of [the] audit and will take care to ensure the continued progress with reducing estimated billing for water and sewer charges and billing properties accurately.”