July 24, 2001 Minutes

Twelve of the nineteen members (there is one vacancy) were present, representing a quorum:

Bryant, Anne

Jackson, Jimmy- by telephone

Davis, Fr. William

Ouye, Kathleen

Eichler, Edwin

Parrino, Cheryl

Gumper, Frank

Rivera, Robert - by telephone

Hess, Kevin

Sanders, Dr. Jay

Hogerty, Martha

Talbott, Dr. Brian

Four members joined the meeting in progress:

Buller, Karen

Rosenblum, Lisa

Lineberry, Isiah - by telephone

Thoms, Allan - by telephone

Two members were absent:

Lubin, Joel

Wheeler, Tom

Officers of the Corporation present:

Barash, D. Scott - Assistant Secretary

Haga, Robert - Assistant Treasurer

Others present for the meeting:

Name

Company

Blackwell, Mel

USAC

Claremont, Susan

Andersen LLP

Fagan, Mark

Andersen LLP

Flannery, Irene

USAC

Griffin, Felice

Andersen LLP

Howard, Cathy

USAC

Kaplan, Dan

Andersen LLP

Khan, Sameer

USAC

Miller, Linda

USAC

McDonald, George

USAC

McMahon, Shaun

USAC

Rhyner, Rich

NECA

Rodda, Jim

USAC

Sandy, Colin

NECA

Schroder, Katherine

FCC

a1.

Approval of the Minutes. On a motion duly made and seconded, the Board approved the minutes, as revised, of the USAC Board of Directors' meeting of Tuesday, April 24, 2001; and the minutes, as distributed, of the meeting of Tuesday, May 17, 2001.

Board members Ms. Buller, Mr. Lineberry, and Mr. Thoms joined the meeting at this point.

a2.

Reports from the Committee Chairs. Each of the Committee Chairs briefly reported on the activity from each of their July quarterly Committee meetings, respectively: Ms. Ouye - Schools & Libraries Committee; Ms. Hogerty - High Cost & Low Income Committee; Dr. Sanders - Rural Health Care Committee; and Mr. Gumper - Executive Committee.

a3.

Acceptance of USAC 2000 Financial Audits and Agreed Upon Procedures Reviews. Mr. Gumper deferred this item until after the recess.

a4.

Authorization to File Draft USAC 2001 Financial Audit and Agreed Upon Procedures Review Plans with the FCC. Ms. Parrino stated that the draft audit plan for 2001 was very similar to last year's plan submitted to the FCC. She called the Board's attention to two modifications. First, procedures will be revised to reflect the change in USAC's financial services vendor from the National Exchange Carrier Association (NECA) to PricewaterhouseCoopers and LaSalle Bank. Second, USAC is proposing to eliminate the audit review steps for the High Cost Support Mechanism data collection because the data collection work is designated as NECA's responsibility under the FCC's rules.

On a motion duly made and seconded, the Board adopted the following resolution as amended (in italics):

RESOLVED, That the USAC Board of Directors accepts the recommendation of the USAC Executive Committee to authorize USAC staff to file with the FCC the proposed USAC 2001 Financial Audit and Operational Review Plan and grants staff editorial privilege to make any final format and editorial changes.

a5.

Acceptance of the 1998 Form 457 Audit and Authorization of a Review of Carriers' 2000 Interstate and International Revenue - Confidential & Proprietary. Mr. Gumper deferred this item until after the recess.

a6.

Approval of 4th Quarter 2001 USAC Common and Consolidated Budgets. Ms. Bryant reported that the quarterly budget is 9% lower than the 4th quarter of 2000. She noted that there are three proposed additions to the budget: (1) $600,000 in additional costs for the 2001 audit of Schools and Libraries Support Mechanism beneficiaries; (2) $250,000 for transition costs from NECA to the new financial services vendors, PricewaterhouseCoopers and LaSalle Bank; and (3) $100,000 for the review of carriers' reported 2000 interstate and international revenue.

On a motion duly made and seconded, the Board adopted the following resolutions:

RESOLVED, That the USAC Board of Directors accepts the recommendation of the USAC Executive Committee to approve a 4th Quarter 2001 USAC common budget of $992,000; and

RESOLVED FURTHER, That the USAC Board of Directors accepts the recommendation of the USAC Executive Committee to approve a 4th Quarter 2001 USAC consolidated budget of $11,090,400.

a7.

Approval of 4th Quarter 2001 Revenue Projections and Resolution for the September 1, 2001, FCC Contribution Base Filing. Mr. Haga reminded the Board that the revenue base filings are now due at the FCC a month later than before. The numbers before the Board are the most recent numbers; however, if the projections change to the point of exceeding the variance threshold of $1.25 billion for the international and interstate revenue base as previously approved by the Board, the September 1 filing will need to be approved. A tentative USAC Executive Committee meeting is scheduled for August 31 to approve the filing, if necessary. However, Mr. Haga stated that there is no reason at this point to indicate that the contribution base as stated will change significantly. He informed the Board of the three missing numbers on page 4 of the issue paper.

On a motion duly made and seconded, the Board adopted the following resolution:

RESOLVED, That the USAC Board of Directors, having reviewed a summary of the current status of the September 1, 2001, FCC filing requirements, accepts the recommendation of the USAC Executive Committee to authorize staff to proceed with the required September 1, 2001, filing to the FCC on behalf of USAC. Staff may make adjustments in accordance with approved variance thresholds.

a8.

Adoption of a Resolution to Honor Ms. Kate Moore. Ms. Parrino informed the Board that the Schools & Libraries Committee supported the resolution unanimously.

On a motion duly made and seconded, the Board adopted the following resolution:

RESOLVED, That the members of the USAC Board of Directors expresses their profound appreciation for the service Ms. Kate Moore has provided to the USAC Schools & Libraries Committee and to the Schools and Libraries Support Mechanism, and hereby adopts the attached resolution honoring her and wishing her the best in her teaching profession and in all her future endeavors.

a9.

Adoption of a Resolution to Honor Ms. Heather Gold.

On a motion duly made and seconded, the Board adopted the following resolution:

RESOLVED, That the USAC Board of Directors hereby expresses its profound appreciation for the service Ms. Heather Gold has provided to the Universal Service Administrative Company, the Executive Committee, and the High Cost & Low Income Committee, and wishes her the best in her future endeavors.

a10.

Clarification of Delegation of Authority by the USAC Board of Directors to Conduct the Financial and Business Affairs of the Corporation. Mr. Gumper explained that the USAC Executive Committee tabled this item at its July 19, 2001, quarterly meeting and directed staff to review the draft resolutions presented to the Committee in order to ensure that they accurately reflect an appropriate level of delegation of day-to-day financial operations to USAC officers and employees. Mr. Barash indicated that the draft resolutions had been modified appropriately. He further explained that these revisions are not intended to make changes to USAC's current financial practices, but rather to ensure that the authority conferred by the Board covers current operational practice. Ms. Bryant stated her belief that the revised resolutions now accurately reflect the USAC Board of Directors' fiduciary responsibilities and delegation authority.

On a motion duly made and seconded, the Board adopted the following resolutions:

RESOLVED, That the USAC Board of Directors authorizes for and on behalf of the Corporation, the Chairman of the Board of Directors, the Chief Executive Officer, or the Treasurer of the Corporation (hereby the "Designated Officers") to designate from time to time one or more banks, trust companies, or other banking institutions (any thereof being herein after referred to as a "bank") to act as depository or depositories for the funds of the Corporation for and during such period as the Designated Officer may from time to time deem necessary or desirable in the interests of the Corporation, to open or close out from time to time accounts in any such depository so selected or reselected, and to enter into any contracts or agreements necessary, desirable or incident to the designation of a bank or the performance by such bank of the services as to which such designation relates. A Designated Officer may delegate this authority to the Assistant Treasurer; and

RESOLVED FURTHER, That the USAC Board of Directors authorizes the Chief Executive Officer of the Corporation to designate those officers, employees or agents of the Corporation who may be authorized from time to time to sign or otherwise lawfully endorse any and all checks, drafts, orders, and electronic transfers against any bank accounts established by the Corporation; and

RESOLVED FURTHER, That the USAC Board of Directors authorizes the Chief Executive Officer of the Corporation to designate those officers, employees or agents of the Corporation who may be authorized from time to time to enter into agreements with a bank for cash management services which may include, without limitation, agreements relating to the disbursement of funds of the Corporation (via check, ACH, wire, other electronic funds transfer, or otherwise), the collection of funds of the Corporation, access to information relating to any and all account activity, and taking any and all action permitted or contemplated by any of the foregoing agreements and/or services; or designate in writing to a bank the person or persons authorized to take any and all action permitted by any of the foregoing agreements and/or services (which may include, at its discretion, employees or officers of the Corporation); or to enter into such agreements with a bank with respect to any of the foregoing, and the taking of any such actions or the execution or delivery of any such documents or agreements by such officers or employees to be conclusive evidence that the same were authorized by this resolution; and

RESOLVED FURTHER, That the USAC Board of Directors authorizes the Corporation's Designated Officers to designate others as the Corporation's authorized agent for certain purposes, including, without limitation from time to time, opening bank accounts in the name of the Corporation and entering into agreements with banks for cash management services which may include, without limitation, agreements relating to the disbursement of funds (via check, ACH, wire, other electronic funds transfer, or otherwise), the collection of funds (by electronic transfer, zero balance account, pooling, or otherwise), accessing information relating to any and all account activity and/or the use of software and/or Internet-based products in order to undertake any or all of the foregoing, and taking any and all action permitted or contemplated by any of the foregoing agreements and/or services, and the taking of any such actions or the execution or delivery of any such documents or agreements by such Designated Officers or agents to designated to be conclusive evidence that the same were authorized by this resolution. A Designated Officer may delegate this authority to the Assistant Treasurer; and

RESOLVED FURTHER, That the USAC Board of Directors authorizes the Assistant Treasurer or any employee or agent designated by the Chief Executive Officer or the Treasurer to deposit for safekeeping any temporary cash investment securities with such banks or trust companies approved as depositories of funds of USAC or such other bank or trust company as deemed appropriate. The Treasurer may delegate this authority to the Assistant Treasurer; and

RESOLVED FURTHER, That the USAC Board of Directors authorizes the Treasurer, Assistant Treasurer, or their designated agent to sell any security purchased for temporary investment purposes; to agree at the time of purchase of any temporary investment to resell all or any part thereof on terms fixed at the time of purchase; and to agree at the time of sale of any temporary investment to repurchase all or any part thereof on terms fixed at the time of sale. The Treasurer may delegate this authority to the Assistant Treasurer. The Treasurer or Assistant Treasurer may delegate the authority to implement any otherwise authorized purchase or sale of any security purchased for temporary investment purposes to an employee or designated agent of the Corporation; and

RESOLVED FURTHER, That the USAC Board of Directors gives full authority to the Chief Executive Officer to enter into contracts, purchase material, and approve employee expenses on behalf of the Corporation for all contracts in amounts prescribed by the revised schedule of authorizations and that the revised schedule of authorizations is approved. The revised schedule of authorizations may be modified from time to time by the Board of Directors (see Attachment V); and

RESOLVED FURTHER, That the USAC Board of Directors gives full authority to the Chief Executive Officer and the Treasurer to approve the disbursement of support funds. The Treasurer may delegate this authority to the Assistant Treasurer. The Treasurer or Assistant Treasurer may delegate the authority to implement any otherwise authorized disbursement of support funds to an employee or designated agent of the Corporation; and

RESOLVED FURTHER, That the USAC Board of Directors hereby confirms the authority of the Chief Executive Officer, or any other Designated Officer or employee he or she may designate, to execute and deliver, and hereby ratifies, confirms and adopts as the action of this Board the execution of, the Master Services Agreement between USAC and LaSalle Bank dated May 9, 2001, as well as any and all sub-agreements incident and necessary to implement the terms and conditions of the Master Services Agreement, and any and all transactions that occurred pursuant to the Master Services Agreement from its Effective Date until the date of the adoption of this resolution.

a11.

Approval of Revised Contracting and Bidding Timetable - Confidential & Proprietary. In accordance with the guidelines regarding Executive Session approved by the USAC Board of Directors, Mr. Barash explained the basis for staff's recommendation that this item be discussed in Executive Session. Mr. Barash stated that discussion and public disclosure at this time of this matter, which relates to USAC's procurement strategy and contract negotiations, would compromise USAC's negotiation strategy to the detriment of the Corporation and the Universal Service Support Mechanisms.

On a motion duly made and seconded, the Committee adopted the following resolution:

RESOLVED, That the USAC Board of Directors determines that discussion of USAC's revised contracting and bidding timetable shall be conducted in Executive Session. See Executive Session.

a12.

Miscellaneous. None.

i1.

Report on USAC's FCC Financial Reporting Issues - Confidential & Proprietary. On a motion duly moved and seconded, the Board adopted the following resolution:

RESOLVED, That the USAC Board of Directors determines that discussion of matters related to USAC's FCC financial reporting shall be conducted in Executive Session.

See Executive Session.

i2.

Assistant Treasurer's Report. Ms. Parrino said that at any given time, there is a large amount of cash on hand for the Schools and Libraries Support Mechanism. Ms. Ouye explained that there is always some lag time between the commitments and disbursements for the mechanism due to various issues, which staff is continually working to improve.

i3.

Regulatory Report. For information only. No discussion held.

i4.

Report on Accounts Receivable Over 30 Days and Collection Efforts. Ms. Parrino stated that there has been a recent spike in accounts receivable mainly due to two factors: (1) the first set of bills under the new methodology went out and, although the total amount collected from all carriers has not changed significantly, the new methodology has significantly changed the amount that certain individual carriers must submit, generating questions regarding the change and consequently delaying some payments; and (2) as a result of USAC's transition of the financial services from NECA.

i5.

Bankruptcy Report. For information only. No discussion held.

i6.

Disposition of Administrator Appeals by USAC Staff. Mr. Gumper reported that USAC staff has consulted informally with the FCC's Common Carrier Bureau staff as previously directed by the Board on the appropriateness of the Board delegating authority to USAC staff to decide universal service support mechanism appeals. Common Carrier Bureau staff agrees with USAC staff that it is appropriate for USAC staff to handle appeals in the first instance. Ms. Parrino reminded the Board that at the last quarterly meeting the Board approved procedures for USAC staff to handle appeals filed by contributors that included a caveat that USAC staff would forward any appeals raising significant administrative issues to the USAC Board.

The USAC Board of Directors DIRECTED USAC staff to modify the appeals procedure to include those appeals that are a "close call" as appeals that should come before the USAC Board of Directors for disposition.

The USAC Board of Directors also DIRECTED USAC staff to provide the Board with the number of appeals that have been presented to Committees of the Board for resolution.

i7.

Status of USAC Clarification Requests at the FCC. For information only. No discussion held.

i8.

Update on Schools and Libraries Support Mechanism Enforcement Trends. For information only. No discussion held.

i9.

Status of Transition to PricewaterhouseCoopers and LaSalle Bank for Financial Support Services for USAC. Ms. Parrino reported that the transition is going well. A minor problem with the customer service line has been corrected. One cycle of invoices has been processed successfully. USAC staff expects the transition to be complete by the end of August.

i10.

Status of FCC Proceeding Addressing Proposed Changes to the Universal Service Contribution Methodology. For information only. No discussion held.

i11.

Report on Pending Litigation. For information only. No discussion held.

i12.

Report on USAC's FCC Financial Reporting Issues - Confidential & Proprietary. In accordance with the guidelines regarding Executive Session approved by the USAC Board of Directors, Mr. Barash explained the rationale behind discussing this item in Executive Session. Mr. Barash stated that Executive Session discussion of this matter is appropriate under guidelines approved by the Board because these issues involve pre-decisional matters before the FCC to which USAC is privy as well as relate to enforcement of program rules violations, and public discussion would compromise USAC's attorney-client privilege. Mr. Barash also pointed out that the Board has previously discussed these matters in Executive Session.

On a motion duly made and seconded, the Board adopted the following resolution:

RESOLVED, That the USAC Board of Directors determines that discussion of matters related to USAC's FCC financial reporting shall be conducted in Executive Session.

See Executive Session.

i13.

USAC Timeline and Key Dates. For information only. No discussion held.

i14.

Miscellaneous. None.

i15.

High Cost and Low Income Support Mechanisms Update. For information only. No discussion held.

i16.

Review of 4th Quarter 2001 High Cost and Low Income Programmatic Budgets. For information only. No discussion held.

i17.

Review of 4th Quarter 2001 High Cost and Low Income Support Mechanisms Projections and Resolution on the August 2001 FCC Filing. For information only. No discussion held.

i18.

Rural Health Care Support Mechanism Update. For information only. No discussion held.

i19.

Review of 4th Quarter 2001 Rural Health Care Programmatic Budget. For information only. No discussion held.

i20.

Review of 4th Quarter 2001 Rural Health Care Support Mechanism Projections and Resolution on the August 2001 FCC Filing. For information only. No discussion held.

i21.

Schools and Libraries Support Mechanism Update. For information only. No discussion held.

i22.

Review of 4th Quarter 2001 Schools and Libraries Programmatic Budget. For information only. No discussion held.

i23.

Review of 4th Quarter 2001 Schools and Libraries Projections and Resolution on the August 2001 FCC Filing. For information only. No discussion held.

Fourteen of the nineteen members (there is one vacancy) were present, representing a quorum:

Bryant, Anne

Lineberry, Isiah - by telephone

Buller, Karen

Ouye, Kathleen

Davis, Fr. William

Parrino, Cheryl

Gumper, Frank

Rivera, Robert - by telephone

Hess, Kevin

Rosenblum, Lisa

Hogerty, Martha

Talbott, Dr. Brian

Jackson, Jimmy- by telephone

Thoms, Allan - by telephone

One member joined the meeting in progress:

Eichler, Edwin

Three members were absent:

Lubin, Joel

Wheeler, Tom

Sanders, Jay

Officers of the Corporation present:

Barash, D. Scott - Assistant Secretary

Haga, Robert - Assistant Treasurer

a3.

Acceptance of USAC 2000 Financial Audits and Agreed Upon Procedures Reviews. Ms. Claremont, Mr. Fagan, Ms. Griffin, and Mr. Kaplan from Andersen, LLP, USAC's independent auditors, discussed the findings of Andersen's 2000 audits of USAC. They also discussed the work that Andersen will perform for the 2001 audits.

On a motion duly made and seconded, the Board adopted the following resolutions:

RESOLVED, That the USAC Board of Directors accepts the recommendation of the USAC Executive Committee to accept the 2000 financial audit of the Universal Service Administrative Company; and

RESOLVED FURTHER, That the USAC Board of Directors accepts the recommendation of the USAC Executive Committee and the programmatic committees to accept the USAC 2000 agreed upon procedures review; and

RESOLVED FURTHER, That the USAC Board of Directors accepts the recommendation of the USAC Executive Committee to authorize the CEO to send a management response to Andersen accepting the 2000 financial audit and agreed upon procedures reports and committing to take action to address the issues that were identified in the agreed upon procedures audits; and

RESOLVED FURTHER, That the USAC Board of Directors accepts the recommendation of the USAC Executive Committee to authorize Andersen to file the final 2000 audit reports with the FCC.

Board member Ms. Ouye left the meeting at this point.

a5.

Acceptance of the 1998 Form 457 Audit and Authorization of a Review of Carriers' 2000 Interstate and International Revenue - Confidential & Proprietary. Mr. Gumper briefly reviewed the findings of this audit and explained that if the Board members want to discuss details of the 1998 carrier revenue audit, it should be done in Executive Session. It was determined that no such discussion was necessary. Mr. Gumper also noted that the USAC Executive Committee has recommended engaging Andersen to audit reported contributor revenue for 2000.

On a motion duly made and seconded, the Board adopted the following resolutions:

RESOLVED, That the USAC Board of Directors accepts the recommendation of the Executive Committee to authorize staff to proceed with the engagement of Andersen to perform a review of carriers' 2000 interstate and international revenue as reported on the April 1, 2001, Form 499-A; and

RESOLVED FURTHER, That the USAC Board of Directors accepts the recommendation of the USAC Executive Committee to accept the USAC 1998 Form 457 Audit.

Mr. Jackson, Mr. Lineberry, and Mr. Rivera abstained because they did not receive the audit in time to be able to review it and make a decision.

a11.

Approval of Revised Contracting and Bidding Timetable - Confidential & Proprietary. Mr. Barash discussed proposed changes to the contracting and bidding timetable.

On a motion duly made and seconded, the Board adopted the following resolution:

RESOLVED, That the USAC Board of Directors accepts the recommendation made by the USAC Executive and High Cost & Low Income Committees and hereby approves the revised contracting and bidding timetable set forth herein.

i12.

Report on USAC's FCC Financial Reporting Issues - Confidential & Proprietary. The Board held a brief discussion on USAC's FCC financial reporting issues.