| Most of the remaining applications fall into three classes.
(1) Applications still under regular review.
Although the SLD had hoped to complete regular reviews by March 10, some decisions have been delayed because of the size and/or complexity of the applications. We would expect funding decisions on many of these applications to be decided in the next few bi-weekly waves.
A special subclass of these "regular" applications, on which we also expect near-term action, are those involving smaller FRNs associated with IBM. The larger of these applications have now been addressed with IBM denials totaling over $600 million in the last few waves.
(2) Applications (or FRNs) for Internal Connections discounts at 80-89%.
Internal Connections are still being funded only at the 90% level pending a determination of available funds for lower level requests. The recent large funding denials - over $700 million in Waves 24-25 alone - may eventually allow the SLD to lower the Internal Connections discount threshold. One factor that may affect the timing and availability of sub-90% funding is a decision that will have to be made on the size of a reserve needed to cover potential reversals of these large denials upon appeal (or to cover funding of the third class of applications discussed below). We would hope to see some resolution of this issue next month.
Late Breaking Bulletin: "SLD to Begin Funding Internal Connections at 81-89% in Wave 26"
(3) Applications under extensive investigation.
On March 26, the SLD sent special letters to almost 1,400 applicants (representing 2,250 applications) advising them that significant issues have been raised concerning their applications and that further review, perhaps involving site visits by the SLD or investigation by other government agencies, will be required before funding decisions can be made. Funding requests for this group of applications, many of which involve smaller private school applicants at the 90% discount level, total over $490 million.
The majority of the applications being investigated appear to be linked to specific funding requests tied to a diverse group of vendors (including Connect2 which was indicted for fraud last December). The only other name that has come to light recently is Inter-Tel which, in a SEC filing on March 21, stated that the Department of Justice was investigating other companies' and Inter-Tel's participation in the E-rate program. It should be clearly noted that there is no public indication (beyond the Connect2 case) that the SLD or other agencies have determined specific problems with these vendors other than possibly coincidental business patterns involving particular classes of applicants.
Applicants receiving these investigatory notices should carefully review the vendors listed in their FY 2002 applications. As indicated in a previous E-rate News for the Week (see Weekly News), the SLD's online Data Retrieval Tool can be used to check on the FRN funding history associated with any given vendor. We suspect there is a high degree of correlation between applicants receiving these notices and those using vendors with a high percentage (i.e., close to 100%) of unfunded FRNs.
Any applicant with a pending application involving a questionable vendor may want to consider requesting cancellation of suspect FRNs in the hope that the SLD might then fund its other requests (e.g., for basic Priority 1 services). It should be stressed that there is no precedent for the success of this strategy. Indeed, a cancellation strategy is likely to fail if the SLD's primary concern is that the relationship with a specific vendor tainted the entire procurement process.
Our suggestion to those applicants wishing to cancel specific FRNs (or even entire applications) is to send a cancellation request to the SLD. The request should indicate the Form 471 application and funding request numbers that the applicant wishes to cancel. Equally important, the request should clearly indicate which application(s) and FRN(s) the applicant is NOT canceling and, in each case, should summarize the process used to select the associated vendor and certify that this was a proper and independent selection.
Please note that the SLD has explicitly not endorsed this strategy, but has confirmed that FRNs can be canceled if a request is mailed for faxed (973-599-6542) to:
FRN Cancellation Request
Schools and Libraries Division
Box 125 - Correspondence Unit
80 South Jefferson Road
Whippany, NJ 07981
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