Teletruth
Releases Excerpts from Verizon's Equipment Records Revealing Thousands
of Accounting Violations that Inflated ALL Phone Rates.
Teletruth
Estimates that Every Residential Customer Paid Approximately $600
Per-phoneline for "Vaporware", Missing Equipment Added
to Phone Rates.
Teletruth
Requests Investigations by Verizon Audit Committee, IRS and SEC,
state Commissions, Files FOIA to Open All Bell Accounting Books,
Forget about
Enron, MCI or Global Crossing's accounting problems. Those companies
are small time compared to the Bell companies
Here's the Details.
TELETRUTH
REQUESTS INVESTIGATION OF VERIZON'S INFLATED VALUATION OF ASSETS
See Letter
to William O'Brien, Chairman Verizon Board of Directors Audit Committee
- page
1 page
2 page
3
See summary
of problems with Verizon property records - here
Understanding
the Excerpts and Audits -- A
Question & Answer .
See excerpts
of Verizon property records -
page
1 page
2 page
3 page
4 page
5 page
6 page
7 page
8 page
9 page
10 page
11
FOIA
Filed by Teletruth
to
open Accounting Books.
WHISTLEBLOWER'S
STORY REVEALS FCC WHITEWASHED BELL COMPANY (Verizon et al) ACCOUNTING
SCANDAL
See FCC
Website on RBOC Property Audits.
See Petition
to FCC on reopening the record on the audits.
The Bell companies
(Verizon, SBC, Bellsouth, Qwest) recovered over $2 trillion dollars
from ratepayers over the last 20 years. It turns out their representations
of costs justifying rates were based on an inflated assessment of
equipment deployed for service provision. Equipment expenses represent
half of the Bellco costs. Consider that an error of 5% in rates
equates to excess customer charges of $100 billion. Worldcom's misdeeds
did not even effect rates.
For more about
the impact of overstated assets see FCC's NOI.
Read the FCC
Report on NYNEX's (Verizon North's) broken cost accounting here.
Quoting FCC
Press Release:
"5. The Commission's accounting rules define the costs to be included
in the regulatory books and accounting records of the companies.
Once defined, these costs become the basis for a variety of regulatory
applications including jurisdictional separations, allocation of
costs between regulated and nonregulated activities, earnings calculations,
access charge allocations and, ultimately, ratemaking. Accordingly,
the financial information recorded on the regulated books serves
as the basis for many of the Commission's decision-making activities.
"
The Communication
Act of 1934 makes the FCC responsible for auditing the cost accounting
records of the Bell companies. he FCC found ways to avoid auditing
the Bell company cost accounting recordings for 60 years (if only
the IRS were so trusting). The GAO investigated the issue in 1987
and found the FCC negligent for failing to conduct audits (See GAO/RCED-88-34).
The audits
initiated in the 90’s started out as anecdotal reports of missing
equipment and turned into informal audits that found missing equipment.
The informal audits got increasingly formal, but each time the audit
teams found the same thing - overstated assets.
The FCC finally
made the findings
public in 1999 over the objections of
Billy Tauzin. The Bells got then Chairman of the Telecommunications
Subcommittee to send a nasty-gram
to FCC Chairman Kennard toward discouraging release of the report.
None of the
Commissioners took a stand on the reports - hear no evil, see
no evil, speak no evil. As far as the commission was concerned
the audits were not considered "accurate" or "inaccurate", although
Powell and Furchcott-Roth were explicitly against releasing the
audits. See Commissioner
statements.
The Bells came
up with lots of smoke, but didn't manage to significantly challenge
the results.
Even were the
excuses about the $5 billion in missing equipment valid, it does
not answer the biggest aspect of the accounting fraud. The Bells
have $13 billion of equipment on their books listed as "undetailed
investment" and "unallocated other costs." These items don't
even have an audit trail. The laws (and commonsense) require
the Bells to maintain a record that allows the FCC to physically
verify the existence of equipment.
Let's not forget
that the problems were discovered after completing audits on only
25% of the Bellco asset base. The FCC shut down the audits before
anyone looked at outside plant, plug-ins, or portable equipment.
Unfortuantly,
time ran short and with the prospect of President Bush’s appointee
dropping the audits altogether, Chairman Kennard made the decision
to spend leverage obtained from the audits in a deal to reduce access
fees. The audits were closed see link for FCC Order 00-396 here.
The Supreme
Court noted problems with Bellco cost accounting in the Verizon
vs. FCC opinion - the TELRIC Case decide May 2002.
Key excerpt
below. See page 54 or search for the word 'audit'.
"The incumbents.
second reason for calling TELRIC an unreasonable exercise of the
FCC.s regulatory discretion is the supposed incapacity of this methodology
to provide enough depreciation and allowance for capital costs to
induce rational competition on the theory.s own terms. This challenge
must be assessed against the background of utilities. customary
preference for extended depreciation schedules in ratemaking (so
as to preserve high rate bases), see n. 8, supra; we have already
noted the conse- quence of the utilities. approach, that the .book.
value or embedded costs of capital presented to traditional rate-
making bodies often bore little resemblance to the eco- nomic value
of the capital. See FCC Releases Audit Re- ports on RBOCs. Property
Records, Report No. CC 99.3, 1999 WL 95044 (FCC, Feb. 25, 1999)
(.[B]ook costs may be overstated by approximately $5 billion.);
Huber et al. 116 (We now know that .[b]y the early 1980s,
the Bell System had accumulated a vast library of accounting books
that belonged alongside dime-store novels and other works of fiction.
. . . By 1987, it was widely estimated that the book value of telephone
company investments exceeded market value by $25 billion dollars.).
TELRIC seeks to avoid this problem by basing its valuation on the
market price for most efficient elements; when rates are figured
by refer- ence to a hypothetical element instead of an incumbent.s
actual element, the incumbent gets no unfair advantage from favorable
depreciation rates in the traditional sense.
See full opinion
by searching for 'telric' at Supreme
Court website
The property
audit story moved from the realm of sloppy accounting to fraud when
the FCC and the Bells suppressed rather than addressed the problem.
Incoming Chairman
Powell closed down the Accounting Safeguards Division as one of
his first acts.
The Bell CEO’s
certified their accounting with their peers in the Fortune 25 even
though the FCC’s audits make it clear they don’t know
the value of their assets.
Teletruth submitted
a complaint
to the SEC noting this point.
Chairman Powell
announced
a plan to eliminate reporting on cost
accounting and allow the Bells to shred the embarassing documents.
Enron, Worldcom,
et al educate everyone about the importance of strict audits and
the conflict of interest the big accounting firms suffer.
NARUC does
not like the idea of removing accounting safeguards, see their Resolution.
To see
other materials on this topic Click
here.
Next - Petition
to reopen the audits and a letter to Senator McCain requesting hearings
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