FCC Seeks Comment on Management, Administration and Oversight of the Federal Universal Service Fund

September 22, 2008

On September 12, 2008, the Federal Communications Commission ("FCC") released its Notice of Inquiry on proposed measures to strengthen the existing management, administration and oversight of the federal Universal Service Fund ("Fund").  With particular regard to the federal E-Rate Program supporting schools and libraries, the Notice of Inquiry responds to recent audit reports estimating the rate of improper payments by the Universal Service Administrative Company ("USAC") at 12.9 percent, and finding widespread non-compliance by E-Rate program participants in the areas of recordkeeping, requesting eligible services, applying discounts, and entering into contracts at the appropriate point in the application process.  Moreover, compliance audits and investigations by independent third parties have uncovered issues ranging from poor program design, to improper use of funds, including intentional efforts to defraud the Program by unscrupulous actors.

The Notice of Inquiry requests comment on what measures the FCC should implement to prevent improper distributions from the Fund, to address the error rates identified in recent audit reports, and to safeguard the Fund against waste, fraud and abuse.  Of particular importance to E-Rate Program fund recipients, the Notice of Inquiry requests comment on the following specific items:

• Administration of the Fund by USAC: Whether the FCC should maintain USAC as the permanent administrator of the Fund, or whether the FCC should retain an independent contractor to perform the functions as administrator of the Fund.
• Goals of the Federal E-Rate Program: Whether the FCC is authorized to establish specific qualitative and/or quantitative, long term and/or short term goals for the federal E-Rate Program beyond those objectives stated in Section 254 of the Act, and if so, whether such goals should be tied to the social welfare purposes of the federal E-Rate Program.
• Performance Goals and Measures for USAC: Whether the FCC should implement additional performance management techniques, goals and measures, or delete or revise existing performance goals and measures to improve the administration and operation of the Fund, and whether the FCC should exercise greater oversight of those internal controls within USAC.
• Customer Service Standards for USAC: Whether the FCC should establish further customer service standards, and if so, what measurements should be collected and reported by USAC to illustrate the quality of service to USAC's stakeholders, including recipients of funds through the federal E-Rate Program.
• Internal Controls for Recipients of Federal E-Rate Funds: Whether the FCC should establish independent audit requirements for recipients of E-Rate Program funds, and if so, the means by which Fund recipients should collect, process and report on performance measurements established by the FCC.
• Applications for E-Rate Funds: Whether the FCC should undertake any additional measures with regard to the application process for federal E-Rate Program funds.
• Document Retention Requirements: Whether the FCC should establish additional rules governing the retention of documents to facilitate enforcement of the E-Rate Program rules, and verify that disbursements from the Fund are used for proper purposes.

This proceeding offers participants in the federal E-Rate Program an opportunity to raise before the FCC broad concerns regarding administration and management of the Fund by USAC, including USAC's procedures for making Fund disbursements and enforcing Program rules.  The deadline for filing initial comments in this proceeding will be thirty (30) days following the date of publication of the Notice of Inquiry in the Federal Register, and the deadline for filing replies will be sixty (60) days following the date of Federal Register publication.  We intend to circulate the specific filing deadlines as soon as those become available. 

Please contact Jeff Horner (713.221.1219), George Foote (202.828.7624) or Brett Heather Freedson (202.828.5873) if you have any questions, or if your school or school district is interested in joining Bracewell's coalition of commenters on these important issues.