FCC INSPECTOR GEN. CITES WEAKNESS IN E-RATE PROGRAM
The FCC’s Inspector Gen. Office (OIG) has become “increasingly concerned” about slowness in resolving audit findings and recovering funds in investigations of e-rate malfeasance, it said in its latest report for the 6 months ended March 31: “We have observed that findings from audits conducted by USAC [the Universal Service Administrative Co.] are not being resolved in a timely manner and that, as a result, timely action is not being taken to recover inappropriately disbursed funds. In some cases, it appears that the delay is caused by USAC. In other cases, findings are not being resolved because USAC is not receiving necessary guidance from the Commission in a timely manner.”
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USAC is barred from making policy, interpreting “unclear” provisions of the Telecom Act or rules or interpreting the intent of Congress, the report said. “As a result of this prohibition, USAC must seek guidance from the Commission when audit findings are not clearly violations of Commission rules or when other policy questions are raised,” the report said. In some cases USAC has implemented policies to administer the program and the FCC has expressly endorsed those procedures, the Inspector Gen. said. However, there are cases where the Commission hasn’t offered such endorsement, leaving the rules lacking in legal authority and raising questions whether USAC can recover funds when applicants don’t follow those rules. The FCC staff makes a distinction between program rules and USAC implementing procedures, OIG said: “We believe this distinction represents a weakness in program design… We believe that it is critical that participants in the E-rate program have a clear understanding of the rules governing the program and of the consequences that exist if they fail to comply with those rules.”
The OIG said this is one of several concerns it has about the program’s operation, leading it “to believe the program may be subject to a high risk of fraud, waste and abuse through noncompliance and program weakness.” The report said OIG was working on 26 investigations at the end of the reporting period and monitoring 16 more. Among allegations under investigation, OIG said: (1) Procurement irregularities including lack of a competitive process and bid rigging. (2) False claims, meaning service providers accused of billing goods and services not provided. (3) Ineligible items being funded. (4) Beneficiaries not paying the local portion of the costs resulting in inflated costs for goods and services and potential kickback issues. OIG said during the reporting period it helped a law enforcement investigation by identifying $766,062 in goods and services “that were missing or were not provided and for which the service provider was paid.”
The OIG also questioned treatment given to different types of rule violations. For example, it said, failure to have the required technology plan can require recipients to return all disbursed funds. But not using the right discount rate calculations doesn’t trigger a demand for return of funds. Instead, the agency just asks for a recalculation. This is an example of “inconsistent treatment of program rule violations and the consequences of those violations,” the report said.
The report outlined several audits of e-rate disbursements to schools, finding for example that St. Matthew Lutheran School in N.Y.C. wasn’t compliant with the rules in 1999 and 2000. The audit recommended the school give back $55,639, but OIG recommended going further and recovering the full $136,593 disbursed in those years because of “the multitude of findings and systemic noncompliance with Commission rules and program requirements.” An audit of the Navajo Preparatory School in Farmington, N.M., recommended recovering $1 million in noncompliant funding. Again, OIG recommended recovering the full $2 million disbursed to the school in 2001. Another audit found the Prince William County Schools in Va. compliant in everything but one area -- 85 cell phones “were identified as paid for by [the e-rate] but not compliant with the educational purpose requirements.” OIG recommended the school return $5,452 for the phones. An audit of Arlington (Va.) Public Schools came up with a similar finding for $7,556 worth of pagers.
FCC Chmn. Powell released the report with a letter noting, among other things, that the agency has sought comment on additional ways to curb “waste, fraud and abuse” of E-rate funds. He said an independent auditor engaged by USAC did 62 audits of E-rate recipients that received a total of $258 million in discounts. The audits determined that USAC should recover $1.7 million from the beneficiaries, Powell said: “Commission staff worked closely with USAC to develop a more intensive beneficiary audit plan that contemplates procedures narrowly tailored to reveal rule violations and systemic program abuses… The Commission also is working to develop a process that will expedite the resolution of audit findings in situations where the Commission has not yet addressed the consequences of a particular rule violation.”