We attended the Audit Committee meeting at USAC’s quarterly business meeting this morning. While much of the discussion concerned internal controls USAC has in place to oversee its functions, the business update portion of the meeting gave us a snapshot into contributor and beneficiary audit activity at USAC. The presentation gave us some insight into a likely increased amount of activity over the next few months.

Probably the most significant take-away was an acknowledgement by USAC’s VP of Audit & Assurance that USAC audit output had slowed significantly in the middle of 2018. She attributed this to personnel turnover and a temporary shift in resources to assist an investigation at the FCC’s request. Nevertheless, USAC announced that it was back on track and planned to “close out” the remainder of its open audits by the end of the year. For those with audits that are underway, expect to see final reports soon, and to face an appeal deadline as early as January 2019.

Going forward, USAC announced a shift in its methodology for selecting audits to conduct. Since 2015, the FCC has directed that USAC apply a risk-based methodology to select its audits. Under this risk-based methodology, USAC generally would conduct audits of high-revenue filers, either based on total revenues or targeted revenues. This approach, as we noted before, is consistent with recommendations from the GAO on USAC contribution audits. However, beginning in 2018, and continuing into 2019, USAC intends to conduct a mix of random audits, risk-based audits and “targeted” audits based on referrals from the FCC or whistleblower tips. For filers, this change means that the universe of potential recipients will expand, and that no filer is immune from receiving an audit notice.

Finally, the meeting gave us insight into the next round of PQA audits that will begin in November. A PQA audit, or a “Payment Quality Assurance” audit, is a targeted inquiry, principally focused on whether a USF beneficiary has sufficient documentation to justify payments made by the Fund to recipients. It is used to calculate the program-wide improper payment percentages, but results may lead to recoupment of improperly disbursed USF payments as well. For FY 2019, the PQA announcements will begin next month (in November), with a target completion by August 2019 in order for the statistical analysis to be completed by the end of the FCC’s fiscal year. One notable change in FY 2019 is that PQAs will once again include Rural Healthcare Fund recipients. The FCC had ordered an end to those PQAs in 2015, after an improper payment rate of zero percent was found. However, based in part on a notable Rural Healthcare NAL , the FCC directed USAC to include Rural Healthcare recipients in the pool this year. As noted, PQA announcements should be sent soon, so if you’re a recipient, please be on the lookout for the notice and documentation request.

Flurry of USF Audit Reports Expected by End of Year, Random Audits to Return in FY 2019