HOUSE INVESTIGATES MISUSE OF E-RATE FUNDS
A House subcommittee Thurs. railed against waste and abuse in the E-rate program and leveled blame on nearly everyone involved, from federal govt. program managers to vendors and school districts. Misuse in the program is “a crime against children,” said Rep. Markey (D-Mass.), an early E-rate proponent who said he still supports the program but “it just makes my blood boil” to think vendors and others may be making money by misusing the program. The program is administered by the Universal Service Administrative Co. (USAC) under the supervision of the FCC.
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The hearing concentrated on a scandal in Puerto Rico, where more than $100 million in E-rate funded high-speed access technology went unused because schools didn’t install computers or train teachers to use them. However, similar cases of questionable activities have cropped up in other places such as Atlanta, El Paso and Chicago, members of the House Commerce Committee’s Oversight & Investigations Subcommittee said. “We're not picking on Puerto Rico,” said Committee Chmn. Barton (R-Tex.), who attended part of the subcommittee hearing: “You could almost have picked [a questionable E-rate case] out of a hat.”
Subcommittee Chmn. Greenwood (R-Pa.) said the Puerto Rico case “will also provide an invaluable opportunity to consider the bigger picture of the E-rate’s flaws.” Although the Puerto Rico problem surfaced when Puerto Rican officials contacted the FCC’s Inspector Gen. Office in 2001, the Subcommittee recently did an on-site inspection on the island and found warehouses full of unused computer equipment, including 73,000 wireless computer cards, that had been purchased almost entirely with E-rate funds, but now were outdated. Greenwood said investigators found “$23 million worth of equipment that was paid for by American telephone rate payers” but sitting unused for several years. Puerto Rico qualifies for a 90% discount under the E-rate program. Puerto Rican officials who replaced discredited Dept. of Education officers said the E-rate funded network had been “over-designed” for the school system.
FCC Inspector Gen. Walker Feaster told the Subcommittee he doesn’t have enough funds to audit the program properly. Several sympathetic Subcommittee members asked how much he needed and he said $12 million, which would hire contract auditors and 3-4 people added to his office to work with them. That funding level would double the number of E-rate audits done to 244 a year, he said. Greenwood said it might make sense to require recipients to get independent audits. The $2.5 billion annual program has “plenty of money” to pay for such audits, he said. Feaster and FCC Wireline Bureau Deputy Dir. Carol Mattey said using E-rate funds for that would probably require Congressional action.
Feaster said out of about 122 audits of E-rate recipients last year, 32% uncovered some noncompliance with program rules. Mattey told the press later that noncompliance has a variety of meanings. For example, she said, one school recently cited by Feaster had used about $10,000, a small portion of their funding, to buy cell phones, which at the time wasn’t permitted. As he did in a recent report, Feaster said some of the problem involves inconsistency between FCC program rules and USAC’s procedural guidelines. Feaster said in answer to a question that he has 3 inspectors and “every rock we turn over we find stuff.”
Asked by Greenwood “who is at fault” for the Puerto Rican situation, Feaster said the school system “failed to plan for effective use of the equipment.” Greenwood asked him if he thought the fault was an “overly ambitious program, lack of training, vendors’ motives to sell more than the schools could use” or improper motives by the school board. “I'm sure it was a little bit of both,” Feaster said. In answer to a question from Rep. Walden (R-Ore.), Feaster said he would recommend a series of changes to USAC such as strengthening recordkeeping rules and providing better oversight of applicants’ technical plans.
Mattey said that “despite the existence of bad actors that have taken advantage of certain aspects of the program design, we believe that this program has been an overall success.” She said “there will always be those who try to game the system” but the FCC is working to “close the avenues where abuse can occur.” She said the agency plans to expand audits and is working to “synchronize” FCC rules and USAC’s procedures, which would meet one of Feaster’s concerns. She also noted that the Puerto Rican school system had been tapped for a random audit in 2000, about the same time officials there reported discrepancies. She said “the agency agrees that more audits should be done.” It would make sense to audit “any school getting a sizeable amount of money,” she said.
Asked by Greenwood how USAC can “get egg off your face” in light of several contract snafus, USAC Vp George McDonald said USAC should develop a “larger physical presence” through audits, for example. “It’s so easy for this program to be ripped off,” said Greenwood, because the money is collected from charges on phone bills and consumers paying charges each month don’t even “know where the money is going.”