City audit raises concerns over potential missing CATS funds

CHARLOTTE — A city audit is raising concerns that the Charlotte Area Transportation System may be owed money from its third party advertisement manager and that it took too long to discover the discrepancy.

“CATS did not implement internal controls to ensure that all amounts due under the advertising concession agreement were accurately reported, billed, and collected,” the audit found.

The city of Charlotte has 314 buses and 42 light rail vehicles, and CATS sells advertisements on them. An audit found Charlotte may not be getting its fair share of revenue.

Councilmember Dimple Ajmera said the findings are worrisome.

“As a certified public accountant, I am concerned,” she said.

In 2016, Charlotte signed a deal with the third-party firm with the promise of $7.8 million in revenue over 5 years and a share of anything excess. According to the audit, the share was set at 60% for the first three years and 63% in years four and five.

The audit claims the firm interpreted the terms differently.

“(The third-party firm) provided CATS a yearly summary report calculating quarterly payments due to the city which showed their methodology was the greater of the guaranteed minimum revenue or the percentage of shared revenue,” the audit stated.

The discrepancy wasn’t discovered until the pandemic, when the firm reportedly asked for relief from payments because of the economic impact of the coronavirus. The request was denied.

The auditors said CATS should attempt to recover the funds that are due. A spokesperson for CATS declined to say how much that is.

“That revenue could be used for other things that we need,” Ajmera said.

The money is supposed to be used to manage operating costs and keep fares affordable.

The audit also found CATS did not have controls to verify all of its advertising revenue was accurately reported nor did CATS establish a system to track the performance of the advertising revenue vendor.

“I am incredibly, incredibly concerned,” Councilman Tariq Bokhari said. “The CATS audit doesn’t look good.”

Bokhari worries this is the tip of the iceberg and questions whether a major overhaul of CATS is needed.

“Is it time for us to seriously contemplate changing the way we approach and structure and operate CATS,” he said.

Third-party advertisement firm media statement:

“To be clear, (the third party firm) is certain that it does not owe any unpaid funds to CATS. Throughout the parties’ relationship, (the third-party firm) and CATS have always agreed on the methodology for calculating payments due under the contract, and (the third-party firm) has always abided by that formula. During that same time, (the third-party firm) received nothing but praise and multiple letters of recommendation from CATS and others for its work and professionalism.

“We have been in discussion with CATS and as part of these discussions we are also assessing the extent to which (the third party firm) may, in fact, be owed certain amounts under the contract due the City’s periodic reduction in service. We remain optimistic that, as (the third-party firm) and CATS continue to work through these issues together, we will find a mutually agreeable solution worthy of our long-time relationship and many successes together.”

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