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House Wants More Info on Troubled E-Rate Program

House Energy and Commerce Committee Chairman Billy Tauzin (R-La.) and Oversight and Investigations Subcommittee Chairman James Greenwood (R-Pa.) are stepping up Congress' investigation into the Federal Communications Commission's (FCC) troubled E-Rate program.

In letters to the FCC, which has E-Rate oversight authority, and the Universal Service Administration Company (USAC), which actually administers the program, Tauzin and Greenwood are seeking information related to program funds, management and oversight.

The E-Rate program is a $2.25 billion fund designed to help schools and libraries connect to the Internet and financed by fees added to consumers' telephone bills. In January, the Center for Public Integrity, a Washington-based non-profit "public service journalism" organization, issued a report claiming the program was "honeycombed" with fraud.

The center's study is based on two FCC audit reports and independent interviews. The FCC audits have discovered abuses ranging from simple paperwork and reporting errors to false billing and other fraud potentially involving hundreds of millions of dollars.

"As you know, problems of waste, fraud, and abuse have trailed E-rate throughout its first five years of funding. Targeted audits of funding beneficiaries over the first two years identified more than $10 million in inappropriate funding disbursements," the letter to Powell states. "Recently, we learned there are at least 30 active Federal and state investigations of either vendors or recipients of E-rate funds around the United States involving, in aggregate, more than $200 million of questionable funding."

Tauzin and Greenwood say ongoing work by the FCC's Inspector General (IG) and the General Accounting Office (GAO) reveals what appears to be inadequate oversight of the program and that emerging evidence of E-Rate fraud and abuse around the country indicates that the $200 million figure may be understated.

"Although the FCC and the USAC appear to have been taking positive steps to improve program oversight and auditing of fund disbursements, we are concerned that such efforts may not address the full extent of any problems," Tauzin and Greenwood write. "We come to this conclusion because we have learned that, to date, there has not been a systematic audit of the full program since its inception six years ago."

Originally organized to help rural areas obtain affordable telephone services, the Iniversal Service Fund's scope was expanded in 1996 to include discounted Internet connection rates for public schools and libraries. The FCC maintains oversight authority for the program but contracts out the administration of it to USAC.

The E-Rate program is based on a competitive bidding process, and the fund's top service providers include IBM, SBC, Verizon, Bellsouth and Qwest. In December, USAC officials began denying or delaying applications by IBM, which received more than $350 million from the fund in 2001.

An IBM official said the company was surprised by the report and hoped to quickly resolve any billing or paperwork disputes.

Almost 90 percent of U.S. schools and libraries receive subsidies from the fund for Internet connections.