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California State Auditor Logo COMMITMENT • INTEGRITY • LEADERSHIP

California Department of Resources Recycling and Recovery
It Has Not Provided the Oversight Necessary to Ensure That the Mattress Recycling Program Fulfills Its Purpose

Report Number: 2018-107

Introduction

Background

Responding to concerns about the large number of mattresses and box springs (mattresses) that are discarded each year by Californians, the Legislature created the mattress recycling program (mattress program) in 2013 by enacting the Used Mattress Recovery and Recycling Act (recycling act). It did so in light of estimates that very few of the two million mattresses that Californians discarded each year were recycled and were instead being illegally dumped or sent to landfills. In addition, the State was responding to estimates that illegal dumping of mattresses cost local governments significant amounts of money annually. According to legislative analyses of the recycling act, the city of Oakland estimated that its annual cost to manage illegally dumped mattresses was about $500,000 and the city of Los Angeles estimated that it recovered between 120 and 150 illegally dumped mattresses daily. Therefore, the State enacted the recycling act to reduce illegal dumping, increase recycling, and reduce public agency costs for the management of discarded mattresses.

California’s Approach to Mattress Recycling

State law codifies California’s overall statewide waste diversion goal. Specifically, state law establishes a policy goal that by 2020, 75 percent of solid waste should be diverted from landfills through a variety of methods. These methods include source reduction—which encompasses efforts to prevent the generation of waste—as well as recycling and composting. To guide the effort to achieve this goal, state law establishes a hierarchy of waste management practices, as Figure 1 illustrates. According to state law, this hierarchy is designed to reduce the amount of solid waste that must be disposed of by transformation and land disposal. As we discuss in more detail below, the California Department of Resources Recycling and Recovery (CalRecycle) oversees the State’s progress toward the goal of 75 percent waste diversion.

Figure 1
California’s Waste Management Hierarchy Prioritizes Source Reduction

This figure represents California’s waste management practices in order of priority. The figure shows the highest priority is source reduction, followed by recycling, and finally, transformation and disposal.

Source: Public Resources Code sections 40051 and 40196, CalRecycle, and the Mattress Council’s 2017 annual report.

In part to meet the State’s goal, the recycling act established an extended producer responsibility (EPR) approach to mattress recycling, effective January 2014. Under an EPR approach, product manufacturers or other industry groups are responsible for operating a program to recycle or safely dispose of products consumers no longer want. This contrasts with the traditional approach to waste management in the United States, wherein local governments bear responsibility for disposing of all discarded products. According to a study from Harvard University’s Kennedy School of Government, the EPR approach has been used as a framework to operate waste management programs since at least 1991. Numerous countries in Europe and many states currently use EPR programs to manage particular types of waste, such as electronics and paint. In fact, California currently uses this approach for recycling paint and carpet. Consistent with the EPR approach, the recycling act provides for the mattress program to be operated by a mattress recycling organization, which must be established by a qualified industry association. The organization must be composed of mattress manufacturers, renovators, and retailers, and must be certified by CalRecycle.

In November 2014, CalRecycle approved the Mattress Recycling Council (Mattress Council) as the organization responsible for operating the State’s mattress program. The International Sleep Products Association—a mattress trade industry association—established the Mattress Council as a nonprofit entity. It is headquartered in Virginia and also operates EPR mattress recycling programs in Connecticut and Rhode Island. To fund California’s mattress program, the recycling act permits the Mattress Council to collect a charge for each new mattress purchased in California. Consumers pay the charge at the point of sale, which the retailers then remit to the Mattress Council. Initially, the Mattress Council imposed an $11 charge per mattress, but it lowered this charge to $10.50 per unit effective January 1, 2018.

Roles of Entities That Accept Used Mattresses

Source: Public Resources Code.

To participate in the mattress program, individuals may discard their mattress through one of three collection channels: permanent collection sites, special collection events, or retailer pickup upon purchase and delivery of a new mattress. As the text box shows, different types of entities accept used mattresses. As of June 2018, the Mattress Council had contracted with 10 recycling sites and 168 other permanent collection sites, mostly consisting of solid waste facilities and also including some municipalities that offer curbside pickup of mattresses, to collect mattresses for recycling in California. CalRecycle’s data from 2017 shows that 12 recycling sites and about 380 solid waste facilities were required to report information related to mattress waste. Individuals receive a $3 incentive per mattress if they drop off mattresses directly with any of the recycling sites that participate in the mattress program. This incentive is capped at a maximum of five mattresses per day per vehicle. In addition, large institutional collectors, such as hotels and educational facilities, may discard their mattresses at no cost at any of the recycling sites.

The recycling act does not assign the Mattress Council sole responsibility for mattress waste management in California, and the Mattress Council’s contractors do not include the entire statewide set of recycling sites, renovators, and solid waste facilities. In fact, the recycling act specifically prohibits the Mattress Council from operating the mattress program in a way that undermines the previously existing industry of mattress recycling, resale, refurbishing, and reuse.

CalRecycle’s Oversight of the Mattress Program

State law requires that CalRecycle oversee the mattress program, along with the statewide EPR programs for paint and carpet. Under the recycling act, CalRecycle obtains reimbursement from the Mattress Council to cover the cost of its oversight activities. As part of its oversight, CalRecycle is responsible for reviewing and approving the Mattress Council’s mattress recycling plan (recycling plan), budgets, and annual reports to ensure that these documents comply with the recycling act. The Mattress Council created its recycling plan following CalRecycle’s approval of the Mattress Council as the State’s mattress recycling organization in November 2014. The recycling plan describes the actions the Mattress Council will take to implement and sustain the mattress program. The Mattress Council’s budgets contain its projected spending and revenues for each upcoming calendar year. Finally, its annual reports contain quantitative data for the previous completed year of operations, as well as audited financial statements. The EPR unit at CalRecycle is responsible for reviewing the annual report and preparing for the director of CalRecycle a recommendation for approval or disapproval.

The recycling act further empowers CalRecycle to ensure that mattress retailers, renovators, recyclers, and manufacturers comply with the act’s requirements, such as registering with the Mattress Council and making the recycling charge visible on receipts and other billing documents. To determine compliance, CalRecycle inspects registered entities. CalRecycle’s EPR compliance unit (compliance unit) performs the inspections and is allowed by the recycling act to impose civil penalties for noncompliance. The compliance unit has the authority to impose penalties up to $500 per day for unintentional violations of the act and up to $5,000 per day for intentional, knowing, or reckless violations. Both CalRecycle and the Mattress Council play a role in ensuring that retailers, renovators, recyclers, and manufacturers are aware of their responsibilities under the recycling act. CalRecycle educates entities about their responsibilities through its compliance program. The Mattress Council performs outreach and education through activities such as direct mail campaigns, presentations at industry events, and news articles in industry publications.

Finally, to measure the State’s progress in managing mattress waste, the recycling act provides that CalRecycle must establish and report on goals for state recycling activity. The act required CalRecycle to establish a baseline recycling amount and goals for recycling by no later than January 2018. Further, CalRecycle must review and, if necessary, update the baseline amount and goals by July 1, 2020, and every four years thereafter. To facilitate the oversight of the program and the State’s overall recycling activities, the recycling act also requires mattress recyclers, solid waste facilities, and renovators to report to CalRecycle the number of used mattresses they collect, recycle, renovate, reuse, and send to landfill in California each year. Beginning in July 2019, the Mattress Council is required to report annually on its efforts to support the goals that CalRecycle has established.

Scope and Methodology

The Joint Legislative Audit Committee (Audit Committee) directed the California State Auditor to review the mattress program. Specifically, the Audit Committee directed us to review CalRecycle’s oversight of the mattress program, evaluate the Mattress Council’s finances, and assess whether the Mattress Council is spending enough to achieve the program’s goals and objectives. Table 1 lists the objectives that the Audit Committee approved and the methods used to address those objectives.

Table 1
Audit Objectives and Methods Used to Address Them
Audit Objective Method
1 Review and evaluate the laws, rules, and regulations significant to the audit objectives. Reviewed relevant laws, regulations, and other background materials applicable to the mattress program and CalRecycle’s oversight.
2 Assess CalRecycle’s oversight of the mattress program, including, to the extent possible, whether the Mattress Council is complying with relevant laws, rules, and regulations significant to its administration of the mattress program, including its funding, plan for collection and recycling, and reporting.
  • Reviewed CalRecycle’s oversight of the Mattress Council by determining whether it conducted an adequate review of the Mattress Council’s recycling plan, annual report, and budgets.
  • Determined the actions CalRecycle took to improve the reporting of key program data.
  • Determined whether CalRecycle had established adequate goals and metrics for measuring statewide mattress recycling.
  • Interviewed CalRecycle staff to determine why CalRecycle did not set goals for convenience, source reduction, and reducing illegal dumping.
3 Review financial information for the mattress program since its inception, including annual budgets, revenues, expenses, and fund balances and, to the extent possible, determine the following:  
a. The mattress program’s major expense categories. Reviewed the Mattress Council’s internal expense reports, budgets, and its 2016 and 2017 annual reports to determine the mattress program’s spending by category for each year.
b. Whether the mattress program’s financial resources are sufficient for the Mattress Council to achieve California’s mattress recycling goals and carry out the recycling plan.
  • Compared estimated revenues in budgets to the Mattress Council’s estimated expenses.
  • Reviewed the process the Mattress Council uses to change and set the recycling charge and assessed its basis and assumptions for reasonability. We found that the process for setting the charge appeared reasonable.
  • Visited two mattress retailers to determine whether they accurately remitted recycling charges to the Mattress Council. We did not find any material difference between the number of mattresses sold by these retailers and the number they reported to the Mattress Council. Therefore, we have no concerns in this area.
c. Whether the mattress program’s fund balance has been unreasonable and, if so, how the Mattress Council plans to address this situation.
  • Interviewed Mattress Council staff to determine its process for setting the mattress program’s funding reserve targets and its plans for the cash it does not consider part of the mattress program’s reserve.
  • Identified guidance related to reserve amounts for similar entities and compared those to the Mattress Council’s reserve goal.
  • Analyzed past mattress sales and general economic activity to determine the likely length of time that the Mattress Council’s reserve funding would allow it to continue operating the mattress program during a recession with no changes to its expenses and also with increases to its expenses.
4 Determine whether MTC and Caltrans have modified their approaches to prevent and address cost overruns on major infrastructure projects since the construction of the Bay Bridge. As part of this effort, identify any steps that MTC and Caltrans have taken to reduce project defects or budget for defect remediation.
  • Compared the amounts the Mattress Council spent to the amounts it had proposed in its budget. We assessed whether the Mattress Council’s spending was sufficient and appropriate for it to meet the intent of the mattress program.
  • Reviewed whether the Mattress Council had established goals for its public education (consumer outreach) or investments in new technologies.
  • Determined that transportation and processing costs are the largest expense category in the mattress program. The Mattress Council’s expenses for processing and transportation per mattress collected in California increased in the first two years of the program. We used the mattress program’s budget and the recycling goals CalRecycle established to determine whether the Mattress Council planned to continue increasing the amount it spends per mattress on transportation and processing in successive years provided that it collects the number of mattresses included in the state goals. We found that it does.
  • Examined whether the Mattress Council was spending enough to ensure that all California residents have convenient access to free permanent drop-off sites by using geographic information system software to assess whether residents of major populated areas of the State lived within a convenient driving distance of a drop-off site.
  • Assessed the reliability of the Mattress Council’s internal financial reports. To gain some assurance these reports were reliable, we compared the total revenues and the total expenses in these reports to the totals listed in the Mattress Council’s 2016 and 2017 audited financial statements and found the totals materially matched.
5 Identify any risk-management plans MTC has developed to properly spend and effectively manage any future funding for infrastructure projects.
  • Reviewed the geographical dispersion of the Mattress Council’s contracts to determine whether the Mattress Council has ensured that California consumers have reasonable access to the mattress program.
  • Examined a selection of 10 of the Mattress Council’s contracts to determine whether the Mattress Council set performance measurements for its contractors and whether the scope of its contracts aligned with program goals. We found no significant issues.
  • Reviewed four disputed, canceled, or terminated contracts and determined whether the Mattress Council resolved each instance in accordance with the terms of the contract. We found no significant issues.
  • Examined the Mattress Council’s accounting manual and internal guidance to determine whether the Mattress Council established controls to prevent overbilling. We determined the Mattress Council’s controls appeared to be designed to prevent overbilling.
  • Determined that—to ensure that it did not undermine existing recycling, resale, reuse, or refurbishing operations—the Mattress Council established the mattress program’s consumer incentive at only $3. The Mattress Council informed us it consulted with a large renovator before setting the incentive and the renovator indicated its business would be affected if the incentive was higher. Further, the Mattress Council offers its incentive at only about 10 locations statewide and caps the maximum payment it will give to any one individual at $15 per day. Therefore, we believe it is unlikely that the consumer incentive established by the Mattress Council has undermined existing recycling, resale, reuse, or refurbishing operations.
6 Determine how long it will take to pay off the debt obligations for the seismic program and what will be the total cost of the program.
  • Compared and contrasted the goals of the Mattress Council’s other mattress recycling programs in Connecticut and Rhode Island with the California mattress program.
  • Identified EPR best practices in professional literature and compared them with the framework established for the mattress program.
  • Evaluated CalRecycle’s enforcement of retailer compliance with the recycling act by reviewing 10 inspection cases. We determined that it generally collected sufficient evidence to determine compliance. However, as we discuss in Chapter 1, it did not ensure compliance in cases in which it found violations of the recycling act.
  • Evaluated five retail inspection cases to review whether CalRecycle had assessed penalties and to determine possible penalty amounts in cases in which CalRecycle had not assessed a penalty.

Source: Analysis of the Audit Committee's audit request number 2018‑107 and information and documentation identified in the table column titled Method.

Assessment of Data Reliability

The U.S. Government Accountability Office, whose standards we are statutorily required to follow, requires us to assess the sufficiency and appropriateness of the computer‑processed information that we use to materially support our findings, conclusions, or recommendations.

In performing this audit, we relied on electronic data obtained from the Mattress Council’s list of permanent drop‑off sites and the location of those sites. We performed accuracy testing by comparing a selection of addresses from the list with facility websites and found no errors. We did not perform completeness testing on the statewide set of permanent drop‑off sites, because the source documents for this information are stored at different locations and not always in the State. However, we worked with the Mattress Council to review the drop‑off sites located in three major metropolitan areas—the San Francisco Bay Area, Los Angeles, and San Diego—and found the data to be complete for the purpose of determining the convenience of the locations in relation to California’s residents in those three key areas of the State.

We also relied on electronic data obtained from CalRecycle’s Sharepoint EPR database (ShEPRd). We used these data to make a selection of inspection cases for review, to determine the total number of inspections CalRecycle completed with a compliance determination through February 21, 2018, and to determine the percent of those inspections that identified noncompliance. We verified the completeness of the data by tracing a selection of inspection files back to the data and found no issues. Therefore, we determined that the data were complete for the purpose of selecting files for review and determining the number of inspections CalRecycle performed with a compliance determination. We verified the accuracy of the data by comparing information in a selection of inspection files to the data and found no significant errors. Consequently, we found the ShEPRd data to be sufficiently reliable for the purposes of reporting the percent of inspections that identified noncompliance.




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