September 30, 2003 Minutes

Twelve of the eighteen directors of the Board were present, representing a quorum:

Bryant, Anne – by telephone

Jortner, Wayne – Treasurer – by telephone

Buller, Karen - by telephone

Parrino, Cheryl – by telephone

Cornell, Diane – by telephone

Rivera, Robert – by telephone

Eichler, Ed – by telephone

Sanders, Dr. Jay – by telephone

Gumper, Frank – Chair – by telephone

Sanford, Jo Anne – by telephone

Hughes, Alison – by telephone

Jackson, Jimmy – Secretary – by telephone

Two directors joined the meeting in progress:

Coltharp, Jim – by telephone

Talbott, Dr. Brian – by telephone

Campbell, Anne

Hess, Kevin

Davis, Bill

Lubin, Joel – Vice Chair

Officers of the Corporation present:

Name

Company

Howard, Cathy – by telephone

USAC

Scott, Wayne

USAC

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Authorization to Extend the Memorandum of Understanding with FCC Inspector General and the Department of the Interior Inspector General Regarding Audits of Schools and Libraries Support Mechanism Beneficiaries for Federal Fiscal Year 2004 and to Establish the Necessary Budget – Confidential & Proprietary – Executive Session Recommended. 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 discussion of this matter be conducted in Executive Session because this matter relates to a pre-decisional matter before the FCC to which USAC is privy, and 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. In addition, this matter concerns a USAC procurement issue, and discussion of this matter in open session could compromise USAC’s negotiating strategy to the detriment of the corporation. Finally, this matter relates to the detail of USAC’s audit program, the disclosure of which could compromise program integrity.

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 Memorandum of Understanding between USAC, the FCC Inspector General, and the Department of the Interior Inspector General Regarding Schools and Libraries Support Mechanism Beneficiaries Audits shall be conducted in Executive Session.

The Board and the Audit and Schools & Libraries Committees each voted to move into Executive Session. (See the respective meeting minutes for each Committee.)

Ms. Parrino reviewed the progress of the audits being performed by the Department of the Interior’s Office of Inspector General of schools under its jurisdiction that have received Schools and Libraries Support Mechanism funds. She said that by September 30, 2003, at which time the Memorandum of Understanding is scheduled to expire, the budgeted funds would be exhausted. Ms. Parrino reported that the FCC Office of Inspector General has requested a one-year extension of the Memorandum of Understanding. The Board expressed its strong support for taking aggressive steps to deter, detect, and disclose waste, fraud, and abuse in the Schools and Libraries Support Mechanism and reiterated that audits are critical to the overall ability to protect against waste, fraud, and abuse as evidenced by the large budgetary commitment USAC continues to make to auditing beneficiaries. Certain Board members, however, again raised several concerns about this arrangement, including the perception that the proposed agreement could be viewed as disproportionately targeting Native American beneficiaries.

The Audit Committee and the Schools & Libraries Committee approved the recommendation proposed by USAC management. Thereafter, the Chair of the Board called for a roll call vote of the Board and on a motion duly made and seconded, the Board approved the resolution as set forth in these minutes. Directors in support of the resolution reiterated the concern that the audits appear to be targeted to certain beneficiaries but expressed the view that cooperation with the FCC in this matter was in the overall best interest of the corporation. Directors who opposed the resolution or abstained from the vote stated that even though they supported systematic auditing and cooperation with the FCC, they could not support a plan that targets a single ethnic group for intensive auditing.

The vote count was as follows: YES = 9 (Ms. Bryant, Ms. Cornell, Mr. Eichler, Mr. Gumper, Ms. Hughes, Mr. Jortner, Ms. Parrino, Ms. Sanford, and Dr. Talbott); NO = 3 (Ms. Buller, Mr. Jackson, and Dr. Sanders); ABSTAIN = 1 (Mr. Rivera).

RESOLVED, that the USAC Board of Directors accepts the recommendation of the USAC Schools & Libraries and Audit Committees and hereby authorizes USAC management to continue the Memorandum of Understanding between USAC, the Department of Interior Inspector General, and the FCC Inspector General to conduct reviews of certain Schools and Libraries Support Mechanism beneficiaries for federal fiscal year 2004.

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Miscellaneous. Ms. Parrino reported that the FCC would be issuing an order soon directing USAC to prepare financial statements for the Universal Service Fund consistent with generally accepted accounting principles for federal agencies (Federal GAAP) and to keep the Funds in accordance with the United States Government Standard General Ledger (USGSGL). She said that the order would also require USAC to conduct audits of the Fund pursuant to generally accepted government auditing standards (GAGAS).