On February 1, 2012, the Universal Service Administrative Company (“USAC”) submitted the federal Universal Service Support Mechanisms fund size and administrative cost projections for the second quarter of calendar year 2012 (2Q2012), in accordance with Federal Communications Commission (“FCC”) rules. The 2Q2012 report details steps taken by USAC during the past two years to beef up its audit capabilities, budget and resources in response to FCC directives. On its face, the 2Q2012 report indicates that the industry – USF recipients and contributors alike – can expect an active and aggressive year of USAC enforcement ahead.

Full report is available for download here: http://fjallfoss.fcc.gov/ecfs/document/view?id=7021857575

Historically, USAC’s quarterly reports have focused primarily on identifying the projected contribution levels necessary for the agency to fulfill projected demand. USAC’s 2Q2012 report is unique in that it contains substantially more information about USAC administration issues. This information provides contributors and recipients a more detailed glimpse inside of the agency. 

The report describes steps taken by USAC to implement additional oversight and managerial controls, to strengthen its audit and investigative techniques, improve information technology tools, and use outreach resources more effectively. In February 2010, the FCC directed USAC to implement an assessment program to determine the rate of improper payments made to universal service support mechanism beneficiaries to support the FCC’s reporting requirements under the Improper Payments Elimination and Recovery Act (IPERA) and to assess universal service support mechanism beneficiary and USF contributor compliance with FCC regulations. According to the 2Q2012 report, USAC successfully implemented this assessment program, known as the Payment Quality Assurance Program. 

The report goes on to describe USAC’s efforts to comply with FCC directives to establish a comprehensive support mechanism Beneficiary and USF Contributor Audit Program (“BCAP”).  It appears that USAC established the BCAP program last year, but full implementation has been delayed due to “procurement delays.”  However, USAC is actively working with the FCC to resolve procurement issues and appears on the verge of initiating hundreds of audits.  According to USAC, it intends to conduct the initial round of 343 BCAP audits using a combination of USAC Internal Audit Division (“IAD”) staff and external audit firms. 

343 audits is a stark increase – almost 3 times greater – as compared to the audits initiated in 2010 and 2011 combined.  According to USAC’s report, there were a total of 131 audits conducted over this period, of which 66 audits are now complete and 65 remain in progress (of the total number of audits, contributor audits accounted for nearly half; as of January 2012, 24 contributor audits remain open, while 5 have been completed).

The intensification of USAC's audit initiatives could indicate that the FCC does not foresee comprehensive reform of the existing USF contribution system happening anytime soon; perhaps not until after the November elections. And with the creation of the Connect America Fund and reform of intercarrier compensation last year, the FCC be depending on USAC more than ever before to aggressively enforce its contribution rules, regulations and policies in order to ensure adequate funding can be squeezed from dwindling sources of interstate telecommunications revenue without driving the quarterly contribution factor into the stratosphere.  A dangerous recipe is certainly brewing, especially with the risk of audit increasing exponentially under the BCAP program.

Please be advised that The CommLaw Group’s attorneys are experienced in addressing USF contributor and recipient compliance matters. For more information regarding this client advisory or if you have specific concerns about your Universal Service Fund compliance, please contact the attorney responsible for your account or you may contact the firm’s managing partner, Jonathan S. Marashlian, at jsm@commlawgroup.com.