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House Plans Feb. Hearing on E-Rate Fraud

The U.S. House Energy and Commerce Committee plans a February hearing to probe fraud allegations in the E-Rate program, the nation's $2.25 billion initiative to help schools and libraries connect to the Internet.

"We're going to frame all our findings around a hearing. That way, people can respond," a committee source told internetnews.com. "A lot of times we have questions and sometimes there are perfectly good answers."

E-Rate is supported by fees added to consumers' telephone bills. The Federal Communications Commission (FCC) oversees the program, but outsources administration to the Universal Service Administrative Company (USAC), a private, nonprofit. Nearly 90 percent of U.S. schools and libraries receive subsidies from the fund.

Based on a bids, the fund's top equipment and service providers are IBM, SBC, Verizon, Bellsouth and Qwest. Last December, the USAC began denying or delaying applications by IBM, which received more than $350 million from the fund in 2001.

In January, the Center for Public Integrity, a nonprofit "public service journalism" organization, issued a report claiming E-Rate was "honeycombed" with fraud. The center's study is based on two FCC audits as well as independent interviews.

The audits alleged abuses ranging from simple paperwork and reporting errors to false billing.

The report led to U.S. Rep. Billy Tauzin's House Energy and Commerce Committee investigate. In March, Tauzin (R-La.) and U.S. Rep. James Greenwood (R-Pa.) wrote the FCC and USAC for information on funds, management and oversight.

While USAC submitted thousands of documents following the committee's initial request, confidentiality concerns prompted it to omit information lawmakers considered critical, leading Tauzin and Greenwood to issue a subpoena to USAC CEO Cheryl L. Parrino to produce the missing paperwork.

In April, the FCC adopted new rules for E-Rate, including one barring convicted criminals or people held liable for misconduct in civil cases to participate in the program.

"Although USAC has taken corrective actions, such as strengthening its application review process, allegations of waste, fraud, and abuse continue to be raised since GAO (General Accounting Office) last reviewed the program," Tauzin wrote to Comptroller General David M. Walker Tuesday in requesting a GAO E-Rate report as a prelude to the February hearing.

Tauzin added, "Questions have also been raised about the basic effectiveness of the program's structure in meeting the goal of connecting schools and libraries to the Internet."