Federal Communications Commission
Washington, D.C. 20554
December 15, 2014
DA 14-1820
Mr. Chris Henderson
Chief Executive Officer
Universal Service Administrative Company
2000 L Street, NW
Washington, DC 20036
RE: Schools and Libraries Universal Service Support Mechanism - Reserve Funding
Dear Mr. Henderson:
As part of our ongoing oversight of the Universal Service Administrative Company (USAC)1 and
to ensure the best cash management practices for the Schools and Libraries Universal Service Support
Mechanism (S&L program), this letter provides guidance from the Commission on how USAC should
appropriately account for certain categories of potential disbursements within the S&L program, also
knowii as the E-rate program. As you are aware, the Commission has directed USAC to prepare financial
statements for the Universal Service Fund (USF), including the S&L program, consistent with generally
accepted accounting principles for federal agencies (Federal GAAP) and to keep the USF in accordance
with the United States Standard General Ledger (USSGL).2 Consistent with that directive, below we
address the amounts USAC should reserve for three categories: (1) applications for which USAC has not
yet issued a funding commitment decision letter (FCDL); (2) funding that has been committed, but not
disbursed after the close of the funding year, including those amounts for which applicants have filed a
timely request for an extension on the deadline to invoice USAC for committed requests; and (3) funding
decisions appealed, either to USAC or the Commission.
The first category is applications for which USAC has not yet issued an FCDL ("pending
applications"). We direct USAC to reserve funding for pending applications based on their age, as set
forth immediately below. For pending applications submitted in the then-current funding year and the
most recent previous two funding years (currently, funding years 2014, 2013, and 2012), we direct USAC
to reserve 100 percent for the amount of the requested funding that it estimates will be needed for
successful applications - up to the maximum amount of the funding cap, plus the carry-forward amount
minus administrative expenses, as announced and authorized by the Commission annually. We have
determined that the cash reserve from a rolling three-year period - the then current and previous two
funding years - is sufficient to fund these pending applications. In the interim, USAC should take
appropriate action to provide a reserve sufficient to fund pending applications. In general, for funding
years that are more than three years old (currently, FY 2011 and earlier), USAC should not reserve any
funding for these pending applications. However, USAC may reserve funds for older funding year
Memorandum of Understanding Between the Federal Communications Commission and the Universal Service
Administrative Company at III.B.1 (Sept. 9,2008).
2l of Generally Accepted Accounting Principles for FederalAgencies and Generally Accepted
Government Auditing Standards to the Universal Service Fund, CC Docket No. 96-45, Order, 18 FCC Rcd. 19911,
19913 (2003).
applications, if circumstances exist where USAC estimates that reserves available under the rolling three-
year period will not be sufficient to fund the older applications that are likely to be granted.
Second, we provide guidance to USAC with respect to funding that has been committed for a
particular funding year but has not yet been disbursed by the close of the funding year. We discuss in this
paragraph the undisbursed commitments for which an invoice extension has been requested and discuss
other undisbursed commitments in the following paragraph. As an initial matter, we direct USAC not to
reserve any funding for potential invoice extension requests. The dollar amounts for approved invoice
extensions are accounted for as committed funding. Where that is not the case, such as those invoice
extensions associated with funding years that closed several years ago, the dollar amounts are typically so
small that a reserve is not required. When the rule establishing an invoicing deadline becomes effective,3
we anticipate that USAC will be able to determine with certainty the dollars associated with invoice
extensions and can take those amounts into account when analyzing the amount of funding to be reserved
for committed funds generally.
For other committed funds that have not been disbursed, we direct USAC to quantify the
remaining commitments and, using historical data, determine the appropriate amount to reserve for those
remaining commitments. Historically, an average of 25 percent of the funding committed in any given
funding year was not disbursed for that funding year.4 Going forward, we expect that at least some
portion of that amount (for example, 5 percent to 10 percent of the total amount available for
commitment) will be identified as available for current use. The rest will remain in reserve to fund
pending commitments and appeals. We emphasize that no commitments will actually be de-obligated as
a result of the above process. Instead, USAC will just determine how much cash should be reserved to
pay the remaining commitments, given that not all of them will be fully invoiced based on historical data.
USAC should also take into consideration changes in the E-rate program that may affect cash available.
Finally, we have determined that the cash reserve from a rolling three-year period - the then
current and previous two funding years - is also generally sufficient to fund successful appeals of USAC
decisions. As noted above, there may be special circumstances where USAC is authorized to reserve
additional funds for pending matters. As you are aware, many of the appeals are not granted by the
Commission and therefore no disbursements will be made. Also, many of the appeals without a
commitment are decided by the Commission within the current funding year (for example, the requests
for waiver of the application deadline) and therefore are accounted for as a pending request for funding
for the current funding year. In addition, for those appeals that may require additional commitments and
disbursements in the unlikely event that the amounts held in reserve are not sufficient, the Commission
has authorized USAC to use funds budgeted for subsequent funding years to fund discounts for successful
appeals from prior funding years.5 Therefore, USAC can use funds from subsequent funding years to
fund successful appeals if no funding is available in the relevant funding year.
Modernizing the E-rate Program for Schools and Libraries, WC Docket No. 13-184, Report and Order and Further
Notice of Proposed Rulemaking, 29 FCC Rcd 8870, at paras. 23 8-239 (rel. July 23, 2014). The Commission
codified USAC's procedural deadline for invoices of the latter of 120 days after the last day to receive services, or
the date of the FCC Form 486 notification letter. Id. Applicants can also request and will automatically be granted a
single 120-day extension of the invoicing deadline. Id.
Prior analyses demonstrate that, on average, approximately one-fourth of committed funds are not invoiced and
disbursed annually. Long-Term Strategic Vision Would Help Ensure Targeting of E-rate Funds to Highest-Priority
Uses, GAO-09-253 (2009) at 27-28.
See Schools and Libraries Universal Service Support Mechanism, CC Docket No. 02-6, Second Report and Order
and Further Notice of Proposed Rulemaking, 18 FCC Rcd 9202, 9223-24, paras. 62-3 (2003).
2
We recognize and appreciate USAC's efforts to work with the Commission on these issues. If
you have any questions or wish to discuss these issues further, please do not hesitate to contact me.
Sincerely,
Jon Wilkins
Managing Director
cc: Dana Shaffer, OMD
Mark Stephens, OMD
Debra Weiner, OGC
Julie Veach, WCB