 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
Witness Testimony
Mr. William Maher
Problems with the E-rate Program: Waste, Fraud, and Abuse Concerns in the Wiring of Our Nation's Schools to the Internet Good morning, Chairman Greenwood, Representative DeGette, and distinguished members of the Subcommittee. I am chief of the FCC's Wireline Competition Bureau, and have served in this post since August 2002. I appreciate the opportunity to discuss the FCC's continuing efforts to improve the E-rate program and the lessons learned from the recently concluded criminal and civil case involving NEC-BNS, an E-rate service provider, associated with Funding Year 2000. Your attention to the issues involved with the E-rate program, as evidenced by this and last month's hearings, confirms the FCC's understanding that Congress wants the program administered efficiently and fairly.
In its first six years, the E-rate program has committed over $11 billion to permit an average of almost 90,000 schools and libraries each year, including those in the nation's poorest and most isolated communities, to pay more affordable, discounted rates. In 1998, the first year of the program, only 51 percent of classrooms in public schools were connected to the Internet. The figure reached 92 percent in 2002. And 94 percent of schools now have broadband connections.
In reviewing these numbers, the E-rate program has been an overall success. But at the same time, the program has been the target of some bad actors and those who have tried to beat the system. The subject of today's hearing, involving NEC-BNS, is an object lesson for the FCC, for USAC, and for all participants in the E-rate program.
On May 27, 2004, NEC-BNS agreed to plead guilty to two criminal charges - wire fraud and bid rigging - and to pay a total $20.6 million criminal fine, civil settlement, and restitution for its activities related to the E-rate program, largely in Funding Year 2000. NEC-BNS was charged with wire fraud for entering a scheme to defraud the E-rate program and the San Francisco Unified School District. NEC-BNS was also charged with bid rigging and allocating contracts at five school districts in Michigan, Wisconsin, Arkansas, and South Carolina. The monetary amount of the civil settlement makes the E-rate program whole. Because NEC-BNS has pled guilty to activity related to the E-rate program, it is subject to suspension and debarment under the Commission's E-rate debarment rule. On May 27, 2004, NEC-BNS petitioned the Commission for waiver of its suspension and debarment rule, and there is a proceeding pending on that petition.
There are multiple lessons to be learned from the NEC-BNS case. This case illustrates the importance of deterring those who would seek to defraud or abuse the E-rate program. To deter bad actors, E-rate applicants must be held accountable for the contents of their applications and other filings. The Wireline Competition Bureau has already recommended a number of relevant rule changes, described below, to the Commission for action at its August 2004 Open Meeting. In the past 15 months, the Commission has adopted several new rules that address aspects of the NEC-BNS situation. Moreover, I have directed USAC's chief executive officer to report to the Bureau on changes to procedures in light of NEC-BNS, and the staffs of the FCC and USAC are in close communication to improve USAC's review process.
An initial step in deterring bad acts is to require applicants to document thoroughly their participation in the E-rate program. The Wireline Competition Bureau has recommended expansion of the document retention requirements for applicants, in order to maintain a comprehensive paper trail for five years after receipt of E-rate supported services. The Bureau has also recommended improvements to the certifications that beneficiaries make regarding their compliance with substantive program rules. We plan to modify numerous E-rate forms to expand the required certifications. Expanded certifications help deter bad actors because their falsification is a federal criminal violation.
As an additional deterrent to bad actors, the Bureau is recommending that the Commission reinforce that USAC should engage in heightened scrutiny of applications from E-rate beneficiaries that have violated the statute or the Commission's rules in the past. This is consistent with the general framework adopted in the Puerto Rico DOE Order of 2003 to deal with situations in which one or more parties to an E-rate application is under investigation for potential waste, fraud or abuse.
The Commission's E-rate debarment rule is a significant deterrent to fraudulent behavior. Since the rule's adoption in 2003, the FCC's Enforcement Bureau has debarred three individuals in matters not related to NEC-BNS. The Commission has sought comment on whether to expand the reach of the debarment rule as a further deterrent to E-rate waste, fraud and abuse.
Encouragement of whistleblowers and early outreach to potential applicants and service providers regarding the E-rate program are also important components of deterrence. Continuing strong review and auditing programs serve as a long-term deterrent to waste, fraud, and abuse. We on the Commission staff will continue to work with our Office of Inspector General to implement such programs.
The Commission must also encourage efficient use of program funding by those who respect and follow the program rules. In December 2003, the Commission asked for comment on fundamental E-rate policy issues in this area. The Commission asked whether to adjust the schedule of discount rates so that, for example, applicants would pay for a greater share of their E-rate services. This would provide greater incentives for applicants to make only prudent, cost effective purchases. The Commission also sought comment on possible means of determining whether applicants have made "cost effective" funding requests. We are evaluating the record compiled on these issues.
We at the FCC are proud of the schools and libraries support program, but we will never be satisfied with the status quo. We are happy to assist the Subcommittee as needed. Thank you, Mr. Chairman, for the opportunity to participate in your review of the universal service fund's schools and libraries support mechanism, and I look forward to your questions on these issues.
|
