Schools and Libraries Program:

Application and Invoice Review Procedures Need Strengthening

GAO-01-105: Published: Dec 15, 2000. Publicly Released: Dec 15, 2000.

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The Telecommunications Act of 1996 expanded the concept of universal telephone service to include telecommunication support services for eligible schools and libraries. Under this program, called the "e-rate program," schools and libraries can apply for discounts on telecommunications services, Internet access, and internal connections. GAO found that the Universal Service Administrative Company's (USAC) Schools and Libraries Division (SLD) committed more than $3.7 billion to applicants during the 1998 and 1999 program years. However, a significant amount of this money has not yet been paid out, even though the deadlines for applicants and vendors to use the funds has been extended more than once. In addition, more funding would be available for eligible requests if SLD's review procedures were more effective at identifying and denying ineligible requests. Despite procedures requiring reviewers to deny funding for ineligible items and to confirm that conditionally eligible services are being used according to program rules, GAO identified millions of dollars in funds incorrectly committed to ineligible products and services. Finally, SLD's practice of approving most vendors' invoices without reviewing how and where the committed funds are actually being spent leaves the program vulnerable to further funding errors and potential abuse.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: On November 22, 2000, the Federal Communications Commission's (FCC) Managing Director stated that the Schools at Libraries Division (SLD) had begun taking action to resolve this problem. On August 17, 2001, SLD's Acting President stated that they first identified reasons why applicants have been unable to spend committed funds. Based on this information, SLD began requiring applicants to certify that they had begun receiving services for their committed funds within 120 days after stating the services would begin. In addition, with FCC's approval, SLD has raised the amount of annual program funds committed to applicants to account for the fact that some committed funds may not be used.

    Recommendation: In addition, the Chairman, FCC, should direct responsible staff to develop a strategy for reducing the percentages of committed funds that go unused by applicants. This effort should include (1) contacting applicants to ascertain their reasons for not fully using their committed funds; and (2) determining whether changes to the program rules and procedures are needed to address the difficulties that applicants may be having in this regard.

    Agency Affected: Federal Communications Commission

  2. Status: Closed - Implemented

    Comments: In November 2000, the Federal Communications Commission's Managing Director stated that the Schools and Libraries Division (SLD) had revised the application to require more detailed information on the services that would be purchased with discount funding. In August 2001, SLD's Acting President stated that the revision has improved the application review process. For example, applicant reviewers have had to make less calls to applicants asking for additional information about the type and cost of services requested.

    Recommendation: In order to (1) improve the application review and invoicing process to prevent funds from being used for ineligible services, and (2) maximize the funding available to applicants to support eligible services, the Chairman, FCC, should direct responsible FCC staff to revise the e-rate program's application to require more detailed information from applicants on the services they intend to purchase with program funds. This should be done before funding commitments are made for the fourth program year.

    Agency Affected: Federal Communications Commission

  3. Status: Closed - Implemented

    Comments: The Federal Communications Commission revised its eligible services list to highlight cases where services were only eligible if they met certain conditions. The updated list was published in time for use in preparing applications for Year 4 funding.

    Recommendation: In order to (1) improve the application review and invoicing process to prevent funds from being used for ineligible services, and (2) maximize the funding available to applicants to support eligible services, the Chairman, FCC, should direct responsible FCC staff to revise the list of eligible services available to applicants so that it clearly identifies which services are eligible and ineligible for program support. Additionally, the list should clearly identify as "conditionally eligible" all products and services whose eligibility is subject to conditions included in their descriptions, such as cellular telephone service and video services. This should be done before funding commitments are made for the fourth program year.

    Agency Affected: Federal Communications Commission

  4. Status: Closed - Implemented

    Comments: The Federal Communications Commission (FCC) and Schools at Libraries Division (SLD) now work closely to resolve issues as they arise. For example, SLD was unsure whether to approve Year 4 requests for a type of telecommunications service that combined both eligible and ineligible services. FCC provided guidance that SLD reviewers have applied to Year 4 applications. Additionally, SLD and FCC have committed to publicize these issues as changes to its eligible service database before the beginning of each application cycle.

    Recommendation: In order to (1) improve the application review and invoicing process to prevent funds from being used for ineligible services, and (2) maximize the funding available to applicants to support eligible services, the Chairman, FCC, should direct responsible FCC staff to implement procedures for promptly clarifying additional eligibility issues that arise during the application review process and publicizing such clarifications to the applicant community in a timely manner. This should be done before funding commitments are made for the fourth program year.

    Agency Affected: Federal Communications Commission

  5. Status: Closed - Implemented

    Comments: Schools at Libraries Division established reasonable thresholds for certain services, including training, design and contingency fees, and restoring areas to pre-construction condition. According to the revised guidance, application reviewers are required to determine the amount to be spent on such services and, if they exceed the established criteria, gather more information. Funding that exceeds the thresholds without a reasonable explaination can be denied.

    Recommendation: In order to (1) improve the application review and invoicing process to prevent funds from being used for ineligible services, and (2) maximize the funding available to applicants to support eligible services, the Chairman of the Federal Communications Commission (FCC), should direct responsible FCC staff to finalize all outstanding program rules and review procedures, including determining the extent to which training, design, contingency, and repair fees are eligible for program support. This should be done before funding commitments are made for the fourth program year.

    Agency Affected: Federal Communications Commission

  6. Status: Closed - Implemented

    Comments: USAC has hired an internal audit director and increased the internal audit staff from one to seven professionals. A significant percentage of the audit staff's time will be devoted to auditing schools and libraries program beneficiaries. USAC also plans to conduct an outside audit of 80 benficiaries to help it determine the scope of future audit activities. In addition, NECA (USAC's main contractor) has established a quality assurance function within its processes. NECA QA staff review a sample of various decisions (such as application approval, appeals processing, or payment), and NECA staff are held accountable for the accuracy of their reviews through a points system.

    Recommendation: Finally, the Chairman, FCC, should direct the Chief Executive Officer of USAC to establish a quality assurance function in USAC responsible for (1) ensuring that SLD's funding decisions follow FCC's program eligibility rules, as well as SLD's management goals and procedures, and (2) developing effective internal control procedures over the disbursement of funds to ensure that they have been used as approved.

    Agency Affected: Federal Communications Commission

 

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