During 1999, FCC released a series of Audits done
of the Bell companies and it found approximately $19 billion
dollars of missing equipment. This was only 1/4 of the audit
that should have been conducted --- Some $80 billion dollars
or more could have been missing and yet charged to customers
in the form of higher phone rates.
And over the last five years, Teletruth members
have been filing complaints with the SEC, various states, the
IRS and the FCC (to open up all of the books.) -- All with little
This site is the update of Vaporware
Releases Excerpts from Verizon's Equipment Records Revealing
Thousands of Accounting Violations that Inflated ALL Phone Rates.
Estimates that Every Residential Customer Paid Approximately $600
Per-phoneline for "Vaporware", Missing Equipment Added
to Phone Rates.
Requests Investigations by Verizon Audit Committee, IRS and SEC,
state Commissions, Files FOIA to Open All Bell Accounting Books,
Enron, MCI or Global Crossing's accounting problems. Those companies
are small time compared to the Bell companies
REQUESTS INVESTIGATION OF VERIZON'S INFLATED VALUATION OF ASSETS
to William O'Brien, Chairman Verizon Board of Directors Audit
Committee - page
of problems with Verizon property records - here
the Excerpts and Audits -- A
Question & Answer .
of Verizon property records -
Filed by Teletruth
open Accounting Books.
STORY REVEALS FCC WHITEWASHED BELL COMPANY (Verizon et al) ACCOUNTING
Website on RBOC Property Audits.
to FCC on reopening the record on the audits.
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.
about the impact of overstated assets see FCC's NOI.
FCC Report on NYNEX's (Verizon North's) broken cost accounting
"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
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
initiated in the 90s 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
came up with lots of smoke, but didn't manage to significantly
challenge the results.
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.
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.
time ran short and with the prospect of President Bushs
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.
Court noted problems with Bellco cost accounting in the Verizon
vs. FCC opinion - the TELRIC Case decide May 2002.
below. See page 54 or search for the word 'audit'.
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.
opinion by searching for 'telric' at Supreme
audit story moved from the realm of sloppy accounting to fraud
when the FCC and the Bells suppressed rather than addressed the
Chairman Powell closed down the Accounting Safeguards Division
as one of his first acts.
CEOs certified their accounting with their peers in the
Fortune 25 even though the FCCs audits make it clear they
dont know the value of their assets.
submitted a complaint
to the SEC noting this point.
a plan to eliminate reporting on cost
accounting and allow the Bells to shred the embarassing documents.
et al educate everyone about the importance of strict audits and
the conflict of interest the big accounting firms suffer.
not like the idea of removing accounting safeguards, see their
see other materials on this topic Click
Petition to reopen the audits and a letter to Senator McCain requesting