2019 Service Provider Training

2019 Service Provider Training
Audits 2019 Service Provider Training

Audits and Assessments Help Assure Program Integrity
Demonstrates to Congress, USAC, FCC, and other stakeholders that funds are used correctly Addresses federal law requirements for the FCC IPERIA – Improper Payments Elimination and Recovery Improvement Act of 2012 Requires agencies to reduce improper payments made to the wrong entity, in the wrong amount, for the wrong reason. © 2019 Universal Service Administrative Co

Methods for Assuring Program Integrity
BCAP (Beneficiary and Contributor Audit Program) Designed to assess compliance with FCC rules and identify and recover overpayments via audits Performed by internal USAC staff or outside audit firm PQA (Payment Quality Assurance Program) Designed to assess estimated rates of improper payments via assessments, not audits Performed by internal USAC staff © 2019 Universal Service Administrative Co

Product Quality Assurance (PQA)
Assessment Facts The PQA program enables USAC to provide the Federal Communications Commission (FCC) with information about improper payments to program beneficiaries, as required by the Improper Payments Elimination and Recovery Improvement Act of 2012 (IPERIA). IPERIA requires federal agencies to review the programs and activities it administers and identify those that may be susceptible to significant improper payments. Per IPERIA, an Improper Payment is defined as “any payment that should not have been made or that was made in an incorrect amount. This includes any payment made to ineligible recipient, any payment for an ineligible service, any duplicate payment, and payments for services not rendered.” © 2019 Universal Service Administrative Co

Payment Quality Assurance (PQA)
Assessment Facts Under the PQA program, USAC assesses specific payments made to select beneficiaries and service providers in all four programs to determine if these payments were made in accordance with FCC rules. Using results of these assessments, USAC calculates estimates of improper payment rates and provides this information to the FCC to be included in the FCC’s Agency Financial Report (AFR). The PQA assessments are completed each fiscal year (October 1 through September 30). A number of Program disbursements, or cases, are selected each year for review. An independent statistician selects a statistically valid sample of current year disbursements in accordance with IPERIA. © 2019 Universal Service Administrative Co

Payment Quality Assurance
Assessments may occur simultaneously with audits Requests certifications of compliance with Lowest Corresponding Price Visit integrity/pqa.aspx for more information © 2019 Universal Service Administrative Co

Beneficiary and Contributor Audit Program (BCAP)
Most audits performed for the current or preceding funding year e.g., Audits announced may cover either FY 2018 or 2019 Audits are random or based on data analytics © 2019 Universal Service Administrative Co

Common audit findings are shared with the Schools & Libraries Division so that action plans for ensuring applicant and service provider success can be developed. Audits look for the root causes of non-compliance so that Schools & Libraries Program outreach efforts can address the cause rather than just the result. © 2019 Universal Service Administrative Co

Planning Service Providers are notified by phone and email with:
Announcement letter List of documents requested 2 week turnaround requested Internal control / process interview questionnaires Entrance conference to discuss audit details Auditors involved FRNs included Duration of audit © 2019 Universal Service Administrative Co

Planning Beneficiary Involvement in a Service Provider Audit
May need beneficiary assistance to demonstrate compliance and lessen burden on the Service Provider Reconcile Billed Entity Application Reimbursement Form (BEAR) to the bills Demonstrate payment of non-discounted share Identify location of equipment (fixed asset listing) Physical inventory (site visit) Equipment/services timely delivered to eligible locations and is operational © 2019 Universal Service Administrative Co

Planning Service Provider Assistance Needed in Beneficiary Audit
May need service provider assistance to demonstrate compliance Reconcile Service Provider Invoices (SPI) to the bills Identify eligible services on the bills Explain differences between services delivered, billed, contracted for, and/or requested in the FCC Form 471 © 2019 Universal Service Administrative Co

Planning Requests for Documentation
The auditors obtain FCC Forms, SPIs and BEARs from the Schools and Libraries Program (SLP) The list of documents requested from the Service Providers include items needed to demonstrate compliance with FCC rules that may not be obtained or maintained by SLP © 2019 Universal Service Administrative Co

Testing Audits are required to be performed in accordance with Generally Accepted Government Auditing Standards (GAGAS) 47 C.F.R. § (n) GAGAS requires auditors to obtain sufficient, appropriate evidence to form conclusions on audit results and findings Government Auditing Standards, GAO G, ¶ 8.06 (2018 Revision) GAGAS requires the auditors to obtain an understanding of the Service Provider’s internal controls and auditors may modify audit procedures based on the auditors’ assessment of internal controls Government Auditing Standards, GAO G, ¶¶ 8.40 and 8.50 ( Revision) © 2019 Universal Service Administrative Co

Testing Site Visits Site visits are often performed between the middle and end of the audit at beneficiary locations A site visit usually spans 2-5 business days The majority of testing is performed in USAC’s offices If a site visit is necessary, the beneficiary will be notified The auditor will coordinate with the beneficiary on the timing and locations to be visited © 2019 Universal Service Administrative Co

Testing Sampling The auditor may select samples of documentation to be provided Service provider bills, including proof of payment, etc. Category 2 equipment for site visits Other commercial customers for testing of compliance with Lowest Corresponding Price rule © 2019 Universal Service Administrative Co

Testing What is Sufficient Documentation?
The following slides provide examples of documentation examined during an audit The examples are not all-inclusive Additional documentation may be requested throughout the audit process © 2019 Universal Service Administrative Co

Sufficient Documentation
Services and Equipment Delivered Circuit utilization reports “Ping” reports Network designs Delivery tickets © 2019 Universal Service Administrative Co

Basic Maintenance of Internal Connections “[R]eimbursements for BMIC will be paid only for actual work performed or for hours of labor actually used.” BMIC Clarification Order, DA , para. 4 (Dec. 15, 2010) Documentation of actual services performed Actual hours Actual services on eligible equipment © 2019 Universal Service Administrative Co

Basic Maintenance of Internal Connections Documentation of actual services performed may include (but is not limited to) the following: Maintenance logs Detailed bills to the beneficiary with services explained Routine maintenance service schedules Service tickets and responses Work orders © 2019 Universal Service Administrative Co

Service Provider Invoices (SPI) Include Only Eligible Services Reconciliations of the SPIs to the Service Provider’s bills If service description on bill is not descriptive or sufficiently detailed, contract or other documentation explaining the services Be aware that if the contract terms do not agree to the bill terms, the auditor may not be able to rely on the contract for the service description Documentation demonstrating services invoiced to SLP are only for services requested on the FCC Form 471 and committed to by SLP in the FCDL May require coordination with the beneficiary © 2019 Universal Service Administrative Co

Rebates and Free Services Evidence beneficiary paid non-discounted portion E.g., copies of checks, accounts receivable details, bank statements Rebates and free services could include: Additional services and equipment at no cost Service and equipment upgrades for more expensive models at no additional charge Downward adjust the price per unit for changes in quantities to stay within the Schools & Libraries Program (SLP) committed amounts © 2019 Universal Service Administrative Co

Beneficiaries Charged No Higher Than Lowest Corresponding Price Price lists, price guides, tariffs, etc. Be aware that the auditor will only be able to rely on these as sufficient evidence if the beneficiaries and all similarly situated non-residential customers are priced in accordance with these documents Customer lists or sales reports for similar equipment or services provided to similarly situated non-residential customers Copies of bills for the similarly situated non-residential customers If prices are based on a percent of MSRP, documentation demonstrating beneficiaries’ percent discounts are the same or higher than similarly situated non-residential customers © 2019 Universal Service Administrative Co

Beneficiaries Charged No Higher Than Lowest Corresponding Price If the Service Provider represents there are no other similarly situated non-residential customers, must provide evidence supporting this assertion, such as (but not limited to) Sales reports demonstrating similar equipment or services were not sold Customer demographics for non-residential customers that purchased similar equipment or services Contractual terms Etc. © 2019 Universal Service Administrative Co

Invoicing Pitfalls I invoiced SLP the amount that was committed in the FCDL, so why did the audit identify a finding? The amount committed is based on the services and amounts requested by the beneficiary but may not represent the actual services and amounts billed to the beneficiary. The audit may have identified: The recurring and/or non-recurring amounts billed were less than the recurring and/or non-recurring amounts requested in the FCC Form 471. The actual service period for delivery of service was less than the service period requested in the FCC Form 471. Certain services in the bill were not eligible. © 2019 Universal Service Administrative Co

Invoicing Pitfalls How do I avoid this finding?
Maintain reconciliations Reconciliations should be prepared any time the amount invoiced to SLP is not the exact amount billed to the beneficiary Example Beneficiary requested and SLP committed funds for Internet access services to 10 schools within the school district for 12 months at a discounted cost of $1,000/month per school ($120,000). Service Provider delivered Internet access to 7 schools for 12 months at a discounted cost of $1,000/month ($84,000). Service Provider invoiced SLP for $120,000 resulting in an over-invoicing finding of $36,000. © 2019 Universal Service Administrative Co

Invoicing Pitfalls I invoiced SLP for the amount that was billed to the beneficiary, so why did the audit identify a finding? SLP can only be invoiced for equipment and services delivered to eligible students and locations that are requested in the FCC Form The audit may have identified: Equipment and/or services were delivered to ineligible locations. Equipment and/or services were delivered to locations containing ineligible students. © 2019 Universal Service Administrative Co

Invoicing Pitfalls How do I avoid this finding? Example
Compare billed services and amounts to the FCDL amount and FCC Form 471. If the billed costs do not equal pre-discounted costs identified in the FCDL, the FCC Form 471 may not have requested certain services, locations, and/or services for some students. Example Service Provider billed beneficiary and invoiced SLP for Internet access at a school district of 10,000 students for one month at a pre-discounted cost of $20,000. FCDL committed funds for 12 months at a pre-discounted cost of $216,000, which is less than $20,000 * 12 (or $240,000). FCC Form 471 identified only 9,000 eligible students. Service Provider over-invoiced SLP for pre-discounted costs of $2,000 ($20,000 * (1,000 / 10,000)). © 2019 Universal Service Administrative Co

Invoicing Pitfalls I invoiced SLP for the amount identified in my reconciliation, so why did the audit identify a finding? SLP can only be invoiced for eligible equipment and services billed to the beneficiary that were requested in the FCC Form 471. The audit may have identified: A portion of the equipment or services were not on the Schools & Libraries Program Eligible Services List. A portion of the equipment or services were not requested in the FCC Form 471. © 2019 Universal Service Administrative Co

Invoicing Pitfalls How do I avoid this finding?
Ensure bills and reconciliations identify the specific service provided. Contracts may be used to identify services if contract terms (service period, rates, etc.) agree to the bills. Example Service Provider billed beneficiary for “monthly telecommunications charge” at a pre- discounted cost of $50,000 and invoiced SLP at a pre-discounted cost of $40,000. Service Provider provided reconciliation identifying “eligible contracted recurring services” of $40,000. Contract provided by Service Provider identified “ISDN/PRI” services at a monthly rate of $45,000. Since contract terms did not agree to the bill, auditor could not conclude that the contract was for the SLP approved services. Service Provider, therefore, over-invoiced SLP for pre-discounted costs of $40,000. © 2019 Universal Service Administrative Co

Invoicing Pitfalls Other invoicing pitfalls to be aware of:
Invoicing under incorrect FRN Applying incorrect discount rate to invoice Invoicing for amounts billed that are in excess of the contracted amounts Communication with the beneficiary may be necessary to understand services, locations, or eligible students requested in the FCC Form 471. © 2019 Universal Service Administrative Co

Lowest Corresponding Price Pitfalls
I was selected as the service provider following a competitive bidding process and billed the beneficiary in accordance with the quote in my bid, so why did the audit identify an LCP finding? “Lowest corresponding price is the lowest price that a service provider charges to non-residential customers who are similarly situated to a particular school, library, or library consortium for similar services.” 47 C.F.R. § The audit may have identified: The Service Provider did not quote the beneficiary its LCP. The LCP rule is separate from and unrelated to competitive bidding rules. Even if a service provider submits an LCP-compliant bid, actual charges must also be LCP compliant. © 2019 Universal Service Administrative Co

How do I avoid this finding? Ensure there are formal policies and procedures in place for determining the lowest corresponding price. Employees should be adequately trained on the policies and procedures. Example Service Provider billed the beneficiary $5,000 for a switch. Service Provider could not demonstrate its lowest corresponding price. Service Provider’s non-compliance resulted in recommended recovery of the discounted portion of the pre-discounted $5,000. Having policies and procedures in place to compare the cost to prices charged to other similarly situated non-residential customers may have helped the Service Provider avoid this finding. © 2019 Universal Service Administrative Co

I billed the beneficiary and invoiced SLP for the amount agreed upon in the beneficiary’s contract, so why did the audit identify an LCP finding? “Providers of eligible services shall not submit bids for or charge schools, school districts, libraries, library consortia, or consortia including any of these entities a price above the lowest corresponding price for supported services, unless the Commission, with respect to interstate services or the state commission with respect to intrastate services, finds that the lowest corresponding price is not compensatory.” 47 C.F.R. § (b) Service Provider billed the beneficiary $5,000 for a switch. The Service Provider’s other similarly situated non-residential customers were charged less for the same service. © 2019 Universal Service Administrative Co

How do I avoid this finding? Identify similarly situated non-residential customers receiving similar services and compare prices charged. “[The Commission] will establish a rebuttable presumption that rates offered within the previous three years are still compensatory.” First Report and Order, FCC , para. 489 Example Service Provider billed the beneficiary $5,000 for a switch. The auditor sampled other customers and identified a similarly situated non-residential customer that was charged $4,500 for the same switch. Service Provider over-billed the beneficiary and over-invoiced SLP at a pre-discounted cost of $500. © 2019 Universal Service Administrative Co

I billed the beneficiary higher than another non-residential customer but they were not similarly situated, so why did the audit identify a LCP finding? “Service providers may request higher rates if they can show that the lowest corresponding price is not compensatory, because the relevant [beneficiary] is not similarly situated to… the customer paying the lowest corresponding price.” 47 C.F.R. § (c)(2) The audit may have identified: The Service Provider did not demonstrate how the non-residential customer was not similarly situated. The Service Provider did not provide the auditor with other customer documentation. © 2019 Universal Service Administrative Co

How do I avoid this finding? Provide documentation demonstrating customer demographics, service descriptions, sales terms, etc. Documentation may include customer lists of non-residential customers receiving similar services, sales reports, “ping” reports demonstrating customers connected, bills to customers, etc. Example #1 Service Provider billed the beneficiary $10,000 for telecommunications services. The auditor identified a non-residential customer that was charged $8,000 for a similar service. The Service Provider asserted that the services at issue are not similar and/or the contracts were negotiated under very different conditions. The Service Provider did not provide the other customer’s documentation to determine how the service was delivered. Service Provider’s non-compliance resulted in recommended recovery of the discounted portion of the pre-discounted $2,000 difference. © 2019 Universal Service Administrative Co

Example #2 Service Provider billed the beneficiary $3,000 for Internet access services. The auditor sampled other customers and identified a non-residential customer that was charged $2,000 for the same service. The Service Provider asserted that the beneficiary and other customer were not similarly situated because they were not in a comparable sales area as the other customer was in a test market. The Service Provider did not provide its customer list nor did it provide documentation portraying its sales area. Service Provider’s non-compliance resulted in recommended recovery of the discounted portion of the pre-discounted $1,000 difference. © 2019 Universal Service Administrative Co

Lack of or Inadequate Documentation Pitfalls
I explained to the auditor that the “credit applied” balance on the bill represented the beneficiary’s payment of its non-discounted portion, so why did the audit identify an inadequate documentation finding? “Service providers may request higher rates if they can show that the lowest corresponding price is not compensatory, because the relevant [beneficiary] is not… subscribing to a similar set of services to the customer paying the lowest corresponding price.” 47 C.F.R. § (c)(2)” The audit may have identified: The auditor did not obtain sufficient, appropriate evidence to form a conclusion on the audit results, as required by GAGAS. The auditor could not determine whether the “credit applied” represented the beneficiary’s payment versus a rebate, free services, service termination, previous credit memo, etc. © 2019 Universal Service Administrative Co

Lack of or Inadequate Documentation Pitfalls
How do I avoid this finding? Maintain documentation that corroborates explanations Remember, to summarize GAGAS, if documentation does not exist, it did not happen. Example Service Provider billed beneficiary and invoiced SLP for Basic Maintenance of Internal Connections at a pre-discounted cost of $100,000. Bill included charge for “monthly maintenance” for $100,000. No other documentation demonstrating actual equipment served was provided. Service Provider lacked adequate documentation to support services provided for a pre-discounted cost of $100,000 © 2019 Universal Service Administrative Co

Understanding the Audit Results
A finding is a condition that shows evidence of noncompliance with FCC rules and SLP requirements An other matter is a condition that does not necessarily constitute a rule violation but warrants the Service Provider and SLP management’s attention An exit conference is conducted to discuss the audit results and any findings or other matters Findings and other matters will be communicated throughout the audit as they arise A survey will be provided to the Service Provider to gather feedback on the audit process and suggest improvements © 2019 Universal Service Administrative Co

Understanding the Audit Results
If the auditor identifies a potential area of non-compliance: Service provider / beneficiary notified ASAP. Service provider / beneficiary provide additional documentation to demonstrate compliance with FCC rules. Auditor drafts audit report. Schedule exit conference Discuss all audit findings (and other matters) Service provider / beneficiary provide a response to the audit findings. Post-audit survey © 2019 Universal Service Administrative Co

Reporting Audit Findings
All draft audit findings are reviewed by Audit and Assurance Division management before they are sent to the Service Provider All draft audit findings are provided to the Beneficiary and Service Provider, as necessary, to obtain a written response Service Provider response could be applicable in a Service Provider audit as well as in a Beneficiary audit All draft audit findings are provided to SLP, with the Service Provider’s response, to obtain a written response SLP seeks recovery and/or takes other corrective action © 2019 Universal Service Administrative Co

Reporting Audit Reports
The quality assurance review process is time consuming (approximately two months) The auditors may be asked for additional information, which may require the auditors to conduct follow-up with the Service Provider When the review process is complete, the Service Provider will receive the audit report, which contains all findings and other matters with the Schools & Libraries Program responses © 2019 Universal Service Administrative Co

Reporting Audit Reports
If SLP seeks recovery of funds, SLP will send a Commitment Adjustment (COMAD), or a Recovery of the Improperly Disbursed Funds (RIDF) letter The Service Provider has a right to appeal the COMAD or RIDF. Once the final audit report is delivered, the Audit and Assurance Division is not involved in the corrective action. AAD must maintain its independence from management decisions © 2019 Universal Service Administrative Co

Tips for Success Review the Funding Commitment Decision Letter (FCDL)
If the pre-discounted and discounted costs committed in the FCDL are not in agreement with the pre- discounted costs and calculated discounted costs of services to be delivered, contact the Beneficiary Maintain supporting documentation for amounts included on the SPI. © 2019 Universal Service Administrative Co

Tips for Success Provide complete documentation
If the Service Provider does not believe complete documentation is available, inform the auditor immediately so that alternative procedures can be discussed Ensure the individuals with the appropriate knowledge are available © 2019 Universal Service Administrative Co

2019 Service Provider Training

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