October 4, 2002 Minutes

Ten of the nineteen members were present (the is one vacancy) representing a quorum :

Cornell, Diane - by telephone

Lineberry, Isiah - by telephone

Gumper, Frank - Chair - by telephone

Parrino, Cheryl - by telephone

Hess, Kevin - by telephone

Rivera, Robert - by telephone

Jackson, Jimmy - Secretary - by telephone

Sanders, Dr. Jay - by telephone

Jortner, Wayne - by telephone

Talbott, Dr. Brian - by telephone

One member joined the meeting in progress:

Buller, Karen - by telephone

Seven members were absent:

Bryant, Anne

Davis, Fr. Bill

Campbell, Anne

Eichler, Ed

Coltharp, James

Lubin, Joel - Vice Chair

Conn, David

Officers of the Corporation present:

Barash, D. Scott - Assistant Secretary; Vice President & General Counsel

Blackwell, Mel - VP, External Communications & Rural Health Care Division

Carmichael, Mark - Assistant Treasurer; VP, Finance & Financial Operations

Haga, Robert - VP, Strategic Planning & USAC Operations

McDonald, George - VP, Schools & Libraries Division

Others present for the meeting:

Name

Company

Faunce, Donna

USAC

Howard, Cathy- by telephone

USAC

Miller, Linda

USAC

Scott, Wayne

USAC

a1.

Approval of Course of Action Regarding the Proposal by the National Exchange Carrier Association to Provide Continued Programmatic Support Services for the Rural Health Care and Schools and Libraries Universal Service Support Mechanisms - Confidential & Proprietary - Executive Session. In accordance with the approved criteria and procedure for conducting USAC Board and Committee business in Executive Session, Mr. Barash recommended that this matter be discussed in Executive Session because public discussion of this matter, which relates to USAC's procurement strategy and contract negotiations, and public disclosure of the matters discussed in this paper would compromise USAC's negotiation strategy to the detriment of the corporation and the Universal Service Fund. Moreover, certain matters discussed in this document implicate the attorney-client privilege and, therefore, should not be discussed in open 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 the course of action regarding the proposal by the National Exchange Carrier Association to provide continued programmatic support services for the Rural Health Care and Schools and Libraries Universal Service Support Mechanisms shall be conducted in Executive Session.

See Executive Session for a report of the discussion and action taken by the Board on this item.

a1.

Approval of Course of Action Regarding the Proposal by the National Exchange Carrier Association to Provide Continued Programmatic Support Services for the Rural Health Care and Schools and Libraries Universal Service Support Mechanisms - Confidential & Proprietary - Executive Session. Mr. Blackwell stated that the National Exchange Carrier Association (NECA) has provided excellent support services for the Rural Health Care Support Mechanism during the first two years of the contract. Mr. Blackwell noted that on October 3, 2002, the Schools & Libraries Committee recommended that the Board of Directors approve the proposed extension of the contract with NECA. He reviewed the details of the proposed contract extension for programmatic support services for the Rural Health Care Support Mechanism. He discussed the term, cost, options, performance benchmarks, proposed software systems, and staffing needs of the contract proposal with respect to the Rural Health Care Support Mechanism. He also reviewed how the efficiencies proposed in the contract extension allows for a significantly increased workload to be processed at a lower price and for expanded measures to be used in the detection of waste, fraud, and abuse.

Mr. McDonald reviewed the details of the proposed contract extension for programmatic support services for the Schools and Libraries Support Mechanism. He focused on the software system changes being proposed and the long-term advantages of such systems to USAC compared with the systems being used today. He reviewed how the enhancements proposed in the contract extension would mean significant improvements in efficiency, processing times, and customer satisfaction. Mr. McDonald and Mr. Blackwell noted that overall the proposed extension represented the best overall value to the corporation at this time.

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

RESOLVED, That the USAC Board of Directors accepts the recommendations of the Rural Health Care Committee and the Schools & Libraries Committee and hereby approves the proposed contract extension with the National Exchange Carrier Association, Inc., to provide programmatic support services for the Rural Health Care and Schools and Libraries Universal Service Support Mechanisms, subject to completion of satisfactory terms and conditions to be finalized by staff consistent with the authority granted by the Board of Directors in this resolution.

a2.

Selection of an Independent Accounting Firm to Perform an Agreed-Upon Procedures Review of Universal Service Contributor Revenue for 2000 and 2001 - Confidential & Proprietary - Executive Session. In accordance with the approved criteria and procedure for conducting USAC Board and Committee business in Executive Session, Mr. Barash recommended that this matter be discussed in Executive Session because public discussion of this matter, which relates to USAC's procurement strategy and contract negotiations, and public disclosure of the matters discussed in this paper would compromise USAC's negotiation strategy to the detriment of the corporation and the Universal Service Fund.

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

RESOLVED, That the USAC Board of Directors determines that discussion of the proposals to select an independent accounting firm to perform the agreed-upon procedures review of the contributor revenue base for USAC shall be conducted in Executive Session.

See Executive Session for a report of the discussion and action taken by the Board on this item.

a3.

Retention of Expert Consultant for Bankruptcy Preference Litigation - Confidential & Proprietary - Executive Session. In accordance with the approved criteria and procedure for conducting USAC Board and Committee business in Executive Session, Mr. Barash recommended that this matter be discussed in Executive Session because this item concerns the conduct of pending litigation involving USAC and involves 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.

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

RESOLVED, That the USAC Board of Directors determines that discussion of retention of an expert consultant for bankruptcy preference litigation shall be conducted in Executive Session.

See Executive Session for a report of the discussion and action taken by the Board on this item.

a2.

Selection of an Independent Accounting Firm to Perform an Agreed-Upon Procedures Review of Universal Service Contributor Revenue for 2000 and 2001 - Confidential & Proprietary - Executive Session. Mr. Scott, USAC's Director of Internal Audit, provided an overview of the selection process for an independent accounting firm to perform this audit, and explained how the evaluation team rated the proposals and arrived at the recommendation of Deloitte & Touche LLP.

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

RESOLVED, That the USAC Board of Directors authorizes USAC to select the independent accounting firm of Deloitte & Touche LLP to conduct the agreed-upon procedures review of the universal service contributor revenue base for 2000 and 2001 revenues and for the option years, pending agreement on final terms and conditions of the engagement.

a3.

Retention of Expert Consultant for Bankruptcy Preference Litigation - Confidential & Proprietary - Executive Session. Mr. Barash reviewed the litigation matters before USAC. He explained the rationale for retaining Kroll Zolfo Cooper, Inc, as an expert consultant in one pending matter and the need to continue to retain the firm for future cases.

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

RESOLVED, That the USAC Board of Directors authorizes staff to continue the engagement with Kroll Zolfo Cooper Inc. as an expert consultant to assist USAC in the conduct of litigation involving the Universal Service Fund in United States Bankruptcy Court.

a4.

Miscellaneous. None.