Bipartisan Report Finds E-Rate Program Wasted Millions
The E-rate program needs legislative overhaul to correct waste, fraud and abuse revealed in a year-long inquiry, House Commerce Oversight Subcommittee Chmn. Whitfield (R-Ky.) said Tues. The subcommittee approved a bipartisan staff report on the program’s flaws. The report included 11 recommendations for correcting problems to guide legislators. “Government mismanagement of the E- rate program seems to know few bounds,” House Commerce Committee Chmn. Barton (R-Tex.) Said in a press statement: “Unscrupulous vendors also fleeced the program while underserved communities and telephone customers pay the price.” He said the FCC, merchants and schools share the blame for the “disgrace.”
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Barton and House Commerce Telecom Subcommittee Upton (R-Mich.) plan to overhaul E-rate. “Congress shares some of the responsibility for these flaws,” Whitfield said. The FCC had to implement the program without clear legislative direction, he said. Rep. Stupak (D-Mich.) criticized the report for not scrutinizing Cisco’s role in a contract with Chicago Public Schools. In that case, fund mismanagement by the school and the main E-rate program contractor led to improper stockpiling of $8.5 million in equipment, such as costly switches that never left the warehouse. Cisco was a major gear supplier to contractor SBC. “There was a less than complete rendition of the facts of Cisco’s performance of Cisco’s performance as an equipment supplier,” Stupak said.
The FCC’s Wireline Bureau doesn’t know the magnitude of potential fraud in the program, the report said. More than $15 billion has been “committed” by the E-rate program in the past 8 years, but the FCC failed to develop performance goals to judge the funds impact to see if they were being spent properly. Oversight is insufficient, the report said. For example, more than $100 million in E- rate funds went to a big school district that never set up an educational network. Some school districts have acquired goods and services without using competitive bidding, contrary to rules. And some have failed to develop a technology plan to prevent “gold-plating” -- procurement of gear and services beyond a school’s needs.
“Weak E-rate program competition requirements and inadequate oversight allowed a group of vendors to completely manipulate the competitive process for E-rate program goods and services, without Universal Service Administrative Company (USAC) detecting the fraud,” the report said. Ambiguous rules and methods confuse applicants and vendors, triggering waste, the report said. And in one instance, school officials and service provider employees forged documents and signatures as part of a conspiracy to defraud the program. E-rate funds generally go to vendors, not program applicants, reducing applicants’ control over work performed, it said.
To stiffen oversight, FCC and USAC need more personnel, the report said. The program needs concrete goals and gauges for assessing the outcome spending, including consideration of whether $2.5 billion is the proper amount to spend annually. There should be a tool to minimize gold-plating, and school districts should have a greater “stake” in their applications, perhaps by higher co-payments, the report said. The program also needs a more robust competitive bidding structure.