Yesterday, the Federal Communications Commission (FCC) released a Notice of Apparent Liability for Forfeiture (NAL), proposing a $153,000 penalty against PayG, LLC, d/b/a Skyswitch, for its alleged failure to: (a) cooperate with the revenue reporting verification functions (i.e., “contributor audits”) performed by the Universal Service Administrative Company (USAC) on behalf of the FCC, (b) file accurate FCC Form 499 worksheets, and (c) maintain current information in the FCC’s Commission Registration System (CORES), in apparent violation of the FCC’s rules and orders.
NAL Highlights Risk of Blindly Entrusting Third Parties When Outsourcing Compliance Functions
According to the NAL, PayGo repeatedly failed to submit relevant documentation to USAC to support the revenue and other information contained in the company’s Form 499 worksheets in 2019 and 2020. The company did not respond to any of USAC’s Issue Notices or other communications until 2021, when the FCC’s Enforcement Bureau sent a Letter of Inquiry directly to the company. In its defense, the company made various assertions and pointed fingers at its third-party “compliance vendor” and apparent “communications issues” with the vendor. The FCC found each defense presented by the company to be “unpersuasive.”
Specifically, with respect to the purported compliance vendor “communications issues,” the FCC noted that it was the company’s “responsibility to resolve those issues” if they “impeded . . . compliance” and that “[i]t is well-established” that regulated entities are “responsible for the acts or omissions of their agents,” imputing the failure to respond from the consultant to the company. The FCC suggested that if the company was “unable to resolve quickly issues with individuals designated to respond to USAC,” it “needed to designate someone else to handle the matter,” particularly since USAC informed both the company “and its designated agent on multiple occasions.”
The majority of the proposed forfeiture ($100,000) stems from the “willful and repeated failures to comply with USAC documentation directives,” which was blamed in part on these compliance vendor “communications” issues.
One-Stop Shop, Fully Outsourced Compliance Solutions May Sound Appetizing, but the FCC’s NAL Drives Home the Risks of “Blindly” Entrusting Compliance to Third Party Agents
Trusting a third party agent to manage your company’s compliance without also implementing internal controls that ensure oversight and quality control can lead to costly problems. As evidenced by the NAL against PayGo, the lack of oversight and controls can leave your company holding the bag and suffering not just the economic price of mistakes and neglect, but also the high price of reputational damage.
Although both the company and their compliance vendor were informed of deficiencies in this case and neither acted, a similar result could occur if only the outsourced compliance vendor was informed. Imputed liability based on an agent’s inaction highlights the importance of selecting a compliance solution and team that:
- Works with your company hand-in-glove, ensuring in-house personnel are not just copied, but aware of their roles and responsibilities vis-a-vis each filing or report filed with a government agency;
- Doesn’t hinder your visibility into what is going on between the vendor and governmental agents;
- Keeps you informed at all times and provides practical guidance; and
- Critically, recognizes the difference between “run of the mill” bureaucratic and administrative issues and those that are “higher risk with greater consequence” and escalates the latter to your legal representatives in a timely manner!
The Only Outsourced Compliance Firm that Not Only Meets, but Exceeds the Ethical Standards Your Company Should Expect through its Escalation & Referral Procedures
ESCALATION & REFERRAL PROCESS: TCG is not a law firm, does not provide legal services and its consulting services are not a substitute for legal services. Legal, risk-based, or otherwise sensitive non-routine compliance issues and tasks that must be addressed to ensure Customer’s compliance with applicable rules, regulations and laws triggers TCG’s Issue Escalation & Referral Process. When this occurs, TCG will provide Customer notice of the issue with an explanation of the risks & sensitivities, along with the following options:
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The best time to review your compliance is today. And, by avoiding offers that not only sound too good to be true, but are, and leave you exposed for non-compliance, your company will save time, money, and headaches.
To learn more about the FCC’s NOL or The Commpliance Group’s services, please reach out to Jonathan S. Marashlian at firstname.lastname@example.org.