The Denver auditor’s office has found that the city’s Wastewater Management Division has strengthened its oversight of contractor invoices in line with recommendations from a 2017 audit, but that the division still has not ensured that the city does not pay sales tax from which it is exempt.

A follow-up report released on Thursday discovered that Wastewater Management now requires contractors to track labor, equipment and materials, and that an inspector submit daily reports at work sites. Managers then reference that information when paying invoices. The auditor’s office did discover that some daily reports received an inspector’s signature months after the inspection took place, but that the dates still preceded the billing for the project.

Auditors also noted that the division appropriately put limits on overtime and benefits, but that it did not follow four specific suggestions to get the best value for asphalt. These included establishing a maximum price based on historical data, purchasing from the city’s asphalt plant whenever possible, and establishing a unit price for asphalt patching. The division responded in detail to each recommendation, arguing that it needed to be flexible with asphalt pricing given numerous variables, and that it does not get its asphalt from the city’s plant because there are too many mixes that wastewater projects require. The city’s plant does not have the needed adaptability.

The auditor’s office found this reasoning satisfactory, noting that “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.”

Wastewater Management did not fully adopt the auditor’s original recommendation to ensure that payments to contractors avoided reimbursements from sales and use taxes, from which the city is exempt. The advice also extended to taxes for special districts, namely the Regional Transportation District and the Scientific and Cultural Facilities District. 

Auditors found that while the division modified its contract language, it now allows managers to reimburse contractors when it is “in the best interest of the city.” The division explained that it may be cheaper to pay sales tax in some instances than incur a delivery charge.

The auditor’s office countered that contractors should budget for those kinds of expenses in the materials and taxes portion of their agreement with the city.

“Contractors should not be charging taxpayers extra to cover costs already covered in other parts of their contract,” Auditor Timothy O’Brien said. The report noted that a review of invoices found the division to have appropriately excluded sales tax payments in practice.

The division maintains over 1,500 miles of sanitary sewer lines and 800 miles of underground pipes for storm drainage, serving 160,000 customers.