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Embattled e-rate due in fall

The Senate Commerce Committee discusses the program to grant federal discounts on Net hook-ups for schools and libraries.

Federal discounts on Net hook-ups for schools and libraries will be doled out this fall, the head of the program said today during a Senate Commerce Committee hearing to scrutinize the administration of the program.

The hearing focused on how a nonprofit organization set up by the Federal Communications Commission--the Schools and Libraries Corporation (SLC)--was auditing the more than 30,000 applications for discounts on Net access, dubbed the "e-rate," to weed out fraud, waste, and abuse.

The program was expected to provide up to $2.5 billion in annual discounts starting this year. But amid heated criticism from Congress members over the breadth of the program, and long distance providers' threat to raise rates because of the e-rate, the FCC cut the program's funding by 43 percent last month.

Under the direction of the Telecommunications Act of 1996, the FCC set up the discounts, which are supported in large part by universal service fees paid by long distance companies. Those fees often are passed down to consumers.

"It is therefore absolutely essential to vindicate the interests of both consumers and subsidy fund applicants by assuring that the Schools and Libraries Corporation has developed an authoritative, comprehensive system of auditing the applications that have been received to determine whether they contain bundled costs for both eligible and ineligible services," Sen. John McCain (R-Arizona) said in his opening remarks as chair of the committee. The senator has been one of the most vocal critics of the FCC's implementation of the program and the creation of the SLC.

In May, McCain asked the General Accounting Office (GAO) to review the FCC's implementation of the e-rate.

Today the GAO released its report, which says the FCC has taken longer than planned to carry out the program.

Although the SLC said today that funding commitment letters will go out to schools and libraries this fall, the GAO report says the corporation has yet to set up a mechanism for carefully auditing the applications to ensure they comply with the e-rate rules to mitigate fraud.

Only the poorest schools and libraries can apply for discounts on everything from internal wiring, hubs, network file servers, routers, local area networks (LAN), email, software, and other hardware. But based on the FCC's cutback this summer, the rest of the applicants may only get breaks on Net access.

"Reviews of high-risk applications are not scheduled to occur until sometime after funding commitment letters have been sent to applicants," Judy England-Joseph, director of the GAO's housing and community development issues, stated in testimony before the committee today.

"Should the corporation find major problems at this time with the applications reviewed, it may have to reduce or withdraw funding commitments from applicants," she continued. "If such applicants have already begun receiving services on the basis of their commitment letters, they might find themselves responsible for paying a higher cost for those services than they planned."

The GAO also found that the SLC was still developing its process for notifying applicants about whether they would receive the discounts and for processing e-rate vendor invoices, which the SLC will pay out.

"We are particularly concerned about this because the corporation estimates that invoice payment could begin to arrive as soon as 15 days after commitment letters are sent out," England-Joseph testified. "If disbursement procedures and internal controls are not in place when commitment letters are issued, the corporation may find itself unable to process vendor invoices in a timely manner."

SLC president Ira Fishman agreed with the GAO's concerns and said today that his team would work to meet or exceed the report's expectations before the commitment letters go out this fall.

"We at the SLC have viewed the GAO's investigation as a way to improve our operations," Fishman said in a statement. "We concur in those recommendations and will implement them."