The Universal Service Fund was established under 1993 Wisconsin
Act 496 to ensure that all state residents receive essential telecommunications services and have access to advanced telecommunications
capabilities. It supports telecommunications services
and access programs that are provided by several state agencies,
including the Public Service Commission (PSC), the Department
of Administration(DOA), the University of Wisconsin (UW)
System, and the Department of Public Instruction (DPI).
The PSC is responsible for developing the overall policies
and procedures related to the Universal Service Fund but is
directed by statute to contract with a private firm to administer
the Fund.
At the request of the PSC, we completed a financial audit of the
Universal Service Fund to fulfill audit requirements under
s. 196.218(2)(d), Wis. Stats. Our audit report contains our
unqualified opinion on the Fund’s financial statements and
related notes for the fiscal years ending June 30, 2007 and 2006.
Fund Finances
The Universal Service Fund is
funded primarily through
assessments paid by telecommunications
providers, which totaled
$30.0 million in FY 2006-07. Interest
income totaled $944,000. Almost
$28.9 million was expended
during FY 2006-07 for 13 programs
currently supported by the
Universal Service Fund. Eight of
these programs are operated by the
PSC, with expendi tures totaling
$5.1 million in FY 2006-07.
The largest program supported by
the Universal Service Fund, the
Educational Telecommunications
Access Program, is operated by
DOA. This program subsidizes
data lines and video links for
eligible educational institutions.
Its expenditures of $17.4 million
represented 60.3 percent of the
Universal Service Fund’s total
expenditures in FY 2006-07.
During FY 2006-07, the Universal
Service Fund also provided over
$6.2 million for two programs
administered by DPI. In addition,
it paid almost $90,000 to UW
System to help provide four UW
campuses access to voice, data,
and video services through the
BadgerNet Converged Network,
the State’s voice, data, and video
telecommunications infrastructure.
We have noted in past audits that
the fund balance has steadily
increased over the last several years
because more assessments were
collected than expended. During
FY 2006-07, revenues exceeded
expenditures by $2.0 million,
and the fund balance totaled
$17.8 million as of June 30, 2007.
The $2.0 million increase is, in part,
attributable to lower than anticipated
expenditures for the UW BadgerNet
Access Program. Because of billing
changes and UW System’s questions
about statutory restrictions, expenditures
for the program were not
funded through the Universal
Service Fund for several months in
FY 2006-07. Working with DOA,
UW System has subsequently
decided that the expenditures can
appropriately be funded through
the Universal Service Fund, and
annual expenditures in this category
are expected to increase to over
$1.0 million.
The PSC is responsible for determining
the assessment rates that apply
to telecommunications providers
for all Universal Service Fund
programs, based on the need for
funds and appropriation amounts.
In response to a recommendation
in our 2007 audit (report 07-11), the
PSC has begun to work more closely
with other agencies that have programs
funded through the Universal
Service Fund to determine appropriate
assessment levels and prevent
similar increases in future fund
balances.
PSC-Operated Programs
The eight programs currently
operated by the PSC include
programs that:
provide low-income or
disabled individuals affordable
access to basic telephone
and information services;
lessen the financial effect of
rate increases on users in
the state; and
assist nonprofit medical clinics
or public health agencies
in the purchase of medical
telecommunications equipment.
For several years after the first
PSC-operated programs were established
in 1996, expenditures were
significantly less than budgeted.
In 2001, the Legislature limited the
amount that telecommunications
providers could be assessed to
support the PSC-operated programs
to $5.0 million in FY 2003-04 and
$6.0 million beginning in FY 2004-05.
Corresponding appropriation expenditure
levels were also established
for the 2003-05 and 2005-07 biennia.
With the addition, expansion, and
promotion of PSC-operated programs,
expenditures for operations
and administration increased to
$6.2 million in FY 2004-05. As the
PSC has made efforts to reduce
costs to match appropriation limits,
expenditures for operations and
administration of PSC-operated
programs have decreased from
FY 2004-05 levels.
2007 Wisconsin Act 20, the
2007-09 Biennial Budget Act,
repealed the limitation on assessments
to support the PSC-operated
programs but maintained the
$6.0 million appropriation level
for each year of the biennium.
Educational
Telecommunications
Access Program
The Educational Telecommunications
Access Program, which is
administered by DOA, pays for
equipment, installation costs for
data lines and video links, and a
portion of monthly service costs
for more than 900 participating
educational institutions. Over
$119.7 million has been expended
for the program from July 1, 1998,
through June 30, 2007.
The data line and video link services
are provided by a consortium of
telecommunications providers.
In March 2005, DOA entered into
a new $116.7 million, five-year
agreement with the consortium for
a converged statewide data and
video network that provides highercapacity
data capabilities and video
access to the State of Wisconsin and
other public users. Conversion to
the new network was completed
on September 1, 2006.
Library System Aid
Until FY 2003-04, general purpose
revenue (GPR) funded state
aid to public library systems.
2003 Wisconsin Act 33 shifted
$4.2 million in funding for public
library system aid payments from
GPR to the Universal Service Fund
for the 2003-05 biennium. The next
two biennial budgets increased
the amount of funding from the
Universal Service Fund for state
aid to public library systems.
2005 Wisconsin Act 25 increased
funding from the Universal Service
Fund by another $4.2 million
over the 2005-07 biennium, for
a total of $8.4 million.
2007 Wisconsin Act 20 again
increased funding from the Universal
Service Fund by $11.1 million
over the 2007-09 biennium. As
part of the $11.1 million funding
increase from the Universal Service
Fund, the Legislature directed
the PSC to use $9.2 million of
the Fund’s balance. In total, the
Universal Service Fund is providing
$19.5 million in funding for
public library systems for the
2007-09 biennium.
Fiscal Management Issues
Our Report on Internal Control
and Compliance includes three
fiscal management issues. First,
we recommend the PSC more
thoroughly review the Universal
Service Fund’s financial statements
to ensure they are reasonable and
materially accurate. We found
a material misclassification of
expenditures that could easily have
been identified by the PSC if such
a review had been completed.
Second, DOA does not have
adequate procedures in place
to ensure the accuracy of the
copayment billings to educational
institutions participating in the
Educational Telecommunications
Access Program. During our
testing of the copayment billings,
we identified 45 educational
institutions that were not billed
according to the services they were
receiving.
Finally, DOA incorrectly accounted
for a prior-year’s refund of $196,701
for the Educational Telecommunications
Access Program. We
recommend improvements to
address these errors.