Audit Report on Cablevision Systems New York City Corporations for Advertising Revenue
Audit Report In Brief
In 1984, Cablevision began selling advertising time for its New York City-based cable outlets in Brooklyn and the Bronx through an exclusive advertising representative and sales agent subsidiary, Rainbow Advertising Sales Corporation (RASCO). RASCO is responsible for the marketing and selling of advertising for Cablevision on more than 30 cable networks.
Section 9.1.01 of Cablevision’s franchise agreement requires that it pay the City five percent of its gross revenues. Additionally, §1.31 states that gross revenue “shall also include all advertising revenue which is received directly or indirectly by the Company, or, with respect to Leased Channels, any other Person from or in connection with the distribution of any Service over the System or the provision of any Service Related Activity in connection with the System.” Cablevision’s franchise agreement does, however, allow it to deduct outside advertising commissions and bad debts from its advertising revenue.
This audit determined whether Cablevision calculated and reported accurately its gross advertising revenue to the City and paid the appropriate franchise fees to the City. For the two-year audit period, January 1, 2001, through December 31, 2002, Cablevision reported gross advertising revenues totaling $25.5 million and paid the City $1.3 million in franchise fees (see Appendix I for details). The City’s Department of Information Technology and Tele-communications (DoITT) is responsible for monitoring Cablevision’s compliance with the terms of its franchise agreement.
Cablevision generally reported its financial data to the City, and paid its corresponding franchise fees in compliance with the terms of the franchise agreement. However, our audit disclosed that Cablevision omitted $297,932 in revenue on its Quarterly Gross Revenue Statements to the City for the audit period. Specifically, Cablevision did not report $167,695 in advertising revenue and $130,237 for the fair market value of trade (barter) revenue. Consequently, Cablevision owes the City $15,214 in additional franchise fees and calculated interest.
We recommend that Cablevision pay the City $15,214 for the additional fees and interest due and report all advertising revenue and trade revenue in accordance with its franchise agreement.