the Commission believed our report would be useful in the future development of the USOA. The Commission said it would take the following steps: --Establish a task force, headed by a senior staff member --Make development of an appropriate implementation --Direct the task force to develop, as soon as possible, --Direct the task force to evaluate the procedural op- ALMOST NO PROGRESS HAS BEEN A The revision of the USOA has made very little progress. second Notice of Proposed Rulemaking scheduled for Commission action in July 1980, which would have proposed a set of revenue accounts was never released. The project is now in limbo. Although the Commission Chairman promised the Congress in 1978 that it would begin implementing the new system in January 1981, the Commission economist who headed the project recently estimated that if the Commission could get the project moving again, implementation would not occur before January 1985. There are two broad reasons for this current state of affairs. --FCC has not given this project adequate attention, to the point of not implementing its promised reforms. --Revision of the Cost Manual and other Commission actions have kindled a debate over whether the Commission should go forward with the USOA revision as originally planned. FCC has not given revision adequate attention Although it has long recognized the need to revise the USOA, FCC has not given this effort adequate attention. Reflecting this fact, the project still lacks a leader with the authority to direct the project and an appropriate staff to implement the revision. In addition, other issues, such as intended user needs, have not been adequately addressed. There has not been, to date, an individual with both the responsibility and authority to direct the USOA revision. Following our report FCC assigned overall responsibility for the revision to the Deputy Bureau Chief for Policy. This individual, at the time of our review, told us that the Chief of the Economics Division was to be assigned specific responsibility within FCC for all phases of implementation and development of the project. This position, however, was vacant during most of 1980. Although a Division Chief was named in November 1980 the Bureau Chief at the time felt that he knew nothing about the project and was not qualified to head the effort. This left an economist in the Economics Division who has worked on the project since its inception as the person largely responsible for the revision. The Bureau Chief told us he was reluctant to give the economist free rein with the appropriate authority to direct the project because the economist did not have the necessary range of experience. The Common Carrier Bureau Chief wanted the individual heading the project to be able to balance the theoretical needs of the accounting system with certain practical realities--for example, does FCC have the computer capability to digest and use the detailed information it proposed to collect? His solution was to recruit an experienced individual from outside FCC who would become the new Chief of the Accounting and Audits Division and who would head this project. Responsibility for the project would then be transferred from the Economics Division to the Accounting and Audits Division. In November 1980, however, the outside individual the Bureau Chief had recruited to head the project decided not to join FCC. Shortly thereafter in January 1981 the Bureau Chief resigned. The project now remains largely the responsibility of the same economist. To assure coordination with the interim cost manual proceeding (discussed in ch. 4) the Policy and Program Planning Division Chief has become more involved. FCC has not set up the task force to revise the USOA as stated in its reply to our 1979 report, and over the last year (1980) the resources assigned have amounted to three economists-including the project leader--and one accountant. This is clearly an inadequate staff. As FCC internal documents indicate, additional accountants must be involved. Engineers are also needed to, among other things, develop plant accounts and to assist with the design of certain expense accounts. Attorneys are also necessary to assist in the drafting of Commission orders. In response to our recommendation that FCC define the needs of intended users, a user study was performed; however, it covered only the revenue account information FCC officials would need and did not deal with plant or expense accounts. Surprisingly, this study was done by a group in the Enforcement Division which had not worked on the USOA revision. The study's results, besides being limited, were contested by some of the individuals working on the revision and, as a result, it is not clear what impact this study will have on the final USOA revision. Regarding other recommendations in the 1979 report concerning State coordination, coordination with other proceedings, and identifying industry reporting requirements, FCC has taken little indentifiable action. Fundamental debate is occurring over the direction of the USOA revision Underlying the management problems discussed previously has been a debate over the general direction and structure for the revised USOA. Since its first notice in 1978, FCC has adopted a separations based Interim Cost Manual and rejected FDC-7. Since the initial USOA revision was intended to provide the data to support FDC-7, a debate has developed among FCC's staff whether the USOA should be revised to provide cost accounting data or should restrict itself to financial data. Beyond this fundamental question the debate also included issues concerning whether FCC should require the detailed data it initially proposed to collect and whether it can digest such detailed data, as well as what the relationship should be between the USOA and the Functional Accounting System AT&T is developing. Debate on all of these questions has contributed to the lack of progress on the USOA revision. The revision of the USOA was intended to provide the accounting and allocation data to support FDC-7. With the shift from FDC-7 to the separations based Interim Cost Manual, the former Bureau Chief in July 1980 halted work on the USOA revision and in August 1980 ordered a change in direction away from FDC-7 to an approach more in keeping with the Interim Cost Manual. After the resignation of the Bureau Chief in January 1981 the change in direction never got down to specifics, and there simply is no consensus on what form the revision should take. Underlying this situation is a fundamental debate over what should be the basic purpose of the USOA. In January 1981, the Acting Chief of the Accounting and Audits Division suggested that the revised accounting system should produce strictly financial data to which allocation procedures could then be applied to provide costing information. This reflected his view that accounting systems should limit themselves to financial data. This suggestion prompted a sharp reply from Economics Division officials pointing out, correctly we believe, that without cost accounting data FCC will not be in a position to (1) assess the justness and reasonableness of particular rate structures and rate levels; (2) prescribe rates; and (3) maintain proper surveillance over money and property flows which may be involved in cross-subsidization between services. The Chief of the Policy and Program Planning Division acknowledged the existence of this debate and stated frankly that there is no consensus on which way the project should go. In the face of numerous consultant studies, Commission documents, and the statements of knowledgeable officials supporting the need for cost accounting data, we do not believe that such a fundamental debate ought to be occurring. Such a debate should have been resolved years ago, and its occurrence now illustrates in the starkest terms the inadequacy of FCC's efforts to address one of its most basic and necessary regulatory responsibilities. Beyond this fundamental question, with the retreat from FDC-7, there is no clear view of how the USOA, assuming it is intended to include cost accounting data, should be constructed. The economist who has headed the project has proposed that the USOA be revised to "support" separations. separations. Under this proposal the USOA would include cost categories which are the same or in some cases more detailed than those in separations. As noted in chapter 4, accounts in the USOA are currently divided into more detailed categories for separations purposes. This proposal would also capture in the Primary Allocation Records the detailed usage data which is generated while doing basic studies for separation purposes. Such an approach would provide a stable base of detailed cost and allocation data which could be used for jurisdictional separations and cost of service purposes. The author of this approach argues that the unification of financial accounting (the USOA) and separations accounting will save the carriers money since they have about one-third of their accounting departments currently working on separations. Capturing the detailed usage information in the Primary Allocation Records will allow for detailed cost of service allocations. It is also argued that incorporating the detailed data developed for separations into the USOA will promote greater accuracy in the separations procedures. This approach may not be as novel as it first seems. As noted earlier, one of FCC's stated objectives for the revised USOA has been to facilitate the breakdown of costs between interstate and intrastate jurisdictions. Further, under this approach FCC's rejection of FDC-7 does not, in itself, make major changes in the information requirements of the Commission, except in the areas of forecasting and recording of deviations between forecasted and actual use. This approach is not supported by the entire Common Carrier Bureau staff. Several have expressed a desire for a "less detailed" system of accounts. The term less detailed, however, has several meanings. One meaning, supported by the Bureau Chief during the time of our review, is that it should not be necessary to have all possible information contained in the chart of accounts as long as the information is properly collected and maintained in supporting records. It appears that a less detailed chart of accounts may be in response to the strong initial criticism made by carriers of the extremely detailed accounts proposed in the June 1978 Notice of Proposed Rulemaking. Another area where less detail has been suggested is in the amount of direct attribution made in the system of accounts. The Commission's original proposal envisioned a large amount of direct attribution of expenses and facility costs to services. Such direct attribution would require extensive, detailed record keeping and reflected the Commission's decision in Docket 18128 to have costs attributed on a cost causative basis. With the Commission's apparent shift from FDC-7 to an allocation methodology based on relative use, Bureau officials have suggested that less direct attribution be required with costs allocated among services based on usage factors. Some officials have questioned whether FCC could review and audit the large amount of data a high degree of direct attribution would generate. A final issue under consideration is what the relationship should be between the USOA and AT&T's functional accounting system. This system has been under development since the mid1970s and is intended to function as a management information system. In light of the considerable time and money which has gone into the system, AT&T has suggested that FCC adopt it as a USOA. Whether the system can provide the cost of service FCC needs and whether FCC could administer or audit this system remains unresolved. In July 1980 FCC hired a contractor to evaluate these issues. The contractor's report was released by FCC for comment by interested persons in July 1981. CONCLUSIONS The USOA--a fundamental source of regulatory information-needs revision. It cannot provide the cost of service information FCC needs to effectively regulate a carrier operating in both monopoly and competitive markets. FCC needs to give this effort immediate and priority attention--attention which has not been given this project although recommended in our 1979 report. In particular, an individual with sufficient authority and responsibility is needed to direct the project. There are fundamental differences of opinion among the individuals involved in the project--particularly the economists and accountants--over the direction the revision should take. The attempt by the Common Carrier Bureau Chief during the time of our review to bring in an outside individual who could head the project had merit. Presumably this person, having not been party to past disagreements, could have used his authority and experience to forge solutions. While the failure of this approach is lamentable, it ought not to be allowed to paralyze the project. |