04-2531. Application of Federal Accounting and Auditing Standards to the Universal Service Fund and Telecommunications Relay Services Fund

AGENCY:

Federal Communications Commission.

ACTION:

Final rule.

SUMMARY:

In this document, the Commission amends its rules governing certain financial reporting and auditing requirements applicable to the Universal Service Fund and the Telecommunications Relay Services Fund to ensure that the Commission can maintain its obligations under federal financial management and reporting statutes and directives of the Office of Management and Budget. The Commission also clarifies its rules regarding compensation limitations for employees of the Universal Service Administrative Company.

DATES:

Effective March 8, 2004.

FOR FURTHER INFORMATION CONTACT:

Cara Voth, Attorney, Telecommunications Access Policy Division, Wireline Competition Bureau, [phone].

SUPPLEMENTARY INFORMATION:

This is a summary of the Commission's Order in CC Docket Nos. 96-45 and 03-123, FCC 03-232 released on October 3, 2003. The full text of this document is available for public inspection during regular business hours in the FCC Reference Center, Room CY-A257, 445 Twelfth Street, SW., Washington, DC 20554.

I. Introduction

1. By this Order, we amend our rules governing certain financial reporting and auditing requirements applicable to the Universal Service Fund and the Telecommunications Relay Services (TRS) Fund (collectively referred to as the Funds) to ensure that the Commission can maintain its obligations under federal financial management and reporting statutes and directives of the Office of Management and Budget (OMB). Specifically, we will require the administrators of the Funds (hereafter “Administrators”) to prepare financial statements for the Funds consistent with generally accepted accounting principles for federal agencies (Federal GAAP) and to keep the Funds in accordance with the United States Government Standard General Ledger (USGSGL). We will also require the Administrators to conduct audits of the Funds pursuant to generally accepted government auditing standards (GAGAS). Further, because the Funds are agency programs included on the Commission's annual financial statement, the Funds may be subject to a number of federal financial and reporting statutes. We revise our rules to reflect this, and to note that, where appropriate under relevant law, the Funds may be subject to similar statutes that are enacted in the future. We also clarify our rules regarding compensation limitations for employees of the Universal Service Administrative Company (USAC).

II. Discussion

2. The Universal Service Fund and the TRS Fund are components of the Commission's annual financial statements. In preparing these financial statements, the Commission is required to follow Federal GAAP and maintain its accounts according to the USGSGL pursuant to the Federal Financial Management Improvement Act of 1996 (FFMIA). Because the OMB has concluded that all components included on agency financial statements must comply with Federal GAAP, we direct the Administrators of the Universal Service Fund and the TRS Fund to prepare financial statements for those funds consistent with Federal GAAP and to keep any related accounts in accordance with the USGSGL as of October 1, 2004. Similarly, as discussed more specifically below, because audits of the Commission's financial statements are conducted according to GAGAS, we direct the Administrators to conduct certain audits of the Universal Service Fund and the TRS Fund according to GAGAS.

3. The modifications we make to our rules regarding audits are intended to reflect the distinction between audits of the Funds and audits of the Administrators of the Funds. When the Administrators of the Universal Service Fund or TRS Fund, or any independent auditors hired by such Administrators, conduct audits of the beneficiaries of the Universal Service Fund, contributors to the Universal Service Fund or TRS Fund, or any providers of service under the universal service support mechanisms and the TRS program, such audits shall be conducted in accordance with GAGAS. For example, audits conducted of beneficiaries of the schools and libraries support mechanism pursuant to § 54.516 of the Commission's rules must follow GAGAS. In contrast, audits conducted of the Administrators may be conducted according to generally accepted auditing standards (GAAS). For example, the required audit of the Universal Service Fund Administrator pursuant to § 54.717 of the Commission's rules may continue to be conducted according to GAAS. Similarly, any audit of the TRS Fund Administrator may be conducted pursuant to GAAS. Because the TRS Fund will be audited as a component of the Commission's financial statements, we find that the yearly audit of the TRS Fund pursuant to § 64.604(c)(5)(iii)(D) is no longer necessary, and we delete § 64.604(c)(5)(iii)(D) from the Commission's rules.

4. Because the Funds are components of the Commission's financial statements, the Administrators, in their capacity as administrators of the Funds, may also need to comply with relevant provisions of certain federal financial management and reporting statutes and rules. We therefore amend our rules to reflect the fact that the Funds are also subject to certain existing legal requirements, e.g., the Debt Collection Improvement Act of 1996 and relevant portions of the Federal Financial Management Improvement Act of 1996. As appropriate under federal law, the Commission will also apply relevant provisions of similar federal laws that may be enacted in the future.

5. Finally, we take this opportunity to clarify our rules by adding a note to § 54.715(b) of the Commission's rules. Section 54.715(b) provides that the annual rate of pay for officers and employees of the Administrator of the universal service support mechanisms may not “exceed the annual rate of basic pay for level I of the Executive schedule.” The note we add clarifies that the compensation to be included when calculating whether an employee's rate of pay exceeds Level I of the Executive Schedule does not include life insurance benefits, retirement benefits (including payments to 401(k) plans), health insurance benefits, or other similar benefits, provided that any such benefits are reasonably comparable to benefits that are provided to employees of the federal government. To the extent any of these clarifications require adjustments to benefits that are currently provided to employees of the Administrator, they shall be applied prospectively.

6. We understand that the Administrators will need time to update accounting systems and train accountants, auditors and other relevant employees in order to comply with the rule changes adopted herein. To ensure adequate time for implementation of these new rules, the Administrators will have until October 1, 2004, to update their financial accounting and audit procedures for financial reporting for fiscal year 2005. These rules will go into effect March 8, 2004. We find for good cause that these rule changes may be adopted without affording prior notice and an opportunity for public comment because, for the most part, the rules merely reflect existing legal requirements. Other parts of the rule amendments are exempt from the notice and comment requirements of the Administrative Procedure Act because they concern interpretations of existing rules. The Commission will send a copy of this Order in a report to be sent to Congress pursuant to the Congressional Review Act. In addition, the Commission will send a copy of the Order to the Chief Counsel for Advocacy of the Small Business Administration. A copy of the Order will also be published in the Federal Register.

III. Ordering Clauses

7. Pursuant to sections 4(i), 225, 254, and 303(r) of the Communications Act of 1934, as amended, 47 U.S.C. 154(i), 225, 254, and 303(r), parts 54 and 64 of the Commission's rules are amended, as set forth, effective March 8, 2004.

List of Subjects

47 CFR Part 54

• Reporting and recordkeeping requirements
• Telecommunications
• Telephone

47 CFR Part 64

• Communications common carriers
• Individuals with disabilities
• Reporting and recordkeeping requirements
• Telecommunications
• Telephone

Federal Communications Commission.

Marlene H. Dortch,

Secretary.

For the reasons discussed in the preamble, the Federal Communications Commission amends 47 CFR parts 54 and 64 as follows:

PART 54—UNIVERSAL SERVICE

1. The authority citation for part 54 continues to read as follows:

Authority: 47 U.S.C. 1, 4(i), 201, 205, 214 and 254 unless otherwise noted.

2. Amend § 54.702 by adding paragraph (n) to read as follows:

§ 54.702

Administrator's functions and responsibilities.

* * * * *

(n) The Administrator shall account for the financial transactions of the Universal Service Fund in accordance with generally accepted accounting principles for federal agencies and maintain the accounts of the Universal Service Fund in accordance with the United States Government Standard General Ledger. When the Administrator, or any independent auditor hired by the Administrator, conducts audits of the beneficiaries of the Universal Service Fund, contributors to the Universal Service Fund, or any other providers of services under the universal service support mechanisms, such audits shall be conducted in accordance with generally accepted government auditing standards. In administering the Universal Service Fund, the Administrator shall also comply with all relevant and applicable federal financial management and reporting statutes.

3. Amend § 54.715 by adding a note to paragraph (b) to read as follows:

§ 54.715

Administrative expenses of the Administrator.

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(b) * * *

Note to paragraph (b):

The compensation to be included when calculating whether an employee's rate of pay exceeds Level I of the Executive Schedule does not include life insurance benefits, retirement benefits (including payments to 401(k) plans), health insurance benefits, or other similar benefits, provided that any such benefits are reasonably comparable to benefits that are provided to employees of the federal government.

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PART 64—MISCELLANEOUS RULES RELATING TO COMMON CARRIERS

4. The authority citation for part 64 continues to read as follows:

Authority: 47 U.S.C. 154, 254(k); secs, 403(b)(2)(B), (C), Public Law 104-104, 110 Stat. 56. Interpret or apply 47 U.S.C. 201, 218, 225, 226, 228, and 254(k) unless otherwise noted.

5. In § 64.604, remove and reserve paragraph (c)(5)(iii)(D) and revise paragraph (c)(5)(iii)(H) to read as follows:

§ 64.604

Mandatory minimum standards.

* * * * *

(c) * * *

(5) * * *

(iii)* * *

(H) Administrator reporting, monitoring, and filing requirements. The administrator shall perform all filing and reporting functions required in paragraphs (c)(5)(iii)(A) through (c)(5)(iii)(J) of this section. TRS payment formulas and revenue requirements shall be filed with the Commission on May 1 of each year, to be effective the following July 1. The administrator shall report annually to the Commission an itemization of monthly administrative costs which shall consist of all expenses, receipts, and payments associated with the administration of the TRS Fund. The administrator is required to keep the TRS Fund separate from all other funds administered by the administrator, shall file a cost allocation manual (CAM) and shall provide the Commission full access to all data collected pursuant to the administration of the TRS Fund. The administrator shall account for the financial transactions of the TRS Fund in accordance with generally accepted accounting principles for federal agencies and maintain the accounts of the TRS Fund in accordance with the United States Government Standard General Ledger. When the administrator, or any independent auditor hired by the administrator, conducts audits of providers of services under the TRS program or contributors to the TRS Fund, such audits shall be conducted in accordance with generally accepted government auditing standards. In administering the TRS Fund, the administrator shall also comply with all relevant and applicable federal financial management and reporting statutes. The administrator shall establish a non-paid voluntary advisory committee of persons from the hearing and speech disability community, TRS users (voice and text telephone), interstate service providers, state representatives, and TRS providers, which will meet at reasonable intervals (at least semi-annually) in order to monitor TRS cost recovery matters. Each group shall select its own representative to the committee. The administrator's annual report shall include a discussion of the advisory committee deliberations.

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