City Controller Urges Better Auditing of Cable TV Firms

The city of Los Angeles may have missed the opportunity to collect several hundred thousand dollars by failing to regularly audit the payment of fees by its cable television franchises, the city controller said Monday.

The city charges six cable companies that operate 13 franchises in Los Angeles 5% of gross revenue. The amount of money received through the fee has increased 25% in four years, to $15.6 million last year.

In the last seven audits from 1987 to 1993, cable companies underpaid city franchise fees by $569,000, including penalties and interest, City Controller Rick Tuttle said.

But no audit has been completed since 1995, and six franchise agreements awarded in 1987 have never been audited.

“We think based on experiences of the past and what other jurisdictions have done, there’s a potential of several hundred thousand dollars being missed,” Tuttle said.

Since January 1996, the Information Technology Agency has started, but not completed, only one audit, involving the Tele-Communications Inc. franchise in the east San Fernando Valley.

Tuttle’s office looked at the oversight and concluded in an audit released Monday: “Lack of adequate monitoring by ITA in the collection of cable franchise fees may have resulted in lost revenues.”

That “is anybody’s guess,” responded Information Technology Agency General Manager John Hwang concerning the amount of underpayment that might have been recovered.

Hwang agreed with the controller’s recommendation, but said his agency lacks sufficient staff to audit all of the cable franchises as frequently as the city would like.

“It has to do, in part, with the lack of resources,” Hwang said.

The agency has one auditor, who is assigned multiple tasks. The agency is also responsible for the city’s computer and telephone service. Routine audits of cable franchise fees have not been a high priority, Tuttle’s office said.

Hwang confirmed that his auditor has been busy with other projects, including last year’s settlement with Century Communications Corp., in which the firm agreed to pay $12 million to 135,000 subscribers.

Tuttle said the agency should either hire more staff or contract out for regular audits of the franchises. He said a contractor hired by Orange County disclosed underpayments of franchise fees to that county of up $110,000 for a three-year period.

The Information Technology Agency asked for money to contract out for auditing three years ago, but the request was rejected by the mayor’s office. The agency has not sought funding since, officials said.

Tuttle’s audit was the second in as many months that is critical of the Information Technology Agency for not doing enough to safeguard the city treasury.

Tuttle released an audit Feb. 23 that accused the agency of paying $800,000 in late fees because it failed to pay the city’s phone bills on time.

The controller’s audit notes that the agency was created by Mayor Richard Riordan in 1995 to better handle telecommunications issues. Cable franchises until that time were handled by a city Telecommunications Department.

A spokeswoman for Riordan said the mayor supports funding in next year’s budget for regular auditing before franchise renewals.