USAC Ramps Up Soft Audits of USF Contributors; Extreme Caution Urged When Responding Due to Possible USAC Traps


Per the Federal Communications Commission’s (“FCC” or “Commission”) rules, its Universal Service Fund (“USF” or “Fund”) Administrator, the Universal Service Administrative Company (“USAC”) has authority to verify information reported in FCC Forms 499-A.  Initially, USAC employed a formal audit process to verify reported revenues.  Over the years, USAC has adjusted its approach to auditing contributors to the Fund.  Whereas a few years ago, USAC’s annual audit budget approached $30 million, its current budget hovers around $3 million.  Thus, USAC has begun informal or so-called “soft audits” to verify contributors’ reporting. In addition to the cost savings, these mini audits allow USAC to achieve the same results as formal audits and to process more audits in less time.  Furthermore, they ensure a sustainable USF while the FCC actively considers funding its broadband fund.

USAC has conducted such audits without publishing any guidelines regarding the process or the procedures by which such audits are conducted.  Instead, USAC appears to make the “rules” up as it goes, offering providers little by way of explanation or justification for its actions.  Moreover, USAC has eschewed its limited authority, which permits it only to “verify” reported information and to raise any concerns or suspicions with the FCC for possible enforcement. USAC is not authorized to unilaterally reclassify revenues, make judgment calls, or draw legal conclusions, yet it has done so on numerous occasions, instructing carriers to reclassify revenues and rejecting legitimate exemptions based upon cursory reviews in soft audits.  USAC’s actions reek of desperation to fill the USF coffers.

USAC may even be setting traps to gather data which it will then use to lure contributors into its “pay and dispute” policy.  For example, USAC has verbally requested carriers to provide details about “access charge” revenue reported on Line 304.1 of Form 499-A as wholesale revenue exempt from the USF contribution base.  Such inquiries are likely designed as a first step to garner proof of compliance with the Carrier’s Carrier Rule, ultimately leading to reclassification of revenue, potentially going back several years, if a carrier proves non-compliant.  The carrier would likely receive an invoice subject to USAC’s pay first, then dispute policy, with nowhere to turn but the expensive, time-consuming process of appeal.

Based upon USAC’s recent actions, clients are advised to use extreme caution when contacted by USAC regarding USF contribution liability.  Clients are urged not to respond to any USAC USF contribution inquiry without first seeking the advice of counsel.  Clients with questions or comments regarding this Advisory should contact the attorney assigned to their accounts.

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