April 23, 2002 Minutes

Fifteen of the nineteen members were present representing a quorum (there are two vacancies):

Bryant, Anne

Jackson, Jimmy

Buller, Karen - by telephone

Lubin, Joel

Campbell, Anne

Parrino, Cheryl

Cornell, Diane

Rivera, Robert

Davis, Fr. Bill

Sanders, Dr. Jay

Eichler, Ed

Swanson-Hull, Camie

Gumper, Frank

Talbott, Dr. Brian

Hess, Kevin - by telephone

Two members were absent:

Coltharp, James

Lineberry, Isiah

Officers of the Corporation present:

Barash, D. Scott - Assistant Secretary - by telephone

Haga, Robert - Assistant Treasurer

Others present for the meeting:

Name

Company

Blackwell, Mel

USAC

Delmar, Teleshia

USAC

Flannery, Irene

USAC

Gallant, Pam

USAC

Garnett, Paul

FCC

Howard, Cathy

USAC

Majcher, Karen

USAC

McDonald, George

USAC

Miller, Linda

USAC

Okudaira, Nobuko

USAC

Rodda, Jim

USAC

Scott, Wayne

USAC

a1.

Approval of the Minutes. On a motion duly made and seconded, the Board approved the minutes as distributed of the meetings of Thursday, January 24, 2002.

a2.

Reports from the Committee Chairs. As Chair of the USAC Executive Committee, Mr. Gumper gave a report on the issues discussed and the actions taken at the April 2002 quarterly Executive Committee meeting. He noted that two of the issues discussed at the Executive Committee meeting were held in Executive Session-Audits and Pending Litigation-and that these two issues were before the Board as information items.

i2.

Review of 2002 USAC Internal Audit Plan and Status Report on USAC Audits - Confidential & Proprietary - Executive Session. In accordance with the guidelines regarding Executive Session approved by the USAC Board of Directors, Mr. Barash explained that USAC management recommends that any discussion of the details of the ongoing FCC fiscal year 2001 financial audit, the independent financial audit of USAC required by FCC regulation, and the independent agreed upon procedures review be held in Executive Session. Because the audit reports are not final and are before the FCC for review and comment, detailed discussion of the draft audit findings would reveal pre-decisional matters before a governmental agency. Under USAC's guidelines, Executive Session is appropriate where discussion of such matters in open session would undermine the agency's deliberative process or would result in the disclosure of an agency's conclusions or rationales before the agency had formally decided the matter. Moreover, discussion of this matter in open session could compromise the continued applicability of the attorney-client privilege.

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

RESOLVED, That the USAC Board of Directors determines that a detailed report on the draft findings and status of the FCC's fiscal year 2001 financial audit, of the 2001 independent auditor's financial audit of USAC, and of the 2001 independent agreed upon procedures review be conducted in Executive Session.

See Executive Session for a report of this discussion.

i10.

Report on Pending Litigation - Confidential & Proprietary - Executive Session. A confidential and proprietary supplemental issue paper was distributed at the meeting. In accordance with the approved criteria and procedure for conducting USAC Board and Committee business in Executive Session, Mr. Barash explained that USAC management recommends that this matter be discussed in Executive Session because this item is about pending litigation matters that are subject to the attorney-client privilege. Discussion of these matters in open session would compromise the continued applicability of the attorney-client privilege. Moreover, these matters involve discussion of pre-decisional matters before the FCC. Executive Session is appropriate because discussion of these matters in open session would result in the disclosure of conclusions or rationales before the Commission has formally acted upon these matters.

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

RESOLVED, That the USAC Board of Directors determines that discussion of an update on pending litigation to which USAC is a party shall be conducted in Executive Session.

See Executive Session for a report of this discussion.

i2.

Review of 2002 USAC Internal Audit Plan and Status Report on USAC Audits - Confidential & Proprietary - Executive Session. Ms. Parrino briefed the Board on the status of the following three audits that are in the final stages: (1) the ongoing FCC fiscal year 2001 financial audit; (2) the independent financial audit of USAC required by FCC regulation; and (3) the independent agreed upon procedures review.

i10.

Report on Pending Litigation - Confidential & Proprietary - Executive Session. Mr. Barash discussed with the Board the status of pending litigation and continuing discussions with the FCC about the scope of USAC's authority concerning litigation matters.

a2.

Reports from the Committee Chairs. Each of the Chairs of the programmatic Committees presented a report on the issues discussed and the action taken at each of their April 2002 quarterly Committee meetings, respectively: Dr. Talbott - Schools & Libraries Committee; Mr. Eichler - High Cost & Low Income Committee; and Dr. Sanders - Rural Health Care Committee. See the minutes of each meeting for a full accounting of the discussions and actions taken by the Committees.

a3.

Election of Officers. Ms. Parrino stated that there are five resolutions before the Board for approval: one housekeeping resolution and four resolutions regarding establishing the USAC Vice President positions as officers of the corporation. She explained the reasons for her recommendations regarding designating the Vice President positions as officers of the corporation.

Mr. Parrino noted that the USAC Executive Committee amended the fourth resolution from what was originally distributed to the Board members. She distributed a revised copy of the resolutions at the meeting.

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 and approves the elimination of the following three senior officer positions: (1) President of the High Cost and Low Income Division; (2) President of the Rural Health Care Division; and (3) President of the Schools and Libraries Division; and

RESOLVED FURTHER, That the USAC Board of Directors accepts the recommendation of the USAC Executive Committee and establishes the following six senior officer positions of the Corporation: (1) Vice President, Finance; (2) Vice President and General Counsel; (3) Vice President, High Cost and Low Income Division; (4) Vice President, External Communications and Rural Health Care Division; (5) Vice President, Schools and Libraries Division; and (6) Vice President, Strategic Planning and USAC Operations; and

RESOLVED FURTHER, That the USAC Board of Directors accepts the recommendation of the USAC Executive Committee and determines that each Vice President shall report to the Chief Executive Officer and shall have such powers and duties as may from time to time be assigned to him or her by the Chief Executive Officer; and

RESOLVED FURTHER, That the USAC Board of Directors accepts the recommendation of the USAC Executive Committee and determines that each USAC Vice President may sign and execute, in the name of the Corporation, contracts, deeds, mortgages, bonds, and other instruments as and when authorized to do so by the Chief Executive Officer or by the Board of Directors, except where the signing and execution thereof shall be expressly designated by the Board of Directors or By-laws to some other officer or agent of the Corporation or shall be required by law otherwise to be signed or executed. Furthermore, none of the Vice Presidents shall, without the specific prior approval of the Chief Executive Officer or the entire Board of Directors, have the authority to (i) retain outside counsel, (ii) make or deliver reports on the operation of the Corporation or any Committee thereof to Congress or the FCC, or (iii) expend any sum, or commit the Corporation or any Committee thereof to expend any sum, in excess of $50,000.

RESOLVED FURTHER, That the USAC Board of Directors accepts the recommendation of the USAC Executive Committee and determines that each Vice President shall be designated an officer of the corporation immediately upon his or her assumption of the duties of the position and shall serve as such until his or her employment in such position with USAC terminates for any reason.

Board member Ms. Cornell left the meeting during the discussion and before the vote on the resolutions of the next agenda item.

a4.

Approval for Reimbursing a Board Member to Attend an Event Other than a USAC Board of Committee Meeting or Event. Ms. Parrino reviewed the recommendations to approve two requests being made by the USAC Treasurer for reimbursement from USAC for expenses he will incur for attending USAC business related meetings: (1) interviews in Washington, DC to fill the vacant USAC Vice President of Finance position; and (2) a trip to Chicago to meet with one of USAC's financial services vendors, LaSalle Bank, in conjunction with the quarterly Investment Committee meeting.

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

RESOLVED, That in accordance with the procedures approved by the USAC Board of Directors, the USAC Board of Directors authorizes the Corporation to reimburse the USAC Treasurer, Mr. Ed Eichler, for expenses incurred by him to participate in interviews at the Washington USAC office for the finalists for the Vice President of Finance position; and

RESOLVED FURTHER, That in accordance with the procedures approved by the USAC Board of Directors, the USAC Board of Directors authorizes the Corporation to reimburse the USAC Treasurer, Mr. Ed Eichler, for expenses incurred by him to visit USAC's financial services vendor, LaSalle Bank, in Chicago on May 17, 2002, in connection with the Investment Committee meeting on the same date.

Board member Ms. Cornell rejoined the meeting and Ms. Buller left the meeting during the discussion and before the vote on the resolutions of the next agenda item.

a5.

Approval of 3rd Quarter 2002 USAC Common and Consolidated Budgets and Revised Annual 2002 Consolidated Budget. Ms. Parrino reviewed the 3rd Quarter 2002 budget and revised annual 2002 consolidated budget. She noted that there are four changes to the annual budget, thus creating the need to approve the revised annual budget amount. She reported that USAC staff continues to evaluate USAC budgeting capabilities and closely scrutinizes the budget line by line.

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 third quarter 2002 USAC common budget of $1,520,100; and

RESOLVED FURTHER, That the USAC Board of Directors accepts the recommendation of the USAC Executive Committee to approve a third quarter 2002 USAC consolidated budget of $10,953,700.

RESOLVED FURTHER, That the USAC Board of Directors accepts the recommendation of the USAC Executive Committee to approve a revised annual 2002 consolidated budget of $48,259,600.

a6.

Approval of 3rd Quarter 2002 Revenue Projections and Resolutions for the June 1, 2002, FCC Filing. Mr. Haga distributed a revised copy of Attachment B, which shows how the FCC calculates the contribution factor. Since the initial USAC quarterly filing in 1997, the contribution factor has increased approximately 9.5 percent. Mr. Haga informed the Board that the methodology that USAC staff has been using for estimating the contribution base did not work well last quarter, as the Executive Committee was called upon to approve the contribution base twice following the last quarterly Board meeting. At the last quarterly Board meeting, former Board member Mr. Gregg suggested looking at an average of the previous four quarters and using that for the estimate. Mr. Haga did so and found that that the fluctuation between quarters appears to stabilize over time. Mr. Haga suggested that going forward staff should take the average of the four previous quarters and establish a variance around that figure. The Board concurred.

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 June 1, 2002, FCC filing requirements, accepts the recommendation of the USAC Executive Committee to authorize staff to proceed with the required June 1, 2002, filing to the FCC on behalf of USAC. Staff may make adjustments in accordance with the approved $1.25 billion variance threshold.

Board member Mr. Hess left the meeting at this point.

a7.

Adoption of Resolutions Honoring Departing Board Members Mr. Daniel Gonzalez and Mr. Billy Jack Gregg. Ms. Parrino reviewed the proposed resolutions and letters commemorating the services of Mr. Gonzalez and Mr. Gregg while serving on the USAC Board of Directors.

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

RESOLVED, That the USAC Board of Directors hereby expresses its appreciation for the service Mr. Daniel Gonzalez has provided to the Universal Service Administrative Company and wishes him the best in his future endeavors; and

RESOLVED FURTHER, That the USAC Board of Directors directs staff to send the attached letter signed by the Board Chair and the CEO to Mr. Gonzalez; and

RESOLVED FURTHER, That the USAC Board of Directors hereby expresses its appreciation for the service Mr. Billy Jack Gregg provided to the Universal Service Administrative Company as a member of the Board and wishes him the best in his future endeavors; and

RESOLVED FURTHER, That the USAC Board of Directors directs staff to send the attached letter signed by the Board Chair and the CEO to Mr. Gregg.

a8.

Miscellaneous. None.

i1.

Assistant Treasurer's Report. Mr. Haga reported on the fund balances and interest income, noting that interest earned is in line with the projections made six months ago. Mr. Gumper reported that the FCC still has not clarified what to do with unused funds but anticipates that USAC will have an answer by the end of the year.

Board member Ms. Buller rejoined the meeting during the discussion of the next agenda item.

i2.

Review of 2002 USAC Internal Audit Plan and Status Report on USAC Audits - Confidential & Proprietary - Executive Session. Mr. Scott reported that he has completed the assessment of USAC's audit processes and has developed an internal audit plan. He reviewed the five categories of internal auditing responsibilities that he developed and the amount of time that would be initially allocated to each category. He said that he would be monitoring the allocations and adjusting as necessary

Mr. Scott reviewed the status of the seven ongoing or planned audits with the exception of the three audits that were discussed in Executive Session. (See Executive Session above.)

i3.

Report of Legislative and Media Activity. For information only. No discussion held.

i4.

Regulatory Report. For information only. No discussion held.

i5.

Report on Accounts Receivable Delinquent Over 30 Days and Collection Efforts. Mr. Gumper noted that the percent of total billed outstanding is decreasing. Ms. Parrino clarified that consistent with FCC rules, USAC does not write off any receivables.

i6.

Bankruptcy Report. Mr. Barash directed the Board's attention to this issue, stating that bankruptcies increased significantly last year and are keeping the General Counsel team very busy. Some of the bankruptcies have resulted in litigation.

i7.

Status of Transition to PricewaterhouseCoopers and LaSalle Bank for Financial Support Services for USAC. Mr. Haga reviewed how USAC financial operations are faring under USAC's new financial services vendors, PricewaterhouseCoopers and LaSalle Bank.

i8.

Disposition of Administrator Appeals by USAC Staff. For information only. No discussion held.

i9.

Update on Universal Service Support Mechanisms Enforcement Trends. Mr. Gumper informed the Board of four corrections to the Schools and Libraries Support Mechanism enforcement chart on page one of the issue paper noting that the correct number of enforcement matters that were resolved was 17 in 2Q2000 and 20 in 4Q2000 and that the correct number of matters pending was 3 in 2Q2000 and 10 in 4Q2000.

i10.

Report on Pending Litigation - Confidential & Proprietary - Executive Session. See Executive Session above.

i11.

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

i12.

Miscellaneous. None

i13.

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

i14.

Report on the Implementation of the Interstate Common Line Support Mechanism. For information only. No discussion held.

i15.

Review of 2001 Low Income Beneficiary Audit Report and Status Report on the 2002 Low Income Beneficiary Audit. For information only. No discussion held.

i16.

Review of the 3rd Quarter 2002 High Cost and Low Income Programmatic Budgets and Revised Annual 2002 High Cost Programmatic Budget. For information only. No discussion held.

i17.

Review of 3rd Quarter 2002 High Cost and Low Income Support Mechanisms Projections and Resolution on the May 2, 2002, FCC Filing. For information only. No discussion held.

i18.

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

i19.

Review of 2002 Beneficiary Audit Strategy for the Rural Health Care Support Mechanism. For information only. No discussion held.

i20.

Review of 3rd Quarter 2002 and Revised Annual 2002 Rural Health Care Programmatic Budgets. For information only. No discussion held.

i21.

Review of 3rd Quarter 2002 Rural Health Care Projections and Resolution on the May 2, 2002, FCC Filing. For information only. No discussion held.

i22.

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

i23.

Review of the 3rd Quarter 2002 Schools and Libraries Programmatic Budget. For information only. No discussion held.

i24.

Review of 3rd Quarter 2002 Schools and Libraries Projections and Resolution on the May 2, 2002, FCC Filing. For information only. No discussion held.