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Where’s the Fraud?

Three elderly ladies in a 1984 Wendy's commercial had America asking "Where's the Beef?" Today, those of us in the E-rate world are wondering if the FCC's new slogan should be "Where's the Fraud?"

Despite the FCC conducting hundreds of Waste, Fraud and Abuse audits, there are no big smoking guns lying around. As a matter of fact, there isn't even a plume of smoke.  As mentioned recently in the blog How Do You Tie Your Shoelaces?, the vast majority of audit findings relate to missing documentation, document retention policies or other bureaucratic "gotcha's."  According to USAC's comments to the FCC Notice of Inquiry (FCC NOI Comments), "USAC does not believe additional document retention requirements are necessary at this time for participants in the Schools and Libraries Program". Ironically, the most consistent issue brought up by auditors in the last round of audits, and the most often associated with overpayments, is the inconsistency of document retention policies amongst SLD participants.  Holding schools and libraries responsible for not following uniform record retention guidelines that haven't even been promulgated by USAC doesn't make any sense whatsoever.  And it doesn't make any sense to spend precious resources conducting audits based on policy that doesn't even exist.  The average cost of a USAC audit is approximately $110,000 in external audit fees.  When you compare the amount of money spent by USAC on audits versus the amount of actual overpayments based on waste, fraud and abuse that is discovered and recovered it's analogous to purchasing eyeglasses for everyone who has 20/20 vision.

I'm all for oversight and accountability. The current economic situation in this country was created by a laissez faire approach to accountability and oversight.  Appropriate governance is crucial, particularly when it involves a federally funded program. And let's face it, oversight does guard against the most egregious cases of waste, fraud and abuse.  But inherently, the E-rate program is an onion of oversight, from the top layer to the core.  What with the PIA process, Selective Reviews, and Service Certifications during invoicing, there isn't one component of the entire process that isn't scrutinized. The dirty little secret is that E-rate is one big audit program. A tremendous amount of scrutiny is applied to the entire process, from initial funding applications to funding disbursements.

With all this oversight already baked into the E-rate pie, why then is the current USAC budget for audits approaching $50 million?  By the way, that's just the cost to pay third-party audit firms. That figure doesn't include the cost of manpower to USAC and FCC OIG staff that is dedicated to these audits. Nor does that figure consider the lost opportunity cost for USAC when so much time is spent by its staff, sub-contractors and even the S&L Board working on and reviewing these audits. Nor does that cost include the amount of money spent by the GAO and other agencies who review USAC itself.  Taken together, it is easy to imagine that the cost of all these is over $75 million annually – that's money that could be going to wire schools. Instead, it's paying for auditors to audit – audits designed to ferret out waste, fraud and abuse.

It's simply tragic that the ballooning cost of audits may be the biggest source of waste in the E-rate program today.

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