June 10, 2002 Minutes

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

Bryant, Anne - by telephone

Lubin, Joel - by telephone

Buller, Karen - by telephone

Parrino, Cheryl - by telephone

Eichler, Ed - by telephone

Rivera, Robert - by telephone

Gumper, Frank - by telephone

Sanders, Dr. Jay - by telephone

Hess, Kevin - by telephone

Swanson-Hull, Camie - by telephone

Jackson, Jimmy - by telephone

Three members join the meeting in progress:

Campbell, Anne - by telephone

Talbott, Dr. Brian - by telephone

Lineberry, Isiah - by telephone

Three members were absent:

Coltharp, James

Sanders, Dr. Jay

Davis, Fr. William

Officers of the Corporation present:

Barash, D. Scott - Assistant Secretary

Carmichael, Mark - VP, Finance - by telephone

Haga, Robert - Assistant Treasurer

Others present for the meeting:

Name

Company

Claremont, Susan - by telephone

Arthur Andersen

Guiltinan, Barbara - by telephone

Arthur Andersen

Griffin, Felice - by telephone

Arthur Andersen

Kaplan, Dan - by telephone

Arthur Andersen

Scott, Wayne

USAC

Simmons, Ann

USAC

a1.

Acceptance of USAC 2001 Financial Audit and Agreed Upon Procedures Review. Ms. Parrino introduced Barbara Guiltinan, Felice Griffin, Dan Kaplan, and Susan Claremont of Arthur Andersen LLP. Ms. Parrino explained that they are the personnel who have been working with USAC staff on the 2001 financial audit and agreed upon procedures review. Ms. Parrino informed the Board that USAC received a "clean" audit opinion from Andersen regarding the financial statement of USAC. The agreed upon procedures review did not identify any major issues. USAC management has taken or initiated corrective action to comply with the recommendations in Andersen's reports. A draft management letter responding to the findings has been submitted to the Committee for review. She thanked Andersen's staff for bringing the audit reports to the Committee ahead of schedule.

Ms. Guiltinan reviewed for the Committee the audit findings of the 2001 Financial Audits indicating the following: Andersen received good cooperation from management; the financial statements are appropriately supported by the Company's accounting records; Andersen reviewed the conversion of data to the new service provider relating to the billing, collection, and disbursement systems and verified the integrity of the data; USAC's controls over the information systems environment are adequate; there were no material weaknesses; and the FCC has reviewed and approved the audit. She then reviewed for the Committee the breakdown of the fees paid to Andersen for work performed in 2001.

Mr. Kaplan reviewed the results of the agreed upon procedures review indicating the following: Andersen received good cooperation from management; the audit disclosed only minor exceptions from standard procedure, primarily due to isolated errors; the audit identified some control deficiencies, which occurred primarily during the transition of the collections and disbursements functions to the new service provider, and management has implemented or is in the process of implementing an appropriate corrective action plan; the audit disclosed no material weakness or breakdown in internal control; the FCC has reviewed and approved the audit; and Support Mechanism management, particularly SLD and RHC, should be commended for the excellent results achieved again this year.

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

RESOLVED, That the USAC Board of Directors accepts the 2001 financial audit report of the Universal Service Administrative Company; and

RESOLVED FURTHER, That the USAC Board of Directors accepts the USAC 2001 agreed upon procedures review report; and

RESOLVED FURTHER, That the USAC Board of Directors authorizes the CEO to send a management response to Andersen, with a copy to the FCC, accepting the 2001 financial audit and agreed upon procedures reports and committing to take the actions necessary to address the issues that were identified in the agreed upon procedures audit; and

RESOLVED FURTHER, That the USAC Board of Directors authorizes Andersen to file the final 2001 financial audit report and agreed upon procedures review report with the FCC.

a2.

Election of an Assistant Treasurer. Ms. Parrino stated that Mr. Haga is the current Assistant Treasurer. In January of 2002, USAC split the position of Vice President of Finance and Operations into two positions: Vice President - Strategic Planning & USAC Operations, and Vice President - Finance. Mr. Haga has been appointed Vice President - Strategic Planning & USAC Operations. Mr. Mark Carmichael has been hired as the Vice President - Finance. Ms. Parrino recommends that Mr. Carmichael be elected as the corporation's Assistant Treasurer since his position with USAC is more appropriate to serve as the corporation's Assistant Treasurer.

Mr. Gumper thanked Mr. Haga for his dedication and service as Assistant Treasurer. He also stated that the Board is looking forward to continue working with him in his new capacity.

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

RESOLVED, That the USAC Board of Directors elects Mr. Mark Carmichael as Assistant Treasurer of USAC.

a3.

Miscellaneous. None

i1.

Report of the Financial Audit of the FCC for the Year Ending September 30, 2001. Ms. Parrino reported that the FCC has completed its audit of the Universal Service Fund for the fiscal year ending September 30, 2001. The audit report has been provided to the Board. The FCC received a qualified opinion. A number of the issues identified relating to the Universal Service Fund are repeat findings, most of which relate to the lack of clarity regarding the "federal funds" issues. Since the audit report was issued, USAC staff has met with the FCC staff to review issues that may need to be addressed as a result of the recommendations in the FCC audit report. Both parties continue to improve overall reporting and relations.

i2.

Miscellaneous. None.