At a Congressional hearing on June 17, Rep. Jim Greenwood, R-Pa., called for a complete and rapid overhaul of the $2.25 billion-a-year eRate program because, as revealed in the day-long hearing, its structure and rules have allowed for rampant waste and abuse.

“While a well-intentioned idea, the eRate program, as it is currently structured, is an invitation for disaster,” said Greenwood, chairman of the House Energy and Commerce subcommittee on Oversight and Investigations, which organized the hearing. “Indeed, if one were to design a program to pour money out the window, this would be the way to do it.”

During questioning that was often pointed and at times sarcastic, Greenwood directed much of his criticism directly at the Universal Service Administrative Co. (USAC), the agency that administers the eRate on behalf of the Federal Communications Commission (FCC).

“This management structure is troublesome, and at the very minimum its ‘fox inside the henhouse’ appearance is more than a little disconcerting,” Greenwood said. To George McDonald, USAC vice president in charge of the eRate, he said, “What’s the thinking at USAC to set this straight and get the egg off your face?”

Greenwood added that the program’s rules as created by the FCC, the regulatory body for the eRate, are “complicated and cumbersome” and ineffective at ensuring competitive bids. As did a recent report from the FCC’s Office of the Inspector General (OIG), Greenwood also chastised the FCC for its tardiness in providing guidance concerning program rules and in recovering funds from known cases of waste and abuse.

“The FCC and USAC have a lot to answer for and much work to do. However, we should also acknowledge that Congress must shoulder some responsibility as well,” Greenwood said.

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  • What’s your take on eRate?
  • The eRate, established under the Telecommunications Act of 1996, was designed to give discounted internet and telephone service to the nation’s poorest schools and libraries. In the last few years, however, it has become apparent that the program has been abused by vendors and applicants alike.

    The subcommittee has been investigating multiple cases of eRate mismanagement for nearly a year and a half. The intent of yesterday’s hearing, and ones that will follow, is to draw attention to the program’s flaws and possible fixes.

    Recently, subcommittee members flew to Puerto Rico to document more than $101 million in squandered funds–including 73,000 wireless access cards that were stored for four years in a government warehouse in shrink-wrapped boxes piled from the floor to ceiling.

    The committee’s investigation also found that Puerto Rico installed, with eRate funds, a $58 million T1 network in about 760 of its 1,500 schools, but only nine schools are actually using it. The majority of Puerto Rico’s schoolchildren access the internet via dial-up modems on roughly two computers per school.

    “Puerto Rico demonstrates that the eRate program’s administration is anything but efficient, innovative, and effective,” Greenwood said. “At the end of the day, while there is certainly blame to go around, the buck has to stop at the agency that is charged with running this program.”

    The Puerto Rico Department of Education testified that it had planned to buy 100,000 computers for the wireless cards, but its legislature vetoed the decision, and therefore the cards were not used.

    At the hearing, members of Congress grilled the school officials and vendors involved in the Puerto Rico case with a barrage of questions on why they still went ahead and billed the eRate for the unused wireless cards and broadband access, although they knew they had no means of using them.

    “We’re not picking on Puerto Rico,” said Rep. Joe Barton, R-Texas, chairman of the House Energy and Commerce Committee. “We could have picked any school district or community out of a hat. We chose Puerto Rico because of the size of the situation and because … when our staff went down there to conduct on on-site investigation, we found quite a bit of equipment that was just sitting around in warehouses.”

    Members of Congress who participated in the hearing focused their questions and comments on the program’s lack of oversight.

    “We as Congress have a responsibility to determine how some of these glitches that we will be hearing about today will be fixed,” said Rep. Diana DeGette, D-Colo. “The FCC needs to articulate [its] oversight process and explain to us how such large amounts of money have ended up going to schools that clearly have no ability to use the money effectively.”

    Despite members’ frustration with how the eRate has operated until now–which was evident in the tone of the proceedings–all agreed the program serves an important role, and none suggested that it should be eliminated altogether.

    “If you look at the really heartwarming eRate success stories and how some students have benefited from this program, how well the money was spent, and then you look at the millions of dollars that have been wasted, it really underscores the problem at hand,” DeGette said. “Think about what could have been accomplished and how many kids would have been touched if these millions of dollars that have literally been thrown away had accomplished what they were supposed to.”

    Said Rep. Gene Green, D-Texas: “We need massive reform to stop the eRate from acting as a cash cow for outlaws who wasted money intended for schoolchildren.”

    The FCC is considering a number of proposed changes to eliminate opportunities for program waste, fraud, and abuse. One of the agency’s ideas is to reduce the maximum discount allowed for internal connections requests, so school systems would have to contribute at least 30 percent of the cost of wiring projects themselves.

    But Greenwood believes these steps are not enough. “It seems to me that it needs more than incremental changes,” he said of the eRate. “We need to get out of the box and rethink this.”

    FCC Inspector General H. Walker Feaster III testified that his office, which is charged with providing independent audits of the eRate, is grossly understaffed and underfunded to do so adequately. Since the eRate’s inception six years ago, OIG has conducted fewer than 200 total audits, although the program has funded more than 30,000 applications each year.

    “Until funding and resources are available to provide adequate oversight for the program, I am unable to provide assurance that the program is protected from waste, fraud, and abuse,” Feaster said.

    OIG had requested a $3 million increase in the 2004 budget but was denied. Feaster estimates his office needs an additional $12 million to conduct 240 audits a year, which would provide a statistically valid number that would indicate the actual scope of eRate waste, fraud, and abuse.

    Of the audits conducted by OIG so far, about half of the cases were found to have violated eRate rules in some way. “We’re at the very tip of the iceberg. Every rock we touch, every rock we tip over, we find something,” Feaster said. “It’s the biggest company as well as the smallest contractor; we find it in all aspects of the vendor community.”

    Greenwood floated the idea to witnesses of mandating audits for every eRate applicant. The cost of the audits, he said, could come from either the applicants’ match or from the eRate fund itself.


    House Energy and Commerce Committee Subcommittee on Oversight and Investigations

    Federal Communications Commission

    Forum Discussion: What’s your take on eRate?