Cable Franchise Fee Collection Assailed

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

In the last seven audits done from 1987 to 1993, cable companies underpaid city franchise fees by $569,000, including penalties and interest, City Controller Rick Tuttle found in a study released Monday.

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

“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 city’s Information Technology Agency has started but not completed just one audit, involving the Tele-Communications Inc. franchise in the east San Fernando Valley.

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

Tuttle’s office looked at the way ITA collects fees and concluded, “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 ITA General Manager John Hwang about the amount of underpayment.

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 had high priority, Tuttle’s office concluded.

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 in refunds and reduced rates to 135,000 subscribers in Los Angeles.

Tuttle said ITA 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 to $110,000 for a three-year period.

ITA asked for money to contract out for auditing three years ago but the request was rejected by the Riordan administration. The agency has not sought funding since, officials said.

The audit released Monday by Tuttle is the second one in as many months that is critical of ITA 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 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.

Jessica Copen, a spokeswoman for Riordan, said she could not explain the audit problem, but said the mayor does support funding in next year’s budget for regular auditing before franchise renewals.