News of the Week

Wave 20 of Funding Year 2002 will be released on Monday, January 13, 2003. Total funding in this Wave is approximately $25 million for 65 applications. The cumulative total for FY 2002 is now $1.67 billion for over 28,100 applications.

Internal Connection funding is still being provided only for applicants at the 90% discount rate. No Internal Connection funding is available below 80%. The availability of Internal Connection funding for applicants receiving discounts in the 80-89% range cannot yet be projected, but requests for funding in this range are currently being reviewed by the SLD.

FY 2003 Form 470 Deadline Past; Form 471 Deadline Approaching

January 9 was the last possible day to file a Form 470 that would become effective within the Form 471 application window for FY 2003. Since a Form 470 must be posted on the SLD Web site for at least 28 days, any Form 470 filed after January 9 would have an Allowable Vendor Selection/Contract Date after February 6 (the last day to file a Form 471).

Schools and libraries that missed the January 9th deadline for filing a Form 470 have limited options.

(1) An applicant can still file a Form 471 for FY 2003 for any service covered by a multi-year contract that was properly executed after the filing of a Form 470 in a prior year. If, for example, a three-year Internet access contract (for the period 07/01/2002 - 06/30/2005) had been signed in December 2001 after the allowable date of a FY 2002 Form 470, discounts on this service could be requested in a FY 2003 Form 471. In this case, the Block 5 request should reference the earlier establishing Form 470.

(2) Depending upon state procurement rules and E-rate filings, an applicant may be able to file a Form 471 for a service covered by a state master contract by referencing the Form 470 that the state filed in advance of the master contract date. For state-specific information, applicants should check their state E-rate Web sites (a list of which can be found in the States' Sites section on the E-Rate Central Web site).

Audit Reports Available Under FOIA

The Center for Public Integrity, a non-profit research group headquartered in Washington, DC, released a report this week entitled "Phone fund for schools, libraries riddled with fraud." The report has already become the source of a story in The New York Times. A copy of the report is available as a Bulletin on the E-Rate Central Web site.

The report is well worth reading by applicants and service providers alike because it pulls together a number of developments on questionable practices that have been reported in this newsletter in recent months including the results of SLD and FCC audits, the recent SLD warning associated with the denial of funding to an IBM customer, and the criminal indictment of Connect2. While the report starts with a sensational tone - indicating that the program is "honeycombed with fraud and financial shenanigans" - it makes it clear that the referenced problems were identified and are being addressed by the program administrators.

One particularly interesting aspect of the center's work is a series of attachments representing portions of E-rate audit reports (for FY 1999 and FY 2000) obtained under a Freedom of Information Act request. The general format of these reports is instructive because they indicate the primary line of inquiry that has been taken in earlier on-site audits. Specifically:

(1) General Procedures: The auditors started with a review of an applicant's funding requests from the Form 470s and Form 471s through the Program Integrity Assurance reviews and Funding Commitment Decision Letters. Basically the auditors were asking: (a) what was the applicant asking for; (b) how did they ask for it; and (c), what did the SLD agree to fund?

(2) Understanding the Business: The auditors then discussed the entire E-rate process with an applicant to determine how the technology plan was created and validated, how the application forms were completed and structured, and what controls were in place to monitor the expenditures and E-rate claims.

(3) Technology Plan: The auditors verified that the technology plan established clear goals and strategies, and that the plan had been formally approved.

(4) Competitive Bid Process: The auditors asked about the applicant's competitive bidding to determine how vendors were selected and whether the process was adequate for choosing the most cost effective suppliers.

(5) Supported Payments: The auditors compared many of the actual service bills with the amounts shown on the E-rate invoices (BEARs or supplier invoices). They also checked vendor authorizations on BEARs, verified that the equipment and services matched the original Item 21 attachments, and confirmed that the applicant paid the non-discounted amounts.

(6) Site Visits: The auditors physically verified that all funded equipment existed in the locations specified in the applications, that it was being used for educational purposes, and that proper inventory controls were in place.

SLD Warning on Priority 1 On-Premise Equipment

The SLD noted this week that it had recently seen marketing claims purporting to allow applicants to apply for Priority 1 discounts on equipment and services that would otherwise be classified as Priority 2 Internal Connections (for which funding is more limited). One e-mail we saw this week, for example, blatantly referred to using this strategy as taking advantage of "a loop-hole.in the E-rate program."

The SLD notice reminds applicants that components installed at applicant sites can be considered eligible Priority 1 services only under very limited circumstances. The many conditions and restrictions that govern this limited option are detailed under "On-premise Priority 1 Equipment" in the Reference Area of the SLD's Web site (see On-premise Priority 1).