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. However, FCC’s conclusions concerning the status of the Universal  Service Fund raise further issues relating to the collection, deposit,  obligation, and disbursement of those funds—issues that FCC needs to  explore and resolve comprehensively rather than in an ad hoc fashion as  problems arise. However, USAC is not part of FCC or  any other government entity; it is not a government corporation  established by Congress; and no contract or memorandum of  understanding exists between FCC and USAC for the administration of the  E-rate program. 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. For fiscal years 2000 through 2002, FCC’s goals focused on achieving  certain percentage levels of Internet connectivity during a given fiscal year  for schools, public school instructional classrooms, and libraries. 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. However, management-oriented goals have not  been a feature of FCC’s performance plans, despite long-standing  concerns about the program’s effectiveness in key areas. 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. In response to these concerns, FCC staff  have been working on developing new performance goals and measures  for the E-rate program and plan to finalize them and seek OMB approval in  fiscal year 2005. 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. FCC Has Been Slow to Act on Some E-Rate Appeals

Under FCC’s rules, program participants can seek review of USAC’s  decisions, although FCC’s appeals process for the E-rate program has  been slow in some cases. Because appeals decisions are used as  precedent, this slowness adds uncertainty to the program and impacts  beneficiaries. To address these management and oversight problems identified in our  review of the E-rate program, our report recommends that the Chairman  of FCC direct commission staff to (1) 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 E-rate program and universal  service funding; (2) establish meaningful performance goals and measures  for the E-rate program; and (3) develop a strategy for reducing the E-rate  program’s appeals backlog, including ensuring that adequate staffing  resources are devoted to E-rate appeals. This is a work of the U.S. government and is not subject to copyright protection in the  United States.
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. Recently, 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. 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, (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 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 fraud, waste, 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.