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Audit shows Time Warner owes city $1 million

Wednesday, April 23, 2008 by Austin Monitor

A new audit shows that Time Warner Cable failed to accurately track which of its customers lived inside the city limits of Austin, which resulted in a shortfall in the company’s payment of fees to the city as part of its franchise agreement. While the company charged some customers in the ETJ a fee that should have been reserved for customers inside the city limits, it also failed to assess the monthly fee to thousands more customers who were inside the city.


“Our analysis shows that Time Warner did not update their customer database to reflect annexations that occurred since 1996,” Clarke Hammond with the City Auditor’s Office told members of the Council’s Audit and Finance Committee Tuesday.


In addition to its five percent franchise fee for access to the public right-of-way, Time Warner also pays the city a fee of 35 cents per subscriber per month to fund the operation of the public, educational and government channels. Since the total payment is based on the overall number of cable subscribers within the city limits, it is important for the company to accurately track where its subscribers live.


“As the annexations occurred, and we had a lot of them in the late 1990’s and early 2000’s, we can’t see that any activity occurred on getting things coded properly,” said Hammond. “People did not have that fee added onto their bill because they weren’t recognized as being inside the city limits. Then in the ETJ areas, there were customers that were being charged the fees by mistake, and those fees were being remitted. So we gave them a credit for that.”


The audit found that the company inadvertently charged fees to more than 5,000 subscribers, yielding a total of $510,833 to the city. That was countered by the fact that more than 12,000 subscribers were not assessed the fees even though they lived inside the city limits, shorting the city of more than $1.3 million in franchise revenue. The company will be required to make up the net amount of $866,850 to the city plus a penalty of 10 percent interest for a total payment of $1,072,148.


“Time Warner does not dispute the results of the audit. We have already put measures in place to make sure this situation is not repeated,” said Patty Gonzales, Director of Government Affairs at Time Warner Cable. “We are making arrangements to get the payment to the city.”


Hammond applauded the company’s efforts to cooperate with city auditors on the project. “This has been a very good franchise for Austin,” he noted. “Time Warner has paid $68.5 million in franchise fees since 1996. The current year revenue is looking very positive, indicating a record year for this revenue source.” Time Warner’s 15-year franchise agreement with the city runs through 2011.


Council Member Lee Leffingwell praised the auditors’ efforts, but also wondered if closer surveillance could help avoid discrepancies in the future. “It seems to be a pattern emerging here that every time we do an audit of one of these franchises, we discover shortfalls,” he said.


But City Auditor Stephen Morgan told the committee that the possibility of an audit went a long way towards ensuring compliance by franchisees. “We never let anyone think that they would never be audited. I think that the idea that you have the possibility of being audited is a really valuable idea…whether the audit is ever carried out or not.” Morgan also noted that the city benefited from the audit. “Whenever we do one of these, we always look at the city process, and some improvements are made.”


In this case, that improvement will be made in the city’s office of Office of Telecommunications and Regulatory Affairs. The audit showed that while the office had properly notified Time Warner of the city’s annexations, it did not have measures in place to verify that the company was properly coding its customer accounts. Those measures have since been installed, and the office will be able to review the company’s filings on a quarterly basis.


The committee voted unanimously to accept the audit report. “We congratulate the Office of the City Auditor for finding additional money owed to our General Fund,” Council Member Sheryl Cole told In Fact Daily. “We must work on insuring that records are properly recorded after annexation.”

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