Good afternoon, everyone. What we re going to look at this afternoon are best practices for the High Cost program participation. And what we re going

Transcription

1 Good afternoon, everyone. What we re going to look at this afternoon are best practices for the High Cost program participation. And what we re going to primarily focus upon is what are the most frequently occurring errors that companies seem to make, how they can be identified, and how they can be solved.

2 Why don t we get started and take a look at the number one problem folks seem to face and that is with line counts. What we see, typically, is in reporting of line counts, we see duplicate line counts reported, people reporting their lines in the incorrect rate Zone, maybe misclassifying lines, whether it s a single or multi-line business line, lines where the billing addresses are outside the study area, so they report it in the wrong study area. Inactive lines are included in the line counts, and in some cases, they are unable, folks are unable to provide billing system data to support the official line count.

3 Now, a good way of detecting this, and you re going to see this as a similar theme with a lot of the error detections, is cross-referencing to another company record. There are two company records you should cross-reference your line counts to. Number one would be your customer billing line count detail. Your retail billing. And the other one would be your subscriber listings. By comparing your line count and reconciling that line count with the line count you re reporting externally, you should be able to identify where problems exist. A best practice solution. Number one, you want to maintain historic data at the reported level so it can be retrieved so when you re audited or a question comes up, you can easily pull up, for example, the first quarter 2010 line count detail. That will solve a lot of questions and help you, probably, answer a lot of detected errors. And the other is maintain your document retention policy for your customer billing and outside plant line reports also. They will give you a good way of solving questions when line counts don t reconcile between internal records and external reporting, so keeping that detail will also help you resolve line count issues going forward.

4 The next big area of problems that folks face is the area of asset valuation. Now, where this comes into play is usually with a lack of proper documentation. That would be lacking the invoices, job orders, or the accounts payable records to document an asset s value. Basically, this would be your continuing property records, your CPR. Folks are not posting all the adds through invoices and retirements in a timely manner. Basically, there is a lack of consistent periodic review and frequently, when audited, or questions come up, folks are unable to provide the invoices or proper documentation to support COE, for example, in audit sampling. Folks are not maintaining, also, documentation for write-off or expense capitalization. What we have is the two sides of the situation where you need to have your invoices, your job orders, that would add to an asset s value, and then with retirements, would be handled through write-offs or some sort of capitalization expensing. That also needs to be documented so that any decreases to the value of an asset can be identified and explained.

5 Good ways to detect those errors. First of all, when using the everybody has a salvage value on their assets and if you re depreciating assets in excess of what the salvage value that was approved by your respective public service commission, then you know you ve made some error in the asset valuation. Also, a good idea is to reconcile your continuing property records with your general ledger. Frequently, for financial purposes, people keep the general record reconciled and in balance, but the CPR is not receiving the same attention. By reconciling your CPR and your general ledger, you might be able to identify situations where problems exist. Now, what s the best way to solve this? Very simply, I know you folks are going to get tired of hearing me say document retention but this is pervasive in a lot of areas. And in this case, you want to retain the work orders, the approved work sheets, and any retirements or adjustments made to an account. Also, the invoices related to that. You want to set up a tracking system to make sure all updates are made to the CPR and you conduct periodic reviews of your CPR. All this to make sure when you need to take a valuation and report it, it s at the correct level.

6 The next big area we re going to deal with is intra-company allocations. Basically, a lot of companies now have multiple entities under maybe one holding company, so you might have an incumbent ILEC operations wireline. You might have a wireline CLEC, wireless. You might even have cable TV. This might be under one parent company. For that reason, expenses and costs need to be allocated appropriately amongst all the divisions. Now the allocations need to be conducted in a manner we re seeing situations where they re being conducted in a manner that is not compliant with regulations. They re also lacking sufficient documentation as to the logic behind allocations. I will mention to folks right now that sufficient documentation, not just saying, we have four divisions, we divide it by four. That would be considered bad. We want to see how you develop those allocation factors, and you want to have quantitative support for the rates used for services provided to an affiliate. If you are allocating certain costs, for example, payroll costs, you want to have some support for the rate that s being charged for labor to that affiliate.

7 How are we going to run down these problems? Basically, a good way of doing it is testing the pricing and the cost related to transactions between a parent and its affiliate, and compare those fees to those paid to non-regulated entities. This is because all these transactions need to be done at an arm s length manner, so that it would be the same, or relatively the same, fees to be allocated between them. Basically, what you want to do to solve these problems is very simple. You want to record transactions with affiliates in accordance with code sections Part 32 and Part 36. You want to utilize year-to-date financial data for affiliates when you re doing allocations. You want to establish a system of controls for the process of doing those intracompany allocations so that you ll have the proper documentation and quantitative evidence to substantiate any allocation made between a parent and affiliate.

8 The next thing we re probably going to talk about is something really, as we become more reliant on computers, has kind of initially been left behind by folks and we re finding more and more in audits. We need to focus on system security. Basically, the problem is there are no policies or procedures for the validation of user access for the computer systems, or we re seeing situations where there are no procedures for tracking systems for assets or related documentation. So a lot of what we discussed earlier related to assets needs to be handled in a secure manner in the company s internal systems.

9 Now how do we detect where these error conditions exist? A good one is the personnel records do not have an authorized signature of a supervisor indicating reviews were performed. The supervisor would be reviewing the personnel record and making sure that an individual only has the access they need. If that does not happen, there s a risk of user access being inappropriate over time due to such factors as reassignment, promotion, or termination. Any time one of those things exists, there should be a review of the authorizations available to any individual. Also, regarding assets, you should have we ve seen situations where there are no serial numbers on all equipment in the accounting records. So that would tie back to your CPR. You can t locate or identify these items to a physical location.

10 So what s a best practice solution to solve this? Basically, you want to periodically recertify each employee s user access and ensure that it remains appropriate for their job function. The supervisor review should be denoted on the review performed of the user s job functions. As far as assets, you want to establish a system of tracking and reporting guidelines and the requirements integrated with the CPR, that s the continuing property record, tracking of adds and retirements, with a periodic review of that performance. So, ensuring the security of the system and ensuring that all assets are recorded in a timely manner, whether adds or retirements in that system, will not only make sure that system is secure, but you can see, related to what we discussed earlier, it will also have the benefit of getting correct asset valuation by having the continuing property record, or CPR, up to date.

11 Another area that, again, is something folks need to deal with, which is kind of an off-shoot of intra-company allocations, is within a company, looking at the de-regulated/regulated allocation of costs. Basically, we find situations where there s regulated recovery of a de-regulated asset s cost. Improper costs are then being recovered because of reporting errors. And we see the inconsistencies and non-compliance related to those allocations. How do we get after that?

12 First of all, you want to review the payroll costs for all de-regulated activities and make sure where those payroll costs are flowing. Then you want to review a sample of the product codes for the compliant regulated/de-regulated treatment. So by looking at where payroll costs are going currently, and looking at the product codes for the compliant treatment of costs, that will help you identify situations where erroneous allocation exists. What are some best practice solutions for that? Basically, making sure that you have a compliant mapping of each regulated/de-regulated activity code to a valid, general ledger account, whether it be a regulated or de-regulated account. You want to have a developed, improved system of tracking assets and transactions, which again, goes back to the CPR discussion we had earlier. And you want to improve document retention and review processes to make sure you have that compliance; that regulated/de-regulated allocation is being done in a regulatory compliant manner.

13 Adequate advertisement. Now, a lot this is central to anybody who receives money from the universal service fund. One of the requirements is adequate advertisement. The problem is we re seeing situations where companies do not put forth the annual advertising of services and charges using a media of general distribution. What does that mean? A newspaper. TV, radio is also a media of general distribution, but a newspaper is sufficient. To be a media of general distribution, it has to cover the entire service area of the service provider, so that way notice is being given to all of their customers. We re seeing particular situations where people don t advertise that their service has access to emergency or operator services or local and Lifeline services.

14 So how can we get after that? Well, the errors can be detected when we look at the take rates on these supported services, and maybe they re below average, so people aren t getting the message that the service is being offered. Also, you can view the processes, and if we do, we are unable to detect and documentation of the advertisement. This can be very simple. Basically, you just have your we re looking for a book that has copies of your invoices and the advertisements that went into every newspaper that covers the study area to make sure it s done. What you need to do to solve this problem is formalize a process that complies with code section s notification requirements. You want to do a periodic review of your annual notifications in the media of general distribution. And retain the documentation of that annual notification. The simplest way to do it: keep a copy of the invoice and keep a copy of the newspaper article, or I should say, newspaper advertisement, which provides adequate notice.

15 An area of particular concern for USAC is to make sure people have the proper ETC certifications by area and that the proper assets, expenses, and costs are being allocated to those areas. What we re seeing is situations where lines and revenues are identified with the improper study area. And there s improper mapping of costs to areas where a company is certified as an ETC.

16 Basically, this can be detected by doing a testing mapping of customer data along the borders or study areas. Using systems like MapInfo, you re able to identify where a customer should be located. So what s the best way to do it? I alluded to this. You want to employ the industry standard geo-code mapping programs, apply it to your customer billing addresses for the valid location of lines. That way, you will know the lines and the revenue associated with those lines, is in the proper ETC certification area. The other is a periodic review of customer service locations and maybe reconciling that to your internal network to make sure your internal records synch up to where the customers are being identified.

17 Folks should also pay attention to the usage and revenue reporting. The problem is people are reporting the improper amounts to USAC and that s distorting proper distribution of the universal service fund. We re seeing situations where there s no internal process for reviewing documentation supporting compliance filing.

18 How do we solve that problem? You want to reconcile what you file externally with your financial and operational budgets. And you want to trend compliance reported amounts between periods. So by looking at possible errors, or inconsistencies, where it doesn t tie to your financial and operational budgets, or looking at situations where maybe a number spikes in a certain period, it will help you solve a lot of those problems. Now what s the solution for getting those? Well, it s real simple. When you re looking at network usage, access revenues, look at your carrier access billing system report, or CABS. That intercompany report will give you a good idea on access issues. You want to look at your reported revenues for retail and wholesale customer billing and tie that back. Make sure those revenues for usage are being reported properly. You want to make sure your Part 32 account balances and your corporate financial statements have adequate supported documentation and that the access line and plant information listed in your CPR is reconciled.

19 We ll take a moment and take a look at the few questions. Regarding the annual notification and media advertisements, they re really I would look to the code section I cited. Basically, a very simple newspaper article that lists your company name, your serving areas, and the supported services that you provide would be available. If you were to look, it doesn t need to be that complicated. It just needs to comply with the code section I mentioned. Another question we have is Should billing addresses be used or service address, actual physical address? Billing address is what should be used. And that is because, usually that is where the customer s supposedly located oh, I see the question. Service address. The actual physical. Yes, if you have an actual physical address that is different from a billing address, which could, in fact, be outside of a serving area. Not a lot of companies keep both in their billing system, but if you re able to direct or geo-code your customers based on actual physical addresses, that would be more correct and more appropriate for reporting. I want to thank everyone. I know it was a lot of stuff to plow through. And if I don t speak to you tomorrow morning, have a happy St. Patrick s Day.