The program is funded  through statutorily mandated payments by companies that provide  interstate telecommunications services. FCC Established an Unusual Program Structure without Comprehensively Addressing the Applicability of Governmental Standards and Fiscal Controls

FCC established an unusual structure for the E-rate program but has never  conducted a comprehensive assessment of which federal requirements,  policies, and practices apply to the program, to USAC, or to the Universal  Service Fund itself. Since the inception of the E-rate program, FCC has struggled with  identifying the nature of the Universal Service Fund and the managerial,  fiscal, and accountability requirements that apply to the fund. For example, FCC has  concluded that the Universal Service Fund is a permanent indefinite  appropriation subject to the Antideficiency Act and that its issuance of  funding commitment letters constitutes recordable obligations for  purposes of the act. Given this important ongoing study and the unresolved  issues mentioned previously, Congress may wish to consider deferring a  decision on permanently exempting the Universal Service Fund from the  Antideficiency Act at this time and instead consider either granting the  fund a two- or three-year exemption from the Antideficiency Act or  crafting a limited exemption that would provide management flexibility. For example, Congress could specify that FCC could use certain  receivables or assets as budgetary resources. These more limited solutions  would allow time for the National Academy of Public Administration to  complete its study of the Universal Service Fund program and report its  findings to FCC. Congress and FCC could then comprehensively assess,  based on decisions concerning the structure of the program, which federal  requirements, policies, and practices  should apply to the fund and to any  entities administering the program. It could then be determined whether a  permanent and complete exemption from the Antideficiency Act is  warranted. FCC Did Not Develop Useful Performance Goals and Measures for Assessing and Managing the E-Rate Program

Although $13 billion in E-rate funding has been committed to beneficiaries  during the past 7 years, FCC did not develop useful performance goals and  measures to assess the specific impact of these funds on schools’ and  libraries’ Internet access and to improve the management of the program,  despite a recommendation by us in 1998 to do so. However, the data that FCC used to report on its progress was limited to  public schools (thereby excluding two other major groups of  beneficiaries—private schools and libraries) and did not isolate the impact  of E-rate funding from other sources of funding, such as state and local  government. For example, a review of the program by OMB in 2003  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. OMB also noted that there was little  oversight to ensure that the program beneficiaries were using the funding  appropriately and effectively. We found weaknesses with FCC’s implementation of each of  these mechanisms, limiting the effectiveness of FCC’s oversight of the  program and the enforcement of program procedures to guard against  waste, fraud, and abuse of E-rate funding. FCC’s E-rate rulemakings,  however, have often been broadly worded and lacking specificity. Beneficiary audits are the most robust  mechanism available to the commission in the oversight of the E-rate  program, yet FCC generally has been slow to respond to audit findings and  has not made full use of the audit findings as a means to understand and  resolve problems within the program. We agree with FCC’s conclusion.
Why GAO Did This Study

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. 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. This testimony is based on GAO's February 2005 report GAO-05-151 , which reviewed (1) the effect of the current structure of the E-rate program on FCC's management of the program, including the applicability of the Antideficiency Act, (2) FCC's development and use of E-rate performance goals and measures, and (3) the effectiveness of FCC's program oversight mechanisms.

What GAO Found

FCC established E-rate as a multibillion-dollar program operating under an organizational structure unusual to the federal government, but never conducted a comprehensive assessment to determine which federal requirements, policies, and practices apply to the program, to the Universal Service Administrative Company, and to the Universal Service Fund itself. FCC has addressed these issues on a case-by-case basis, but this has put FCC and the E-rate program in the position of reacting to problems as they occur rather than setting up an organization and internal controls designed to ensure compliance with applicable laws. With regard to the Antideficiency Act, we agree with FCC's conclusions that the Universal Service Fund is a permanent indefinite appropriation, is subject to that act, and that the issuance of E-rate funding commitment letters constitutes obligations for purposes of the act. We believe that Congress should consider either granting the Universal Service Fund a two- or three-year exemption from the Antideficiency Act or crafting a limited exemption that would provide management flexibility. For example, Congress could specify that FCC could use certain receivables or assets as budgetary resources. These more limited solutions would allow time for the National Academy of Public Administration to complete its study of the Universal Service Fund program and report its findings to FCC. Congress and FCC could then comprehensively assess, based on decisions concerning the structure of the program, which federal requirements, policies, and practices should apply to the fund and to any entities administering the program. It could then be determined whether a permanent and complete exemption from the Antideficiency Act is warranted. 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. In its 2003 assessment of the program, OMB concluded that there was no way to tell whether the program has resulted in the cost-effective deployment and use of advanced telecommunications services. In response, FCC is working with OMB on developing new E-rate measures. According to FCC officials, oversight of the program is primarily handled through agency rulemaking procedures, beneficiary audits, and appeals decisions. FCC's rulemakings, however, have often lacked specificity, which has affected the recovery of funds for program violations. FCC has also been slow to respond to beneficiary audit findings and make full use of them to strengthen the program. In addition, the small number of these audits completed to date do not provide a basis for accurately assessing the level of fraud, waste, and abuse occurring in the program. According to FCC officials, there is also a substantial backlog of E-rate appeals.