High Cost

Understanding USAC High Cost Program Audits

Understanding High Cost Beneficiary Audits

The primary purposes of USAC's audits are to ensure compliance with Federal Communications Commission (FCC) rules and program requirements and to assist in program compliance.

When selected for an audit, the carrier's designated contact person will be contacted by a member of the USAC Internal Audit Division. In addition, an announcement letter will be sent detailing the purpose and scope of the audit, identifying the personnel who will be performing the audit, making a request for company data, and stating the date upon which the data is due.

USAC's random sample selection includes various types of ETCs (cost companies and average schedule companies, incumbents and competitors, rural and non-rural carriers) from various states. Each audit is designed to examine an ETC's specific eligibility requirements and accuracy of its data submissions as determined by the type of High Cost support received.

How does USAC conduct its audits?

  • Ensures that carrier is eligible to receive High Cost support

    a. Properly designated as an eligible telecommunications carrier (ETC) by state commission or FCC
    b. Timely receipt of self/state certification
    c. Evidence of advertising (e.g., yellow page advertisement, magazine insert, etc.)
    Note: 1.a and 1.b will be obtained from USAC High Cost management.

  • Attests to the accuracy of line count submissions

    a. Obtain a supporting schedule by line type, which was used to compile the line counts reported (e.g., engineering report, billing system report, etc.)
    b. Obtain a detailed subscriber listing (e.g., name, address, phone number, etc.)
    c. Selection of sample bills

  • High Cost Loop (HCL) Support and Local Switching Support (LSS) (cost companies)

    a. Obtain supporting documentation for each line item on the Data Collection Form or LSS form (e.g., trial balance, cost study, etc.)
    b. Written documentation around the related accounting procedures (e.g., fixed assets, expenses, deferred taxes, etc.) such as policies and procedures, flowcharts, and narratives. This helps USAC pinpoint which documents to request.
    c. Select samples and obtain further documentation (e.g., invoices, overhead allocation worksheets, etc.)
    d. Physical inventory of selected fixed assets (via continuing property records or equivalent documentation)
    e. Compare projection to true-up (LSS only)

  • High Cost Loop Support and Local Switching Support (average schedule companies)

    a. Obtain supporting documentation for number of exchanges (e.g., yellow page directory)
    b. Obtain supporting documentation for access minutes (e.g., access minutes report from COE). (LSS only)

  • Interstate Common Line Support

    a. Obtain supporting documentation for Common Line Revenue requirement, Subscriber Line Charge Revenue, transitional carrier Common Line Charge Revenues, Special Access Surcharges, and Line Port Costs in excess of Basic Analog Service (e.g., trial balance, general ledger, etc.)
    b. Compare projection to true-up

  • High Cost Model Support

    a. Only line count testing performed

  • Interstate Access Support

    a. Obtain supporting documentation for Common Line, Marketing, and Transport (CMT) revenue, Unbundled Network Element (UNE) zone rates, and CLLI code-to-zone classification (e.g., state approval letter or equivalent)

 

Reporting Audit Results
At the conclusion of the audit, the USAC Internal Audit Division management will review the audit file to ensure the work papers are properly documented and the conclusions reached are properly supported. For any exceptions noted, a Detail Exception Worksheet (DEW) will be prepared and sent to the ETC for review. It will contain background information, the audit step performed, and the exception noted as well as the basis for which the exception is noted (e.g., FCC rule).

The ETC is given an opportunity to respond to the exception within five business days. If the ETC disagrees with the exception noted, the reason for the disagreement should be explained in detail. If the auditor concurs with the ETC's explanation, the exception will be waived. If the exception remains, the DEW with the ETC's responses incorporated will be forwarded to USAC High Cost management for review. High Cost management will also prepare a response to address the exception and note any corrective action as necessary.

Both the ETC's and USAC's High Cost management responses will be incorporated into the draft report and submitted to the USAC Board of Directors to be deemed final. The USAC Board of Directors may request USAC management to reassess any aspect of the report prior to the report becoming final. Once finalized, both the ETC and the FCC will receive copies of the audit report. The final report may be made available to the public upon request.

 

How can you help?

  • Provide requested documentation in a timely manner
  • Ask questions to ensure that you are providing adequate documentation
  • If the supporting documentation (e.g., trial balance) does not agree to the amounts reported, provide a reconciliation schedule
  • Maintain documentation for all data submitted to USAC (and the National Exchange Carrier Association, Inc. (NECA)) for certain cost data collected by NECA.
  • Follow High Cost Record Retention Recommendations [PDF, 41kb]

 

Timing Difference of the Audit versus the Documents Requested
Most of USAC's High Cost Loop (HCL) audits are selected based on the disbursement received. For example, HCL is designed for carriers to submit 2001 financial data to NECA in 2002 to be paid by USAC in 2003. Therefore, if 2003 HCL disbursements are the basis for the audit, USAC will need to request company documents for 2001. For that reason, there is a minimum two-year lag from the time that the audit is performed versus the period for which financial data will be requested.

LSS and ICLS are designed for carriers to submit projections and later submit true-up (actual) information. Most of the LSS and ICLS audits are selected based on those disbursements that incorporate true-up adjustments. For example, for LSS, 2003 projections are filed in October 2002, true-up information is filed by December 31, 2004, and true-up adjustments are disbursed in April 2005. For ICLS, 2003 projections are filed in 2003, true-up information is filed in 2004, and true-up adjustments are disbursed in 2005 over a six-month period from July through December. For those reasons, there is a minimum two-year lag from the time the audit is performed versus the period for which financial data will be requested.

Similarly, IAS for 3Q2004 is based on the support rate calculation performed in June 2004. The support rate calculation is based on the December 2003 line count information, among other data inputs. The true-up support for 3Q2004 is not paid until January 2005. For this reason, there is a minimum one-year lag from the time the audit is performed versus the period for which financial data will be requested.

Because of the time lags, it is imperative that documentation that supports any data submitted to USAC and/or NECA for the calculation of High Cost support is properly retained for audit purposes.

 

Getting Help with Audits

If you have any questions related to the audit process, please contact USAC's Internal Audit Division via e-mail

 


Last modified on 1/11/2008