USF audit fallout

Our recent The Independent e-newsletter commentary, which questioned the FCC's estimate that $970 million — or 23% — of payments from the high-cost Universal Service Fund were erroneous, certainly resonated with many of our readers. We received an unprecedented number of e-mails, many of which thanked us for taking the time to scrutinize the FCC audit data and calculate our estimate that the FCC's number was too high by a factor of five or more.

One of the e-mails came from one of the audited Independent telcos that was told 100% of the USF money it received was “erroneous.” The author, who asked to remain anonymous, said the company was asked to provide documentation related to the cost of some of its assets. According to generally accepted accounting principles and IRS guidelines, companies normally keep such documentation for seven years, but the FCC requested documentation for some assets from the 1990s and even 1980s. And as we explained in the e-newsletter, the FCC auditors considered all the money a company received to be erroneous if any paperwork was missing.

“The FCC issued documentation guidelines in 2007 that, for all practical purposes, say all paperwork must be kept forever, but we were audited as though those guidelines have always existed,” the e-mail author wrote. “I myself have spent about 200 hours trying to meet the audit requirements, and apparently that was all for naught since 100% of our payments were still classified as ‘erroneous.’ This is particularly misleading since we provided mountains of paperwork. We have done nothing wrong other than not keeping every scrap of paper that has ever entered the premises.”

That company's experience was not isolated, said Tom Walker, vice president of government affairs for the National Telecommunications Cooperative Association. “As we understand it, the FCC is interpreting the Improper Payment and Information Act in a more strict fashion than other agencies,” Walker said. “The auditors won't sign unless they have all of the documentation. If everything is in order, but a company does not have the receipt for a roll of fiber, the auditors are refusing to certify the audit, which puts in question the entire amount.”

Our offer to share the Excel spreadsheet that we created to debunk the FCC's inflated, erroneous payment estimate still stands. E-mail me at joanengebretson@cs.com. Or if you'd like to join in the discussion on this topic, you can share your comments at the original article.