Label your equipment

I was just browsing the Extended Outreach Site Visit October 2005 Report (which answers the question, "What do E-Rate consultants do for fun?") and came upon this nugget under the Applicant Outreach section: "Applicants are not aware that they should label their Universal Service funded equipment."

Uh, yeah. Of course applicants are unaware of it; I haven't heard anything about it in any training, and there is no mention of it on the SLD Web site (except in the Site Visit reports). How would we become aware of it?

By the way, if you don't like the look of the new Web site, you can also see the October 2005 Report in the old style.

SLD Web site redesigned

The promised redesign of the SLD Web site has appeared. Of course, I don't like it. I knew where everything was, now I'm hunting around. However, the information that a beginner needs is easier to get to, so I won't complain.

One change I don't like: changing www.sl.universalservice.org to www.universalservice.org/sl/. There are bookmarks to the old address all over the place, many of them in print. And I just don't see a compelling reason for the change. And old pages seem largely to still be there, and do not send users to the new page, if a new one exists. (For example, www.sl.universalservice.org/apply/step2.asp does not send the user to www.universalservice.org/sl/applicants/step02/technology-planning/default.aspx.) Now they'll have to edit every old page to make it send users to the new pages.

The Search tool seems to work a lot better. However, the text boxes blend into the header a bit, and when you go to the "Search Tools" page, there is no mention of the Search page or the Advanced Search page.

FCC OIG report

I just browsed the FCC Office of the Inspector General's semi-annual report. It's not that enlightening, but at least it's short. Two things interested me:

First, the only audits completed were of 3 Catholic schools in the Virgin Islands, and it looks like they're going to get back something like $500,000 total. I have two problems with it.
1) OK, the schools did a bad thing back in the year 2000 (it looks like maybe they tried the old bill-the-SLD-90%-and-never-pay-the-rest scheme), but the each school has between 92 and 250 students, so a fine of $130,000 is likely to be the end of those schools. Meanwhile, the gain to the program is only $500,000 (minus the cost of the audit), if they are able to take it out of the hide of the little schools.
2) Virgin Islands. Hmmm.... Why not investigate a school in, say, Maryland?

The second thing thing that interested me was the list of ongoing audits. A few observations (please note, I just did quick counts, so I could be off on some of the numbers):

106 audits by my count, 101 being done by KPMG.
Here are the top 10 states in population, listed in milliions, along with the number of audits:

State	Population (millions)	Audits
CA	34	17
TX	21	19
NY	19	5
FL	16	6
IL	12	1
PA	12	0
OH	11	2
MI	10	2
NJ	8	2
GA	8	2
NC	8	0
VA	7	2

Meanwhile, South Carolina, with 4 million people, has 5 audits. I don't want to draw any conclusions, since it's not a very complete sample. But I were a district in TX not currently getting audited, I'd count my lucky stars.

I'd like a little more info on each investigation: When was the investigation started? What funding year is under investigation? How much funding is under investigation? What I'd really like to know is why each investigation was started.

The FCC floated the idea of requiring regular audits for the largest applicants, and the large applicants were understandably cool to the idea. But they're already on the list: NYC, LA, New Orleans, Detroit, Boston to name the first that struck my eye. I'm glad to see that they're not only going after small schools on tropical islands.

A use for VPNs

I was reading a magazine for network professionals and I thought of a use for VPN hardware that a lot of schools could use: securing wireless networks (WLANs).

Many wireless networks are secured using a VPN, since it provides more robust security than WEP, WPA and the other 802.11 standards. Security-conscious network administrators make all wireless connections go through a VPN concentrator, which means all devices connecting wirelessly would need VPN client software installed.

The central hardware necessary to create a VPN on your WLAN would be eligible as long as you're only using it within an eligible location. So if you're looking to buy a VPN server, VPN concentrator, wireless gateway, firewall or other security appliance to lock down your wireless network, it should be at least partially eligible for E-Rate funding.

Careful with your VPNs

The new Eligible Services List says VPNs are eligible. Great! Except that you still can't use VPNs for most uses. The two most common uses of VPNs are not eligible. Take a look:

1) You say VPN to a network engineer, the first thing s/he'll think of is creating a virtual link between two locations by sending encrypted packets across the Internet. Now eligible? Hold on. The definition of Telecommunications in the ESL, from 47USC153(43), is: "the transmission, between or among points specified by the user, of information of the user’s choosing, without change in the form or content of the information as sent and received." So a point-to-point VPN is a telecommunications service. The service runs over IP, and the ESL says: "IP-enabled services are...not eligible for funding." So a point-to-point VPN looks ineligible to me.

2) The next use a network professional will think of for a VPN is remote access to network resources. However, remote access is allowed only from eligible locations. So it may be that if someone in School A wants to use a VPN client to connect to a VPN concentrator in School B to access School B's network resources, that would be eligible. Except that I'm sure the SLD would say it's only eligible if the person in School A is making the connection in order to use School B's Internet connection. (Take a look at the new rules for Terminal Server.) So the person from School A would be sending encrypted packets out of School A's Internet connection to School B, where they are unencrypted, sent out over School B's Internet connection, and then the response is received over School A's Internet connection again. I can't imagine a scenario where that architecture makes sense. A^Net^B-Net-B^Net^A (where ^ is an encrypted (VPN) link, - is an unencrypted link).

At a recent conference I did talk to a district that may have hit on an actual allowable use for a VPN. They have a leased fiber WAN set up as a loop throughout town, and some non-district sites are on the loop, so they'd rather their traffic over the WAN were encrypted. I think the equipment they'd need to set up that VPN would be eligible. (If they can get Priority 2 funding, which may be tough given the super-priority of Katrina-affected applicants.)

I voiced my concerns to Phil Gieseler, the eligible services guru at SLD, and I hope he'll come out with a clarification soon.

Window crashing in

Still nothing on the SLD Web site this morning about the Eligible Services List being released. Could it be that the SLD was as surprised as I was that the FCC essentially said, "We know we promised to give you 60 days notice of the opening of the window so you wouldn't be blindsided, but instead we're giving you 3." (7 calendar days, but only 3 working days for schools.)

What will USAC do? Apparently they aren't required to open the window on Dec. 1, but if I were over there, I think I'd do what the FCC wants.

I'm steamed. The FCC sits on the ESL for 3 months, then waives their own rule about warning, and not in a small way. The rule says 60 days, they give us 8 days. They reduced the period by more than a factor of 7. That's like an applicant saying, "I know the application window was only 70 days long, and it took me 500 days to get my application in, but hey, I was really busy, so could you please waive your rules and let me submit this application a year and half late."

I'm expecting a drop in the number of applications, though Katrina may raise the dollar amount requested.

The PINs are coming! The PINs are coming

Whew! In a dramatic shift from their normal terseness, the SLD is barraging me with notifications that I will soon be getting PINs. In trainings, in newsletters, in emails and now in a stack of letters, they're telling me that the PINs are on their way. OK, OK, I got it. My client database has a "PIN" field ready and waiting. Now send me the PINs.

I did get one piece of new information in the latest notification: on Dec. 5th, existing PINs will no longer work, and the new ones will.

It's also nice to know that the PINs will be mailed to the certifier (me) at the contact person's address (my office), rather than to the certifier (me) at the billed entity's address (as the quarterly reimbursement reports are, creating confusion in mail rooms at client districts). Of course, it would be nice to have the PIN mailed to the certifier at the certifier's address, but at least the current redirection works for me.

Maybe Katrina Impact Will Be Small

Another interesting idea Mel Blackwell brought up is that Katrina relief may not have as big an impact on funding as some fear. He planned to have the SLD encourage affected schools to use the Form 500 to return unused funding.

For example, the New Orleans school system should not need anywhere near the $4 million it requested in Telecommunications and Internet Access services. So as the district requests more funds to repair damaged buildings, it should be returning funds for telecommunications and Internet access.

It may be true to some extent, but I see two difficulties. First, school officials are scrambling to recover, so I can't see filling out a Form 500 making onto their priority list. Second, in 2006-2007 districts will need as much telecommunications and Internet access funding as ever, and are likely to need plenty of reconstruction aid then as well.

Don't hold your breath for Priority Two

I had an opportunity to talk to Mel Blackwell (the head of SLD), and he also spoke to the assembled masses at the SLD training in Newark. That was a while ago, but I've been on the road....

The most interesting thing he said was this: Once 471s from the Katrina window start coming in, PIA is going to drop everything else and focus on those. Until then, PIA is focusing completely on Priority One applications. Which means that no one will be hearing anything about Priority Two until after Christmas. And it seems that if you combined Priorities on one 471, your application is also at the bottom of the stack until January or so.

Another consequence: Since PIA will be busy into January, why open the window before then? Mel suggested that a shorter (45-day) window might be in order (since all the applications come in at the end of the window anyway), but I suggested that since most applicants start to think about filing their 470 at the start of the window, shortening it to 45 days is going to cause problems.

Where's the ESL?

We got 10 days to give our opinion on the Eligible Services List (which wasn't enough time for me). The reply comment window closed 6 weeks ago, and still we wait. Once again, applicants and service providers must adhere to tight deadlines, the FCC and SLD respond as time allows. Not as infuriating as having an application sit for 7 months without anyone looking at it, and then you have 7 days to come up with whatever information PIA wants, but infuriating enough.

If they release soon, the window could open mid-December. It's safe to assume that the good old 80-day window is a thing of the past, but it seems likely the window will close mid-February at the earliest. But the FCC seems focused on Katrina, so could it be March this year?

I'm all for it. Since the SLD took no action on any of my clients' applications between February and May, moving the application deadline to April would not have slowed the funding process.

SLD Training

I went to the SLD training in DC last week. It certainly exceeded my expectations, but my expectations were low. I don't know how a one-day training aimed at everyone in the program can be successful. I think they would have been better off running several sessions, separating service providers from applicants and beginners from experts.

Here are some things I found significant:
1) The SLD is planning to start a listserv with information updates.
2) The SLD will soon post a table of state-by-state eligibility of pre-K, adult ed and juvenile justice facilities.
3) Any FRN with a "non-recurring" cost in it can be considered and non-recurring service, having until Sept. 30 to complete service.
4) For 2006-2007, maintenance will be a recurring service.
5) There was a reference to a "training site," which seemed to be a site with dummy 470s and 471s, which trainers could use to allow trainees to practice on forms without doing any real harm.

Finally, I got an answer to a question that I've been asking for a year and a half. The question is, if an ASP makes an administrative application (the example I used was a student information system) accessible from the Web, and separately identifies the costs associated with hosting that content on the Web, are those costs eligible for E-Rate funding.

The answer from Phil Giesler, the SLD's eligibility guru: Yes.

Of course, I'd feel better if I had it in writing from the FCC, but I'll take what I can get.

The SLD staff said they would try to get all the questions that people gave them into some kind of FAQ and publish it on the Web site. Maybe they'll tell us about it in the new listserv....

Katrina aid

Those of us who spend too much time on all things E-Rate have been abuzz about Hurricane Katrina and how it would affect the E-Rate program. Well, we finally have an FCC press release on the subject. Here's my summary of the action the FCC intends to take:
1) a new application window for affected schools
2) "highest level of priority" and "steepest level of discounts" for affected schools for this year and next
3) amendments to applications for schools taking in students from affected areas

I'm not sure what #2 means. Are they going to put all the schools in the area at a 90% discount?

What affect is a new application window going to have on existing applications? My hope is that PIA is going to start shoving applications through even faster to brace for the new applications and amendments. I'm worried about the SLD's database system for tracking funding. It already can't handle a simple mid-year SPIN change; what's it going to do with an out-of-cycle application window and amended applications?

The FCC says it will cost$132 million. I wonder how the FCC arrived at that figure. If it's really that low, then it shouldn't have too drastic an impact on the fund. And that's OK with me; paying for disaster relief through a surcharge on my phone bill seems a bit odd. But if they're going to give all these schools 90%, I have my doubts.

If all those schools are going to get a 90% discount on top of federal disaster aid, they're going to build nice networks. I'm seeing costs around $100,000 just to swap out the routers and switches in a small (300-500 students) school. Phone system, wiring, maybe some video, plus maintenance? I'm thinking $200,000 per school. $132 million covers 660 schools at that rate. The NCES says there are 4,165 schools in LA, MS and AL. New Orleans has 160. And that's only public schools.

Looking at it another way, New Orleans school district's initial request for the 05-06 year was $35 million. So before Katrina hit, they were going to use $35 million. But the whole area is going to use only $132 million to completely rebuild?

I hope the FCC is right.

Avoiding E-Rate Application Pitfalls

If you aren't able to make this afternoon's Webinar "Avoiding E-Rate Application Pitfalls," you should at least take a look at the handout. It's full of useful nuggets about making the application process easier and maximizing your funding.

If you're interested in the Webinar, check out our E-Rate Webinar page.

Discounts going up?

I'm curious to see whether there will be a widespread change in the discount levels this year. At least here in NJ, this is the first year that the NSLP forms will cover an entire household, instead of requiring a separate form for each student. One problem that schools have had is that high school (and middle school) students are embarassed to receive free lunches, so they don't return the form.

It's a pattern I see over and over: the elementary schools in a district are at an 80% discount, the middle schools are at 60%, and the high school is at 40%. And since the high school is large, it drags the weighted average way down. I've seen districts use the forms as raffle tickets; students will actually return them if they have a chance at winning a CD player or something.

Now if the high school student's form is sent back with a younger sibling, it will actually reach the district. Will we be able to detect a trend toward higher discounts?

How far behind is PIA review?

I was wondering whether I should be upset that only about two thirds of my clients' funding requests had passed through PIA review. So I did an analysis of the SLD's data and found out that I should be happy. Nationwide, as of September 2, 2005, only about 35% of FRNs submitted, representing 25% of the total funding requested, had cleared review. So my clients are doing about twice as well as the national average.

To see the percentage of undecided FRNs and the percentage of funding undecided, click here.

For more detailed data, click here.

Eligible Services List 2006

The proposed Eligible Services List for 2006-2007 is out. And we've only got 9 days to comment on it. But then it seems to be basically the same as last year, with a few clarifications here and there. Should I dust off all the comments I made last year, since many of the same problems exist? Probably not; if they wanted extensive comments, they'd give us more than 9 days.

Training from the SLD

The word is out: the SLD will be running training in Washington, DC on September 30, for the first 200 people who register. Read more at:
www.universalservice.org/download/pdf/announcement_8-4.pdf
Register at:
https://ww2.eventrebels.com/er/Registration/LandingPageEntry.jsp?ActivityID=684

There will also be trainings in the New York area and in Southern California. The dates have not been set, but will apparently be in October.

Training outside the DC area is good. And it's great that there will be multiple trainings. However, they have taken the 3-day "Train-the-Trainer" and condensed it into 1 day. How? Entire subject areas are just left out. Here's the agenda:
8:30am - 9:00am Welcome
9:00am - 10:45am ABC's of the Application Process
10:45am - 11:00am Break
11:00am - 12:00pm Eligible Services - What's New Part 1
12:00pm - 1:30pm Lunch
1:30pm - 2:45pm Eligible Services - What's New Part 2
2:45pm - 3:00pm Break
3:00pm - 4:00pm Understanding the Rules
4:30pm - 5:00pm Q&A

Why is almost half the time dedicated to Eligible Services? Will we see a significant change in this area? One thing's for certain: the Eligible Services List won't be final by then; the FCC posts it for comment before finalizing it, and it hasn't been posted yet, so I don't see how it will be final before September 30th.

Extended Outreach site visit - the visit

Today we completed the actual site visit. Here's the short view:
A single BearingPoint employee came at the appointed time, and we sat down and went through a series of prepared questions, with him jotting down notes on our responses. He asked for the documents listed in the letter, we went over them where necessary.

What did we cover?

We talked about the tech plan: when it was approved, what period it covered, who approved it. Interestingly, we never really had to describe how it was prepared.

We talked about the details of the invoice, mostly about how we arrived at the amounts. Since there was no equipment involved, I think we skipped most of the questions on this section, not to mention avoiding having to show where the equipment was and how inventory was tracked.

We talked about the E-Rate process: how we managed the competitive process, who completed the application, what suggestions we had for improving the process. My favorite question: What recommendations do we have for other applicants in completing the E-Rate. I do two-hour workshops on just that subject, but I gave him the highlights.

We talked about training, both of students and teachers. And about how students and teachers use the Internet. Since there were no students or teachers in the building, we didn't show the auditor anything.

I shouldn't say "auditor"; the BearingPoint employee kept stressing that this was not an audit. But using the term "visitor" seems wrong, and I don't know what else to use.

Have your paperwork ready, and the visit is easy enough. One suggestion I would make is to think about the feedback section; get your ideas ready on your problems applying and suggestions for improving the program.

What's next? Within 60 days, a secret report goes to the SLD. The SLD will then follow up. I'll post info on the follow-up then.

Extended Outreach site visit - Checklist

The Extended Outreach first contact letter has a good checklist, with the exception of one item.

The first item is "Evidence of E-Rate document retention." Which documents? The FCC says an exhaustive list is impossible, but here is an E-Rate documentation checklist of everything I can remember having been asked to produce.

Selective Review-Checklist

What do they want in a Selective Review? Here is a quick checklist. There are two sections: bidding and budget.

Bidding
They want everything, including every email you sent to any prospective bidder. Include contracts, RFPs or other specs, bids, bidder evaluation sheets, etc.

Budget
They want to see your actual budget, with circles and arrows (but no paragraph on the back) showing the revenue and expenditure lines that will pay the undiscounted portion of your funding requests. They also want to see figures on cost for ineligible but necessary hardware, software and maintenance, as well as professional development and retrofitting. Finally, they want narratives describing how you intend to fund the E-Rate and what your implementation plan is.

Selective Review-First Contact

I was called by a PIA reviewer to check on my vacation schedule. I recognize the reviewers name from a Selective Review last year. It's nice to know that there's an experienced professional at the other end.

When I said I had no vacation schedule (no vacations for the self-employed), he said he'd fax over a Selective Review Information Request (SRIR) right away. I don't know what happens if you say you'll be on vacation, but I have seen situations where people have gotten extensions for months, and my experience with PIA is that if you let them know you need an extension, and you have a good reason, you get it.

This year the SRIR is 20 pages, instead of the famous 17, but only because there's a fax cover sheet and a cover letter. Otherwise, it doesn't look like much has changed.

So the clock is ticking; I've got 14 days to respond. I have all the paperwork on hand for the competitive bidding process, since I manage that for my clients, but I need to get an approved budget and annotate it with the revenue and expense budget lines which cover the undiscounted portion of the requests as well as the "required-but-not-eligible-for-funding" costs: training, maintenance, end user equipment/software, and retrofitting.

There are a number of other little pieces of information I need to collect: numbers of servers, workstations, network drops, training hours, percent of staff trained, etc. But since we had a Selective Review last year, I have a baseline to work from, so I'm not too concerned about getting those numbers right. The Technology Implementation Level Worksheet (page 13 of the SRIR) also won't have changed much.

I will, however, have to run my response by several people in the district, and I'm afraid a lot of them will be in Disneyland or "down the shore" (as we say here in NJ). So this will probably take a day or two out of my week next week.

I'll post more on what I compile, but unfortunately, I don't know if I'll be able to scrub out all identifying info and post the response as a sample. We'll see.

Selective Review-what is it?

And now, the first Selective Review of the year. Last year I came in to clean up a bit of a mess that had been created, including a Selective Review that had gone on and on. We cleaned up that mess, but now that client is going through it again. So I'll be writing about the process.

What is a Selective Review? It's an in-depth review of an application by PIA (Program Integrity Assurance, the group at the SLD that scrutinizes applications before approval). You know at the bottom of every form there is a long (and growing) list of certifications? Yes I have a tech plan, yes I have budgeted for the undiscounted portion of service costs, etc., etc. For the vast majority of applications, they just take your word for it.

But a lucky few are asked to prove it. You say you have a tech plan; let's see it. You say you budgeted for the undiscounted costs; show us where in your budget. You say you ran an open, fair competitive bid process; show us the paper trail. And so on and so on.

So you get a long information request by fax. Here's a link to an old version of the information request. I can't find a link to a more recent one. I know last year's had 17 pages, and this year's has 20, but I haven't yet looked into the differences. One change I expect to find: on the new 471 you have to give an estimate of all the unfunded costs associated with the services and equipment you're getting, so they'll probably ask about that. I'll talk more about that in the next post and see if I can post a copy of the new form (if I can scrub out all reference to my client).

One nice change: in addition to the fax, I got the forms as a Word attachment in an email. It's nice to have an electronic version I can edit.

Extended Outreach site visit - First Contact

The first contact was a phone call from a BearingPoint employee. BearingPoint is the firm that was selected to conduct the site visits. The employee left a message with an 800 number, and she answered when I called back, knew the visit I was calling about, and told me that the visit would be on August 9th; what time would I like to do it? Well, August 9th I'll be presenting at the NJ Dept. of Ed's Generation Next conference, so I asked if I could do another day. At first she said no, but I was nice, and offered to meet any other day that week, so she said I could have August 8th at 10:00 a.m. Done.

Later that day, I received by email attachment a notification letter, laying out what documents I need to supply and what the visitors will do during the visit. It's a pretty clear letter, though it's generic (talking about looking at equipment, when this is an FRN for phone service). It's funny that they ask to observe students using the service; there is a paucity of students in August, and they aren't allowed to make phone calls anyway. I wonder how many Potemkin villages they see.

The only item in the letter that seems vague is "evidence of E-Rate document retention." What does that mean? The only guidance on document retention comes from the FCC's Fifth Report & Order (starting in Paragraph 45), which gives all kinds of "illustrative" examples, but the FCC admits "we do not believe that an exhaustive list of such documents is possible." So no one can tell you all the documents you'll need, but you're required to have them.

So my first task: create a checklist of everything they might want to see. I'll start with the letter from BearingPoint and the Fifth Report & Order, and add anything else I can think of. I'll post it here when it's done.

Extended Outreach site visit - how was I picked?

What did you do to deserve a site visit? Nothing; you are the victim of chance.

I was on a conference call where a representative of the SLD explained the selection process for site visits. He said that as the stream of invoices went through the payment process, a few were plucked from the stream. My understanding is that invoices are selected after they have been approved for disbursement.

When I pointed out that such an approach would mean you could cut your audit risk by invoicing once a year instead of every month, he said that they had an algorithm for selecting invoices that compensated for that. Like many SLD processes, the algorithm for the selection is secret, so I don't know of any way to reduce your chances of being selected.

Extended Outreach site visit - what is it?

Well, it's happened. One of my clients has been selected for a "site visit" by USAC. So I'm taking the opportunity to let everyone see what it's like. But first, let's talk about what these visits are.

If you ask USAC, they'll tell you that the site visits are part of a new outreach campaigns, to facilitate the transfer of information between applicants and USAC. The visits do present an opportunity for feedback, and one of the items in the first report from the auditors was their surprise at the high level of fear among applicants.

But the word in the applicant community is that it's a "mini-audit." In addition to observing the funded equipment or service in action, the auditors will want to see tech plan approvals, proof of payment, etc. I'll talk more about how serious an audit it is as we go through the process together. At first glance, it looks like a Selective Review plus physical inspection.

The reason it's called "mini" is that the audit focuses on one FRN, not all your funding. Only records which relate to that FRN will be requested. Only equipment or services funded by that FRN will be inspected.

Tomorrow we'll talk about how you get selected for a site visit.

Free E-Rate training

On-Tech Consulting and Microsoft are holding a series of free E-Rate Webinars. These online workshops will be vendor-neutral and focus on what applicants need to know in order to maximize their E-Rate funding. Each workshop will include an opportunity for questions.
The dates and topics are listed below. For more information or to register, go to http://www.blogger.com/www.on-tech.com/webinars, or email webinar@on-tech.com.

All presentations will run from 1:00 to 3:00 p.m. EST.

July 26: E-Rate overview
August 18: E-Rate funding for construction projects
September 15: Avoiding E-Rate application pitfalls
October 13: Recent changes in the E-Rate program
November 10: What is eligible for E-Rate funding?

Waste, fraud and abuse? Where?

The E-Rate now has a reputation of being rife with waste, fraud and abuse. Everywhere I see complaints about how the program is riddled with abuse. For example, in the latest issue of eSchoolNews, there is an article on SES which uses the E-Rate as the poster boy for impropriety. Certainly the program is not without mistakes and bad actors. But let's look at the numbers.

First, the figures from the FCC's Fifth Report and Order. They said that of the $4.7 billion disbursed in the first 3 years of the program, $1.1 billion had been subject to audit, and recovery was sought on $18 million. Analysis of those numbers give us 3 striking facts:

1. Over 23% of all the funding disbursed under the program was subject to audit. That seems like plenty of auditing, even before USAC started making 1,000 "site visits" each year.
2. Of the funds audited, recovery was sought on only 1.6%. That's comfortingly low, especially when you consider that any reports of suspicious activity would have been included in the audited funding.
3. Only 0.38% of the funding disbursed for the first three years was found to have been disbursed improperly. I would be very happy if I could say the same about the expenditures for my business.

The SLD's first Semi-Annual Audit Report to the FCC, which covers 1998-2002, paints a similar picture.

1. About 14% of all disbursed funding was audited.
2. Recovery was sought on 2.8% of audited funding.
3. Recovery was sought on 0.4% of all disbursements.

Where is all waste, fraud and abuse?

First wave notes

During the slow times at the booth here at NECC, I've been playing with the data from the first wave for 2005. I've found nothing of any real significance, so here are some factoids of no real significance.

• Every state got some funding except Oklahoma.
• Almost 5400 different applicants were approved.
• 19,978 FRNs approved, 1304 FRNs denied. Leaving 80% of FRNs undecided at the start of the funding year.
• Top funding recipient: LAUSD, $11.5 million. Remember, that's just Priority One. I feel better about my phone bill now.
• Second and third: the Utah Education Network ($4.8 million) and the Alabama Super Computer Authority ($3.3 million); they run the statewide networks, and had 132 and 140 FRNs, respectively. Just think, if you spent 10 mins. per FRN typing up the 471, it would take you over 20 hours total.
• Smallest FRN: $76.
• State with most funding approved: California, with over $25 million. Least funded state: Nevada, $69,000. Well, as mentioned above, Oklahoma got $zero.

Note: numbers include only states, not funding for DC, Puerto Rico, Guam, etc.

How the E-Rate will be killed

When I first heard about the FCC determining that GovGAAP accounting standards should be applied to the USF, I thought: "If I wanted to kill the E-Rate, I'd move the fund into the treasury. Applying GovGAAP rules to the fund would be the first step." I thought I was just being paranoid.

Then came the GAO report on the E-Rate, which said that having the fund outside the Treasury was creating many problems.

The CBO (Congressional Budget Office) released a report saying that the economic impact of Universal Service would be less if it were simply taken from general revenue, rather than as a user fee.

It was starting to sound to me like a campaign to get the E-Rate into the Treasury, funded by income tax. That would spell the eventual death of the fund. As it stands now, the government's alternatives are E-Rate or no E-Rate. Once it's in the treasury, then the E-Rate is one of many priorities, and Congress has to choose: E-Rate or Medicaid, E-Rate or the war in Iraq, E-Rate or NCLB. Eventually, E-Rate funding would dwindle and vanish.

It turns out I wasn't being paranoid. On April 12, Congressman Joe Barton (R-TX), chair of the committe overseeing the E-Rate, said in a speech: "If I can't kill it, I'm going to do everything I can to so underfund it that it goes away."

Where's the lowered max discount?

It occurred to me that there is a reform not mentioned in the NPRM: lowering the maximum discount to something below 90%. This reform was proposed years ago by the Task Force on Waste, Fraud and Abuse, has been supported in past NPRMs by all commenters except the 90%-discount districts, and has been widely expected to become policy some time soon.

Let's hope that it's not in this NPRM because the FCC plans to make it a policy before the end of the comment period (almost 6 months from now!).

Formulaic funding: good or evil?

Formulaic funding looks to be the big issue of discussion among the commissioners, with the camps already laid out.

What is "formulaic" funding? As laid out in the NPRM, it is a system of determining the level of funding using some formula based on size. Size is the only variable mentioned. No mention was made of income levels, rural vs. urban, cost of telecommunications, or any other factor. Perhaps other factors would be allowed to creep in to the formula. But basically, each applicant would get an amount of funding determined by the formula to spend any way it wants.

Is that better? I'm still on the fence about it.

Pros:

• Simple application: just send in your enrollment (for schools)
• Less opportunity for fraud
• Funding will go to the biggest applicants, not the applicants with the biggest appetite
• Applicants would know the level of funding before the start of the program year
• Applicants would have to live within a budget
• Less incentive for unscrupulous service providers
• Less need for paid E-Rate consultants
• If size is the only factor, each student gets the same level of funding

Cons:

• You won't know 'til audit time if the services you're purchasing are really eligible.
• Waste would be much harder to find.
• How can we make a fair formula?
• Some applicants will have to reduce their spending on telecom/Internet infrastructure. Isn't the goal of the program is to increase that infrastructure?
• Applicants who had been very frugal will have an incentive to increase their spending to use up the entire lump sum they receive.
• Hey, I'm an E-Rate consultant; less need for E-Rate consultants is bad.
• Once the funding is more of a block, it would be easier to make a case for folding E-Rate funding into general education funding.
• If size is the only factor, rich communities would get the same funding as needy ones.

Anyone else care to add pros or cons?

Formulaic approach likely

Well, my perusal of the FCC's NPRM (Notice of Proposed Rulemaking) finally reached the comments by the commissioners. The comments are always full of fluff like "I fully support this important program," but sometimes they also give you a peek behind the curtain.

What peek do we get this time? The only thing Chairman Martin said (besides "blah blah blah fully support blah blah blah operational efficiency blah blah blah") was: "This type of formulaic approach may hold promise for improving the administration of the E-Rate." So the new idea of giving applicants a lump sum based on size seems to have come from the new Chairman.

Commissioner Copps' statement has two paragraphs, and zeroes in on the E-Rate, saying nothing about the other Universal Service programs. The first paragraph lists the proposals that he supports: simplifying applications, multi-year applications, more debarments. The second paragraph lays out his opposition to the formulaic funding approach, and pleads with those who would be negatively affected by formulaic funding to send in comments.

Comissioner Adelstein takes a bit longer to get around to it, but eventually lays out his position: support for strengthening debarment and streamlining applications, and his opposition to formulaic funding.

So the Republican Chairman supports formulaic funding, the two Democratic commissioners oppose it, and the other Republican commissioner is silent. Which says to me, if you don't want formulaic funding, you'd better answer Commissioner Copps' appeal and make your voice heard.

Still no FCDLs

With less than 10 days left until the start of the funding year, we still have zero funding commitments. Rumor has it that the delay was caused by a lack of FCC approval for some of the secret rules that the SLD uses to process applications.

You've got to figure that there will be at least one wave of funding before June 30th, so that the FCC and SLD can avoid the embarrassment of starting the program year with no funding approvals.

But I'm not expecting a huge wave. My sense is that the PIA review process is way behind. For the 2003-2004 program year, PIA almost met its target of 80% of FRNs processed by June 30th. Since then, their record has gotten worse. And no wonder: the rules for the Item 21 Attachments have gotten more complex, there's the whole NCES code mess (the code is required, but not requested on the form), and PIA staff were pulled earlier in the year to help clear the backlog of invoices.

FCC considers major changes

If you haven't read the latest Notice of Proposed Rulemaking (NPRM) from the FCC, you really ought to check it out. What is an NPRM? Whenever the FCC is considering a rule change, they post the ideas they are considering, and anyone can comment. Anyone. So if you have a stake in the program, you should consider submitting your comments. You don't have to comment on everything; just zero in on the ideas you think are the best (or worst) and describe how they would impact you.

This NPRM is very broad, so whatever you'd like to see changed, you probably have an opportunity to tell the FCC what you think.

Some highlights:
Funding by Formula: Paragraph 33 describes a possible new funding mechanism where each school and library would receive a set amount of funding to spend as they see fit. The funding would be determined according to the applicant's size.

Streamlining the application process: Paragraph 37 asks for suggestions for reducing the burden of the application process.

Certification of service providers and consultants: Paragraph 43 asks if the FCC should set standards for service providers and consultants.