Sec. 69.621  Audits of independent subsidiary, Schools and Libraries 
          Corporation, and Rural Health Care Corporation.

    The independent subsidiary, the Schools and Libraries Corporation, 
and the Rural Health Care Corporation shall obtain and pay for annual 
audits conducted by independent auditors to examine their operations and 
books of account to determine, among other things, whether they are 
properly administering the universal service support mechanisms to 
prevent fraud, waste, and abuse:
    (a) Before selecting an independent auditor, the independent 
subsidiary, Schools and Libraries Corporation, and Rural Health Care 
Corporation shall submit preliminary audit requirements, including the 
proposed scope of the audits and the extent of compliance and 
substantive testing, to the Common Carrier Bureau Audit Staff;
    (b) The Common Carrier Bureau Audit Staff shall review the 
preliminary audit requirements to determine whether they are adequate to 
meet the audit objectives. The Common Carrier Bureau Audit Staff shall 
prescribe modifications that shall be incorporated into the final audit 
requirements;
    (c) After the audit requirements have been approved by the Common 
Carrier Bureau Audit Staff, the independent subsidiary, Schools and 
Libraries Corporation, and Rural Health Care Corporation each shall 
engage within 30 calendar days an independent auditor to conduct the 
annual audit required by this subsection. In making their selections, 
the independent subsidiary, Schools and Libraries Corporation, and Rural 
Health Care Corporation shall not engage any independent auditor who has 
been involved in designing any of the accounting or reporting systems 
under review in the audit;
    (d) The independent auditors selected by the independent subsidiary, 
Schools and Libraries Corporation, and Rural Health Care Corporation to 
conduct the annual audits shall develop detailed audit programs based on 
the final audit requirements and submit them to the Common Carrier 
Bureau Audit Staff. The Common Carrier Bureau Audit Staff shall review 
the audit programs and make modifications, as needed, that shall be 
incorporated into the final audit programs. During the course of the 
audits, the Common Carrier Bureau Audit Staff may direct the independent 
auditors to take any actions necessary to ensure compliance with the 
audit requirements;
    (e) During the course of the audits, the independent auditors shall:
    (1) Inform the Common Carrier Bureau Audit Staff of any revisions to 
the final audit programs or to the scope of the audits;
    (2) Notify the Common Carrier Bureau Audit Staff of any meetings 
with the independent subsidiary, the association, Schools and Libraries 
Corporation, or Rural Health Care Corporation in which audit findings 
are discussed;
    (3) Submit to the Chief of the Common Carrier Bureau, any accounting 
or rule interpretations necessary to complete the audit.
    (f) Within 60 calendar days after the end of the audit period, but 
prior to discussing the audit findings with the independent subsidiary, 
the association, Schools and Libraries Corporation, or Rural Health Care 
Corporation, the independent auditors shall be instructed to submit 
drafts of the audit reports to the Common Carrier Bureau Audit Staff;
    (g) The Common Carrier Bureau Audit Staff shall review the audit 
findings and audit workpapers and offer its recommendations concerning 
the conduct of the audits or the audit findings to the independent 
auditors. Exceptions of the Common Carrier Bureau Audit Staff to the 
findings and conclusions of the independent auditors that remain 
unresolved shall be included in the final audit reports;
    (h) Within 15 calendar days after receiving the Common Carrier 
Bureau Audit Staff's recommendations and making any revisions to the 
audit reports, the independent auditors shall

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submit the audit reports to the respective audit subjects for their 
responses to the audit findings. At this time they must also send copies 
of their audit findings to the Common Carrier Bureau Audit Staff. The 
independent auditors shall be provided additional time to perform 
additional audit work recommended by the Common Carrier Bureau Audit 
Staff;
    (i) Within 30 calendar days after receiving the audit reports, the 
audit subjects shall respond to the audit findings and send copies of 
their responses to the Common Carrier Bureau Audit Staff. Any reply that 
the independent auditors wish to make to the audit subjects' responses 
shall be sent to the Common Carrier Bureau Audit Staff as well as the 
audit subjects. The audit subjects' responses and the independent 
auditors' replies shall be included in the final audit reports;
    (j) Within 10 calendar days after receiving the responses of the 
audit subjects, the independent auditors shall file with the Commission 
the final audit reports;
    (k) Based on the final audit reports, the Chief of the Common 
Carrier Bureau may take any action necessary to ensure that the 
universal service support mechanisms operate in a manner consistent with 
the requirements of part 54 of this chapter, as well as such other 
action as is deemed necessary and in the public interest.

[ 62 FR 41310 , Aug. 1, 1997]