Congress Probing E-Rate Program’s Erroneous Payments

The FCC faces no immediate pressure to decide, since the incumbent contractor can run the program for nearly another year. USAC and the commission said they cannot discuss the contract until an award is made. Sen. Sam Brownback, R-Kan., raised questions about the bidding in April, citing the fund’s unacceptably high error payment rate as measured under Office of Management and Budget rules (CD April 30 p1).

The Government Accountability Office flagged the E-rate program in a January report on improper payments by U.S. agencies. The E-rate fund and two other USF funds were among 24 programs whose error rates exceeded OMB’s benchmark of 2.5 percent. Programs cracking the threshold are treated as risks, and their administering agencies are expected to solve the problems behind the errors.

In 2007 the high-cost USF’s error payment rate was 16.5 percent, nearly seven times the benchmark for a troubled program, with incorrect disbursements of some $620 million, the GAO said. The E-rate program’s error payment rate was 12.9 percent, more than five times the benchmark, with $210 million of questionable payments, and the low-cost fund had an error payment rate of 9.5 percent, nearly four times too high, at $75 million, the agency said. Medicaid’s estimated $12.9 billion in erroneous payments, reflecting an 18.5 percent error rate, was the largest getting GAO scrutiny. The high-cost USF’s rate was comparable to that of the 16.3 percent of the Agriculture Department’s school lunch program. But the school lunch program involved $1.4 billion in questionable payments, more than double the high-cost USF’s.

USAC and FCC officials partly blame the payment problem on faulty school record-keeping, often on a budget cycle other than the federal government’s. Many schools lack expertise with U.S. funding forms, they said. “If one kid doesn’t get a milk one day, is that going to be counted as an erroneous payment?” said a Senate aide familiar with the payments probe.

The FCC told GAO that auditors flagged “lack of documentation” as a “significant concern” in erroneous USF payments, said a January report to Congress.

Inadequate documentation was blamed for wrong payments in an Oct. 3, 2007, FCC Inspector General report on the E- rate fund. The IG concluded, based on study of 155 auditees, that the “program is at risk and there are significant administrative problems in the program.”

Alaska is deemed a “beneficiary” state -- in 2006 it got an estimated $209.8 million from the fund, versus the $22 million that providers serving the state paid into it, the 2007 FCC monitoring report said. Texas providers paid about $445.5 million while the state got $516 million, the report said.

Markey, a key player in shaping USF legislation, comes from a donor state. Contributions in Massachusetts were about $153 million versus $16.6 million given the state, the FCC said. Dingell’s state also is a donor state, though of a narrower sort -- contributions were about $194 million, with the state getting about $111 million. But Hawaii, home to Senate Commerce Committee Chairman Daniel Inouye, gets more than it pays, with an estimated $28 million in contributions and $44 million in benefits, the FCC report said.

Better Accounting Needed

Despite progress major challenges remain, GAO said. “As the steward of taxpayer dollars, the federal government is accountable for how its agencies and grantees annually spend hundreds of billions of taxpayer dollars,” the Jan. 31 report said. Agencies with programs tagged as making more than $10 million in erroneous payments must write a plan for fixing the problem and identify any statutory or regulatory barriers in the way of their ability to act. The FCC was among five agencies that told GAO that they had no known barriers.

After the GAO report, the Senate Financial Management Subcommittee asked the watchdogs if agencies are “doing enough to hold people accountable for program integrity,” according to a March 13 letter by subcommittee Chairman Tom Carper, D-Del. The GAO responded to Carper’s inquires June 20, in a letter that said more use of federal standards could help. The office also said it has been trying to flag the improper payments problem through multiple reports and testimony over the past year.

The FCC is among six agencies not required by the “President’s Management Agenda” to end improper payments, the GAO said. The six agencies estimated improper payments of about $1.2 billion total, the bulk credited to the FCC, the GAO said, citing an estimated $906 million in erroneous USF payments. “We are unable to address your question whether agencies are being aggressive enough,” GAO Financial Management Director McCoy Williams told Carper. There’s no system for evaluating strategies for solving the payments problem, the letter said.

In 2006 the OMB told agency heads what the government expects in terms of proper handling of federal funds. The memo defined an improper payment as a disbursement of federal money to an ineligible recipient, incorrect payments or money spent for services not rendered. Carper, who has proposed legislation to lower the reporting threshold, told the GAO he thinks the problem is getting out of hand. Williams told Carper he thinks that the OMB should make sure agencies with payment error rates above 2.5 percent “establish time frames and identify resources needed to perform risk assessments and satisfy reporting requirements,” according to the June 20 letter.

E-Rate Scrutiny Began in 2005

In 2005 the House Commerce Committee targeted the E-rate program for scrutiny, holding four subcommittee hearings on waste, fraud and abuse. A November 2005 committee report said “E-rate weaknesses must be addressed legislatively to avoid waste and misuse.” In 2006, the committee focused on a multi-title telecom bill. When Democrats retook the Hill in the 110th Congress, a USF overhaul, and other telecom legislation, took a back seat to committee oversight of the FCC.

That probably will change next Congress, as momentum for broadband deployment inevitably leads to exploration of using USF money to get high-speed connections into unserved areas. “Congress, not the FCC, is better suited to make the tough political choices on how best to reform the system,” House Commerce Committee Chairman John Dingell, D-Mich., said at a June 24 hearing (CD June 25 p1). Telecom Subcommittee Chairman Ed Markey, D-Mass., also suggested that change is afoot, repeatedly citing the fund’s growing impact on consumers during the same hearing.

Meanwhile, the committee plans fall hearings on the fund, a discussion that could be underpinned by bills to overhaul it. “Oversight of the entire Universal Service Fund program has been and will continue to be a matter of interest to the committee,” a committee spokesman said. “When the Committee looks at the Universal Service Fund program, we will look at it comprehensively, including all four parts of the current program.”

Pressure for fund reform will vary depending on whether members hail from states getting more from the fund than those states’ providers pay into it. For example, ranking Senate Commerce Committee member Ted Stevens of Alaska is a long-time fund stalwart. That pitted him against Barton when the two were committee chairmen and major telecom legislation was on the table.