Follow-Up of DWM and DOF Water Service Inventory and Revenue Audit

The City of Chicago Office of Inspector General (OIG) has completed a follow-up to its June 2015 audit of the City’s Water Service Account Inventory and Revenue. OIG concludes that the Departments of Water Management (DWM) and Finance (DOF) have begun implementation of the corrective actions related to the original audit findings.

The purpose of the 2015 audit was to determine whether the City recorded meter read data in its water billing system in a timely manner, maintained a complete and accurate inventory of all locations receiving water service, and billed the legally required rate for temporary water usage from fire hydrants. Our audit found that,

  • DWM uploaded 100% of meter-read data to its billing system in a timely manner;
  • beginning in June 2008, the City did not charge a permit or use fee for water used during private construction activities, resulting in estimated lost revenue of $3.9 million;
  • DWM provided non-metered service to nonresidential buildings and residential buildings with more than two units in violation of Municipal Code of Chicago (MCC) § 11-12-210;
  • the City provided $330,981 of water service to some properties without collecting payment from the property owners;
  • DWM had a complete inventory of water service accounts, but gaps in the account verification process could allow future new customers to receive water without being billed; and
  • DWM charged only one-third of the daily rate required by the MCC for temporary use of water from hydrants, issued fee waivers without express MCC authorization, and failed to track hydrant permit revenue.

Based upon the results of our audit, we recommended that the City,

  • consider the feasibility of requiring meter installation immediately upon receipt of new water services;
  • develop procedures to ensure all revenues collected on its behalf are completely and accurately recorded in its financial records;
  • determine what, if any, action it should take to recoup the permit fee payments the City received but that were ultimately misallocated because of coding errors;
  • develop and document a cost-effective strategy to enforce MCC § 11-12-210 by identifying the complete population of noncompliant, non-metered water service accounts and transitioning the accounts to metered service;
  • continue its efforts to collect the $330,981 that should have been billed on 26 accounts;
  • develop a method to detect or prevent the inappropriate classification of accounts as inactive;
  • work with the vendor that administers the City’s billing system to limit the number of users who can mark accounts as permanently removed;
  • consider whether it would be cost-effective to institute a process for periodically reviewing accounts marked as permanently removed to verify that staff appropriately classified those accounts;
  • design and implement a method to ensure that the City’s account verification process identifies all new water service installations;
  • correct the rates charged for temporary water usage to match the rates prescribed in MCC § 11-12-290;
  • ensure its fee waiver policy complies with the MCC; and
  • work with DOF to assess the cost-effectiveness of implementing practices that would allow it to track hydrant permit revenue.

In December 2015, OIG inquired with DWM and DOF regarding the status of the corrective actions the Departments committed to in response to OIG’s audit and any other actions they may have taken.

Based on the Departments’ follow-up responses, OIG concludes that DWM and DOF have begun implementation of their corrective actions. Once fully implemented, OIG believes the corrective actions reported by the Departments may reasonably be expected to resolve the core findings noted in the original audit.