Update on Task Force on the Prevention of Waste, Fraud and Abuse: Meeting #2

The Task Force on the Prevention of Waste, Fraud and Abuse held its second meeting on May 29-30, 2003.  The primary goal of the second meeting was to discuss and reach consensus on a series of draft recommendations to address the broad areas of concern identified in the first meeting of the Task Force.

Although Task Force members represent a diverse group of stakeholders, they are in agreement that the E-rate program has been vitally important in helping schools and libraries across the United States gain access to 21^st century learning resources through a variety of technologies. Nevertheless, the Task Force recognizes that after five years, changes should be considered to better guard the program from those who would seek to defraud it, from those who would seek to abuse it, and from those practices and procedures that inadvertently encourage waste or tend to waste limited resources in ways that serve few policy purposes.

As Federal Communications Chairman Michael Powell said at the Commission’s May 8 Forum on the E-rate program, “To defraud the program is to steal from our children.” The Task Force strongly agrees with that assessment and, to that end, proposes for further discussion these draft recommendations.

The Task Force is interested in soliciting input from stakeholders on these recommendations. In the future, it plans to refine the draft recommendations listed below to provide greater specificity, and to further explore additional recommendations.  Two key areas for exploration involve consideration of possible changes in the discount matrix and some form of funding caps.

Persons who wish to discuss these issues or other concerns related to waste, fraud and abuse can contact a member of the Task Force by e-mail. The List of Task Force Members posted on this web site contains an active e-mail link from each member’s name.

Enforcement and Compliance Issues

The Task Force believes that it is essential to toughen enforcement procedures and compliance requirements to address certain problems related to waste, fraud and abuse.

• Strengthen the review process for the issuance of Service Provider Identification Numbers and the Eligible Telecommunications Provider designation. (This will help ensure that entities or individuals who obtain a SPIN are, in fact, legitimate companies and/or eligible to provide services in the one service category limited to particular kinds of vendors.)

• Develop consultant disclosure practices. (This is to help ensure that persons who receive compensation from vendors that participate in the program have disclosed potential conflicts of interest to the applicants whose applications they prepare.)

• Follow “IRS tax preparer” signature policies for consultants or other non-school or library officials who prepare Forms 470, 471, and 472 on behalf of applicants;
• Require persons who prepare applications on behalf of applicants to submit a standardized disclosure statement to the applicant, detailing the nature of relationships, if any, that the application preparer has with service providers;
• Provide education for applicants on best practices related to using consultants.

• Revise audit procedures:

• Develop basic tiers of overall compliance for audit reports, e.g. “Compliant,” “Generally Compliant,” or “Non-compliant.” (This will help ensure that problems are described and publicized in ways that are appropriate to the extent of the violation.)
• Take steps to assure that audits of previous program years are conducted subject to the explicit rules in effect for/during that funding year.
  

• Give priority to resolving appeals involving issues that the SLD has acknowledged involve its own mistakes.

• Modify the Form 486 to give applicants the option of reviewing Service Provider Invoice Forms for specific Internal Connections requests prior to SLD approval. (This will enable applicants to flag those requests over which they wish to issue greater control of the disbursement of funds, e.g., progress payments to vendors whose projects are paid for in phases.)
  

• Explore a process to prevent subunits of large applicants from filing unauthorized applications without approval of their central control or authority. (For instance, large applicants would be permitted to notify the SLD in advance that they wish to review any funding requests submitted on behalf of their subunits, such as individual schools within a large urban school district, or private schools within a consortium.)

Issues Involving Wasteful Incentives

The Task Force believes that the E-rate program has evolved to permit certain practices—within the rules—that lead to the use of E-rate discounts in ways that can, in fact, promote the wasteful use of resources. To address these issues, the Task Force recommends that the Schools and Libraries Division and/or the Federal Communications Commission:

• Establish and publicize pricing thresholds that will be considered reasonable for common products and services. (This approach will provide better guidance to applicants with less experience in procuring telecommunications and technology services and products, and help them understand when vendor’s bids would be considered excessive compared to industry norms.)

• Establish and publish service life guidelines for common products.

• Add an additional Form 471 certification reflecting applicant agreement not to transfer equipment within the service life period without SLD waiver. (Together, the Task Force believes these last two recommendations will deter applicants from using their high-discount sites as a means to funnel discounts to lower-discount sites before the end of a product’s useful life.)

• Change the Funding Commitment Decision Letter date used to trigger automatic extensions of non-recurring service delivery deadlines from March 1 to January 1. (This will give schools and libraries whose funding commitments are approved more than halfway through the funding year additional time to make use of their discounts so that they can be used in a well-planned, and thus more cost-effective, way. It will also help ensure that approved funding does not go to waste because the applicant had a constrained amount of time in which to use it.)

Competitive Bidding Issues

The Task Force believes that many issues related to waste, fraud and abuse have arisen in the area of the E-rate program’s competitive bidding rules. It recognizes that this is an area that is already under review by the FCC. It believes that these recommendations will help address these concerns by retaining the program’s requirement for promoting competitive bidding while addressing specific issues that have either led to abuses or led, in certain cases, to the inappropriate rejection of funding requests:

• Modify the Form 470 to require the listing of all products and services needed, regardless of the existence of an RFP. (This will make it easier for all interested vendors to review applicants’ needs and prevent applicants or their agents from “hiding” RFPs in inappropriate ways.)

• Provide explicit notification to applicants and vendors that the E-rate program prohibits arrangements in which vendors can provide technology planning and/or procurement management and still benefit financially from the contracts that result.

• Do not automatically deny all of an applicant’s funding requests on a Form 471 that cited a particular Form 470 if procurement or contract problems related to the Form 470 posting are identified with a specific funding request or a specific vendor. The Task Force believes that the FCC’s current policy has led to the denial of some applicants’ funding requests that were not subject to vendor manipulation, simply because the applicant filed a single Form 470 application.

Eligible Services Issues

The Task Force believes that the complexity inherent in the determination of Eligible Services contributes to the problem of waste, fraud and abuse. To address these concerns, it recommends:

• Develop standardized Form 471 worksheets to support or supplant Item 21 attachments.

• Establish reasonable standards for warranties or other defined hardware support services for Internal Connections equipment, tied to the service life guidelines. Consider the eligibility of multi-year warranty costs for discount in the year of installation.

Issues of Inadequate Education

The Task Force believes that greater education about the E-rate program’s complex rules and procedures will promote better program compliance. Accordingly, it recommends that the SLD and/or FCC:

• Increase resources for customer outreach. The SLD should review with stakeholder groups the best strategies for accomplishing this. Among the ideas that should be considered (this list is not exhaustive):
• Expand applicant and service provider workshops (for example, 3-5 regional locations);
• Provide at least one national satellite and/or Webcast applicant-oriented training session;
• Develop an e-mail-based alert system to proactively alert applicants and service providers to new program developments;
• Track and publicize common questions and problems identified through helpline calls and Program Integrity Assurance (PIA) review.
  

• Retain a larger percentage of PIA reviewers as permanent, rather than temporary, staff.

• Actively publicize best practices, bad practices, and E-rate achievement stories.
• Include consultant practices
• Provide greater disclosure about the actions of specific applicants and service providers. This should include:
• Publicizing the names of service providers and applicants that have been convicted of criminal or civil violations in connection with the E-rate program;
• Publicizing the names of service providers and applicants whose practices amounted to substantial violations of E-rate program rules. If these determinations are appealed to the FCC, this disclosure should await resolution by the FCC.
• Making available on its Web site, and publicizing the findings of, all final audit reports involving the program. (These results should include information about both positive and negative findings.)

Program Complexity Issues

The Task Force believes that the complexity of the E-rate program makes it easier for “bad actors” to take advantage of applicants who are not well versed in the program rules, while leading other applicants to make simple mistakes that lead to the rejection of their applications. The Task Force believes, for instance, that a rural librarian seeking $500 in discounts on traditional phone services should not have to complete the same complex forms as a school seeking $500,000 worth of discounts on a much wider range of services. Consequently, the Task Force recommends that the SLD and/or the FCC:

• Convene a process to better match the complexity of the application and review processes with the complexity of individual application situations.  At a minimum, this process should explore creating simpler versions of the Form 470 and Form 471 for smaller and less complex applications. 

• Make rules clear at the start of the application cycle, not midway through the Program Integrity Assurance review process. (The Task Force believes that if applicants have a better understanding of the rules and standards that will be applied, they will be better equipped to obey them. This will help avoid the waste associated with pursuing appeals and enable applicants that sincerely want to follow the rules to be able to do so. The SLD now has better tools in place than it once did to catch the “bad actors” who falsify their certifications and applications.)
  

• Simplify the Service Substitution process by raising the threshold for review and eliminating unnecessary constraints. (The Service Substitution process needs to be simplified because the long lag time between application submission and funding disbursements, coupled with rapid changes in technology, force many products and services to be substituted. A change in policy will help ensure that such changes are subjected to an appropriate level of review, resulting in a higher degree of applicant compliance and more appropriate deployment of the SLD’s application review resources. Among the approaches that this might entail are:
• Creation and publication of a “safe harbor” list of simple, permissible substitutions (e.g., a router model for another router model);
• Elimination of the current restrictions prohibiting substitutions when an applicant is willing to spend more of its own money, or the new product will have a greater percentage of ineligible components, because these serve no substantive policy purpose and can prevent applicants from obtaining the best solutions for their particular situations. )