eRate officials should increase education, simplify rules, and toughen enforcement procedures and compliance requirements to prevent further waste, fraud, and abuse of the $2.25 billion-a-year program, according to a draft of recommendations a special eRate Task Force plans to submit to the Federal Communication Commission (FCC).

The task force was created by the Schools and Libraries Division (SLD) of the Universal Service Administrative Co.—the agency that administers the eRate—to explore ways of tightening program compliance after a handful of “bad actors” gained considerable public attention recently, sparking renewed criticism of the eRate from conservative members of Congress.

The 14-member task force—which consists of representatives from the state, school, library, and vendor communities—drafted the recommendations at its second meeting, held May 29 and 30 in Kansas City, Mo.

The public is welcome to eMail comments to task force members about the recommendations, which are available for review on the SLD web site. The recommendations expand on the following “problem areas” the group identified in its first meeting held earlier in May:

  • Lack of clarity in program rules and requirements;
  • Rules and processes that might inadvertently encourage waste;
  • Shortcomings in applicants’ competitive bidding processes;
  • Need for review and clarification of “eligible” services;
  • Lack of accountability and consequences for program violations;
  • Funding models and their impact on waste, fraud, and abuse;
  • Maximizing the deployment of SLD resources; and
  • Required standards for applicant documentation of program compliance.

Two key areas for further study by the task force involve possible changes in the discount matrix and some form of funding caps, members said.

Enforcement and compliance

The task force recommends toughening enforcement procedures and compliance requirements when it comes to issuing identification numbers to service providers and designating eligible telecommunications providers. Also, consultants who help schools and libraries apply for eRate discounts should have stricter disclosure guidelines that would, for example, require them to submit a standardized disclosure statement that details their relationship with service providers.

The SLD should expand its current labeling system to indicate more clearly the extent of any violations, the task force suggested. Currently, applications are identified either as compliant or non-compliant, with no gray areas.

The SLD also should ensure that applications are processed according to the rules that were in effect during that program year and should give priority in the appeals process to applications that were held up because of SLD’s own mistakes.

To give applicants more control over the disbursement of funds to vendors, the task force proposed giving applicants the option of reviewing Service Provider Invoice Forms for specific internal connections requests prior to SLD approval.

Wasteful incentives

To prevent wasteful spending of eRate funds, the task force recommends establishing acceptable price ranges for common products and services, especially to help new or inexperienced applicants know what is excessive compared with industry norms.

To deter applicants from using their high-discount sites to funnel equipment to lower-discount schools or libraries, common products should be assigned a “service life” and applicants should agree not to transfer that equipment within the specified time period without a waiver.

To further prevent waste, schools and libraries that receive their funding commitment letters more than halfway through the program year should receive additional time to make use of their discounts. This can be done by moving the March 1 deadline that triggers automatic extensions up to January 1, the task force suggests.

Competitive bidding

Many of the eRates abuses identified to date involve competitive-bidding violations. To remedy this, the task force recommends modifying the Form 470 so it requires applicants to list all of the products and services they need—regardless of whether they’ve already issued an existing request for proposals (RFP)—so all interested vendors can review an applicant’s needs.

The task force also advises explicitly telling applicants and service providers that vendors who provide technology planning and application assistance cannot receive any eRate funds from the resulting contract.

Eligible services

Simplifying the determination of eligible services also will help prevent, waste, fraud, and abuse, the task force said. This can be accomplished by creating a standardized worksheet to supplement or replace Item 21 attachments.

In addition to establishing a “service life” for equipment, SLD or FCC officials should set reasonable standards for warranties and support services and should consider making multi-year warranty costs eligible for discount, the task force recommended.

Inadequate education

More education about the eRate’s rules and procedures will promote better program compliance, the task force said. It recommends that SLD or FCC officials increase customer outreach through eMail alerts, regional workshops for both applicants and service providers, and at least one virtual applicant workshop. Officials also should post answers and guidance to frequently asked questions.

In addition, the task force said, retaining permanent SLD employees to review applications instead of temporary workers also will ensure greater compliance.

The task force believes it would be beneficial to publicize best practices, bad practices, and eRate achievement stories. This would include publicizing the names of those who broke the rules. In addition, all eRate audit reports should be made available on the SLD web site, the group said.

Program complexity

The task force believes the complexity of the eRate program makes it easier for “bad actors” to take advantage and for applicants to make simple mistakes.

To help simplify the program, the task force recommends creating a process to match the complexity of the application with the review process. “For instance, 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,” the task force said. At a minimum, this process should explore creating simpler versions of Forms 470 and 471 for smaller and less complex applications.

Also, to help avoid confusion, the task force recommends that SLD and FCC officials not change program rules in the middle of a program year. The service substitution process also should be simplified to allow for the substitution of products to keep pace with changes in technology that might have occurred since an application first was submitted. In addition, substitutions that cost more should not be restricted when the applicant is willing to pay the difference.

Other eRate news

For Funding Year 2002, the SLD determined on June 13 that it will not be able to fund any requests for discounts on internal connections—the wiring, routers, switches, hubs, and file servers necessary to bring internet access into classrooms—from applicants who qualify for an 80-percent discount or below, owing to insufficient funds. These remaining applicants are being advised that they will not be funded.

For Funding Year 2003, the SLD has determined that it does not have enough funds to fulfill internal connections requests from applicants below the 70-percent discount level. No decision has been made yet on whether there is enough money to fund internal connections requests from applicants at the 70-percent to 90-percent level, the agency said.

Also, the SLD has removed the online option to file Funding Year 2003 Forms 470 and 471 because it cannot fully fund all approved requests that were filed within the filing window—which closed Feb. 6—and therefore cannot fulfill any applications submitted thereafter. If these forms are submitted to the SLD on paper, they will be returned, the agency said.


School and Libraries Division (SLD)

Waste, Fraud, and Abuse Task Force

Sidebar: Connect2 owner pleads guilty to conspiracy
From eSchool News staff and wire service reports
June 19, 2003

The owner of an internet services company who was charged with defrauding the eRate program last November pleaded guilty May 22 in Manhattan federal court to one count of conspiracy.

John Angelides, 65, owner of Connect2 Internet Networks Inc., is expected to get one-and-a-half to two years in prison at his sentencing on Sept. 10.

Under the federal eRate program, the government pays up to 90 percent of the bill for telecommunications services, internet access, and certain internal connections for eligible schools and libraries, while applicants must pay the remaining cost themselves.

The government said Angelides gave seven schools in New York and New Jersey free passes on their 10-percent payments in 2000 and 2001 and faked checks and invoices from the schools so his company could collect its 90-percent share.

“I knew my conduct was wrongful,” Angelides told U.S. District Judge Thomas P. Griesa.

Under a plea agreement, Angelides, who lives on Staten Island, will pay the government about $290,000. He will not be allowed to travel outside the country before sentencing.

“The bottom line is these services were provided to these inner-city schools,” Angelides’ lawyer, Ira Lee Sorkin, said outside court.

According to a court docket obtained by eSchool News, charges of conspiracy against two other Connect2 employees were dropped in exchange for lesser pleas.

Oscar Alvarez, 50, of Staten Island, pleaded guilty to witness tampering and is scheduled to be sentenced Sept. 12. Gary Blum, 60, of Queens, pleaded guilty to a bribery charge and is scheduled to be sentenced July 31.

A fourth Connect2 employee, John Dotson, had all charges against him dismissed May 21 by U.S. District Judge Kevin Nathaniel Fox.


United States District Court, Southern District of New York