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House Subpoenas E-Rate Records

The U.S. House of Representatives has issued a subpoena to Cheryl L. Parrino, CEO of the Universal Service Administration Company (USAC), the agency regulating the Federal Communications Commission's (FCC) E-Rate program, for records related to the House Committee on Energy and Commerce's investigation of the troubled agency.

While USAC has submitted thousands of pages of documents following the committee's initial request, confidentiality concerns prompted USAC to omit certain information considered critical to the investigation. The subpoena requires USAC to produce the omitted information.

"This information is important for us to obtain if we are going to be successful in eliminating fraud and abuse in the E-rate program. I have asked Oversight and Investigations Subcommittee Chairman James Greenwood to hold hearings on this problem. Those hearings should begin this summer," said Committee Chairman Billy Tauzin, who signed the subpoena.

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.

The report led to Tauzin's committee investigating the E-Rate program. In March, Tauzin (R-La.) and Greenwood (R-Pa.) sent letters to the FCC and USAC seeking information related to program funds, management and oversight.

"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 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 wrote. "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."

Last week, the FCC adopted new rules to "simplify and streamline" its controversial program, including approving new "procedural safeguards" that call for persons convicted of criminal violations or held civilly liable for misconduct from participation in the E-Rate program be debarred from the program for three years and, where circumstances warrant, longer periods.

Additionally, the FCC clarified that requests for duplicative services -- services that deliver the same functionality to the same people during the same period of time -- will no longer be funded.

"While these are important changes, they represent only the first stage in a more comprehensive reform effort," Commissioner Kathleen Q. Abernathy said. "In particular, we will focus on complementing existing efforts to combat waste, fraud and abuse."

Abnernathy, who chairs the Federal-State Joint Board on Universal Service, is organizing a public forum on other potential rule changes to the E-Rate program on May 8.

Originally organized to help rural areas obtain affordable telephone services, the Universal 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.