Update on Task Force on the Prevention of Waste, Fraud and Abuse: Meeting #3

The Task Force on the Prevention of Waste, Fraud and Abuse held its third meeting on June 25-26, 2003. The primary goal of the third meeting was to continue to review and refine Task Force recommendations and to permit more extended time to discuss addressing waste, fraud and abuse issues through a revision of the discount matrix and/or by imposing some sort of ceiling on funding requests. These were among the ideas that were considered when the Task Force outlined its broad areas of concern. See first meeting of the Task Force.

The Task Force first discussed its initial set of draft recommendations in light of comments and feedback received from program stakeholders. As a result of that discussion, 23 of the 26 draft recommendations were adopted as written. During the third meeting, revised language was drafted for the other three recommendations.

The Task Force then spent a lengthy amount of time reviewing and discussing discount matrix revisions and funding ceiling formulas. At the end of those discussions, it adopted the following draft recommendations and position statements:

Adjustment of Discount Matrix

The Task Force believes that the discount matrix, as currently structured, unintentionally encourages some waste, fraud and abuse. Applicants that are required to contribute only 10 percent of the cost of their services or products may not always have enough incentive to seek the most cost-effective prices or the most competitive bids. Adjusting the matrix may also deter some vendors from offering to cover the portion of the cost that, under program rules, is supposed to be paid by the applicant.

Under the Telecommunications Act of 1996, the primary goal of the E-rate program was to provide improved connectivity for schools and libraries. Thanks to the program, many high-discount applicants are already enjoying the benefits of broadband connectivity at substantial discounts, and might be forced to curtail these services if they lost access to their discounts. While the Task Force has observed the problems described above with both unregulated Priority One services and Priority Two services, it believes that abuses occur more frequently with Priority Two services. Consequently, at this time it recommends adjusting the current Urban/Rural discount matrix only for Priority Two services, and stipulating that applicants would have to pay at least 20 percent of the price of E-rate-eligible Priority Two services.

Here is what the discount matrix would look like if the Task Force’s recommendation were adopted. The discount rates that would change are indicated in boldface:

*Discount Rates that would change under Task Force proposal

At the same time, the Task Force recommends that all Priority Two applicants in the new 80 percent discount band be given equal priority. This would mean that if there is insufficient funding to support all applicants in this discount band that the SLD would be required to pro-rate funding commitments across the entire 80 percent band. This will help ensure that a group of applicants that are still quite poor, namely those currently eligible for an 80 percent discount rate, should be able to qualify for at least some Priority Two discounts for the first time since 1999. It should also help address some distortions of the educational technology market that the E-rate program may inadvertently be promoting.

The Task Force believes that this change, implemented in tandem with its many other recommendations, would have a major impact on addressing circumstances that have inadvertently encouraged some waste, fraud and abuse in the program.

Ceiling on Funding Requests

The Task Force further believes that the Commission should consider imposing some ceiling on the amount of funding which applicants can request. It is believed that this, along with other Task Force recommendations, would help ensure that applicants are submitting the most cost-effective funding requests by eliminating what some may perceive as a “blank check.” Instead, applicants would be advised that both their Priority One and Priority Two funding requests are subject to a ceiling.

In the brief amount of time available, the Task Force explored a handful of possible formula models for establishing this kind of ceiling. It believes that any formula adopted by the Commission should be simple to administer, based upon numbers or statistics that would be readily available and grounded in a policy that is sound and logically defensible.

Any particular formula may ultimately curtail some legitimate funding requests. Nevertheless, the Task Force believes that as long as the E-rate funding pool is not large enough to meet the legitimate funding requirements of eligible applicants, the imposition of a properly constructed ceiling on funding requests would encourage some schools to create more cost-effective plans for ensuring access.

At its third meeting, the Task Force considered some additional recommendations that time constraints of earlier meetings had required it to table or defer. By the end of the third meeting, it had adopted these additional recommendations in draft form:

• To enable applicants to complete their applications correctly and to help companies market their products accurately, the SLD should make public the same detailed, product-specific information on eligible services that is provided to PIA reviewers. The Task Force recognizes that the FCC has directed the SLD to create, as a pilot test, a computerized version of the eligible services list for internal connections. However, in the meantime, the Task Force believes that making this additional information public would facilitate efforts to curb waste, fraud and abuse. The SLD should make clear that such a list is not exclusive and that eligibility remains conditional upon the particular use of a product or service. It should also create a formal process through which vendors could, if they chose, have products formally reviewed for inclusion on the list before the start of the application season.
• Because of the specialized knowledge and technical expertise required to properly evaluate eligible services, the Task Force recommends that the SLD create a larger, more permanent “eligible services team” within the PIA staff. This team of reviewers would first be available to provide more sophisticated advice to applicants and service providers about the eligible services rules when they are preparing their applications or Description of Services documents. This would enhance the available SLD resources that applicants could turn to for help in navigating one of the most confusing parts of the program.
• In an effort to coordinate requirements for technology plans, the Task Force recommends that the goals, requirements and procedures associated with the E-rate program’s technology planning process be reviewed in accordance with the technology goals and planning requirements of the U.S. Department of Education and the Institute for Museum and Library Services.
• The Task Force has observed that with increased emphasis on investigating potential cases of waste, fraud and abuse, the affected vendors and applicants often do not know the precise status of their applications. This, in itself, can contribute to program waste because of the inability of these applicants and vendors to plan the timing—and consequently the cost—of their projects. The Task Force believes that the requirements of investigations need to be balanced with stakeholders’ rights to due process. Thus it recommends that as the funding year progresses, the SLD should establish improved levels of applicant and vendor access to information about the status of their applications and procedural relief if that information is not forthcoming.
• The Task Force believes that several issues need to be addressed in the invoicing process. Although these payment processes, particularly those for Service Provider Invoices and electronic invoicing, were originally constructed to be streamlined and time-sensitive, increasingly applicants and service providers alike can be subjected to multiple and time-consuming reviews, sometimes involving dollar amounts that are de minimis. The Task Force believes that this diverts SLD resources that could be used more effectively to aggressively pursue waste, fraud and abuse in a more prioritized manner. To address these issues, the Task Force recommends:
  • That the SLD establish the criteria for the information it will need for the invoicing review process, publicize them and permit applicants and vendors, if they choose, to submit that information along with their forms.
  • That an explicit cost-benefit policy for invoice review be established that properly matches the dollar amounts involved with the corresponding level of review.
• The Task Force also recommends that this same approach be applied to the application review itself, so that the SLD’s limited resources are more effectively deployed to address major problem areas, rather than depleted in challenging minor items that would be considered small within a given funding request.
• Because applicants often need to request a Service Substitution at the time they request a SPIN change, the Task Force recommends that the SLD develop a streamlined, combined process for managing such changes. This would reduce resource waste around such changes for the SLD, applicant and vendor communities.
• The Task Force recommends that changes be made in the Good Samaritan process to make service providers more willing to step into that role and to reduce the potential for waste when an E-rate vendor can no longer participate in the program. The Task Force recommends that a service provider, acting as a Good Samaritan, should be exempted from COMAD responsibility for the period of time before it assumed the role of Good Samaritan for a particular applicant. Any COMAD issues that arise prior to this date should remain the responsibility of the original service provider and the applicant.

The Task Force also modified the language of three recommendations that had previously been approved in draft form to address concerns raised by program stakeholders. The language of these three recommendations was then approved:

• The Task Force recommends that the SLD work with stakeholder groups to develop voluntary, instructional guidelines on what would be considered the generally reasonable cost and functionality for common E-rate-eligible products and services. (This approach is designed to provide better guidance to applicants with less experience in procuring telecommunications and technology services and products, and to help them understand when vendor’s bids and proposals may be excessive in terms of their price or applicant’s needs.)
• The Task Force recommends that the SLD establish and publicize reasonable standards for warranties or other defined hardware support services for Internal Connections equipment that are tied to the recommended service life guidelines.
• The Task Force recommends that an applicant be permitted, but not required, to notify the SLD that it wishes to review the Service Provider Invoice Forms of one or more specific internal connections vendors before payments are disbursed to those vendors. If a response is not forthcoming from the applicant within a specified period of time, the SLD would be authorized to disburse the money without the applicant’s permission. This approach is designed to address applicants’ current lack of control over the pacing of progress payments for internal connections after a Form 486 has been filed. In addition, because applicants can be subjected to audits involving their vendors’ invoices, this will enable them to review these invoices for correctness, if they wish to take on that responsibility.

The Task Force expects to complete work on its recommendations at a final meeting, now scheduled for August 14-15.