FCC Audit: FCC Staff Audit Process is Flawed and Inaccurate; Commissioner Calls Numbers 'Indefensible' - U S West - Company Business and Marketing

EDGE, On & About AT&T, March 22, 1999

U S WEST has said a telephone equipment audit conducted by staff members of the Federal Communications Commission (FCC) is flawed and inaccurate, an opinion shared by one Commissioner who is calling the audit numbers "indefensible." The company says it can account for fully 96 percent of the items covered by the audit, a well-within-the-norm record-keeping rate for a $30 billion business.

"We have spent thousands of hours examining archived records -- some decades old -- to account for the items the FCC staff members were looking for," said Mark Roellig, executive vice president, Public Policy, Human Resources, and Law, U S WEST. "We can account for 96 percent of the items -- an error rate well within the range of reasonableness in record-keeping for a $30 billion company. "Unfortunately, the staff who conducted the audit has chosen to ignore the significant evidence we provided that disproved their findings. Their refusal to accept any of this data raises questions with respect to the purpose and intention of the audit, and is contrary to generally accepted government auditing standards," he said. In a dissenting opinion released late today, Commissioner Harold Furchtgott-Roth was very critical of the audit. "I spent several years in private economic consulting. I have seen good cases; I have seen weak cases; but rarely have I seen numbers as indefensible as the extrapolations of missing equipment contained in these orders. I could not possibly defend them, and I therefore must respectfully dissent from their release." In a February 25 statement, Commissioner Michael K. Powell was critical of the method and timing of the audit's release "...the Commission does not endorse the recommendations and conclusions of our Common Carrier Bureau's auditors," he said. Similarly, in a statement released the same day, Commissioner Susan Ness said "...the Commission has reached no decisions concerning these audit results. The reasonableness of the audit methodology, findings, and extrapolations... are all open for discussion." In expressing his frustration over the audit, Roellig said agency staff used flawed statistical techniques, and made unfounded projections. For example, he said the auditors looked at less than one-half percent of all company assets, yet extrapolated the results of that one-half percent across the company's entire network investment. An independent auditor specializing in the telecommunications industry who reviewed the audit process is expressing similar sentiments. "Our review indicates that the audit procedures performed were clearly inadequate to support the findings contained in the report," says Carl Geppert, a partner with Arthur Andersen. "An audit of the fair presentation of central office equipment account balances requires far more analysis than the one-way verification of continuing property records." U S WEST strongly asserts there has been no impact on customers as a result of equipment accounting. "Three items prove this. First, we can account for the items they say are missing. Second, the FCC does not use property valuations to set rates. And, finally, the vast majority of these items were already fully depreciated with no remaining financial value to the company," Roellig said. U S WEST believes the rules requiring large local telephone companies to maintain such detailed property records are accounting relics that have long outlived their usefulness and are immaterial in determining the prices consumers pay for telephone service. "Clearly, simplification is needed," Geppert continues. "Overly detailed accounting and record keeping rules, such as the existing continuing property record requirements, have outlived their usefulness as the industry strides towards an open market." Nevertheless, Roellig said, U S WEST strives to be in compliance with these burdensome and unnecessary regulations. "To assume our records are error-free would be overly optimistic, given the size of our company and the fact that some of these records have to be maintained and updated for decades," Roellig said. U S WEST maintains more than 500,000 records for its central office equipment alone. The cost associated with this record keeping is substantial. Additionally, the cost of these audits to both U S WEST and the FCC is considerable given the information obtained is of little significance in determining customer rates. Roellig said he hopes the agency will decide that its complex accounting procedures should be simplified and revised to reflect today's competitive environment. U S WEST provides a full range of telecommunications services -- including wireline, wireless PCS, data networking, directory and information -- to more than 25 million customers nationally and in 14 western and midwestern states. More information about U S WEST can be found on the Internet at http://www.uswest.com.