Audit Letter Report on the Compliance of JCDecaux North America Inc. with Its Coordinated Street Furniture Franchise Agreement with the New York City Department of Transportation

Introduction

he objective of the audit was to determine whether JCDecaux accurately reported its advertising revenue to the City and remitted timely payments, both monetary and in non-monetary “alternative compensation,” due to the City as stipulated in the agreement. The scope of this audit consisted of Contract Years 13 and 14 which ran from July 1, 2018 to June 30, 2020.

On May 19, 2006, DOT entered into a $1.397 billion 20-year franchise agreement with Cemusa, Inc. to design, construct, install, and maintain coordinated street furniture throughout the City for at least 3,300 bus stop shelters and 330 newsstands. DOT is responsible for overseeing the franchise agreement.

On March 17, 2014, JCDecaux Europe Holding and JCDecaux SA purchased Cemusa, Inc., and all shares in Cemusa Inc. were transferred to JCDecaux North America, Inc. On September 30, 2015, the New York City Franchise and Concession Review Committee voted on and approved the change in control. The Committee also approved various amendments, clarifications, and provisions to update the 2006 Agreement, and on October 1, 2015, an amended agreement was executed (Amended Agreement).

Under the Amended Agreement, the total revenue to be paid to DOT (the “franchise fee”) increased to approximately $1.415 billion over the remaining 11-year term of the agreement. This consists of a minimum cash component of nearly $999 million, and a non-cash component valued at approximately $416 million in the form of advertising to promote the City in JCDecaux’s markets, nationally and abroad. The Amended Agreement increased the alternative compensation by $17.56 million.

In addition to the franchise fee, for each year of the agreement, JCDecaux agreed to provide ─ at no cost to the City or its marketing partner and agent, New York City and Company (NYC & Co.) ─ up to 22.5% of the inventory of all advertising panels citywide to NYC & Co. for advertising purposes and public-service advertising.

Results

The audit found that JCDecaux paid the correct cash component of the franchise fee, in both years. JCDecaux also accurately recorded and reported advertising revenue, with the exception of coin revenue that it deducted from the revenue it reported to the City. Coin revenue is revenue from fees charged to use public toilet facilities. Coin revenues deducted during Contract Years 13 and 14 totaled $6,699 and $3,763, respectively. These amounts were not reported to the City of New York. In addition, the audit found that JCDecaux provided up to 22.5% of its inventory of advertising panels to NYC & Co. as required by the agreement. However, only limited assurance could be obtained by the auditors about the extent and value of the alternative compensation provided as the value of alternative compensation is determined solely by JCDecaux. DOT and NYC & Co. does not have any procedures in place to independently confirm or evaluate the value of advertisements outside of New York City.

The audit letter report made a total of two recommendations, including that:

• JCDecaux should include and report all gross revenues including coin revenue generated from public toilets facilities, as required by the agreement; and
• DOT and NYC & Co. should, during the life of the contract, consider hiring an independent media agency to review the value of alternative compensation.

In its response, JCDecaux agreed with the audit findings and recommendation stating, “JCDecaux has already implemented the recommendation that coin revenue derived from Automatic Public Toilets be included in our gross revenue reports” and that it will “cooperate with any valuation process undertaken in accordance of the Franchise Agreement.”

In its response, DOT agreed with the audit recommendation by stating, “Thank you for your recommendation regarding the hiring of an independent media agency to review the value of alternative compensation. We agree to take this recommendation into consideration in the near future.”