Audit Report on the Compliance of Transdev North America, Inc. With Its Franchise Agreement

EXECUTIVE SUMMARY

This audit examined whether Transdev North America, Inc. (Transdev), properly and accurately reported gross revenue on its monthly revenue reports, correctly calculated and paid its franchise fees to the City in a timely manner, and if it complied with certain major non-revenue terms of the Franchise Agreement.  On June 2, 2011, the City of New York, through its Department of Transportation (DOT), entered into a ten-year non-exclusive franchise agreement with Veolia Transportation Services, Inc. (now known as Transdev), to operate and maintain unsubsidized bus lines providing common carrier express bus service to passengers along designated routes between the Borough of Manhattan and LaGuardia Airport (LGA) and John F. Kennedy International Airport (JFK) in the Borough of Queens and between those airports.  The Franchise Agreement allows Transdev to subcontract the day to day operations of the bus service to Golden Touch Transportation of NY, Inc. (Golden Touch), doing business as NYC Airporter, a subsidiary of Transdev.

For our scope period of Calendar Years 2013 and 2014, Transdev was required to pay the City 3% of its gross revenue derived from fares and any other source related to the operation of the bus service and 7% percent of the gross revenues derived from advertising.  For Calendar Year 2013, Transdev reported $15,614,467 in gross revenue and remitted $474,318 in fees to DOT.  For Calendar Year 2014, Transdev reported $16,489,755 and remitted $501,833 in fees to DOT.

Audit Findings and Conclusions

Our audit found significant deficiencies in Transdev’s financial records resulting in estimated unreported revenue of $2.6 million from January 2013 through December 2014.  Specifically, we found that the total quantity of tickets reported as sold on the monthly revenue reports did not correspond to the amount of revenue reported to DOT, resulting in a potential underreporting of revenue by Transdev of up to $1.56 million.  In addition, while Transdev’s records indicate that $4.6 million in Internet tickets were sold, it only reported $3.6 million to DOT resulting in an additional $1 million in unreported revenue.  Finally, Transdev did not obtain documentation from Vector Media to support the advertising revenue reported.  Therefore, we could not determine whether the advertising revenue reported to DOT was complete and accurate.  Our analysis of advertising revenue identified $50,000 in unreported revenue for 2013 and 2014.  Based on the $2.6 million in potentially unreported revenue identified, we calculated that Transdev owes DOT up to $96,056 in franchise fees.

In addition, we found that Transdev failed to comply with several of the non-revenue terms of the Franchise Agreement.  Specifically, Transdev changed ticket rates without authorization from DOT, did not submit monthly revenue reports with the details required, lacked a complaint log, used at least two unauthorized buses that did not comply with ADA standards, did not equip buses with automated passenger counting equipment, did not provide to DOT monthly maintenance reports showing the status of preventative maintenance for the fleet and a report of road calls/breakdowns for the previous month, and did not submit quarterly reports of its performance.

We further found that DOT closely monitored timely payment of monthly franchise fees, charged interest for late payments and ensured that Transdev provided annual audited financial statements and maintained the required insurance, security deposit and letter of credit.  However, at the same time, we found that DOT did not sufficiently oversee the Franchise Agreement with Transdev to ensure that Transdev fully complied with all terms and conditions as noted above.

Audit Recommendations

This report makes a total of nine recommendations, six to Transdev and three to DOT, including the following:

Transdev should:

• Follow consistent and proper accounting procedures for the recording and recognition of revenue;
• Maintain detailed documentation supporting all sources of revenue;
• Ensure the POS system has the capability to accurately record and track all ticket and voucher sales;
• Remit additional franchise fees owed to DOT of up to $96,056 ($61,279 in underreported ticket revenue, $30,157 in unreported Internet ticket revenue, and $4,620 unreported advertising revenue); and
• Adhere to and implement each of the contractual requirements cited in this report, including but not limited to immediately utilizing ADA-compliant vehicles.

DOT should:

• Conduct a full post-implementation review of Transdev’s compliance with the report’s recommendations and ensure that all issues cited have been rectified; and
• Recover all payments due from Transdev to the City as identified by this audit and any additional underpayments identified by DOT’s compliance review.

Transdev Response

In its response to the draft report, Transdev stated that it categorically disagrees with the audit findings.  Specifically, Transdev disagrees with the finding that it underreported ticket revenue, that it underreported internet ticket sales, that it used unauthorized non-ADA compliant buses, and that it lacked automated passenger counting equipment.  Transdev did not specifically address the recommendations.  However, Transdev agreed to review advertising revenue records and remit any amounts it determines is due to DOT.  In addition, Transdev agreed to adhere to and implement each of the following contractual requirements cited in this report: obtain approval from DOT for future changes in fares, ensure DOT receives all information required regarding monthly revenue reports, implement and maintain a comprehensive complaint log, and ensure all reporting requirements are being met in connection with the required submission of quarterly performance reports.

DOT Response

DOT did not agree with the findings, although it did not address all of them in its response, and it did not specifically address the report’s recommendations.  Among the findings DOT did address was the finding that Transdev failed to submit complete documentation to DOT as required by its Franchise Agreement.  However, DOT did not address several aspects of its inadequate oversight, including the lack of documentation supporting the maintenance of Transdev’s buses.  DOT stated that the report finding should have been that its oversight of the Transdev Franchise Agreement needs improvement. It maintained that its oversight has not been inadequate.

The full text of both Transdev’s and DOT’s responses are included as addenda to the report.