Audit Report on the Compliance of Viacom Outdoor with Its City Franchise Agreement

AUDIT REPORT IN BRIEF

This audit determined whether Viacom accurately reported all gross advertising revenue in accordance with its City franchise agreement, paid the appropriate fees due the City timely, and complied with certain major non-revenue terms of the agreement.

Viacom generally adhered to certain major non-revenue terms of its contract. Specifically, Viacom maintained the minimum number of bus-shelters stipulated in the contract, remitted the required security deposit to the City, provided the appropriate amount of public service announcements free-of-charge, maintained proper insurance coverage, and generally ensured that shelters were repaired within the times specified in the contract. In addition, all fees paid by Viacom were remitted within 30 days after the expiration of each quarter, as required by the contract.

However, Viacom did not ensure that all bus-stop shelter advertising contracts were sequentially numbered to ensure proper tracking and accountability. Therefore, we were unable to determine whether all of Viacom’s bus-stop shelter advertising contracts were accounted for in its books and records; all appropriate revenue was reported; and all fees were paid to the City. Nevertheless, based on the available records, we determined that that Viacom underreported gross revenue and took questionable deductions. Consequently, Viacom underreported gross revenues and owes the City between $418,902 and $1,195,789 in additional franchise fees and interest.

To address these issues, we recommend that Viacom:

• Pay the City $418,902 in additional franchise fees and interest.
• Ensure that all revenue from bus-stop shelter advertisements is reported to the City.
• Ensure that barter revenue and the fair market value of free advertising are included in the gross revenue reported to the City.
• Maintain separate books and records for bus-stop shelter advertising, in accordance with its contract, and
• Ensure that contracts are pre-numbered and issued sequentially, without duplication.

Additionally, we recommend that DOT:

• Ensure that Viacom pays the City $418,902 in additional fees and complies with the other recommendations in this report, and
• Determine the validity of the $2,490,602 in deductions against gross revenue taken by Viacom in calendar years 2001 and 2002 and pursue collection of $776,887 in any additional fees and interest due.