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. 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. The percentages,  therefore, do not directly measure the impact of E-rate funds, as opposed  to other sources of funding, on increases in the percentage of schools  connected to the Internet. 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. FCC Is Currently Considering E-Rate Goals in Response to OMB’s Concerns

OMB also has raised concerns about FCC’s lack of E-rate performance  goals and measures. While recognizing that E-rate funding is generally going to  the intended beneficiaries of the program, OMB concluded that there was  no way to tell whether the program has resulted in 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. 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. Because appeals decisions are used as precedent,  this slowness adds uncertainty to the program and impacts beneficiaries. It is particularly important that  efforts to protect the program from fraud, waste, and abuse do not result in  a program that is excessively burdensome on program participants. The assessment should include,  but not be limited to  the implications of FCC’s determination that the Universal Service  Fund constitutes an appropriation by identifying the fiscal controls  that apply and do not apply to the Universal Service Fund, including  the collection, deposit, obligation, and disbursement of funds; and  an evaluation of the legal authority for the organizational structure  for carrying out the E-rate program, including the relationship  between FCC and USAC and their respective authorities and roles in  implementing the E-rate program. Scope and Methodology

Our objectives were to review and evaluate: (1) the effect of the current  structure of the E-rate program on the Federal Communications  Commission’s (FCC) management of the program, (2) FCC’s establishment  of and use of goals and performance measures in managing the program,  and (3) the effectiveness of FCC’s oversight mechanisms—rulemaking  proceedings, beneficiary audits, and reviews of the Universal Service  Administrative Company’s (USAC) decisions (appeals)—in managing the  program. However, FCC’s  conclusions concerning the status of USF raise further issues related to the  collection, deposit, obligation, and disbursement of those funds—issues  that FCC needs to explore and resolve. Thus, USF is subject to the  Antideficiency Act. Our report states that prior to fiscal year 2000,  FCC had no specific goals and measures for the program; that for fiscal  years 2000 through 2002, the goals and measures set by FCC were not  useful for assessing the impact of E-rate program funding because the  measures used did not directly measure the impact of E-rate funding;  and that since fiscal year 2002 there have been no E-rate performance  goals and measures at all.
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, however, 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. GAO 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 oversight mechanisms in managing the program.

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 waste, fraud, 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.