Due to the detailed nature of some of these new rules, we will discuss each of the four topics separately in this and future weeks. Because they may require significant procedural changes for almost all applicants, beginning this year (FY 2004), we start with the new document retention requirements (see FCC 04-190).

Applicants have long been required to certify in Form 471 and 472 that they will retain worksheets and records supporting their applications for five years. This "requirement," however, has just now being expanded and codified as a formal program rule. This has several important implications.

1. The required retention period is defined as five years from the last day of service (e.g., June 30, 2005 for recurring FY 2004 services). This corresponds to the new "administrative limitations period" in which the FCC or USAC can determine that a violation has occurred and can seek the recovery of funds.
   
2. By making this a rule, rather than simply a procedural requirement, violations will hence forth subject an applicant to a commitment adjustment ("COMAD"). If during an audit, an applicant cannot properly document any required aspect of a funded service, USAC may demand the repayment of associated funds.
   
3. Record retention requirements apply to both applicants and service providers.
   
4. Prior to this Order, there have been recommendations, but little formal guidance, on the types of records which should be retained. Although the new Order does not specify a full and explicit list of documents, it does provide a rather detailed "illustrative" list that should serve as a strong warning to applicants and service providers alike. In only slightly condensed form, the list reads as follows:
   • "Pre-bidding Process. Beneficiaries must retain the technology plan and technology plan approval letter. If consultants are involved, beneficiaries must retain signed copies of all written agreements with E-rate consultants.
     
   • "Bidding Process. All documents used during the competitive bidding process must be retained. Beneficiaries must retain documents such as: Request(s) for Proposal (RFP(s)) including evidence of the publication date; documents describing the bid evaluation criteria and weighting, as well as the bid evaluation worksheets; all written correspondence between the beneficiary and prospective bidders regarding the products and service sought; all bids submitted, winning and losing; and documents related to the selection of service provider(s). Service providers must retain any of the relevant documents described above; in particular, a copy of the winning bid submitted to the applicant and any correspondence with the applicant. Service providers participating in the bidding process that do not win the bid need not retain any documents.
     
   • "Contracts. Both beneficiaries and service providers must retain executed contracts, signed and dated by both parties. All amendments and addendums to the contracts must be retained, as well as other agreements relating to E-rate between the beneficiary and service provider, such as up-front payment arrangements.
     
   • "Application Process. The beneficiary must retain all documents relied upon to submit the Form 471, including National School Lunch Program eligibility documentation supporting the discount percentage sought; documents to support the necessary resources certification pursuant to section ... of the Commission's rules, including budgets; and documents used to prepare the Item 21 description of services attachment.
     
   • "Purchase and Delivery of Services. Beneficiaries and service providers should retain all documents related to the purchase and delivery of E-rate eligible services and equipment. Beneficiaries must retain purchase requisitions, purchase orders, packing slips, delivery and installation records showing where equipment was delivered and installed or where services were provided. Service providers must retain all applicable documents listed above.
     
   • "Invoicing. Both service providers and beneficiaries must retain all invoices. Beneficiaries must retain records proving payment of the invoice, such as accounts payable records, service provider statement, beneficiary check, bank statement or ACH transaction record. Beneficiaries must also be able to show proof of service provider payment to the beneficiary of the BEAR, if applicable. Service providers must retain similar records showing invoice payment by beneficiary to the service provider, USAC payment to the service provider, payment of the BEAR to the beneficiary, through receipt or deposit records, bank statements, beneficiary check or automated clearing house (ACH) transaction record, as applicable.
     
   • "Inventory. Beneficiaries must retain asset and inventory records of equipment purchased and components of supported internal connections services sufficient to verify the location of such equipment. Beneficiaries must also retain detailed records documenting any transfer of equipment within three years after purchase and the reasons for such a transfer.
     
   • "Forms and Rule Compliance. All program forms, attachments and documents submitted to USAC must be retained. Beneficiaries and service providers must retain all official notification letters from USAC, as applicable. Beneficiaries must retain FCC Form 470 [and] FCC Form 471 and certification pages (if not certified electronically), FCC Form 471 Item 21 attachments, FCC Form 479, FCC Form 486, FCC Form 500, FCC Form 472. Beneficiaries must also retain any documents submitted to USAC during program integrity assurance (PIA) review, Selective Review and Invoicing Review, or for SPIN change or other requests. Service providers must retain FCC Form 473, FCC Form 474 and FCC Form 498, as well as service check documents. In addition, beneficiaries must retain documents to provide compliance with other program rules, such as records relevant to show compliance with CIPA."

At first glance, the FY 2005 ESL contains few surprises. The major difference from the current ESL, dated October 2003 is the addition of a more extensive and clarifying section on Special Eligibility Conditions. Additional details on the proposed list will be covered in next week's newsletter.

Unused funding is an important issue for applicants in two ways. The first is that unused funds, once identified as such, can now be rolled over into future funding years, adding to the regular $2.25 billion available from the annual Universal Service Fund contributions of the telecom carriers. The first rollover of funds occurred in FY 2003, allowing Internal Connections requests to be funded below 80% for the first time in five years.

Without applicant help, the identification of unused funds is a long drawn out process. The SLD cannot even theoretically designate funds as "unused" until after the associated invoice deadline which, for FY 2003 nonrecurring services is January 28, 2005. More practically, given the possibility of a host of procedural extensions, unused funds are not recouped until much later.

The second critical issue for applicants is duplicative requests. Due to the long lead time between application submittal, funding approval, and actual service usage, applicants are often placed in a situation whereby funding for the same service is requested in more than one year. To avoid problems in the SLD's application review process, applicants should proactively eliminate duplications whenever possible, either by canceling earlier funding awards or by canceling current awards or requests.

For any given application, the process for canceling (or reducing) funding requests depends on the application's status, namely:

1. If the application has already been funded - for FY 2004 or earlier - any award can be reduced or canceled by filing a Form 500.
   
2. If the application is currently being reviewed by PIA, any funding request can be canceled by simply asking your PIA representative (and typically confirming the change in a simple fax or e-mail). Important note: we do not recommend large reductions in funding requests being reviewed by PIA since reductions of 30% or more may be grounds for denying the entire requests.
   
3. If the application is not yet in the PIA stage, it may be possible to reduce or cancel any funding request by marking up the Receipt Acknowledgment Letter ("RAL") and faxing it back to the SLD (as discussed in the RAL itself).
   

This summer is a particularly fitting time to review potentially unused funds awarded for FY 2003. We encourage applicants to do so now and to file Form 500s to cancel all unneeded funding, especially when such funding exceeds $5,000 per FRN.

Here are several points to consider when filing.

1. A Form 500 can be used to cancel a funding request entirely (line H on page 2) or to reduce the amount awarded (line I on page 2).
   
2. A Form 500 can be used to cancel or reduce funding on more than one FRN at a time. For multiple FRNs, simply include additional copies of page 2, making sure to label each one 2A, 2B, 2C, etc. in the little blank space about two inches from the top of the page.
   
3. Double-check your work. Once a Form 500 is submitted, the cancellations and/or reductions are irreversible.