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FCC Inspector General Updates State of E-rate Reviews

In his semi-annual report, the Federal Communications Commission's inspector general said last week that he is "pleased to report that concerns we have raised about the E-rate program have received considerable attention" in recent months, but that his office "continues to be concerned about fraud, waste and abuse in Universal Service Fund."

The Office of Inspector General (OIG) once again said that until the office is given adequate resources to provide effective oversight of the program, it is "unable to give the Chairman, Congress and the public an appropriate level of assurance that the program is protected from fraud, waste and abuse."

The report acknowledged and praised several steps that the FCC took in its Fifth Report and Order last August to address issues that the inspector general's office had previously raised. These included strengthening the E-rate program's document retention requirements, extending the "red light rule" of the Debt Collection Improvement Act to E-rate beneficiaries and their service providers, and clarifying the rules regarding the timetables for recovering funds and resolving audits and investigations. The OIG report covers the six-month period from April 1, 2004 to September 30, 2004, including the office's involvement in a series of congressional oversight hearings on the program.

The report noted that to date, 125 audits have been conducted of beneficiaries that were either randomly selected or targeted for particular audit attention. Of that total, auditors determined that beneficiaries were not compliant in 36 percent of the audits. It said that funding recoveries of more than $17 million have been recommended.

The OIG reported on five audits that it completed of program beneficiaries during the six-month reporting period. Four of the audits, involving private schools in the New York City area, found the applicants not in compliance with program rules and recommended a recovery of more than $1.5 million in E-rate discounts. Rule violations generally involved a failure of the beneficiaries to pay their portion of their E-rate projects' costs, no competitive bidding procedures and overbilling on the part of their providers. The fifth beneficiary, the Southern Westchester Board of Cooperative Educational Services (BOCES) in New York State, was found to be in compliance with program rules. The audits involved the 1998 to 2000 funding years.

The OIG also said it was supporting 22 investigations being conducted by the Antitrust Division of the Justice Department and was monitoring an additional 15 investigations.

The OIG report noted that since June 2004, the U.S. Department of Education's Office of Inspector General has been conducting an audit of the telecommunications services received by the New York City Department of Education. The report said that "because of the significant amount of E-rate funding" involved, the DOE inspector general's office had sought reimbursement for its costs, similar to an arrangement that had been made with the Interior Department for auditing Bureau of Indian Affairs schools, the U.S. Virgin Islands Department of Education and three private schools in the U.S. Virgin Islands. The Universal Service Administrative Company Board of Directors approved the arrangement earlier this year. The OIG said it has recommended that about $400,000 worth of E-rate discounts be recovered from the Virgin Island schools.

The report also noted that the FCC and USAC have begun a series of 100 audits of E-rate beneficiaries that are being conducted by the private accounting firm of KPMG.

The full text of the report can be reviewed at

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