Federal Communications Commission 

Audit of USAC’s Oversight of the

Universal Service Fund Contributions Process 

23-AUD-05-01 

January 31, 2024 
WILLIAMS, ADLEY & COMPANY-DC, LLP 

Certified Public Accountants / Management Consultants 

1030 15th Street, NW, Suite 350 West • Washington, DC 20005 • (202) 371-1397 • Fax: (202) 371-9161 

www.williamsadley.com

January 31, 2024 

Ms. Sophila Jones 

Assistant Inspector General for Audit 

Office of Inspector General 

Federal Communications Commission 

Dear Ms. Jones: 

Williams, Adley & Company-DC, LLP, performed an audit of the Universal Service Administrative 

Company’s (USAC) oversight of the Universal Service Fund (USF) contribution process. We 

performed the audit in accordance with Contract No. 140D0423F0148. Our report presents the 

results of the audit and includes recommendations to help USAC improve its oversight of the 

USF contributions process. 

We conducted our audit in accordance with Generally Accepted Government Auditing 

Standards, 2018 Revision, April 2021 Technical Update, issued by the Government 

Accountability Office. Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions 

based on our audit objectives. We believe that the evidence obtained provides a reasonable 

basis for our findings and conclusions based on our audit objectives. The objective of our 

performance audit was to evaluate whether the internal controls over the USF contribution 

payment process via the E-file system are effective, timely, and include all service providers 

that are legally obligated to make USF contributions per the Telecommunications Act of 1996. 

To accomplish our objectives, we interviewed personnel from USAC’s Finance and Audit and 

Assurance Divisions as well as FCC Enforcement Bureau (EB). We also reviewed documentation 

related to USAC’s contribution oversight process and the information technology general 

controls around the E-File system. The scope of the audit was limited to the USF contributions 

data and processes related to the FCC Form 499-A and FCC Form 499-Q submitted for the 

calendar year (CY) 2021. We conducted our audit from February 2023 through October 2023. 

Appendix 1 provides a more detailed description of our objective, scope, and methodology. We 

appreciate the opportunity to have conducted this audit. Should you have any questions or 

need further assistance, please contact us at (202) 371-1397. 

Leah Southers, CPA, CISA, CGFM, CFE 

Partner 
Federal Communications Commission Page 3 

USAC’s Oversight of the USF Contributions Process 

Contents 

EXECUTIVE SUMMARY ....................................................................................... 4

BACKGROUND ................................................................................................. 5

AUDIT RESULTS ................................................................................................ 7

Sub-Objective 1: Adequacy of USAC’s Controls for Receiving USF Contribution Forms (FCC Form 

499-A) ................................................................................................................................... 7

Sub-Objective 2: Accuracy and Timeliness of Collections ........................................................ 8

Sub-Objective 3: Completeness of Eligible Service Providers .................................................. 9

Sub-Objective 4: Accuracy of De Minimis Reporting ............................................................. 10

Finding 1: No Action to Collect Unpaid USF Contribution Obligations ................................... 11

APPENDIX 1: OBJECTIVE, SCOPE, AND METHODOLOGY ............................................. 15

APPENDIX 2: MANAGEMENT’S RESPONSE ............................................................. 18

APPENDIX 3: AUDITOR EVALUATION OF MANAGEMENT’S RESPONSE ........................... 21

APPENDIX 4: ABBREVIATIONS AND ACRONYMS ...................................................... 22
Federal Communications Commission Page 4 

USAC’s Oversight of the USF Contributions Process 

EXECUTIVE SUMMARY 

As requested by the Federal Communications Commission’s (FCC or Commission) Office of 

Inspector General, Williams, Adley & Company-DC, LLP, (defined as “Williams Adley,” “we,” and 

“our” in this report) conducted a performance audit of the Universal Service Administrative 

Company’s (USAC) oversight of the Universal Service Fund (USF) contribution process. We 

conducted our audit in accordance with applicable Government Auditing Standards, 2018 

revision, technical update April 2021, issued by the Comptroller General of the United States. 

The objective of our performance audit was to evaluate whether the internal controls over the 

USF contributions payment process via the E-file system are effective, timely, and include all 

service providers that are legally obligated to make USF contributions per the 

Telecommunications Act of 1996. To accomplish the audit objective, we interviewed personnel 

from USAC’s Finance Division and the Audit and Assurance Division (AAD) as well as FCC 

Enforcement Bureau (EB) personnel. We also reviewed documentation related to USAC’s 

contribution oversight process and the information technology general controls around USAC’s 

E-File system. The scope of the audit was limited to the USF contributions data and processes 

related to the FCC Form 499-A and FCC Form 499-Q submitted for the CY 2021. Appendix 1 is a 

more detailed description of our audit objective, scope, and methodology. 

We determined that USAC had effective internal controls in place to ensure that USF 

contributions were accurate, timely, and include all eligible1 service providers, except for 

USAC’s process for referring service providers to the FCC EB for potential enforcement action. 

USAC did not refer any eligible service providers to the FCC EB during CY 2022, despite 

instances where eligible service providers failed to make their universal service contributions 

obligation required by the Telecommunications Act of 1996.2 We communicated this to the FCC 

in Finding #1: No Action to Collect Unpaid USF Contribution Obligations. In a written response, 

which is included in its entirety as Appendix 2, management concurred with our finding and 

recommendations and identified it’s planned corrective actions to address our 

recommendations. 

1

 For purposes of this report, eligible is defined as a service provider subject to the FCC's filing and USF 

contributions rules. 

2

 47 U.S.C § 254(d). 
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USAC’s Oversight of the USF Contributions Process 

BACKGROUND 

The FCC is an independent United States government agency, established by the 

Communications Act of 1934, as amended. The Commission is charged with regulating 

interstate and international communications by radio, television, wire, satellite, and cable. Its 

jurisdiction spans the 50 states, the District of Columbia, and the U.S. territories.

The Commission is comprised of three reporting components. The primary component consists 

of Commission headquarters and field offices. The two additional components are the Universal 

Service Fund (USF) and the Telecommunications Relay Service Fund. The USF reports the results 

of the four universal service programs: High-Cost (also known as the Connect America Fund); 

Lifeline; Schools and Libraries (also known as E-Rate); and Rural Health Care. The USF also 

reports the results of the Connected Care Pilot Program. 

The USF is a vital component of the United States' commitment to ensuring access to affordable 

and advanced telecommunications services for all citizens. Established by the 

Telecommunications Act of 1996, the USF plays a pivotal role in bridging the digital divide by 

providing financial support to telecommunications carriers and service providers that offer 

essential communications services to underserved and unserved communities across the 

country. While the FCC is responsible for the overall management and policy decisions related 

to USF, in 1997, the Universal Service Administrative Company (USAC) was established as a notfor-profit subsidiary of the National Exchange Carrier Association, Inc. The FCC appointed USAC 

as the permanent administrator of the four aforementioned USF programs. 

As the permanent administrator of the USF, USAC is responsible for the effective administration 

of the programs, including collecting contributions and administering the disbursement of 

those contributions to support the programs. The Telecommunications Act of 1996 requires 

telecommunications carriers and other providers of interstate telecommunications services to 

contribute, on an equitable and nondiscriminatory basis, to the USF.3 These contributions fund 

the USF and allow the Commission to preserve and advance the FCC’s goal of universal service. 

Annually, companies are required to submit their actual revenues from the previous CY to USAC 

via the FCC Form 499-A Telecommunications Reporting Worksheet (FCC Form 499-A) using the 

E-File System.4 For example, CY 2021 revenues are reported on the FCC Form 499-A that is 

submitted in CY 2022 (herein referred to as the 2022 FCC Form 499-A). Contribution obligations 

are determined by applying a contribution factor percentage to their end-user interstate and 

international revenues. The contribution factor changes each quarter, varying with the demand 

for universal service support.5 To the extent that a service provider’s annual revenues, as 

3

 47 U.S.C § 254(d). 

4

 USAC employs an online form submission application called E-File, which enables service providers to 

electronically input data as well as submit, verify, and certify the FCC Form 499-A. 

5

 The contribution factors for each quarter of 2021 were: Q1 31.8%, Q2 33.4%, Q3 31.8%, and Q4 29.1%, 

respectively. (See Contribution Factor & Quarterly Filings — Universal Service Fund (USF) Management Support | 

Federal Communications Commission (fcc.gov)) 
Federal Communications Commission Page 6 

USAC’s Oversight of the USF Contributions Process 

reported on their FCC Form 499-A, lead to a calculated annual contribution to the USF of less 

than $10,000, they are granted a de minimis exemption.6 If granted the de minimis exemption, 

the service provider is not required to contribute to the USF for that year.

The actual USF contribution obligation for CY 2021 was $9.277 billion.7 Highlights related to the 

2022 FCC Form 499-A (which reports the CY 2021 revenue) include:8

 7,563 entities submitted an FCC Form 499-A

 3,406 (45%) of the entities that submitted the FCC Form 499-A were USF contributors 

 4,157 (55%) of the entities that submitted the FCC Form 499-A qualified for the de 

minimis exemption

As displayed in the chart below, of the 3,406 contributors that submitted a 2022 FCC Form 499-

A, 72% of the USF was funded by contributions from top 20 entities. 

Figure 1. Distribution of CY 2021 USF Contribution Obligation 

In accordance with the USAC and FCC memorandum of understanding, to the extent that a 

service provider is failing to make their contribution obligation to the USF, USAC shall refer the 

service provider to the Commission’s EB and the Commission’s Office of Inspector General, as 

6

 See 47 CFR § 54.708. 

7

 See USAC’s 2022 Annual Report – Quarterly Breakdown of Receipts and Outlays for the 2020-2022 Calendar Years 

table. 

8

 The amounts represent filing, contribution, and de minimis status are based on source documentation provided 

by USAC as of August 2023. 

Distribution of CY 2021 USF Contribution Obligation

Population: 3,406

Contribution obligation of

top 20 USF contributors

Contribution obligation of

the remaining 3,386 USF

contributors
Federal Communications Commission Page 7 

USAC’s Oversight of the USF Contributions Process 

applicable,9 for consideration of enforcement action in a timely manner.10 Currently, USAC’s 

process of determining which service providers are referred to the FCC EB is subjective, and 

typically involves referring (1) repeat offenders that have a large amount of revenue and (2) a 

mix of service providers that fall into the following three categories:

 Non-filers: Service providers that are required to file an FCC Form 499-A but have 

neither filed nor paid their universal service contribution required by law.  

 Non-responders: Service providers that fail to respond to USAC’s inquiries and/or 

requests for information. 

 Non-payers: Service providers that have not paid their overdue USF payments to USAC. 

AUDIT RESULTS 

Overall, we found that USAC had effective internal controls11 in place to ensure that USF 

contributions are accurate, timely, and include all eligible service providers except for USAC’s 

process for referring service providers to the FCC EB for potential enforcement action. USAC did 

not refer any eligible service providers to the FCC EB during CY 2022, despite instances where 

eligible service providers failed to make their universal service contributions obligation required 

by the Telecommunications Act of 1996.12

Sub-Objective 1: Adequacy of USAC’s Controls for Receiving USF Contribution 

Forms (FCC Form 499-A) 

Based on our testing, we determined that USAC had effective internal controls to ensure that 

service providers transmitted accurate revenue data on the 2022 FCC Form 499-A, which in turn 

is used by USAC to determine the contributions due to the USF.

We noted that USAC relied on a combination of automated controls within the E-File system, 

complemented by manual controls, to validate the integrity of the revenue data. The E-File 

system integrated more than 30 compliance and consistency checks, encompassing 

comparisons between prior year and current year, trend analysis, and specific rules analysis. 

The E-File system automatically approved submissions of FCC Forms 499-A that successfully 

passed all compliance and consistency checks. When an FCC Form 499-A submission failed to 

meet any compliance and consistency check criteria, a USAC Senior Telecom Industry Analyst 

(STIA) performed a manual review. To evaluate the effectiveness of this review process, we 

selected a nonstatistical sample of 45 filers (35 approved from automated system reviews and 

9

 Per the FCC Office of Managing Director, the FCC’s Anti-Fraud Directive directs USAC to refer rule violations to the 

FCC OIG only when there are allegations of fraud.

10 Memorandum of Understanding between the Federal Communications Commission and the Universal Service 

Administrative Company, section IV.A.9. 

11 Internal control is the process effected by an entity’s oversight body, management, and other personnel that 

provides reasonable assurance that the objectives of an entity will be achieved (GAO-14-704G: Standards for 

Internal Federal Internal Control Standards, 2014 revision, section OV1.01). 

12 47 U.S.C § 254(d). 
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USAC’s Oversight of the USF Contributions Process 

10 from manual STIA reviews). For each sample, we obtained the service providers’ 2022 FCC 

Form 499-A, E-File system notes, and any correspondence between USAC and the contact 

responsible for the filing. For the automatically approved forms, our testing indicated that the 

compliance and consistency checks were accurately applied to all sampled 2022 FCC Forms 499-

A. For manually reviewed forms, we identified the system-generated flags for each sampled 

form. We reviewed the revenue reported on each form and the flagged issues to assess the 

accuracy of the flags. Further, we tested to ensure that the STIAs addressed flagged issues in 

accordance with USAC’s Form 499 Review Policy document. 

Based on the results of our testing, we determined that the issued flags accurately reflected 

discrepancies with the sampled forms, and STIAs effectively handled flagged issues in 

accordance with USAC policies. 

In addition to testing processing controls over the E-File system, we also tested information 

technology controls supporting the system. Based on our testing, we concluded that the 

information technology general controls are operating effectively and do not introduce 

additional risk to USAC’s processing of USF payments and reports. 

In addition to the automated and manual controls USAC had in place, we determined that USAC 

effectively implemented outreach efforts to help filers submit accurate information to USAC for 

calculating USF contributions. Specifically, we noted USAC employed a diverse range of 

outreach measures to facilitate service providers’ understanding of the FCC rules pertaining to 

revenue reporting on the FCC Form 499-A. These initiatives encompassed more than 20 online 

training and workshop opportunities per year, quarterly newsletters, and one-on-one outreach 

by USAC STIAs. Additionally, the E-File system prompts and guides service providers regarding 

specific reporting sections, incorporates data field restrictions, and provides alerts to facilitate 

accurate information entry. Moreover, USAC’s website contained an array of resources, 

including links to forms available to service providers for contributing to the USF, and 

information on USAC-initiated contributor revenue audits and common issues. 

Sub-Objective 2: Accuracy and Timeliness of Collections 

Based on the testing conducted, we determined that USAC had effective processes to ensure 

that USF contribution obligation amounts, including late fees, are calculated accurately and 

collected timely, with the exception of the process for referring service providers to the FCC EB. 

(See Finding #1 below.) 

As discussed in Sub-Objective 1 above, USAC provided educational outreach to service 

providers via several different mediums. They also reviewed the submitted FCC Forms 499-A to 

ensure accurate revenue data. In addition, as a detective control, USAC’s Audit and Assurance 

Division conducted audits over select submitted FCC Forms 499-A (known as Contributor 
Federal Communications Commission Page 9 

USAC’s Oversight of the USF Contributions Process 

Revenue Audits13) annually as part of AAD’s annual Beneficiary and Contributor Audit Plan. 

Based on review of the 11 most recently completed audits,14 we noted a total of 34 audit 

findings. Eight of these findings resulted as the service providers inaccurately reported 

revenues on their FCC Form 499-A, leading to a $2.5 million overpayment of required 

contributions to the USF. 

Further, we determined that USAC employed a variety of measures to reduce delinquency, both 

in the submission of the FCC Form 499-A and in the payment of invoices. We determined that 

USAC appropriately applied late filing fees to all service providers that were more than 30 days 

delinquent in submitting their FCC Form 499-A, as required by the FCC Rules.15 Additionally, our 

testing revealed that USAC sent at least two different notifications to the service providers 

reminding them of their obligations to file the forms, and created an estimated form for the 

service providers that did not file timely. This estimated form allowed USAC to bill the 

associated late filing fees. For the filing of the 2022 FCC Form 499-A, the measures USAC had in 

place resulted in over 80% of the service providers filing either on time or within 30 days of the 

deadline. These filings represented 98.7% of the total contributions base. 

To the extent that invoices were paid late, we determined that USAC sent reminder notices to 

the service provider and communicated the penalties and interests for late payments. We also 

determined that USAC accurately applied appropriate late fees and interest as required by the 

FCC rules.16

Despite the application of late fees, interest, and penalties, along with USAC’s outreach efforts, 

if a service provider remains delinquent in paying their debt or submitting their FCC Form 499-

A, they may be referred to the FCC EB for further action. Although USAC had a process in place 

to refer delinquent service providers to the FCC EB for further action, we concluded that the 

process was not documented. Further, USAC did not follow its process in CY 2022: no service 

providers were referred to the FCC EB, despite the results of our audit identifying eligible 

service providers that failed to make their universal service contributions obligation as required 

by the Telecommunications Act of 1996.17 See Finding #1 for additional detail. 

Sub-Objective 3: Completeness of Eligible Service Providers 

Based on the testing conducted, we determined that USAC lacked a documented process for 

referring service providers, who are legally obligated to make USF contributions but did not file 

a FCC Form 499-A, to the FCC EB for enforcement action (as discussed in Finding #1). 

13 Contributor Revenue Audits include an in-depth review of the revenues reported on select FCC Forms 499-A to 

determine whether the revenues are complete and accurately reported on the correct form line and within the 

correct jurisdiction. 

14 The 11 audits were a part AAD’s 2021, 2022, and 2023 BCAP plans, which span 10/1/2020 through 9/30/2023. 

15 See 47 CFR 54.713(c). 

16 See 47 CFR 54.713(b), 47 CFR 1.1940(d), FCC 07-150, 31 U.S.C. § 3711(g), 31 C.F.R. § 901.1(d). 

17 47 U.S.C § 254(d). 
Federal Communications Commission Page 10 

USAC’s Oversight of the USF Contributions Process 

Additionally, we determined USAC relied on its Whistleblower Reporting system,18 and the 

reporting requirements for customer revenue as “reseller revenue” in Block 3 of the FCC Form 

499-A to identify service providers who may be potential contributors to the USF but are 

unknown to USAC. However, our audit identified limitations in data availability that prevent 

USAC from taking additional measures to ensure the contributions service provider population 

is complete. We identified the following limitations: 

 Lack of national database for telecommunication providers. Per discussion with USAC 

and our own independent research, no national database identifies all 

telecommunications providers. If this national database existed, we would recommend 

that USAC use the database to verify a Filer ID for all eligible service providers. 

 Lack of available information about eligible service providers at the state level. Based 

on the research we conducted for five randomly selected states, we noted that the 

publicly available information did not have adequate data available to identify eligible 

service providers. 

 Lack of relevant data captured in FCC’s Commission Registration System. The FCC 

Commission Registration System does not capture data fields (e.g., types of services 

offered) that would enable USAC to determine whether the business is an eligible 

service provider. 

Sub-Objective 4: Accuracy of De Minimis Reporting 

Based on testing performed, we identified instances of inaccurate self-reporting of de minimis 

status. However, we determined that USAC had adequate procedures in place to ensure 

accurate billing of all service providers’ 2021 contribution obligations, regardless of their selfreported de minimis status during the year. Specifically, we determined that if the FCC Form 

499-A indicates that a service provider does not meet the de minimis standard, USAC billed the 

entity for its full USF obligation, regardless of any earlier self-reporting. Conversely, service 

providers meeting the de minimis standard based on their FCC Form 499-A, but who had 

contributed throughout the year, received refunds for previously billed USF obligations. 

In addition, we determined that USAC had processes in place to identify service providers who 

may incorrectly claim de minimis status during the year, whether intentionally or in error. 

Specifically, the E-File system automatically compared FCC Forms 499-A to FCC Forms 499-Q to 

identify large variances between quarterly and annual reporting, which are then investigated by 

USAC’s STIAs.

18 https://www.usac.org/about/contact-usac/submit-a-whistleblower-alert/ 
Federal Communications Commission Page 11 

USAC’s Oversight of the USF Contributions Process 

Finding 1: No Action to Collect Unpaid USF Contribution Obligations

Condition: In CY 2022, we found instances where service providers failed to make their USF 

contributions required by the Telecommunications Act of 1996.19 However, USAC did not refer 

any service providers to the FCC EB for appropriate enforcement action in CY 2022. Specifically, 

we identified the following as of September 2023: 

 Non-filers: 2220 service providers did not qualify for the de minimis exemption and had 

not filed their 2022 Forms 499-A. The estimated contribution obligation due from these 

22 non-filers was $2,339,310, or 0.03% of the total actual USF contributions for CY 

2021.21 One of the 22 non-filers has not filed an FCC Form 499-A since 2009. The 

remaining 21 non-filers had delinquent filings ranging from 2017 to 2022. 

 Non-responders: 146 service providers had not responded to USAC’s inquires and/or 

requests for supporting documentation about their 2022 Forms 499-A filings. Service 

providers in this category may have outstanding contribution obligations to the USF, 

which may need settlement depending on the nature and outcome of USAC’s inquiries. 

 Non-payers: 75 service providers had unpaid invoices related to their CY 2021 

contribution obligations, with an outstanding debt totaling $26,292,830,22 or 0.3% of the 

total actual USF contributions for CY 2021.23

While the uncollected contributions represent only a fraction of the percent of the total 

estimated USF contributions required in CY 2021, the Telecommunications Act of 1996 

mandates collecting the contribution obligation from contributors. In addition, although USAC 

had a referral process for advising the Commission of any enforcement issues, USAC did not 

have a formally defined and documented process specifying the frequency of the referral and 

conditions that would trigger referral of service providers to the FCC EB for potential 

enforcement actions.

Cause: The FCC EB referral process requires collaboration from both USAC’s Finance Division 

and FCC EB. Based on discussion with USAC, both parties have been working together to 

develop this process since CY 2019. Although tweaks were consistently being made, the criteria 

triggering a referral was never formally established and a finalized process was never 

documented. In CY 2022, the two key USAC Finance Division personnel responsible for creating 

19 47 U.S.C § 254(d). 

20 Of the 22 non-filers and potential contributors, five were referred to the FCC’s Enforcement Bureau before 2022 

and of the five referred, two are being investigated. 

21 The total actual USF contributions for CY 2021 was $9.277 billion. See USAC’s 2022 Annual Report – Quarterly 

Breakdown of Receipts and Outlays for the 2020-2022 Calendar Years table. 

22 The outstanding balance represents contributions, late fees, interest, and penalty debt (for all contribution years 

including 2021) held at USAC and the U.S. Department of Treasury. 

23 The total actual USF contributions for CY 2021 was $9.277 billion. See USAC’s 2022 Annual Report – Quarterly 

Breakdown of Receipts and Outlays for the 2020-2022 Calendar Years table. 
Federal Communications Commission Page 12 

USAC’s Oversight of the USF Contributions Process 

and implementing the EB referral process resigned, so the EB referral process was not finalized 

and documented. 

Further, these two individuals were also responsible for implementing the EB referral process. 

According to USAC, delinquent service providers were not referred to the FCC EB during CY 

2022 because their duties were not transitioned to other team members. 

Effect: Without a defined, documented, and consistent EB referral process, the risk of USAC 

failing to refer noncompliant service providers to the FCC EB for potential enforcement action is 

increased. Consequently, as there were no referrals in CY 2022, the FCC’s ability to take 

enforcement action in light of its one-year statute of limitations may be limited.24

In addition, USAC’s failure to make any referrals in CY 2022 resulted in known uncollected 

amounts owed to the USF totaling $28,632,140 as of September 2023. 

 22 service providers that did not qualify for the de minimis exemption had not filed their 

2022 FCC Forms 499-A (non-filers). The estimated contribution obligation in this 

category was $2,339,310, which was billed by USAC throughout CY 2021 and in July 

2022. (Note: As the 2022 Forms 499-A had not been filed, USAC created estimates based 

on the service providers most recent FCC Forms 499-A.) 

 146 service providers had not responded to USAC’s inquiries related to the 2022 FCC 

Form 499-A (non-responders). These service providers may have outstanding 

contribution obligations depending on the nature and outcome of the open inquiries. 

 75 service providers had not paid invoices for their CY 2021 contribution obligation 

(non-payers) and had outstanding debts totaling $26,292,830. 

The uncollected total of $28,632,140 owed to the USF qualifies as funds to be put to better 

use.25

Criteria: 47 Code of Federal Regulations § 54.713 Contributors’ Failure to Report or to 

Contribute, section A states: 

“Failure to file the Telecommunications Reporting Worksheet or submit required 

quarterly contributions may subject the contributor to the enforcement provisions of 

the Act and any other applicable law. The Administrator shall advise the Commission of 

any enforcement issues that arise and provide any suggested response.” 

24 The FCC must issue a Notice of Apparent Liability for Forfeiture (NAL) within the time limits set in 47 U.S.C § 

503(b)(6), which establishes a one-year statute of limitations to issue an NAL. Further, 47 CFR § 1.80(c)(5) states 

“no penalty shall be imposed if the violation occurred more than 1 year prior to the date on which the appropriate 

notice is issued.” Exceptions to the one-year statute of limitations are limited. 

25 Recommendations that funds be put to better use are estimates of amounts that could be used more efficiently 

if a recommendation is implemented. 
Federal Communications Commission Page 13 

USAC’s Oversight of the USF Contributions Process 

47 U.S.C. § 254(d) states: 

“Every telecommunications carrier that provides interstate telecommunications services 

shall contribute, on an equitable and nondiscriminatory basis, to the specific, 

predictable, and sufficient mechanisms established by the Commission to preserve and 

advance universal service. The Commission may exempt a carrier or class of carriers 

from this requirement if the carrier's telecommunications activities are limited to such 

an extent that the level of such carrier's contribution to the preservation and 

advancement of universal service would be de minimis. Any other provider of interstate 

telecommunications may be required to contribute to the preservation and 

advancement of universal service if the public interest so requires.” 

Government Accountability Office’s (GAO) Standards for Internal Control in the Federal 

Government (GAO-14-704G), section OV4.08 states: 

“Documentation is a necessary part of an effective internal control system. The level 

and nature of documentation vary based on the size of the entity and the complexity of 

the operational processes the entity performs. Management uses judgment in 

determining the extent of documentation that is needed. Documentation is required for 

the effective design, implementation, and operating effectiveness of an entity’s internal 

control system. The Green Book includes minimum documentation requirements as 

follows: 

 Management develops and maintains documentation of its internal control 

system. (paragraph 3.09). 

 Management documents in policies the internal control responsibilities of the 

organization. (paragraph 12.02)” 

Furthermore, section 3.10 states: 

“Effective documentation assists in management’s design of internal control by 

establishing and communicating the who, what, when, where, and why of internal 

control execution to personnel. Documentation also provides a means to retain 

organizational knowledge and mitigate the risk of having that knowledge limited to a 

few personnel, as well as a means to communicate that knowledge as needed to 

external parties, such as external auditors.” 

Memorandum of Understanding between the Federal Communications Commission and the 

Universal Service Administrative Company, section IV.A states: 

“8. Notification of Rule Violations and Potential Waste, Fraud and Abuse. USAC will alert 

designated point of contact with the Commission’s Office of Inspector General (OIG), 

Enforcement Bureau (EB), OMD, WCB, WTB, as appropriate, where it identifies evidence 

of rule violations, waste, fraud, or abuse in the USF programs or USF contribution 

matters. 
Federal Communications Commission Page 14 

USAC’s Oversight of the USF Contributions Process 

9. Enforcement Referrals. As required in Section IV.A.8 above, USAC staff including 

program and audit staff, shall refer any rule violations and potential waste, fraud, and 

abuse to the Commission’s Enforcement Bureau and the Commission’s Office of 

Inspector General, as applicable, for consideration of enforcement action in a timely 

manner. The EB point of contact shall ensure distribution of referrals to the appropriate 

divisions within EB.” 

Recommendation: We recommend the FCC ensure that USAC: 

1. Take action, as deemed appropriate, against the 243 service providers identified in the 

condition and effect sections to recover the $28,632,140 contributions owed to the USF. 

2. Collaborate with the FCC EB to prioritize the development, documentation, and 

implementation of a process for referring service providers to the FCC EB. Examples of 

decisions to be considered when developing the process should include, but are not 

limited to: 

a. Defining criteria that, when met by a service provider, results in referral to the 

FCC EB. 

b. Determining the timing of the referrals to reduce the likelihood of the one-year 

statute of limitations preventing enforcement action by the FCC EB. 

3. Develop and implement a process to ensure the responsibilities of an employee 

separating from USAC are transitioned to another team member before the employee 

leaves USAC. 
Federal Communications Commission Page 15 

USAC’s Oversight of the USF Contributions Process 

APPENDIX 1: OBJECTIVE, SCOPE, AND METHODOLOGY 

Objective 

Our audit objective was to determine whether internal controls over the USF payment process 

via the E-file system are effective, timely and include all service providers. To conclude on this 

objective, we addressed the following four sub-objectives, as well as tested information 

technology general controls around the E-file system: 

1. Reviewed adequacy of controls over the process for service providers to transmit 

contributions due to the USF/USAC as calculated on the FCC Form 499-A. 

2. Determined whether USAC ensures that collections from service providers into the USF 

are accurately submitted within the timeframe established by the FCC and that the late 

fees are assessed and collected timely by USAC, where applicable. 

3. Determined whether USAC ensures that all service providers that are eligible per FCC 

guidelines are contributing to the USF. 

4. Determined whether USAC ensures filers that apply for de minimis status accurately 

report revenues on their FCC Form 499-A and qualify as a non-filer per FCC guidance. 

Scope and Limitations 

The scope of the audit was limited to the USF contributions data and processes related to the 

FCC Form 499-A and FCC Form 499-Q submitted for the calendar year 2021. We conducted this 

audit from February 2023 through October 2023. As discussed in the audit results for subobjective 3 section above, we could not perform all the audit procedures needed to test the 

completeness of the population of the contributors due to limitations in the availability of data 

from sources external to USAC. Although this impacted our ability to determine whether all 

potential service providers are contributing to the USF, we obtained sufficient evidence to 

conclude that USAC had procedures in place to identify service providers that are required to 

contribute to the USF based on the available information. 

We conducted this performance audit in accordance with generally accepted government 

auditing standards. Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions 

based on our audit objectives. We believe that the evidence obtained provides a reasonable 

basis for our findings and conclusions based on our audit objectives.

Methodology 

To accomplish the objective of the audit, Williams Adley identified the applicable criteria 

against which to assess the effectiveness USAC’s oversight of the USF contributions (or 

payment) process. In addition, as part of gaining an understanding of the organization, we 

inquired about investigations or legal proceedings involving the audit objective and reviewed 

the applicable internal policies and procedures. 
APPENDIX 1: OBJECTIVES, SCOPE AND METHODOLOGY 

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USAC’s Oversight of the USF Contributions Process 

We reviewed USAC standard operating procedure documents, such as the USAC FCC Form 499-

A Billing Narrative, Billing Process Policy and underlying procedure documents, FCC Form 499 

Processing Policy (including the FCC Form 499-A: Annual Review, FCC Form 499-Q: Review and 

Management, and Non-Filer Research procedure documents). We performed walkthroughs 

with personnel from USAC’s Finance and Audit and Assurance Divisions, as well as select FCC 

Enforcement Bureau personnel. In addition, we selected multiple non-statistical26 samples and 

reviewed applicable documentation to determine whether USAC’s internal controls over the 

USF contributions process were designed and operating effectively. We tested internal controls 

related to the following processes: 

 Review and approval of submitted 2022 FCC Form 499-As to ensure data is accurate. 

 Accuracy of amounts billed on invoices, including late fees, interest, and other penalties 

and processes around quality control to ensure invoices are accurately calculated and 

billed. 

 Referral of non-filers, non-payers, and non-responders to the FCC’s EB or, when fraud is 

involved, the Office of Inspector General. 

 Information technology general controls over USAC’s E-File system. 

Further, we performed select procedures to identify ways in which USAC can ensure all service 

providers required to contribute to the USF are actually contributing and various analyses over 

data related to the FCC Form 499-A. 

We assessed the significance of internal controls by (1) reviewing Standard Operating 

Procedure documents related to the USF contributions process; and (2) performing 

walkthroughs with USAC Finance Division and AAD personnel to get an understanding of 

controls over the process and (3) obtaining an understanding of the information technology 

general controls around the E-File system. We determined the operating effectiveness by 

gathering information, inspecting documents, and re-performing certain procedures. As noted 

in Finding #1 above, we identified deficiencies in the design and effectiveness of USAC’s process 

of referring service providers to the FCC EB for potential action. Our consideration of internal 

control was for the limited purpose described [in the paragraph above] and was not designed to 

identify all deficiencies in internal control. Therefore, all internal control deficiencies may not 

be disclosed. 

We assessed the reliability of the data generated from the E-File system provided by (1) 

inquiring USAC’s Finance Division knowledgeable about the source of the data, parameters 

around how the data was generated, and information technology general controls, (2) 

comparing the data received to our understanding of the processes in place, and (3) tracing a 

26 Auditor judgment was used to ensure accurate coverage of specific attributes within populations based on our 

understanding of the nature of the Form 499A filing (due April 1st) and USF invoicing process which includes the 

annual true-up process (i.e., reconciling service provider estimated quarterly reporting via the Form 499Q to the 

actual revenues reported via the Form 499A) performed in July. 
APPENDIX 1: OBJECTIVES, SCOPE AND METHODOLOGY 

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USAC’s Oversight of the USF Contributions Process 

sample of data to source documents. We determined the data was sufficiently reliable for the 

purposes of this report.
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USAC’s Oversight of the USF Contributions Process 

APPENDIX 2: MANAGEMENT’S RESPONSE 

To: Sharon Diskin, Acting Inspector General, FCC 

From: Mark Stephens, Managing Director, FCC 

Date: January 18, 2024 

Subject: Management’s Response to Independent Auditor’s Report on the Universal 

Service Administrative Company’s Oversight of the Universal Service Fund 

Contributions Process 

Thank you for the opportunity to respond to the draft report from the Office of the Inspector 

General (OIG) to the Managing Director, regarding the Universal Service Administrative 

Company’s (USAC) Oversight of the Universal Service Fund (USF) Contributions Process. The 

Federal Communications Commission (FCC or Commission) appreciates the efforts of your team 

to work with the Commission on this audit, and we share your interest in ensuring that the 

internal controls over the USF contribution processes are effective, timely, and include all 

service providers that are legally obligated to contribute to the USF. 

We agree with the findings and recommendations in the report, and we will work to implement 

these recommendations as soon as possible. With respect to recommendations one and two, 

USAC will work with the FCC to continue to develop, document, and implement its processes 

for referring service providers for potential enforcement. The enforcement referral process is 

an important part of the suite of tools that the FCC has put in place to help ensure service 

providers are compliant with their USF obligations. The FCC for its part will continue to evaluate 

enforcement referrals as they come to the Commission and will investigate and take action as 

appropriate. This approach is consistent with the FCC’s other enforcement efforts related to 

USF. Prioritizing investigations provides the most benefit to the overall USF control 

environment. Through targeted enforcement actions, the FCC is able to hold entities 

responsible for violating the FCC’s rules while at the same time producing a deterrent effect on 

future potential violators by sending a clear message as to the potential consequences. 

In the addition, the FCC would like to note the following about the 22 non-filers mentioned in 

the report. If a contributor fails to file its FCC Forms 499-A or 499-Q in a timely manner, the 

Commission’s rules provide that: “the Administrator shall bill that contributor based on 

whatever relevant data the Administrator has available, including, but not limited to, the 
APPENDIX 2: MANAGEMENT’S RESPONSE 

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USAC’s Oversight of the USF Contributions Process 

number of lines presubscribed to the contributor and data from previous years, taking into 

consideration any estimated changes in such data.”27 Following this guidance, USAC created an 

estimated Form 499-A for 2022 for each of the 22 filers that included the full amount of USF 

contribution base revenues for each filer. USAC then used these revenues to calculate and 

invoice each entity through the USF Form 499A/Q True Up process, which is a calculation that 

adjusts the service provider’s USF obligations for the prior calendar year. USAC also billed the 

entities for the late filing fees that they owed per the Commission’s rules.28

Furthermore, with respect to the non-payers mentioned in the report, pursuant to the Debt 

Collection Improvement Act (DCIA) of 1996, Pub. L. No. 104-134 and the FCC’s rules, if the 

debtor does not pay in full by the due date, the following penalties are instituted: 

• One Day Late: The entity will be put on “red light” status the day after the payment due 

date. The red light rule provides that anyone delinquent in non-tax debts to the 

Commission who files an application or other request for a benefit will be unable to 

obtain action from the FCC until the delinquent debts have been paid in full or other 

satisfactory arrangements have been made.29 The red light rule requires USAC to 

withhold all future USF disbursements to that entity and any associated entities until the 

delinquency has been satisfied. Interest begins to accrue daily as of the delinquency 

date at the annual U.S. prime rate plus 3.5 percent, until that debt is paid pursuant to 

the FCC’s rules.30 If the full amount of the outstanding debt, and associated 

administrative fees and penalties, is paid within 30 days of the due date, all interest will 

be waived. 

• 91 Days Delinquent: A DCIA penalty (an additional daily penalty based on an annual rate 

of six percent) will be retroactively applied from the date of delinquency to any part of 

the debt that is more than 90 days past due.31 The full amount of the outstanding debt 

is also now eligible for a DCIA transfer to the U.S. Department of the Treasury for debt 

collection; if transferred, the debtor will be required to pay the administrative costs of 

processing and handling a delinquent claim as set by the Treasury.32

USAC’s records show that all service providers that did not pay their invoice for their USF 

contributions for calendar year 2021 (scope of the audit) have been: 1) put on red light status, 

2) charged the late payment fees of prime plus 3.5%, 3) charged the 6% penalty, and 4) 

transferred to U.S. Treasury for additional collection activities. 

27 47 CFR § 54.709(d). 

28 47 CFR § 54.713(c). 

29 47 CFR § 1.1910.

30 47 CFR § 54.713(d). 

31 31 CFR § 901.9. 

32 31 U.S.C. §§ 3711, 3716, 3717; 31 CFR § 285.12, 31 CFR §§ 900 – 904; 47 CFR § 1.1901, 47 CFR 54.713; and 

Treasury Financial Manual, Volume I, Part 3, Chapter 5000, Collecting Nontax Debt Through the Treasury CrossServicing Program.
APPENDIX 2: MANAGEMENT’S RESPONSE

Finally, with respect to recommendation three, USAC will endeavor to the best of its ability to 

develop and implement a processto ensure that the responsibilities of an employee

separating from USAC are transitioned to another team member before the employee leaves 

USAC. There are instances in which an employee may leave before their responsibilities can be 

transferred; however, USAC will work to train any new employees that may be backfilling an 

open position as soon as possible once they are on board.

The FCC looks forward to working with USAC to implement these recommendations and 

continue to strengthen the controls around the USF contributions processfor the future.

Sincerely,

Mark Stephens 

ManagingDirector

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USAC’s Oversight of the USF Contributions Process 

APPENDIX 3: AUDITOR EVALUATION OF MANAGEMENT’S RESPONSE 

We acknowledge that management concurred with the finding and all recommendations in our 

report. In developing its corrective action plan, we encourage management to be more specific 

in its proposed actions to implement or address reported recommendations and to develop the 

associated implementation or action date timeline. Additionally, FCC management made a 

number of assertions in its response concerning Debt Collections Improvement Act and other 

internal processes being implemented for billing delinquent contributors, which were 

unaudited. Accordingly, we express no opinion on the response. 
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USAC’s Oversight of the USF Contributions Process 

APPENDIX 4: ABBREVIATIONS AND ACRONYMS 

Acronym Definition 

AAD USAC’s Audit and Assurance Division 

CY Calendar Year 

CFR Code of Federal Regulations 

EB FCC Enforcement Bureau 

FCC Federal Communications Commission 

FCC Form 499-A FCC Form 499-A Annual Telecommunications Reporting Worksheet 

STIA Senior Telecom Industry Analyst 

USAC Universal Service Administrative Company 

USF Universal Service Fund