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FCC Modifies Its Rules on Recovering E-rate Funds

The Federal Communications Commission July 30 issued a new order that will enable it to recover funds from both applicants and service providers when the party is found to have committed a violation of the laws and rules governing the E-rate program.

In the program's early years, the FCC had stipulated that such commitment adjustments, or COMADs, had to be recouped from E-rate service providers. The service provider community, particularly major telecommunications companies, had petitioned the FCC that this was unfair, particularly in cases when the applicant was the party that had violated E-rate program rules or the service provider no longer had a relationship with the customer.

In the order, referred to as the "Order on Reconsideration and the Fourth Report and Order," the FCC said, "Based on the more fully developed record now before us, we conclude that recovery actions should be directed to the party or parties that committed the rule or statutory violation in question."

The FCC said, "We now recognize that the beneficiary in many situations is the party in the best position to ensure compliance" with the statute and the E-rate rules. The FCC, it added, had "lacked a full appreciation for the wide variety of situations that could give rise to recovery actions in which the school or library would be the party most culpable." The commission noted that applicant violations could include failure to comply with competitive bidding requirements and the preparation of an approved technology plan as well as violations associated with the submission of the Form 470 and Form 471 applications.

Service providers, it noted, are required to provide beneficiaries with a choice of payment method, and to remit discounts through the Billed Entity Applicant Reimbursement form process within 20 days of receipt of a check from the Universal Service Administrative Company. "But," the FCC said, "in many situations, the service provider simply is not in a position to ensure that all applicable statutory and regulatory requirements have been met. Indeed, in many instances, a service provider may well be totally unaware of any violation." In such cases, the FCC concluded, "we are now convinced that it is both unrealistic and inequitable to seek recovery solely from the service provider."

Directing recovery actions to the party or parties that violated the rules, the FCC said, "will further our goals of minimizing waste, fraud and abuse" in the E-rate program. However, it recognized that in some instances, "both the beneficiary and the service provider may share responsibility." In those cases, it said, USAC will be permitted to initiate recovery action against both parties and shall pursue such claims until the amount is satisfied by one of the parties."

The FCC said that the new approach "shall apply on a going-forward basis to all matters for which USAC has not yet issued a demand letter as of the effective date of this order [30 days after publication in the Federal Register], and to all recovery actions currently under appeal to either USAC or this agency." However, the FCC said it would not modify any recovery action in which the service provider has satisfied the outstanding obligation or for which USAC has already issued an initial demand letter. It noted service providers were still free to challenge recovery actions if the deadline for an appeal had not yet passed.

The FCC also adopted a recommendation of the Schools and Libraries Division's Task Force on the Prevention of Waste, Fraud and Abuse and specified that COMADs would not be issued against service providers serving as "Good Samaritans" except when the rule violation involved the actions of the Good Samaritan vendor. The task force had said COMAD orders should be directed to the original vendor and/or the applicant.

In its order, the commission rejected the companies' argument that it did not have the authority to seek the recovery of funds, citing several legal precedents. The full text of the order is available at

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