THOMPSON AUDIT FINDS TW TELECOM UNDER-REPORTED OVER $10 MILLION TO CITY
urges DoITT to improve its contract oversight -
New York City Comptroller William C. Thompson, Jr. today announced that TW Telecom owes more than $900,000 in franchise fees and related interest charges after failing to report more than $10 million of income to the City.
In an audit report available at www.comptroller.nyc.gov , Thompson said that the failure of TW Telecom to report more than $10 million in gross revenue resulted in the loss of $914,871 in proceeds to the City, based on the franchise agreement between TW Telecom and the Department of Information Technology and Telecommunications (DoITT).
"My report uncovered some alarming findings that illustrate TW Telecom's lack of compliance with its franchise agreement and a lackadaisical attitude by DoITT in the oversight and enforcement of this contract," Thompson said. "The revenue owed to the City becomes even more magnified during this economic downturn."
TW Telecom is a leading provider of managed network services, including data, Internet access, and local and long-distance telephone services. In 1993, a 15-year franchise agreement was reached between the City and Time Warner A x S for local high-capacity telecommunications services. In July 1998, the company reorganized into Time Warner Telecom LLC, and in July 2008, the company changed its name to TW Telecom.
Under the agreement, TW Telecom is required to pay a franchise fee consisting of the greater of either $200,000 or five percent of its annual gross revenue from telecommunications services. In addition, TW Telecom must submit to the City quarterly gross franchise fee calculation reports no later than 45 days after the last day of March, June, September, and December. The company must also maintain a minimum combined amount of $50 million in insurance for bodily injury and property damage and maintain an unconditional letter of credit and surety bond deposit totaling $1 million. DoITT is responsible for monitoring TW Telecom's compliance with the franchise agreement.
The scope of the audit was January 1, 2006 through December 31, 2007. However, based on a preliminary review, Thompson expanded certain tests to include calendar years 2003-2005.
Among the most serious findings of the Comptroller's audit was that TW Telecom failed to report a total of $10,120,278 in additional gross revenue for the period of January 1, 2003 to December 31, 2007, and did not make its payments on time as defined by the agreement.
Thompson criticized TW Telecom for failing to report $6,777,471 in revenue generated by charging a five percent franchise fee to their customers for the years 2003 through 2007, $1,162,083 in revenue for the third and fourth quarters of 2007, and $2,180,724 in gross revenue for 2006 and 2007. The under-reporting of these funds cost the City $914,871 in related revenue and late fees.
"Withholding revenue information and causing the City to lose out on what it is rightfully owed is a serious offense," Thompson said. "There is no room for non-compliance, especially when it is costing the City hundreds of thousands of dollars."
In addition, Thompson found TW Telecom made late payments for the first and third quarters of 2007, 84 days and 34 days after the due dates, respectively. Therefore, TW Telecom owes the City an additional $11,337 in late charges.
A review of bills received by TW Telecom customers revealed that there may be a conflict with the New York State Public Service Commission guidelines for charging taxes and fees. Thompson's auditors could not determine if all the taxes and surcharges on customers' bill were appropriately mandated.
Thompson's review of DoITT's ability to properly oversee the agreement, monitor the performance of TW Telecom in upholding the conditions of the contract, and ensure the City is receiving its fair share of the proceeds, came up well short of satisfactory.
"While we are in the midst of an economic downturn not seen since the Second World War, and declining revenues continue to wreak havoc on the City's economic outlook, we cannot miss opportunities like this to collect much-needed income," Thompson said. "I strongly urge all parties involved to review my report and move swiftly to ensure the City receives what is rightfully owed."
Thompson noted that TW Telecom had in fact paid a fee of $58,104 in understated income from the franchise fee report for the third and fourth quarters of 2007 before the audit was completed, bringing the total sum owed to the City to $856,767.
In addition, TW Telecom was shown to have complied with a number of its requirements as mandated by the agreement, such as maintaining $50 million in property damage and liability insurance and maintaining an unconditional letter of credit and surety bond totaling $1 million.
###