Greater Involvement Needed by FCC in the Management and Oversight of the E-Rate Program

GAO-05-151: Published: Feb 9, 2005. Publicly Released: Mar 16, 2005.

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Since 1998, the Federal Communications Commission's (FCC) E-rate program has committed more than $13 billion to help schools and libraries acquire Internet and telecommunications services. Recently, however, allegations of fraud, waste, and abuse by some E-rate program participants have come to light. As steward of the program, FCC must ensure that participants use E-rate funds appropriately and that there is managerial and financial accountability surrounding the funds. GAO reviewed (1) the effect of the current structure of the E-rate program on FCC's management of the program, (2) FCC's development and use of E-rate performance goals and measures, and (3) the effectiveness of FCC's oversight mechanisms in managing the program.

FCC established the E-rate program using an organizational structure unusual to the government without conducting a comprehensive assessment to determine which federal requirements, policies, and practices apply to it. The E-rate program is administered by a private, not-for-profit corporation with no contract or memorandum of understanding with FCC, and program funds are maintained outside of the U.S. Treasury, raising issues related to the collection, deposit, obligation, and disbursement of the funding. While FCC recently concluded that the Universal Service Fund constitutes an appropriation and is subject to the Antideficiency Act, this raises further issues concerning the applicability of other fiscal control and accountability statutes. These issues need to be explored and resolved comprehensively to ensure that appropriate governmental accountability standards are fully in place to help protect the program and the fund from fraud, waste, and abuse. FCC has not developed useful performance goals and measures for assessing and managing the E-rate program. The goals established for fiscal years 2000 through 2002 focused on the percentage of public schools connected to the Internet, but the data used to measure performance did not isolate the impact of E-rate funding from other sources of funding, such as state and local government. A key unanswered question, therefore, is the extent to which increases in connectivity can be attributed to E-rate. In addition, goals for improving E-rate program management have not been a feature of FCC's performance plans. In its 2003 assessment of the program, OMB noted that FCC discontinued E-rate performance measures after fiscal year 2002 and concluded that there was no way to tell whether the program has resulted in the cost-effective deployment and use of advanced telecommunications services for schools and libraries. In response to OMB's concerns, FCC is currently working on developing new E-rate goals. FCC's oversight mechanisms contain weaknesses that limit FCC's management of the program and its ability to understand the scope of any waste, fraud, and abuse within the program. According to FCC officials, oversight of the program is primarily handled through agency rulemaking procedures, beneficiary audits, and appeals decisions. FCC's rulemakings have often lacked specificity and led to a distinction between FCC's rules and the procedures put in place by the program administrator--a distinction that has affected the recovery of funds for program violations. While audits of E-rate beneficiaries have been conducted, FCC has been slow to respond to audit findings and make full use of them to strengthen the program. In addition, the small number of audits completed to date do not provide a basis for accurately assessing the level of fraud, waste, and abuse occurring in the program, although the program administrator is working to address this issue. According to FCC officials, there is also a substantial backlog of E-rate appeals due in part to a shortage of staff and staff turnover. Because appeal decisions establish precedent, this slowness adds uncertainty to the program.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: In 2008, FCC and USAC officials signed a Memorandum of Understanding (MOU) to delineate the operating relationship and responsibilities between FCC and USAC. The MOU better defines the respective roles of FCC and USAC, and addresses important accountability issues surrounding the program, such as procurement requirements, investment requirements, audit requirements, and internal controls. The MOU requires USAC's contracting actions to be consistent with Federal Acquisition Regulations (FAR) and USAC's internal control structure to be consistent with OMB Circular A-123. The MOU thus acts to better define the roles and responsibilities of FCC and USAC with regard to the E-rate program. See accomplishment report GAO-09-1879A.

    Recommendation: Given the critical importance of telecommunications technologies to schools and libraries, the Chairman of the Federal Communications Commission should direct FCC staff to conduct and document a comprehensive assessment to determine whether all necessary government accountability requirements, policies, and practices have been applied and are fully in place to protect the program and the funding. The assessment should include, but not be limited to (1) the implications of FCC's determination that the Universal Service Fund constitutes an appropriation by identifying the fiscal controls that apply and do not apply to the Universal Service Fund, including the collection, deposit, obligation, and disbursement of funds; and (2) an evaluation of the legal authority for the organizational structure for carrying out the E-rate program, including the relationship between FCC and USAC and their respective authorities and roles in implementing the E-rate program. Because of the complexities posed by FCC's arrangements with USAC and the questions that flow from these arrangements, FCC may want to request an advance decision from the Comptroller General under 31 U.S.C. 3529. Section 3529 provides the heads of agencies and certifying and disbursing officers of the government an opportunity to request decisions from the Comptroller General on matters of appropriations law in order to ensure compliance with fiscal law.

    Agency Affected: Federal Communications Commission

  2. Status: Open

    Comments: In an August 2007 order, FCC adopted two performance measures for the E-rate program, one for Internet connectivity and the other for application processing. The order did not include specific E-rate program goals, although FCC said in this order that it anticipated adopting performance goals as it and USAC gained experience with the performance measures. While FCC's efforts to develop performance measures have the potential to eventually produce better information than is currently available on E-rate program performance, these measures fall short when compared to the key characteristics of successful performance measures and FCC still has not established program goals. FCC says it is still working on developing goals and performance measures for the Universal Service programs.

    Recommendation: Given the critical importance of telecommunications technologies to schools and libraries, the Chairman of the Federal Communications Commission should direct FCC staff to establish performance goals and measures for the E-rate program that are consistent with the Government Performance and Results Act. FCC should use the resulting performance data to develop analyses of the actual impact of E-rate funding and to determine areas for improved program operations.

    Agency Affected: Federal Communications Commission

  3. Status: Closed - Implemented

    Comments: In 2006, FCC took two steps to address the appeals backlog. First, it began responding to appeals by issuing "global" orders that respond to groups of 25 to 100 appeals, rather than responding to funding appeals individually or in small groups. The appeals grouped together address similar topics or have similar facts and circumstances, and the global orders clarify prior rules and regulations. Second, FCC adopted an approach to application review not to deny funding based on ministerial or clerical errors, as set forth in the Bishop Perry Order. This approach was intended to result in fewer funding denials, and, as a result, fewer appeals. By resolving multiple appeals with one action and reducing the number of funding denials, FCC has reduced the appeals backlog and has freed up the resources once used on appeals resolution. When we made this recommendation, in 2005, we reported that approximately 527 appeals were undecided, of which approximately 458 had been pending longer than 90 days, the time in which FCC rules say appeals should be resolved. In FY2007, FCC adopted orders granting more than 700 appeals of funding decisions.

    Recommendation: Given the critical importance of telecommunications technologies to schools and libraries, the Chairman of the Federal Communications Commission should direct FCC staff to develop a strategy for reducing the E-rate program's appeals backlog, including ensuring that adequate staffing resources are devoted to Erate appeals resolution.

    Agency Affected: Federal Communications Commission


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