SLD Guidance on Good Samaritan Procedures
As we noted earlier this year, and as is even more evident today, there are an increasing number of business failures among companies (especially telecommunications carriers) that may be E-rate vendors. An applicant, who has been paying bills in full, assuming that discounts would be paid retroactively through the BEAR process, may have a problem if its vendor files for bankruptcy. A similar problem arises if a vendor goes out of business before a BEAR can be processed. One solution to these problems is to process payments through a substitute service provider.
This week SLD posted updated instructions on its Web site discussing the basic steps and principles involved for processing a BEAR payment through a substitute vendor called a "Good Samaritan" (see Good Samaritan Procedures ).
The Good Samaritan process is simple in concept, but can get a bit complex in practice. The instructions in the recent announcement indicate that any needy applicant should call the SLD's Client Service Bureau (888-203-8100) for assistance. Normally, the applicant will then be referred to the more experienced Technical Client Service Bureau ("TCSB"). The following steps will be explained:
First, the applicant must find another E-rate vendor willing to act as a Good Samaritan. The vendor must be a telecommunications carrier. Historically, the actual responsibility of finding a Good Samaritan was the applicant's, although the new announcement suggests a more proactive SLD role. Usually, a good place to start searching for a willing vendor is with any of the applicant's current telecommunications carriers.
Second, the applicant must send a Good Samaritan Request letter to the SLD (essentially a special version of a SPIN Change letter) providing: (a) documentation that bills have been paid in full; (b) documentation that the original vendor is bankrupt or out of business; and (c) certification that the applicant is no longer doing business with the original vendor.
Once, the Good Samaritan Request is approved, the SLD will process the outstanding BEAR form, disburse payment to the Good Samaritan vendor, and the Good Samaritan can pay the applicant.
The Good Samaritan process can solve some payment problems, but it is not a cure-all. In particular, the SLD announcement specifically notes that "If USAC has already issued a check to the original service provider and that check was cashed by that service provider but the reimbursement of that amount was never received by the applicant, the situation is NOT a Good Samaritan situation. In such cases, SLD and/or the applicant would have to pursue legal remedies against the original service provider in order to claim the reimbursement."
From an applicant's standpoint, the trick is to avoid having a BEAR payment tied up in a bankruptcy proceeding. The risk of a BEAR payment not reaching an applicant depends largely on the vendor's bankruptcy status - Chapter 7 or Chapter 11. A company in Chapter 11 is protected from creditors, but continues to operate. For E-rate purposes, such a company should be able to receive a USAC payment and pass it on to the deserving E-rate applicant. When a company is in Chapter 7, however, it is in a liquidation mode. Any payments - including E-rate reimbursements - are strictly constrained by the courts. The biggest risk with a Chapter 11 company is that it becomes a Chapter 7 company overnight.
The SLD will not knowingly disburse funds to a service provider in Chapter 7, but the best defense in dealing with a bankrupt E-rate vendor may be to insist on discounted bills. This strategy works best when started at the beginning of a funding year, before paying any bills in full or, even worse, actually submitting a BEAR form.
Larger applicants, with multiple sites, may have numerous telephone accounts for local and long distance services. While separate accounts are often useful for expense assignment purposes, they can be burdensome for accounts payable and E-rate BEAR processing purposes. One solution is a consolidated or summary bill as offered by many established carriers.
In New York, for example, Verizon offers summary bills typically designated with an account code prefix of "212 X00-" (even in area codes other than 212). Verizon's summary bills are dated the first of each month and typically cover individual accounts with billing dates from the preceding month. Although summary bills can greatly simplify the collection and organization of telephone charges for BEAR purposes, a couple of cautions should be noted.
Most individual telephone accounts have bills dated throughout the month, not just on the first of each month. Although the E-rate funding year runs from July 1 through the following June 30, SLD rules permit discounts to be applied to any consistent set of bills from July to June, regardless of specific billing dates within those months. For an account typically billed on the 17th of each month, for example, discounts for FY 2001 can be applied to charges on the twelve monthly bills dated July 17, 2001, through June 17, 2002.
However, if this and other individual accounts are included in summary bills dated the first of each month, the correct set of bills to use for FY 2001 would be those dated August 1, 2001 (referencing individual bills for July 2001) through July 1, 2002 (referencing individual bills for June 2002).
Identification of ineligible charges can also be a problem with summary bills. In the case of Verizon summary bills, for example, ineligible late payment charges are clearly noted in the "Summary of account" and third-party long distance charges (that cannot be included in a Verizon BEAR) are subtotaled in the "Itemization of Charges." Other ineligible charges, however, may be buried within the individual account details. Although such charges may be infrequent, one clue to their existence is often a significant charge in the "Service order/other charges and credits" line (also shown in the "Itemization of Charges").