GAO Report: E-rate Mismanagement Continues Unabated

Barton to Accelerate Legislative Plans in Light of Findings

WASHINGTON - A multi-billion dollar program intended to close the digital divide remains plagued by mismanagement, waste, fraud and abuse with no end in sight, the House Energy and Commerce Subcommittee on Oversight and Investigations was told today. At a subcommittee hearing members were briefed on the results of a new Government Accountability Office (GAO) review of the troubled E-rate program.

"The mismanagement of the E-rate program seems to know few bounds," said U.S. Rep. Joe Barton, R-Texas, chairman of the Energy and Commerce Committee. "Unscrupulous vendors have fleeced the program while underserved communities and telephone customers are paying the price. The FCC, these merchants and certain schools all must share in the blame for this disgrace.

"Now, seven years and billions of dollars later, those in charge can't tell us how rampant the fraud is or how they intend to stop it. Enough is enough. This committee has no choice but to develop legislation to scrap the status quo and apply some common sense to the E-rate program," Barton added.

The Telecommunications Act of 1996 expanded the Universal Service Fund to assist schools and libraries in acquiring telecommunications and Internet services - an initiative that became known as the "education rate" program, funded through fees on telephone customers. To administer the effort, the Federal Communications Commission established the private, not-for-profit Universal Service Administrative Company. Capped at $2.25 billion annually, the E-rate program has committed $14.6 billion as of March 2005, with only $9.2 billion actually being disbursed.

After a year-long inquiry, the GAO concluded that:

· By establishing the unorthodox administrator without any contract or memorandum of understanding, the FCC long ago sowed the seeds for gross mismanagement of the program;

· Despite the collection and expenditure of billions of dollars since 1998, the FCC has not developed any measure to track the program's effectiveness. "A key unanswered question, therefore, is the extent to which increases in connectivity can be attributed to E-rate," the report says;

· A weak oversight structure limits the FCC's "management of the program and its ability to understand the scope of any fraud, waste, and abuse within the program";

· The FCC has been "slow to respond to audit findings and make full use of them to strengthen the program"; and

· "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."

The report recommended the FCC "comprehensively determine which federal accountability requirements apply to E-rate; establish meaningful E-rate performance goals and measures; and take steps to reduce its backlog of appeals."

The year-long study was done for the committee. GAO concluded its work in December 2004, interviewing officials from the FCC, the Office of Management and Budget and the Department of Education.

Last year, the committee held three hearings examining specific examples of E-rate waste, fraud, and abuse. In one of the most infamous cases, the USAC disbursed $101.2 million from 1998 to 2001 to equip Puerto Rican schools with high-speed Internet access but a later review found a warehouse full of unopened boxes of equipment and that very few computers at its 1,540 schools actually connected to the Internet.

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