The Wyoming Universal Service Fund (WUSF) has been operational since 1997 and is run in

accordance with Wyoming Public Service Commission (WPSC) rules under Chapter V, Section 500.

The National Exchange Carrier Association (NECA) was chosen as the original WUSF Manager.

Subsequent to the expiration of the NECA management contract in August 1999, the WPSC contracted

with Mr. James T. Dinneen, Esq. and C.P.A., of Lathrop and Rutledge, P.C. to succeed NECA as the

WUSF Manager. NECA transitioned its responsibilities to Mr. Dinneen and all banking functions to the

Wyoming State Treasurer and Auditor during the period September 1, 1999 through October 31, 1999.

Mr. Dinneen’s official start date under his first contract was October 29, 1999. All remaining funds

received by NECA from carriers contributing to the WUSF after October 31, 1999 were transferred to

the Wyoming State Treasurer by November 15, 1999. Mr. Dinneen and one part-time staff member

QSI Consulting, Inc. was engaged by the WPSC to audit the management of the (WUSF) in accordance

with the requirements specified in WPSC RFP No. 0168-J. QSI began fieldwork in early March 2002

and completed fieldwork in mid-May 2002. The scope and purpose of the engagement was to audit the

practices, procedures, collections, deposits and statewide average rate calculations of the WUSF

Manager for the period October 28, 1999 through December 31, 2001. Based on audit procedures

performed by QSI, each of the following audit objectives stipulated by the WPSC can be answered

affirmatively:

1. Are telecommunications service providers being billed the appropriate amount for WUSF based

upon the services they provide and report to the manager?

2. Are telecommunications service providers paying the appropriate amount for WUSF and are the

funds properly deposited with the State of Wyoming?

3. Is the WUSF Manager making appropriate calculations for support payments and submitting

support payments requests to the WPSC for all eligible telecommunications service providers?

4. Are the manager’s reports, calculations and recommendations accurate and in compliance with

current WPSC Rules and Regulations?

5. Can improvement be identified and implemented for purposes of enhancing the efficiency and

accuracy of the WUSF process?

QSI’s detailed audit testing, findings, recommendations and schedules are contained in a confidential

report filed with the WPSC. A summary of pertinent non-confidential findings and recommendations

are included in this report.

SUMMARY OF AUDIT FINDINGS

QSI believes the WUSF is managed adequately and that current procedures and practices employed by

Mr. Dinneen, personnel of the WPSC, the State Treasurer, and the State Auditor ensure relatively timely

and accurate assessment receipts and support payments. However, there appear to be a number of

improvements that can be made to WUSF operations to make it more effective. QSI encourages Mr.

Dinneen to assert his authority even more to ensure accurate and timely payment of assessments. QSI

also recommends that Mr. Dinneen automate the reporting process more extensively for purposes of

freeing up time to analyze unusual trends in data reported by the carriers.

Internal Controls and Cash Receipts & Disbursements

QSI found no material weaknesses in WUSF internal controls and no undocumented activity in the

management’s handling of cash receipts and disbursements. QSI notes that the processing of cash

receipts and disbursements through the WPSC, the State Treasurer, and State Auditor mitigated the lack

of segregation of duties inherent in a two-person operation. Additionally, receipt deposits and

disbursement requests appeared to be handled in a timely manner within the constraints of required

oversight exerted by WPSC personnel, the State Treasurer’s, and State Auditor’s offices.

Statewide Average Rate and Support Payment Calculations

The WUSF Manager appears to be accurately calculating support payments derived from the line count

and local exchange service rate data provided by Wyoming local exchange carriers (LECs). However,

one exception occurred during our fieldwork, which involved a preliminary estimate of USF support for

the 2002 / 2003 fiscal year. This estimate was skewed by a statewide average rate, which failed to

account for federal USF support provided to a specific LEC. Had the 130% benchmark been set using

these rates, WUSF support would have been calculated incorrectly. The WUSF Manager was able to

resolve this issue with the assistance of WPSC Staff.

Assessable Revenue and Assessment Payments

Carriers reporting assessable revenue to the WUSF generally appear to be (1) reporting revenue

monthly, (2) calculating their assessments correctly based upon the assessment rate in effect during the

time period chosen for testing, and (3) paying assessments in a timely manner. However, QSI noted that

some of the larger carriers may have missed certain payments during the audit period or paid late, which

deprived the WUSF of USF contributions and investment income. Subsequently, QSI found that none of

these carriers were assessed late penalties during the audit period as allowed for by WPSC Rules,

Chapter V, Section 500 (m). QSI recommended that the WUSF Manager assess penalties uniformly and

consistently according to the rules governing the WUSF, and he agreed to begin doing so during the

fieldwork portion of our audit.

SUMMARY OF RECOMMENDATIONS

Cash Receipts

The WUSF should consider encouraging payment of assessments via electronic funds transfers (EFT)

directly to the State Treasurer to minimize the number of checks that must be handled by WUSF

personnel and transferred to the WPSC. This would mitigate a potential internal control weakness.

Statewide Average Rate and Support Payment Calculations

The WUSF Manager should utilize his database of local exchange rates filed by Wyoming local

exchange carriers in previous years to ascertain the reasonableness of rates filed by carriers with their

year-end annual reports to the WUSF for current year support calculations.

Assessable Revenue and Assessment Payments

The WUSF Manager should review his database of reported assessable revenue by company to identify

carriers that may have missed assessment payments. Additionally, a trend of revenue reported by the

major carriers can be used to identify unusual fluctuations in revenue on a monthly basis, which may

indicate reporting errors by a particular company. Penalties should be assessed uniformly and

consistently to ensure timely receipt of assessments. The investment income earned from such timely

payments will pay most, if not all, of the WUSF’s administrative expenses.

May 15, 2002