Ad audit uncovers accounting errors

Almost lost among a host of important city meetings this week was the long-awaited audit of the city's advertising contract for Sudbury Transit and community arenas.

The review, which Auditor General Brian Bigger said in March was delayed because of problems getting timely responses from some city staff, is the first to be delivered in 2013 -- and the first since Bigger received a two-year contract extension last month.

Unveiled Tuesday morning, the audit examined 2010, 2011 and 2012, the first three years of the five-year deal. Overall, the auditor said the city received what was promised in the contract, but found several accounting errors and a few issues where procedures and policies could be improved to maximize revenue going to the city.

The report included three action plans, all of which were agreed to by city staff and have been or are in the process of being implemented. Specifically, Bigger called for greater monitoring by staff to ensure all terms of the contract are followed, reform of how the city's share of gross sales revenue is calculated, and separating the arena and transit contracts in hopes of attracting more bidders.

In the audit, Bigger's department uncovered some sloppy bookkeeping and some gaps in contract language. The agreement, which expires Dec. 31, 2014, guarantees the city $25,000 a year from arena advertising, and $110,00-$120,000 from Sudbury Transit ads.

BK Corporate Marketing, the Sudbury Wolves' marketing arm, was the only bidder for the contract, which bundled arena and transit advertising. The city was guaranteed the minimum amount, or 35 per cent of gross sales less expenses, whichever was higher.

A 2009 report to council said BK estimated expenses would be about 18 per cent of gross sales. But the contract didn't put a limit on the amount that could be claimed as sales expenses, and didn't say what constituted a valid expense.

“Direct sales expense was not defined, nor limited in the agreement,” Bigger told members of the audit committee. “And what we saw was that in each of 2010, 2011 and 2012 annual statements, 25 per cent was deducted.”

Had gross sales been significantly higher, the city would have lost revenue, Bigger said, about $9,000 for every $100,000 of gross revenue. In future contracts, he recommended either the sales expenses deduction be eliminated, or that they be explicitly defined and capped.

When his department compared sales figures to actual advertising, Bigger discovered free ads had been given to support local groups, but without written agreements in place.

“There were a number of advertisements on buses that would be described as promotional or complimentary,” he said.

But in his remarks, Ward 2 Coun. Jacques Barbeau said those ads supported good causes in the community, and reflected well on the company.

“BK has supported free advertising for many local groups, including the ... help line for our local police department,” he said. “BK Marketing is a great corporate partner in our community.”

In other findings, Bigger said they found “a significant number of accounting errors (but) the errors we found did not impact the amount of the licence fees paid to the city.

“That was good news from our perspective.”

He also said competition could be increased if the transit and arena deals were separate. Last time, anyone who bid on both were given extra points, and while there were nine enquiries, only BK submitted a bid.

“Part of the reason for this might because the people interested in transit advertising on this contract might not be interested in advertising on arenas.”

See the full audit report to council here: http://agendasonline.greatersudbury.ca/index.cfm?pg=feed&action=file&agenda=report&itemid=3&id=623