High Cost

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High Cost Low Income ProgramBeneficiary
AuditsMarch 2009
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Agenda

• Summary of Audit Procedures
• What to expect on a site visit
• How to avoid common audit findings
• Record Retention Recommendations

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High Cost

• Summary of Fieldwork Procedures

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USAC IAD High Cost Audits
Summary of High Cost Fieldwork

• General Procedures
• Advertising
• Internal Controls
• Line Counts
• Obtain summary schedule by line type, which was
  used to compile line counts reported (e.g.,
  billing system report)
• Obtain detailed subscriber listing by customer
  name, telephone number, address, etc.
• Select sample for bills testing

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USAC IAD High Cost Audits
Summary of High Cost Fieldwork (cont.)

• High Cost Loop Support (HCL)
• Cost Companies
• Obtain documentation to support each amount
  reported on the Data Collection (HCL) Form (e.g.,
  trial balance, cost study report)
• Select sample and obtain further supporting
  documentation (e.g. invoices)
• Perform inventory of fixed assets (via continuing
  property records or equivalent)
• Average Schedule Companies
• Obtain documentation to support number of
  exchanges (e.g., yellow page directory, state
  approved document showing exchanges served)

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USAC IAD High Cost Audits
Summary of High Cost Fieldwork (cont.)

• Local Switching Support (LSS)
• Cost Companies
• Obtain documentation to support each amount
  reported on the LSS Form (e.g., trial balance,
  cost study report)
• Select sample and obtain further supporting
  documentation (e.g., invoices)
• Perform inventory of fixed assets (via continuing
  property records or equivalent)
• Compare projected amounts to true-up
• Over-projection is not a rule violation
• Average Schedule Companies
• Obtain documentation to support number of
  exchanges and access minutes (e.g. access minutes
  report)

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USAC IAD High Cost Audits
Summary of High Cost Fieldwork (cont.)

• Interstate Common Line Support (ICLS)
• Obtain Form 507, 508 and 509 (or equivalent data)
• Obtain documentation to support each amount
  reported on the ICLS forms (e.g., compare trial
  balance to cost study, cost study to NECA
  allocator, bills)
• Compare projected amounts to true-up
• Over-projection is not a rule violation
• Line Count Testing (slide 2)
• Testing for proper classification of Res/SLB
  vs. MLB
• High Cost Model Support (HCM)
• General Procedures (slide 2)

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USAC IAD High Cost Audits
Summary of High Cost Fieldwork (cont.)

• Interstate Access Support (IAS)
• Obtain documentation to support CMT Revenue
  (e.g., federal tariff filing and related
  workbook)
• Obtain documentation to support UNE Zone rates
  (e.g., state approval letter or equivalent)
• Obtain documentation to support CLLI code-to-zone
  classification (e.g., state approval letter or
  equivalent)
• Line Count Testing (slide 2)
• Testing for proper classification of Res/SLB vs.
  MLB
• Testing for proper UNE Zone

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Low Income

• Summary of Fieldwork Procedures

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USAC IAD Low Income Audits
Summary of Low Income Fieldwork

• Internal Controls
• Obtain an understanding of the Form 497 reporting
  process
• Obtain evidence of advertising to verify the
  following
• Availability of low-income discounts publicized
• Availability of services publicized
• Method used is reasonably designed to reach those
  likely to qualify for service

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USAC IAD Low Income Audits
Summary of Low Income Fieldwork (cont.)

• Verify the accuracy and completeness of the
  amounts reported on the Form 497
• Obtain documentation to support each amount
  reported (e.g., billing system report, tariff)
• Select sample and obtain further supporting
  documentation (e.g., certifications, bills)

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USAC IAD Low Income Audits
Summary of Low Income Fieldwork (cont.)

• Number of Subscribers
• Provide billing system report (or equivalent) to
  substantiate what was claimed
• Lifeline Rates
• Tier 1 Subscriber Line Charge
• Tier 2 1.75
• Tier 3 Provide documentation of the state or
  company discounts provided
• Tier 4 Provide documentation to substantiate
  how amount was calculated

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USAC IAD Low Income Audits
Summary of Low Income Fieldwork (cont.)

• Lifeline Tier 4 Example
• Basic Local Rate 20.00
• Lifeline Tier 1 6.50
• Lifeline Tier 2 1.75
• State support 3.50
• Lifeline Tier 3 1.75
• Subtotal 13.50
• Lifeline Tier 4 5.50
• 20.00 19.00 (6.50 1.75 3.50 1.75
  5.50) 1.00

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USAC IAD Low Income Audits
Summary of Low Income Fieldwork (cont.)

• Link Up Rates
• Provide tariff to substantiate connection
  charges claimed
• Toll Limitation Service (TLS)
• Provide documentation to substantiate
  incremental cost
• Amount claimed should not be amount charged
  for providing service

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USAC IAD Low Income Audits
Summary of Low Income Fieldwork (cont.)

• Subscriber Bills Provide sample of bills
  requested
• Test to ensure that amounts claimed are passed on
• Test to ensure certain fees are not assessed
  (e.g., Local Number Portability (LNP), TLS)
• Test to ensure certain fees are assessed properly
  (e.g., federal USF)
• Tribal subscriber, ensure bill did not fall below
  1 for basic service
• Certification Provide sample of certifications
  requested
• Test to ensure that subscribers were eligible to
  receive discounts

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USAC IAD Low Income Audits
Summary of Low Income Fieldwork (cont.)

• Verification Provide documentation to support
  that the carrier followed verification rules
• Rules vary depending if in federal default state
  or state mandated state
• Other Tests
• Ensure subscribers are located in areas where
  designated
• Ensure tribal subscribers reside on tribal lands
• If partial credits/discounts are provided,
  amounts claimed should be on Line 9
• Ensure ILEC and CETC are not claiming support for
  same subscribers
• Pursuant to the Universal Service Order, 380,
  only one Lifeline connection per household is
  permitted under the FCCs rules.

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• Record Retention Recommendations

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FCC 07-150 Report Order
FCC Record Retention Guidelines

• FCC 07-150 adopted August 29, 2007
• Record retention guidelines for High Cost
• Requirements apply to all agents of the
  recipient including NECA, cost consultants, or
  other contractors working on behalf of the
  beneficiary
• Must make records available to FCC OIG, USAC, or
  auditors engaged by FCC OIG or USAC
• More info at
• http//www.usac.org/hc/about/understanding-audits
  .aspx

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FCC 07-150 Report Order
FCC Record Retention Guidelines (cont.)

• Retain all records relative to a disbursement
  for 5 years from date of disbursement
  (i.e., up to 7 years from record creation)
• Data supporting
• Line counts
• Customer records
• Fixed asset property accounting records
• Maintenance contracts for the upgrade of
  equipment
• Any other relevant documentation
• Rule does not supplant the Part 32 rules on CPRs
• - Example 47 32.2000(e)(2) The basic
  property records must be auditableand
  maintained throughout the life of the property

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Records Retention Recommendations High Cost
General Records Retention Recommendations

• All Eligible Telecommunications Carriers (ETCs)
• Advertising
• Line Counts
• Average Schedule Incumbent Carriers
• Network maps or other documentation
  substantiating the exchanges
• Documentation used to compile access minutes
• Cost Company Incumbent Carriers

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Records Retention Recommendations High Cost
High Cost Loop, Local Switching Support, Safety
Net Additive Support Safety Valve Support

• Line Count Data (system generated reports
  agreeing to number of lines filed)
• Cost Studies Cost Study adjustments
• Financial Statements
• Trial Balance
• Detailed General Ledger Reports
• Federal Income tax returns
• Deferred Tax Accrual Schedules other tax
  expenses reported
• Accumulated Depreciation Schedules
• Current Year Depreciation Schedules
• Support for Benefits and Rents
• Documentation supporting expenses reported
• Invoices, timesheets, lease agreements, etc.

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Records Retention Recommendations High Cost
High Cost Loop, Local Switching Support, Safety
Net Additive Support Safety Valve Support
(cont.)

• Continuing Property Records agreeing to assets
  reported on HCL LSS forms
• Supporting documentation for the assets
• Invoices, contracts, lease agreements,
  timesheets and work orders
• Supporting schedules of the categorization of
  assets (category 3, 4.13)
• Supporting documentation for Cable and Wire
  Facilities
• Categorization summary schedule
• Map of cable and wires

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Records Retention Recommendations High Cost
Interstate Common Line Support

• Carrier Access Billings (CABs) records that agree
  to Common Line revenue
• Supporting documentation/bills that support
• Subscriber Line Charges
• Special Access Surcharge Revenue
• Line Port Costs in Excess of Basic Analog
  Service
• Support for any uncollectible balances reported
• Reconciliations between Part 36 Cost Study and
  Revenue Requirement reported
• Line Counts (system generated reports agreeing to
  number of lines filed by customer class)

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Records Retention Recommendations High Cost
High Cost Model Support

• Line Counts (system generated reports agreeing
  to number of lines filed)
• Subscriber listing including
• ? Name ? Wire Center
• ? Physical Address ? Start Date
• ? Telephone Number ? Disconnect Date

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Records Retention Recommendations High Cost
Interstate Access Support

• Documentation to support data reported on Forms
  1-4
• Common Line Marketing Transitional (CMT)
  revenue calculation
• Unbundled Network Element (UNE) Zone maps and
  rates
• CLLI code-to-zone classification
• Line Counts (system generated reports agreeing
  to number of lines by customer class filed)
• Subscriber listing including
• ? Name ? UNE Zone or Wire Center
• ? Physical Address ? Start Date
• ? Telephone Number ? Disconnect Date

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Records Retention Recommendations Low Income

• Carriers in all states must maintain for three
  years records that document compliance with FCC
  and state requirements, including
• Self-certifications that verify continued
  eligibility
• Proof that the company has passed appropriate
  discounts to its Lifeline customers
• Billing records for Lifeline customers
• Proof of advertising
• See 47 C.F.R 54.417(a)
• Carriers in Federal default states must
• Retain a consumers self-certification of
  eligibility as long as the consumer receives
  Lifeline, plus three years
• See 47 C.F.R 54.417(a) Report and Order, FCC
  07-150 (released August 29, 2007) at 25.

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Records Retention Recommendations Low Income

• Non-ETC resellers must
• Retain documentation to prove they are providing
  Lifeline service only to eligible low-income
  consumers
• See 47 C.F.R 54.417(b)

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How Can You Help?
Audit Tips

• Provide documentation in a timely manner
• Ask questions to ensure you are providing
  adequate documentation
• Keep accurate records of all data submitted and
  properly label such records
• If schedules or summary documentation do not
  agree to amounts reported, provide
  reconciliations to support information provided
• Get your NECA regional representative and cost
  consultant involved
• DOCUMENT everything!

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Thank You.
Questions?
Additional Questions Email auditinquiry_at_usac.o
rg
Teleshia Delmar Senior Manager USAC Internal
Audit Division