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Analysis: What the FCC didn't tell us about the USF audit

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As they were leaving the White House in 2001, certain disgruntled Clintonites allegedly removed the W keys from government-owned keyboards in presidential offices in an apparent display of spite for the our current president and his single-letter nickname. I can’t help thinking there might be something similar going on involving a report recently issued by the FCC estimating that telcos had been overpaid by $970 million, or 23%, from the High-Cost Universal Service Fund.

The late-November report from the FCC drew predictably snide or irate comments from people who never bothered to look at the actual document. And even though the FCC is not actually trying to collect $970 million from USF recipients nor accusing them of fraud, the FCC report casts an unfortunate shadow on Independent telcos just as policymakers are considering USF reform.

I put some effort into deciphering the report and have some serious questions about the amount of the estimated overpayment, which appears way too high—by a factor of five or more.

The commission audited a large sample of USF recipients—390 out of 1751--and projected the total estimated overpayment for all fund recipients based on estimated overpayments for 384 of the audited companies. Eighty-five of the companies audited, or 22%, had the full value of the money they received from the USF deemed an erroneous payment—not because the entire amount was deemed to be incorrect but rather, as the FCC explains in the report, because of insufficient documentation. The FCC notes that auditors were following guidelines established by the Office of Management and Budget--and while those may be great guidelines for how to conduct an audit, it creates a distorted picture when a snapshot of mid-term audit progress is used to make broader generalizations.

Added together and projected to the entire base of fund recipients, the 85 companies whose payments were completely rejected in the initial estimate account for 83%--or about $803 million--of the estimated overpayment. The FCC must know that a large part of that amount eventually will be deemed legitimate, and I would argue that it was more than a little audacious to issue a news release using the bloated initial estimates to extrapolate the $970 million overpayment. At a minimum, as Rick Joyce, chair of the communications practice for law firm Venable LLC, commented, “They may want to come up with some different terminology than ‘erroneous payment.’ If we’re talking about accounting errors, they may need to devise a different way of describing the problem.”

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© 2014 Penton Media Inc.

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