Not in my sandbox

I was just reading about a ex parte presentation to the FCC to have the Universal Service Fund pay for a "Fiber to the Library" initiative. I like the idea of the initiative, but I don't like the idea of having the E-Rate pay for 100% of it.

The thing that turned me against it was the assertion that libraries are more deserving of funding than schools because libraries "serve everyone." Well, I think if you went to any community in the country and counted up the number of people who visit a school in a year and compare it to the number of people who visit a library, the school wins. Compare the number of people who use the Internet in a school and the number of people who use the Internet in a library, and the school wins bigger. Compare the number of devices connected to the Internet or the amount of bandwidth used, and the schools win even bigger.

While libraries serve everyone in theory, in fact schools serve more people and make more use of the Internet.

I'm all for libraries getting their fair share of E-Rate funding. But nothing should be funded 100% by E-Rate. And no preference should be given to schools over libraries, or libraries over schools.

Holiday cheer

Today a holiday tradition brought a smile to my lips. That's nice, except the tradition I'm talking about is on the USAC home page: the countdown to the end of the filing window. It just strikes my funny bone that the countdown includes the number of seconds until the window closes.

Once upon a time, seconds mattered. I can't find the appeal, but I remember back in the bad old days, an applicant drove a long way to a post office open until midnight (I seem to remember a snow storm involved). The courier arrived at 11:59, but didn't get to the front of the line until 12:01 (a line at the post office at midnight?). The FCC said, "Sorry, denied. You should have applied earlier." (OK, that's not a real quote. Here's a real one: "We find that the above-captioned Petitioners have not demonstrated special circumstances to warrant waiver. The Commission has strictly and consistently enforced filing deadlines, allowing waivers of deadlines only in very limited and compelling situations. In light of the large number of applications that the Schools and Libraries Division (SLD) of USAC reviews and processes each year, it is administratively necessary to place on the applicant the responsibility of complying with all relevant rules and procedures, including filing deadlines. Hence, employee illness, staff failure to perform a job properly, inclement weather, or misunderstanding of the rules does not relieve applicants of their responsibility to comply with the Commission’s rules and procedures. Further, the assertion that denial of an application may have a detrimental impact on an applicant does not create special circumstances or suggest particular facts that warrant a waiver of the Commission’s rules.")

Bishop Perry hasn't been around as long, but he sure spreads as much joy in the E-Rate community as that bishop from Izmir.

New math

Oh, I forgot to mention one thing that puzzled me about Table 4 in the OIG's Audit Analysis. It shows the percentage of applicants that failed for each of the 21 different causes. For a few of the listed causes, the OIG said 0.1% of applicants failed for that reason. It's been a long time since I took a math course, but I'm sure 0.1% is one in a thousand. There were only 260 audits.

If one applicant failed for a given reason, that would be 0.4% of the sample (OK, 0.3846%, but we're rounding up).

How could any percentage less than 0.4% appear in that table? Am I missing something?

Why we fail

The FCC's Inspector General (OIG) has released its analysis of Round 2 audits. And the picture is not pretty.

The bottom line is that the E-Rate program is nowhere near making the 2.5% threshold for improper payments, so we're getting more audits. But we already knew that.

I dumped the results into a spreadsheet, just to see what jumped out at me. Here's what jumped out:

Two of the audits accounted for 50% of the total amount of improper payments from the 260 audits. A curse on those two applicants for making us all look bad! Oh, wait, they've already been cursed with multi-million-dollar COMADs.

Of the 260 audits, only 93 did not result in recovery. Over 64% of applicants made some kind of error. How can we change that? Simplify, simplify, simplify. I came up with a couple thousand pages of rules without even trying.

OIG came up with 21 causes for improper payments. Among those causes that the auditors found resulted no errors:

• USAC error
• Solix error
• NECA error

"NECA error"? What error could NECA make? Something about the way they formed USAC? And the audits don'texamine the actions of Solix and USAC, so there's no way for them to find their errors.

There were four causes associated with FCC rules:

1. Imprecise FCC Rule/s
2. Contradictory FCC Rule/s
3. Overly Complex FCC Rule/s
4. Disregarded FCC Rule/s

The Auditors found that the first 3 caused 0.2% of the improper payments made, while #4 caused 44% of the improper payments. So almost every applicant who broke an FCC rule told the auditors that they had disregarded FCC rules? I'm guessing the auditors made a judgment call that the rules were not imprecise, contradictory or overly complex. It would be more instructive if the auditors asked applicants: "Here is a rule you didn't follow. Do you find this rule precise, unequivocal and simple? Why didn't you follow the rule?"

Because as it is, the results make it appear that applicants understood the rules and chose to violate them. I'm sure that happens, but not anywhere near 44% of the time.

Neighbors finally mowing the lawn

Here's a piece of good news for the E-Rate. The FCC has announced an interim emergency cap on the amount of support for competitive eligible telecommunications carriers for the High Cost Program. That's good for the E-Rate in an indirect way.

As I've written before, the High Cost program has been the main driver in the ballooning of the Universal Service Fund (USF). And with ballooning cost comes increased scrutiny. So even though the E-Rate is capped, our program gets increased scrutiny because our cohorts in the USF are all growing.

Sauce for the goose

This week's schadenfreude: the FCC OIG's semiannual report dinged USAC for their fixed asset record-keeping. I don't wish USAC ill, but after copying pages and pages of clients asset records in order to pass the Extended Outreach Site Visit ("it's not an audit, but we will check compliance"), there is a petty little part of me that is just happy to see it happen to them.

I wonder if there is any relation between the recent jump in available funds and the OIG audit. Seems the audit found problems with the way USAC accounted for the allowance for doubtful accounts (with the acronym ADA, jangling the nerves of this survivor of the 2004 Anti-Deficiency Act debacle).

The FCC got dinged, too, for its process for dealing with public comments, consumer complaints and inquiries. I wonder if they brought up the way the FCC manages the public comments about the Eligible Services List or the number of appeals sitting idle for years. Probably not.

Audit tsunami?

Well, the FCC's Office of the Inspector General (OIG) has released its latest Semiannual Report, and the news is not good.

There's the usual smattering of significant fraud cases. None of the stories had enough detail to be really interesting, though.

But the really bad news is that the Round 2 IPIA audits for E-Rate have again found more than 2.5% of payments were improper. So here comes Round 3.

How big will this wave of audits be? The report doesn't give a number, but the OIG is definitely ramping up for a bigger effort by hiring more people, so I think we can expect more audits. On the other hand, Round 3 will cover all four USF programs, whereas Round 2 only covered E-Rate and High Cost. So I'm betting on 315 audits for the E-Rate program. Anyone else care to hazard a guess?

When will the Round 3 tsunami hit? The OIG has already selected the lucky recipients, though the report doesn't say when we'll all get the good news. It does say USAC is currently contracting for Round 3. So my speculation is that USAC wraps up the contracts by the end of the year, and the bad news goes out in January. Let's hope they are sensitive enough this year not to have the audit responses due at the end of the filing window.

A little light reading

Here's my favorite line from this week's Schools and Libraries News Brief:

"Before you begin, be sure to review all relevant program guidance."

Like that's even possible. So it got me wondering, how many pages of guidance are on the SLD Web site? So I figured if I googled on the pages in usac.org/sl with the word "the" in it, I'd catch almost all the pages. Google says: 781 Web pages.

Of course, that's only the USAC guidance. Based on a quick scan of the FCC's Schools & Libraries Web page, it looks like close to 200 FCC E-Rate orders.

And then, of course, there's the 700-page tome of secret PIA rules.

If we have to review all that, all of a sudden a 73-day window seems short.

Start your engines!

And the filing window has been announced:
December 2 to February 12

That gives us a 73-day window, reversing the trend in recent years, which has been towards longer and longer windows.

I have no problem with a 73-day filing window. As I said this weekend, to me the important window is between the release of the Eligible Service List and the close of the filing window. If the FCC stuck with its rule of 60 days between ESL release and filing window opening, and USAC stuck with the old tradition of the 80-day filing window, that would be 140 days. This year it's only 84 days, a new low. Now 84 days is enough for most applicants, and in most years would be enough for almost all applicants, but this year, when the FCC dangled ESL changes in front of us and then snatched them back, it would have been nice to have a longer period.

Full employment for my dentist

The latest News Brief has me grinding my teeth:
"Compliance with E-rate program requirements is not an excuse for non-compliance with state and local requirements. In general, when E-rate program requirements and state or local requirements differ, you should comply with the requirements that are more stringent to make sure you are in compliance with both."

What about when E-Rate rules require something that state law forbids? For example:

1. You're wiring a building. It is not cost-effective to award the low-voltage (data and phone) wiring to one contractor and electrical wiring to another. (Think about it: That piece of molding coming down the wall has two channels, for electric and low-voltage. So you'd need to cost-allocate, and you'll have one contractor going into the other contractor's molding.) So if you want to choose a single contractor, E-Rate rules require that price of eligible components be the primary factor, while state law requires that you take the overall lowest bid. So there is a possibility that you'll have to forego E-Rate funding, since it would be illegal to make the choice based on the price of only eligible items.
2. It's illegal for most applicants to sign contracts in January for services that don't start until the following fiscal year.
3. Applicants are required to certify on the 471 that "resources have been secured" to pay their share of E-Rate costs, as well as pay for training, support, etc. State laws do not permit applicants to have a budget for the following year at the time the 471 is certified.

What are the solutions to these conflicts?

1. The FCC should get out of the competitive bidding process and let state laws ensure competitive bidding.
2. Don't require contracts before the 471. Just use a quote. The contract doesn't prevent waste, fraud or abuse, and forcing an early contract results in less cost-effective purchases.
3. Stop requiring that certification.

Now I need to unclench my jaw and get some work done.

Meet the new ESL, same as the old ESL

Here's the time line:
6/30: USAC sends proposed Eligible Service List (ESL) to FCC. (Actually, that's the deadline; I know that some years, USAC has submitted the proposed ESL much earlier.
8/1: FCC posts the USAC-proposed ESL for comments.
8/1: FCC opens a Notice of Proposed Rulemaking (NPRM) with several proposed ESL changes.
8/14: Comment period closes for USAC-proposed ESL.
8/19: NPRM published in Federal Register.
8/21: Reply comment period closes for USAC-proposed ESL.
9/18: Comment period closes for NPRM.
10/3: Reply comment period closes for NPRM.
11/21: FCC announces that none of the suggested changes will be enacted.
11/25: FCC allows window opening.

First of all, a new record: Two working days between release of the ESL and start of the window. In the Third Report and Order, the FCC created a rule that the application window cannot open for 60 days after the final ESL is posted. The FCC has consistently waived its own rule, but this year, they’ve outdone themselves. And if you consider that USAC has not announced the release of the ESL (I learned of it from a Funds for Learning update), almost all applicants are going to learn of it on Monday morning, one day before the FCC has allowed opening of the window.

I’ve got to think that USAC saw this coming, so they’re probably ready to open the window quick, though maybe not by Tuesday; USAC can set the window opening any time after the 25th and close it whenever they want.

When will the window open, and when will it close? Well, I don’t think USAC opens the window by Wednesday, which runs them smack into Thanksgiving, which means a December 1 window opening. An 80-day window would mean February 19th. That’s later than USAC wants, and a year or two ago, Mel Blackwell said he wanted to shorten the window. So I’d almost bet on a December 1 opening, February 10 closing. That’s a 71-day window. But that would make the time from the release of the ESL to the close of the window only 81 days. So I’m hoping they won’t close until February 19th.

But what about the school district that wanted to implement streaming video this year? A video-on-demand (VoD) server at 90% off, is more cost-effective than a streaming video service. But the USAC-proposed ESL made VoD servers ineligible. So the district rewrites their tech plan not to include VoD servers. Now they’ve got to put the servers back into the tech plan, write a spec, file the 470, wait 28 days, pick a vendor, sign a contract, and file the 471. No matter when the window closes, that’s a rush job. The district is not going to get the best deal that way.

ESL Math

I suppose it's time for the annual pin-the-tail-on-the-471-deadline game.

First, the theoretical: FCC rules require 60 days between the release of the Eligible Services List (ESL) and the start of the window, and the old tradition was an 80-day application window. If the FCC released the ESL today, the application window would open January 13th and close April 3rd. As I've said before, I'm in favor of a later window closing, but they need to drastically simplify the secret rulebook if they want PIA to plow through all the applications in 3 months.

Now the reality: The Third Report and Order released December 2003 (as opposed to the first Third Report and Order, released October 1997, which created the filing window) states: "At least sixty days prior to the opening of the window for the following funding year, the Commission will then issue a public notice attaching the final eligible services list for the upcoming funding year. The Commission anticipates that this public notice will be released on or before September 15 of each year."

Here's what's actually happened:

FY	ESL release	Window open	60 days?	Window close	Window days
2005	10/14/2004	12/14/2004	61	2/17/2005	65
2006	11/22/2005	12/6/2005	14	2/16/2006	72
2007	10/19/2006	11/14/2006	26	2/7/2007	85
2008	10/19/2007	11/7/2007	19	2/7/2008	92

So we should open up a little pool. Feel free to give your guesses on the following:
When will the ESL be released?
When will the window open?
When will the window close?
When will the first FCDL be issued?

Here are my guesses:
11/21/08
12/5/08 (cutting the 60 days to 14)
2/9/09 (giving us a 66-day window)
4/17/09

That creates unpleasantly tight timelines for applicants, but nothing unprecedented.

Now it's getting ugly

A spate of recent appeals to the FCC (here's one of them) really takes USAC to task for the whole Cost-Effectiveness Review (CER) process. Sounds like a case similar to one I blogged about earlier: wielding the most secretive of reviews to deny FRNs from years ago.

By now you know I hate the CER (and here's another rant).

In November 2007, the State E-Rate Coordinator's Association (SECA) said: "USAC’s cost-effectiveness procedures appear to go well beyond FCC rules and policy guidance."

In April 2008, the E-Rate Service Provider's Association (ESPA) calls it "arbitrary, discriminatory, unfair, and not competitively neutral."

In April 2008, E-Rate Central said: "USAC is making policy decisions unsupported by Commission rules. Even worse, USAC is making educational policy decisions."

This latest set of appeals go all out, even getting into the personal politics of some USAC employee involved in the case.

The CER appeals are piling up.

So when will we see some FCC action on this? Another end-of-the-fiscal-year batch of appeals have been released, and not a peep about Cost-Effectiveness Reviews. Let's hope we don't have to wait five years.

Kicking the bucket

USAC has sent its annual list of administrative procedures to the FCC. The submission is public, so you'd think this would be a juicy peek inside the gigantic secret rulebook. But it's amazing: 85 pages, and I can't find a single useful piece of information.

One fun tidbit: there is actually something called a "Mixed Bucket Review." And here I thought I'd been through every type of review possible, and even some that aren't possible (a retroactive Cost Effectiveness Review, for example). But I have never had my buckets reviewed.

The Adams Family

It was bound to happen some time. We already have an Adams County Order (so named because the Adams County School District was the first (alphabetically) appellant), released back in 2007, which finally drove a stake through the heart of the unkillable "two-signature-two-date" rule.

Now comes the FCC and releases an order clarifying the rules surrounding On-Premise Priority One Equipment. It's significant enough that the ruling will appear in future appeals. This time, Adams County Public Library is first on the list of appellants. Now what? "Adams County II"? "Eve's County"? "Adams County Reloaded"? "Quincy Adams County"? Or, since the order expands on the rules from the Tennessee Order, maybe we call it "The Tennessee Order Revisited"? "Revenge of the Tennessee Order"?

What does the new order say? It talked about the "exclusive use" test from the Tennessee Order, but the statement that will appear in future appeals is: "the mere presence of a purchase option does not indicate that an applicant has failed the standards set forth in the Tennessee Order."

An RFP by any other name

A cornucopia of appeal decisions (27 by my quick count) were released yesterday. And there are enough waives to keep any surfer happy; one decision waived the rules for 78 appeals. In most cases, it looks like the FCC blew the dust off some appeals that had been sitting on the shelf since the early aughts and applied post-Bishop Perry rules to them.

Only one decision seemed to me to break new ground: the Approach Learning decision. And it's not just because I wrote one of the appeals involved. In fact, it was cited as precedent in another of the 27 decisions, so that makes it precedent-setting.

The decision grants 12 appeals, and only one of them is a waiver. So the decision says that in the other 11 cases, the applicants had not violated any rules, and USAC was mistaken in denying them.

It's a decision about a very narrow issue: the checkboxes on the Form 470 where applicants indicate whether or not they have an RFP. Up until this decision, if USAC conducted a Selective Review (or audit or Extended Outreach Site Visit or whatever), and decided that an applicant had an RFP, but didn't check the box saying so, they would deny any FRNs associated with that RFP.

I argued (as apparently did others) that the document we gave to service providers was not an RFP by any definition in state or federal law, that it was really just a restatement of what was in the 470, and that service providers did not need to see the RFP to bid. The FCC accepted those arguments.

As far as I can tell, the FCC is saying: "Check whatever box you want, as long as the bidding process is fair."

Alas, the FCC did not provide a definition of "RFP," which I had requested in my appeal. Actually, way back when those checkboxes were being added to the 470 (2002?), at the train-the-trainer workshop I warned USAC not to use the term "RFP," because it has a very specific legal definition which varies from state to state. If only people would just do what I say, this program would be so much better. On the other hand, my suggestions on simplifying the application process would dry up the need for E-Rate consultants, so I shouldn't complain. At least not until my kids are through college.

I wonder if there is any definition of "RFP" in the 700 pages of secret PIA procedures that the FCC approves every year....

IP telephony finds a home?

I'm not a big FCC wonk, since most of what they do doesn't affect my clients, so I just scanned through the announcement concerning a Nov. 4th FCC meeting, looking for anything about E-Rate. First question: is the FCC trying to make the text opaque, or are they just incapable of writing clearly?

Anyway, two things caught my eye, both under the first item on the list:

1. "IP-enabled services": Could it be that the FCC is finally going to decide if IP telephony is a telecommunications service or information service? Why should we care? Well, the reason that IP telephony is under "Miscellaneous" on the Eligible Services List is that the FCC doesn't want to put it into either telecom or Internet services until it's decided the big question of whether it's a telecom service (and highly regulated) or an information service (and much less regulated). Maybe IP-enabled telephony will finally find a home on the ESL.
2. "The Commission will consider a Report and Order, Order on Remand, and Further Notice of Proposed Rulemaking addressing the comprehensive reform of intercarrier compensation and universal service." The failure to mention Docket 02-6 anywhere in the preceding jumble of issues makes me think they're not talking about taking action on the comprehensive E-Rate NPRM released in June 2005, or the request for comments on E-Rate Central's ideas about Equipment disposal released in November 2006, or even the NPRM on suggested changes to the Eligible Services List released in August 2008. Maybe "comprehensive" is a relative term.

Wasteful audits

I was reading the USAC Board Meeting notes from E-Rate Central's E-Rate Service Provider Forum, and there were some interesting audit notes.

The audit reports approved this week were 44 audits covering $18 million. They had a "monetary effect" of $893,000. I think that means they found $839,000 in overpayments. That would be good news. It would mean an error rate of 2%. If we can keep that up, we'll make the IPIA threshold of 2.5%, which would mean fewer audits in the future.

Here's what else jumped out at me: those audits cost $4 million. That's over $90,000 per audit, over 40% of the amount audited, and more than 4 times the amount recovered. In other words, the fund lost over $3 million on those audits.

I'd rather see the $3 million spent simplifying the program.

Online BEAR report card

Now that the BEAR season is over, it's time for me to kibbitz about the online BEAR tool, which we used a lot this year.

First, the overall grade: A-
It really is a good tool. It has a no-frills feel, but I don't like frills, so that's fine with me. It gets the job done, and does it simply.

Good points:

1. All the info is on one screen. When I review other forms, I have to click through several screens, and the certification window pops up in another browser wind. With the BEAR, everything is right there.
2. It does the discount calculation for you, checks for errors, etc.

OK, now areas for improvement, most annoying first:

1. Once I've submitted a BEAR, I can't modify it. And service providers can't modify them at all. It's not unusual for a service provider to want a different amount that I've put in,* and it's usually a small difference, so I would like some ability for service providers to certify a different amount. Better yet, once they've certified a different amount, an email notification would come to me, and I would certify the new amount.
2. You need to enter a PIN in order to prepare a BEAR. I can't be the only person who wants at least two sets of eyeballs to look at every form before we submit. So as PINmeister I have to log people in so they can prepare forms for my review. Clunky. I'd rather that it work like the other forms, where anyone can prepare the BEAR, but only the PINholder can certify.
3. A BEAR, once created, cannot be deleted. I'm curious to see how long these orphan BEARs will hang around in the system. (Here's a suggested addition to E-Rate nomenclature: the orphan BEARs should be called Smokies. Get it? Orphan bears?)
4. Applicant notification emails: The emails I get from the system give me no identifying information other than the invoice number. How about giving me the BEN, or even better the list of FRNs. I've had to modify my tracking system to use invoice numbers so I can keep track of these things.
5. Service provider notification emails: I've heard from more than one service provider that they get no notification when I submit a BEAR. And since the SPIN Contact Search tool doesn't give out email addresses, we have to make phone calls.
6. Quirky field validation: If you have a space before or after the pre-discount amount (which is not uncommon when copy-and-pasting from Excel), the discount will calculate correctly, but you'll get an error when you try to certify.

* Why do service providers review the amount, anyway? Service providers are certifying two things on the BEAR: A) We'll turn the reimbursement around in 20 days, and B) we won't use the reimbursement to pay our own expenses. The service provider has no responsibility to review the amount. Now I don't mind having another set of eyes review the amount, but a lot of the time the difference is insignificant. What really gets my goat is service providers demanding that I supply them with account numbers and bills before they'll certify. It's infuriating to have invoices denied while I give service providers information that their own billing system generated. If you can't keep track of your own clients billing, just certify the damn form.

Pattern-analyze this

As the BEAR certification notices come in, my first thought is, "Why doesn't this note contain any useful information, like, say, the FRN or SPIN or 471 # or BEN or Applicant Name or anything that would allow me to figure out which invoice we're talking about. Yeah, I know, I can just look up the invoice #, but sometimes I like to glance at a note and tell something about it. At least I can tell which service provider it is by glancing at the email addresses.

My second thought: "Why haven't they taken the 'View Bear Form Status' link off the message yet? Don't they realize it doesn't work?" See, the link in theory takes you to your BEAR, but only if you're already logged into the online BEAR area. And in my case, logged in to the correct client's online BEAR area.

But today's new thought: "Why does the return address end with saic.com?" SAIC? Then I remembered the big kerfluffle when SAIC was hired to handle some IT upgrades for USAC. Some of SAIC's competitors pointed out that SAIC was a service provider in the E-Rate program, so it would be a conflict of interest for them to have back-end access to USAC's databases. I said at the time that it's much ado about nothing, and I still think so.

But here's the thing. USAC is the company that came up with pattern analysis, where they denied applications because some Forms 470 looked suspiciously like a service provider had helped make them. They also denied funding on some applications because the Form 470 was submitted from an IP address known to be associated with a service provider. (Fortunately, the FCC pointed out that suspicious similarities were insufficient grounds for dismissal, and pattern analysis faded into the background, though I'm sure it still goes on and triggers Selective Reviews, etc.)

You would think that the company that invented pattern analysis would be more careful about giving the appearance that all this mail is being handled by SAIC's email server (which would mean it would be archived at SAIC, and available to...).

I'm still fine with using SAIC handling the back end, and I don't see a real conflict of interest. I'm just saying, if we turned pattern analysis onto these emails....

CER fun?

Ah, my perfect storm to point out the ludicrous nature of the Cost-Effectiveness Review (CER) process.

Now, many of you know that I hate the CER process. I put at #2 on my hit list of E-Rate rules to be eliminated, behind the 2-in-5 Rule. CERs are actually more heinous than the 2-in-5 Rule, but CERs are actually warranted in some cases, and probably do some good. The 2-in-5 Rule is useless and heinous. On the other hand, at least the 2-in-5 Rule isn't shrouded in secrecy. There's even a cool tool for figuring out if you're about to violate the 2-in-5 Rule (www.universalservice.org/sl/tools/search-tools/two-in-five-tool.aspx). Whereas if you ask what it would take to pass a CER, you are told flat out that the information is an "internal control," which means "secret." Not only won't Solix tell you how you got into this mess, they also won't tell you how to get out. (So much for the "pull you through the application process" emphasis from last year's training.)

So the 2-in-5 Rule is a bad rule well implemented. CERs are a good idea horribly implemented.

Anyway, back to my perfect storm. What most people don't know, and what Solix doesn't tell you, is that if you fail a CER, you can submit a modified request. Unfortunately, that usually doesn't work out because the complexity of redoing the proposal means it can't be done fast enough, and the CER of one FRN will hold up the whole application.

But now I have an 87% application who needs 300 cable drops repaired. Solix thinks that's too many drops for the number of students at that location. Two factors have come together: 1) since it's an 87% district, they aren't going to get Priority Two approval for months, anyway, and 2) the entire request is just cable repair, priced per drop. So I can easily reduce the request to 299 drops to see if that gets approved. No? OK, how about 298? No? 297? Eventually, I'll get down to exactly the number needed to get this thing approved. I've got a couple of months.

If I do discover the secret drops-per-student ratio that will pass a CER, I'll let you all know.

Of course, I don't get to make the decisions on strategy, so it may be that our client will decline to participate in this Chinese water torture, since they don't share my level of resentment towards the CER.

But a fellow can dream....

Another reason to appeal

Another Semi-Annual Audit Recovery Report has been sent from USAC to the FCC. Not exactly a page-turner, but here are some factoids which might be of interest to E-Rate geeks (and let's face facts, if you are reading this blog, you are an E-Rate geek):

• Of the almost $1.9 billion audited, $89 million was to be recovered. $2 million of that was overturned on appeal, so $87 million is still collectable. That's less than 5%. And $63 million of it is still under appeal. So only about $24 million has been finally determined to have been improperly paid. That's 1.3%.
• The FCC currently has appeals totaling more than $15 million which pertain to Funding Year 2002 or earlier. Now it does take time for audits to be finalized, but c'mon!
• At present, USAC is collecting on only $5 million. The rest is on hold while USAC decides appeals and waits on policy guidance. Not that any of those applicants are complaining.

So I'm wondering: what percentage of COMADs demand payment only from applicants, how many demand payment only from service providers, and how many demand payment from both.

USAC training roundup

All in all, I'm giving the USAC training in DC last week a passing grade. I think it's worth attending, no matter what level you're at.

My only gripe: my company name wasn't on my name tag. But then again, maybe some of the school district folks would have avoided me if they'd known I wasn't one of them.

The idea of a separate "advanced" session in the beginning was excellent, and the topics were pretty good. For next year, maybe they should ask for topic suggestions.

The Audit session was informative, especially for old hands. I think it must have been frightening for first-timers, though. And since most of us never need that info, I think the main goal should have been to assuage fears for newcomers.

Program Compliance didn't introduce much that was new, but it is information that bears repeating every year.

The Cost Effectiveness Review session was completely unsatisfying, because all the information about the review that really matters (how you get picked for one, what you need to do to pass one, etc.) is all secret. But I was able to restrain myself from getting too snitty, so it was a success for me.

Calculating Discounts seemed to me to be a better session for the Beginners track, although I suppose USAC needs to say "You can't extrapolate percentages based on NSLP form returns" to as many people as possible.

The Eligible Services session was interesting: it focused in on a few rules, rather than trying to cover the whole topic. Since there was an "Eligible Services for Beginners" session, that was just right. I have to say, though, that the info on the 67% rule was probably way over the head of 67% of the people there.

I don't want to give any spoilers concerning items not on the agenda, so I'll just say that E-Rate Bingo can't have been easy to prepare: given the rules in this program, it must be difficult to think up questions to which the answer is not, "It depends."

So far, so good

Here's my first report from the USAC training in DC: We're off to an excellent start.

Nice breakfast spread, including fresh blueberries and cans of Pepsi for those of us who like our caffeine cold. Unfortunately, we apparently can't look forward to any skits during the Advanced session, but I suppose a little comic relief would be more welcome in this afternoon's session on audits.

The session on audits gets a whole afternoon, which I'm back and forth about. More information about audits will certainly help reduce the fear that applicants feel, but from a practical side, even with the new wave of IPIA audits, probably fewer than 300 applicants will get a full audit. So only a small percentage of attendees will actually put the information to use.

I don't see so many familiar faces this morning. Could it be that the DC training has lost its cachet as the place to be?

CER obfuscation

Oh, man, I'm going to have to moderate my caffeine intake on Friday morning so I don't lose my composure during the Cost Effectiveness Review presentation. Here's what the slides say about why CERs are conducted:

FRNs are reviewed to determine:

• Whether the costs of the products and services are significantly higher than the costs generally available in the applicant’s marketplace for the same or similar products or services;
• Whether equipment is priced two or three times greater than the prices available from commercial vendors; and
• Whether there are extenuating circumstances that warrant the products or services costs.
• Whether the most cost-effective bid was selected with price of the eligible products or services being the primary factor
• Whether the applicant used applicant’s evaluation criteria during the vendor selection process

From the CERs I've seen, none of those reasons cause a CER, and from the denials I've seen appeal, CER denials are not for any of the reasons above. The only reason I've seen for starting a CER or for denial after a CER is:

• Whether the solution proposed by the service provider and accepted by the applicant has a cost/student significantly higher than the norm.

I'm happy to see some light shed on the CER process, but that part of the slide show seems very misleading to me. The FCC's definition of "cost effective" does not include anything about cost/student, so I can understand USAC's reluctance to put it on a slide, but if it's the main reason for CERs, then tell us. Also, following the precedent in the Caldwell Parish order, if USAC puts it in a slide, it becomes a program rule, without any need for FCC approval.

Another gripe: the presentation doesn't have the two pieces of information I requested last year, but never got:

1. How many CERs are conducted annually?
2. How many (or what percentage) of CERs result in denial?

The presentation doesn't cover what applicants really need to know, like"what to do when your application is found not to be cost-effective" or "which extenuating circumstances we pay attention to." But if they gave away those answers, there would be one less reason for E-Rate consultants.

Latest rulebook addenda released

USAC is calling them "training materials," and to the untrained eye they look like a bunch of PowerPoint slides. But since the FCC held in the Caldwell Parish decision that something that appeared in a slide shown in a 2001 training was therefore a rule, we have to treat each slide as an addendum to the chaotic, contradictory, ill-defined set of E-Rate rules.

I don't have time to really tear through these now, but here's one that jumped out at me: "You should not renegotiate the pricing with your vendor during PIA review. This is a competitive bidding violation."

Huh? So Joe's Network Hut gives me a bid for a switch for $500, and I select him as the most cost-effective bid, then later Joe lowers his price to $400, that makes him not the most cost-effective bid? I can see how allowing higher prices after the contract is signed could result in abuse, but I don't see how lowering prices can do anything but improve the program.

So now my question is, does renegotiating pricing before or after PIA also constitute a competitive bidding violation? If not, what makes the PIA time so special? If so, it means that equipment purchased under the program will be even more overpriced than it is now, since applicants won't be able to take advantage of the constantly dropping prices on data and voice equipment.

If the FCC is going to treat these slides as rules, shouldn't there be an NPRM on them every year?

NPRM goes live

Well, the Notice of Proposed Rulemaking (NPRM) about changes to the Eligible Services List (ESL) was published in the Federal Register today, so that means the comment period closed 9/18 and the reply comment period closes 10/3.


I've got to think the FCC intends to include the changes in the 2009-2010 ESL, which I think means delays in the application window. In a normal year, the FCC releases the ESL for comment in July, closes the comments in August, then sits on it and releases it unchanged in late October. If it takes two months when no changes occur, how long will it take to incorporate changes?

Looks like another year of almost no time between the release of the ESL and the opening of the window. And maybe we'll even be facing a shortened window.

What I'd really like to see is the whole window pushed back a few months. I think it's absurd and wasteful (and in most cases illegal) that districts have to select vendors and sign contracts in January for services that won't start until July at least.

What a difference a date makes

E-Rate Central's August 18th newsletter has an interesting discussion about unused funds, rollovers and denial thresholds.

The first thing that jumped out is that all of a sudden, there is $800 million available for rollover. E-Rate Central made a projection about how big the fund might be for 2009-2010, and at first blush it seems rosy: $3.5 billion available for next year. But compare that to demand, and it doesn't seem that great. For 2008-2009, if you look at Priority 1 requests from all applicants and Priority 2 requests from applicants with a discount of 80% or greater, the demand was over $4 billion. And the Priority 2 demand from 90% schools increased 50% from FY 2007 to FY2008, so I'm betting that even with $3.5 billion in the fund, 80% applicants get diddly for Priority 2.

More interesting was the mention of why the rollover happens the way it does; I hadn't read the rules regarding rollovers for a long time. It all goes back to the Third Report and Order, which created the rollover by changing Part 54.507 of 47 U.S.C. to allow the FCC to rollover funds "in the second quarter of each calendar year." That's why we get the rollover at the end of the second quarter each year. Now imagine if they changed the rule to "each October." That way they'd be rolling the money into the fund before the opening of the window, allowing applicants to make more educated guesses about the coming funding year. It's not as good as my proposal to set the Priority 2 denial threshold before the start of the funding year, but it's a start.

This $800 million windfally provides the perfect opportunity. They could do the rollover for 2009-2010 this October, and it would still be close to a billion dollars. It would require an FCC order pretty soon, so I don't see it happening, but it would be nice....

COMADness

Here's a chilling appeal. It seems the poor applicant got a COMAD for over $2 million from a 2004-2005 Basic Maintenance funding request, because the "maintenance agreement/contract did not specify the location of eligible products or services for which the Basic Maintenance was to be provided." The way I read it, the applicant had a valid contract which listed all the eligible products covered, but did not list the location. And because the location was not listed in the contract, they're out $2 million. That's some serious nitpicking.

Gotta hope the FCC waives this one.

Enough already

Someone has got to stop the ADA madness.

In their latest Washington Update for members, CoSN (the Consortium for School Networking) talked about the Anti-Deficiency Act (ADA). And the news is just depressing.

For those of you new to the program, back in 2004, the ADA shut down funding commitments for about 5 months because it was decided that the ADA applies to the Universal Service Fund, and the ADA is completely unsuited to the way the E-Rate program is funded. The 5-month pause in commitments was ended by a one-year exemption granted by Congress. Since then, Congress has continued to grant one-year exemptions each year.

Now CoSN is guessing that the next exemption will not be approved before the start of the year. I'm pretty sure that the current exemption will expire Dec. 31st, so for at least a little while, funding commitments will be suspended again. That's not such a disaster in January, but really, shouldn't the exemption be permanent now?

Unfortunately, when FCC Chairman Martin was asked by Rep. Markey if the E-Rate needed the ADA, he said no. Mystifying.

And CoSn, which knows a lot more about Congressional politics than I'll ever know, has linked the future of the ADA exemption with the political future of Sen. Stevens, who has been a supporter of the exemption (because he's from Alaska, where lots of schools really depend on the E-Rate to pay for incredibly expensive Internet connections). Unfortunately he's under indictment.

It's time for someone over at the Capitol to pass a permanent exemption, regardless of what Chairman Martin says. It's been 4 years.

86% discount? Sorry, not this year

E-Rate Central is reporting that at last week's USAC board meeting, the projection was that Priority Two requests will only be funded down to the 87% level. (Although at this point the board is only asking the FCC to deny applications at 83% and lower.)

Can we get rid of the 2-in-5 rule yet? Over a year ago, I declared that this rule must go. What is the FCC waiting for? 2-in-5 doesn't succeed in cutting demand, it harms applicants and creates waste.

Alas, we haven't seen the flood of appeals to the FCC due to the 2-in-5 rule that I predicted a year ago. I don't know if that's because most applicants have figured out the 2-in-5 thing, or because the denials haven't really started coming in big numbers yet. So it looks like we'll be stuck with 2-in-5 at least through the 2009-2010 funding year.

Travel blog

Tomorrow I'll be passing through Lawrence, KS. While I have a powerful urge to visit 3833 Greenway Drive and ask for Ms. Smith, I guess maybe she stopped working there back in 2005. Since I don't have any forms to drop off, I think I'll just stay on the Interstate and give them a salute as I pass by.

All in all, a good day

First, the routine: the FCC has released the proposed Eligible Services List (ESL) from USAC, and requested comments by August 14th. That's been the pattern the last couple of years: wait until everyone's on vacation, then give applicants only two weeks to submit comments. But the FCC has made it clear that it only wants comments "limited to determining what services are eligible under the Commission’s current rules." So there isn't much to comment on, really.

Simultaneously, the FCC has released a Notice of Proposed Rulemaking (NPRM) to change the eligibility rules. Commenters have a full 30 days to comment. Here are my preliminary comments on the proposed changes (I reserve the right to show solidarity with our presidential candidates by flip-flopping on at least one of these at a later date):

• filtering software: yes
• a broader classification of basic telephone service: yes
• dark fiber: yes
• text messaging: whatever
• firewall service: yes
• anti-virus/anti-spam software: yes yes yes
• scheduling services: no
• telephone broadcast messaging: no
• certain wireless Internet access applications: no
• interconnected Voice over Internet Protocol (interconnected VoIP): yes

It is wonderful that the FCC is considering the changes. It's a shame the list isn't longer. Some things that should be on the list:

• reasonably redundancy
• filtering service
• anti-virus/anti-spam service

And the FCC should take this opportunity to kill the 2-in-5 rule.

But here's what worries me: the FCC has been closing ESL comments in mid-August, then considering the rather simple comments for 2 months, then releasing the ESL so late that it has to waive it's own rule about giving applicants 60 days between release of the ESL and opening of the window to file 471s.

Let's run the numbers. Let's say we're going to get a traditional 80-day window (OK, so the window has been for shorter lately; I'm a traditionalist) ending on February 5th. That puts the opening of the window on November 17th. Go back 60 days from that, and the FCC should be releasing the ESL around September 18th. Even if the NPRM gets in the Federal Register next week, the Reply Comment period will be after September 18th. So once again, there is no way the FCC is going to follow it's own rules.

I'm afraid we're looking at a very delayed ESL release. Still, I'll put up with some delay if it means a better ESL.

Things that make you go "Huh"

Sometimes I'm sure I must be missing something. I was looking at a recent appeal where USAC denied funding because "ineligible products and services may not be factored into the cost-effective evaluation." Huh? Look at USAC's page on Constructing an Evaluation. One of the examples includes the following criterion: "Other cost factors (including price of ineligible goods and services, price of changing providers, price for breaking contract, etc)."

I think what USAC meant to say was that in evaluating cost-effectiveness, the price of eligible products and services must be the primary factor, and that the cost of ineligible products and services, if the applicant wishes to consider them, must be in a separate criterion.

Uniting behind a bad idea

AT&T again led a bevy of big phone companies to the FCC to discuss changing the reimbursement system. And this time the ALA (American Library Association) went with them.

It looks like AT&T and the ALA found an idea they could agree on. As I blogged earlier, AT&T led the big telcos into the FCC a year ago to oppose the ALA's idea of forcing applicants to file BEARs. Then last September, AT&T again led the big telcos to the FCC with a bunch of proposals, including one to set up "E-Rate discount accounts."

The idea was to have all the approved funding for applicants go into an account from which applicants could pay for eligible services. And now the ALA has gotten behind it. AT&T mentions "an informal coalition of service providers and education associations" working on the proposal, but only the ALA sent representatives, and if anyone from the education side had been involved, they would likely have changed the wording, since "education association" is another way of saying "teachers' union."

It seems like a good idea, right? I mean, applicants get the funding up front, no one has to make an outlay up front, and it's less hassle for USAC, since they don't have to process multiple invoices.

Well, it's a terrible idea. Especially for applicants.

Are all the reps from the big telcos and the ALA new to the E-Rate program? Don't they remember August 2004? That was when USAC suspended funding commitments because of the Anti-Deficiency Act (ADA). Basically, the ADA says you can't commit funds until you have the funds on hand. And since USAC doesn't have all its funds for the fiscal year on hand at the beginning of the fiscal year, it had to stop making commitments for several months. The only reason things are back to normal is because Congress keeps exempting the E-Rate program from the ADA.

So along come these folks and try to turn a theoretical lack of funds into an actual lack of funds. Under their plan, "each applicant would have access to its committed E-Rate funds at the time of USAC commitment." But as was so painfully demonstrated back in 2004, USAC doesn't have the funds at the time of commitment. So it just can't work.

But let's say that they way the program was funded was completely overhauled, or maybe that USAC funded the accounts on a monthly basis (just ignore the skyrocketing number of checks USAC now has to cut and ignore those pesky non-recurring costs).

It still stinks.

First, it creates more work for applicants. There is a reason that so few applicants do a BEAR every month: it's too much work to sort out ineligible vs. eligible, then apply discounts every month. Most of the FRNs in the program are under $3,000 (as I mentioned earlier). That works out to less than $250 a month. So now some poor accounts payable clerk has to take time every month to deduct the $11.95 directory listing fee (or whatever) from the $247 phone bill, then take 40% (or whatever their discount is) of that and charge it to the special E-Rate discount account, then charge the rest to internal accounts.

I can see why the telcos want that: anything to push the accounting headache off onto applicants. But why does the ALA want it?

Second, there is the issue of only paying for what's eligible. As I mentioned earlier, the accounts payable clerk has to know the Eligible Services List well enough to know that the directory listing fee is ineligible. Compared to Internal Connections, the eligibility rules for telcom are pretty straightforward, but still, how can a bookkeeper be expected to know that the monthly maintenance fee for a cell phone is not eligible, but the monthly maintenance fee for internal wiring is, but only if it's on the regular phone bill, because otherwise it's a Priority Two Basic Maintenance of Internal Connections charge, which may not be covered depending on the district discount?

Now if the telcos were willing to send a bill in which they clearly stated what portion was eligible for E-Rate discount, this problem would be solved, but that is not part of any proposal I've seen.

Third, the conditioning of the government bookkeeper is going to result in more unnecessary expenditures. Ask anyone who works for the government: you spend all the money in your accounts before the end of the year. So if USAC sends an applicant $3,000 for telecommunications, then the business office is going to find a way to spend the whole $3,000.

Fourth, it will be a bookkeeping hassle for applicants. How do they close the books at the end of the year? Are applicants going to return unused funds? How is that going to work? And what about those nightmare Internal Connections projects that don't get approved until the end of the fiscal year, and don't get installed until 13 months after that? Public entities aren't supposed to carry funds over from year to year, but there will be this one account.... And I guess applicants would have to have separate accounts for each FRN in order to determine what gets charged where. USAC is going to have to stick its clumsy hands into applicants' accounting rules.


The "E-Rate discount account" is a dream come true for service providers: they only have to do one invoice, they don't have to think about eligibility, and there's no USAC review of invoices potentially slowing payment. But it's a nightmare for applicants.

I'm not worried, though, because the proposal simply isn't possible: USAC doesn't have enough funds at the time of commitment to fund the accounts.

Training dates announced

I've got to think that anyone reading this blog has got to know already that USAC has announced the fall training dates. In case you haven't, check out the details here.

And they're off! Last year, the DC training filled up in under a week. I keep thinking that demand for training will slack eventually, but I guess no one in their right mind does the E-Rate for more than a year or two. (As I've mentioned, eSchoolNews did a survey this year and found "Nearly 40 percent of survey respondents said they've been managing the E-rate process for three years or less--and 19 percent said it was their first year doing this.") So the need for training will never end.

I briefly considered registering for the Newark training instead of making the pilgrimage to the E-Rate holy city, but I just have to be there for opening night of Johnny and the COMADs. There had better be plenty of skits with costumes and all.

Here's a game we can all play at the training: "Spot the new FCC rule." In a recent appeal case, the FCC actually cited a slide in the 2001 training as if it were a rule. So I say we get a pool to guess which slide will be the first cited in an FCC ruling.

While we're betting, let's get a pool on the date of the release of the Eligible Services List for 2009-2010, and the number of days the FCC will have to shave off it's own requirement to wait 60 days between releasing the ESL and opening the application window.

High-cost cap

It's finally official: the FCC has put a cap on the the High Cost Fund of the USF. I blogged about it when the cap was first recommended by the Federal-State Joint Board on Universal Service back in November. Basically, the FCC has imposed an emergency interim cap on the High Cost Program (which was ballooning out of control). The cap is state-by-state, and is whatever funding was going to that state in March 2008.

Anyone want to start a pool on how long this "interim" cap will last? Just guess the millenium when you think it will expire.

How does it affect the E-Rate? I'm no political expert, but it seems to me that if the cost of the High Cost Program had kept surging, it would have kept pulling Congress' attention back to the USF, with an eye to reducing the cost. So I suppose there was a chance the FCC would have been forced to rob Peter (the E-Rate) to pay Paul (the High Cost Fund).

Jedi protecting the E-Rate?

Check it out! George Lucas testified in front of Congress in support of the E-Rate. Here's the transcript of his testimony. Here's a newspaper article with lots of congresspeople invoking Star Wars imagery. In his opening statement, Rep. Ed Markey says that Lucas supported the E-Rate back in 1993, and led Markey to fight for its inclusion in the Telecom Act. I didn't realize Lucas was such a big E-Rate supporter. I take back everything I ever said about Jar Jar Binks.

Now if only we could get Shatner to support the program.

Another interesting E-Rate footnote: in his opening statement, Rep. Markey claims credit for coining the term "E-Rate." I thought Gore claimed credit for that, just like he invented the Internet.

Another $600 million misspent

I shouldn't have used such a pessimistic title, because I think this is good news, mostly: today the FCC rolled over $600 million in unspent funds from the 2002, 2003 and 2004 funding years, into funding year 2008. (Here's the announcement.)

First, my complaint: the FCC should stop changing the size of the fund after the application window has closed. It's unfair. As I've said before, the FCC should take this rollover money and use it to set the Priority 2 denial threshold before the application window.

For the short term, though, this rollover is wonderful news. As I posted earlier, it is likely that USAC will need more than $2.25 billion just to cover Priority Two for the 90% applicants (after paying for Priority One).

The bad news is, this rollover probably isn't enough for USAC to start funding Priority 2. About $1.95 billion was requested for Priority One, and Priority Two requests from 90% applicants totalled about $1.07 billion. That's $3.02 billion. With this rollover, the fund has $2.85 billion. Now some of the funding requests will be denied, so eventually maybe the $3.02 billion will be reduced to $2.85 billion; they'd only have to deny 6% of requests to do that. It seems likely that eventually, 6% will be denied. E-Rate Central did some calculating on this, and 14% of applications were denied in 2007.

But it will take time for USAC to deny $170 million. I'm betting no Priority Two until maybe September.

On the other hand, I would have expected the FCC to do whatever was necessary to find enough funding to allow USAC to start funding Priority Two, so maybe I'm wrong.

A secret step in the right direction

So I just got confirmation that I thought a PIA reviewer had hinted at some time ago: a client's application was approved without submitting any Item 21 Attachments.

The applicant in this case has two small FRNs ($3,000 and $1,000 in funding), both for Telecom Services, both identical to FRNs from the year before. We prepared Item 21 Attachments online, but didn't submit them. PIA never contacted us requesting the attachments, they just approved the FRNs.

A few months back, a PIA reviewer had mentioned that he could use last year's Item 21 Attachment, but since I never heard any official confirmation of that, we've been submitting attachments. And we have gotten requests from PIA, though I can't be sure that any of them were for identical requests. Also, maybe only small FRNs can be approved this way.

This is great news! We're moving closer to something I've been asking for for years now: a "same as last year" button, where an applicant just presses a button and duplicates the funding requests from the previous year.

But why is it secret? This change should be spelled out on the USAC Web site, which still says: "Each funding request on the Services Ordered and Certification Form (Form 471) must include a description of the products and services for which discounts are sought." And it should be the topic of a News Brief. Instead, the June 6 News Brief says: "Remember that PIA cannot review your application without your Item 21 attachment."

Is this just a part of the culture of secrecy? So much of the inefficiency and fear in this program stems from an apparent core belief at USAC and the FCC that if you tell public servants what the application review procedures are, they will use that knowledge to circumvent the procedures.

Or maybe they're just trying to quietly cut small applicants some slack, and I should keep my mouth shut.

Unfunding mandate

Well, it must be Audit Report Day, because another audit just crossed my desk. Unfortunately, this applicant was not an On-Tech client, so they had a couple of "findings" (for those who have the good fortune of never failing an audit, a "finding" means a material deficiency has been found). I'm not going to go into details, but one of the findings surprised me a bit.

The applicant apparently took over 90 days to pay a bill, and the auditor thought that meant the applicant should give back all the money from that FRN.

Based on how long it takes my clients to pay me, I've got to think that a lot of schools and libraries don't make that 90-day deadline every time. I remember looking at this once, and the average time for clients to pay me was like 135 days. Since then I think it's gotten better. The current recordholder? 550 days and counting.

Hmmm, I wonder if we could get the FCC to mandate that applicants pay their E-Rate consultants within 90 days....

Audit final score: couln't run, managed to pass

I got my first draft audit report from the new round of FCC OIG IPIA audits, and it surprised me. Surprised me because it was so brief, and somewhat unclear. It basically boiled down to a form letter and a checklist.

I jumped right to the checklist scanned it, and found 5 boxes not checked. I was ready to blow a gasket, because I knew we had answered all the auditors questions.

But once I read the unchecked items, I realized that in at least 4 cases, the box wasn't checked because the item was not applicable. It's not as clear whether the 1st unchecked box indicates non-compliance or non-applicability.

Then I went back to the form letter, and it said "Blah blah blah [two paragraphs of blah blah blah] In our opinion, management’s assertions that the [applicant] complied with the aforementioned requirements are fairly stated, in all material respects." So I guess all the unchecked boxes meant "not applicable."

I get the impression that this is a standard checklist, so I think it should be revised before they do the rest of the 260 audits this year. At the very least, they ought to have an "n/a" option for the checklist. Even better, in the case of any unchecked box, a brief comment on why the box isn't checked.

Because this is a program fraught with fear, and nothing is scarier than one of these audits.

Searching for the silver lining

The June 16th newsletter from E-Rate Central has an interesting article on the incentives of the E-Rate program. The idea is that the E-Rate rules have created incentives that change school and library behavior in positive and negative ways. They list 3 positive and 4 negative incentives.

Let's start with the negative, because I agree with all those points:

1. The 90% discount creates all sorts of waste, fraud and abuse. Back in 2003, the FCC formed a Task Force on the Prevention of Waste, Fraud, and Abuse. Their report was clear: 90% is just too close to free.
2. The Eligible Services List is not technology-neutral. I agree. It also promotes inefficiency. But at least we get to comment on it every year.
3. The "2-in-5 Rule" is a failure, promotes premature spending, punishes those who lease. This is currently the worst rule in the program. And it was sprung on us with no warning. (Most rules go through a Noticed of Proposed Rulemaking, but not this one.) It has to go.
4. E-Rate support for maintenance by outside personnel provides an incentive to cut district tech staff. That's why I left my last district job: I outsourced all the interesting parts of my job, quit, and was replaced by someone who was an expert in integrating tech into the curriculum, not maintaining technology.

The incentives that E-Rate Central sees as positive, however, I find at best ineffective.

1. Technology planning requirements force schools and libraries to plan ahead. I disagree. If you force someone to write a plan, they'll do whatever's required. But then the plan gets filed away until a required revision. And the E-Rate rules prevent applicants from seeking outside expertise. In my experience, the best way to determine what technology to implement is not a top-down planned approach, but in response to grass-roots demand. The E-Rate, with its long application cycle, makes this more difficult.
2. Item 25 certifications help make applicants mindful of the ancillary expenses in implementing technology. It makes the person who fills out the application mindful of it for a few hours in January, but I don't think that makes much difference. And since applicants are not allowed to include possible grant funds in the Item 25 total, it provides a disincentive to leveraging E-Rate funding with other grant funding.
3. E-Rate deadlines prevent procrastination. Well, OK, in a disfunctional system where necessary tech procurements are put off, E-Rate deadlines will force the procurements to happen. But saying that's a good thing is kind of like saying it's good that my PC crashes often, because rebooting from time to time can help clean crud out of memory. Well, sort of, I guess.

Call me the E-Rate Curmudgeon, I guess. I can't see any real silver linings in these rules.

Burnt offerings

USAC released a preliminary schedule for the fall training, and I am very pleased to see them coming back to NJ!

I think we should schedule a pilgrimage to PIA, which is about 25 minutes from the airport. Of course, we would never be allowed into the inner sanctum, but we could kowtow in the parking lot, and burn Item 21 Attachments as a sacrifice.

Government lawyers on my side

Man, I love the latest appeal from the Bureau of Indian Education (BIE)! They made two arguments that I would love to see them win.

First, they said that other government procurement processes, even if they differ from the FCC process, should satisfy the "competition" requirement. The BIE is talking about federal rules, but imagine if the FCC said following federal or state public contract law satisfied the competition requirement. Suddenly, only private schools would have to file a Form 470, since public schools and libraries already follow state public contract laws.

The other argument is one that could make it more difficult for USAC to COMAD. Apparently, in the absence of evidence to the contrary, it should be assumed that public officials acted conscientiously. (I know the idea of assuming that public officials are conscientious just made some of you blow your morning coffee out through your nose, but that's what the law says, according to the BIE.)

The FCC has been approaching this point of view, for example when they remanded the "pattern analysis" denials, but this idea opens up a new line of defense against COMADs. Up until August 13, 2004, when the Fifth Report & Order was released, the only records that applicants were required to keep were records they would normally keep. So USAC shouldn't be able to COMAD any application before that date, unless the applicant happened to keep records that demonstrate that officials broke the rules.

Let's take this further: while the Fifth Report & Order listed many documents that must be retained, it didn't actually say that all those documents must be created. For example, all RFPs must be retained, but RFPs do not have to be created. So if an applicant didn't create a bid evaluation worksheet, can they say there is no evidence that officials were not conscientious, so USAC must presume that they selected the most cost-effective vendor, with price as the primary factor?

As I see it, the FCC has two choices: either scrap the 470 process, or come up with a real set of procurement rules, like the Federal Acquisition Regulation (FAR), which is about 1900 pages long. Currently, the FCC is making up the rules one appeal case at a time, which benefits no one.

In any case, it sure feels good to have government lawyers making these arguments.

New wave

Is it just me, or has PIA been drinking too much coffee? I've just been getting swarmed with new requrests this week. I'd guess that maybe a fifth of all our applications went into review this week. Maybe it's just the luck of the draw.

That's what I said!

I got my paper copy of eSchoolNews and reread the special report that I talked about earlier. This time I saw support for two things I've been saying for years.

First, only about a quarter of respondents thought the 2-in-5 rule was effective. You know I hate the 2-in-5 rule. At first, I was please that so many recognized its ineffectiveness. Then I started thinking: how could anyone think it's been effective? Show me some effect that it's had. (Besides perhaps inadvertently forcing a tiny but positive rule change on cabling.)

Second, the #1 change that applicants would like to see is a simplified application for Priority 1 services. Now how can we channel that into some kind of campaign? First, we need a catchy name: 471EZ? PIA Lite? The "Same As Last Year" Button?

Monster mash

If the two-signature/two-date rule was Jason, and COMADs call to mind NOMAD, then what is the Cost-Effectiveness Review (CER)? I recently compared it to Frankenstein's monster, but now it has reached a new level of evil.

I just picked up a new client, and right off the bat, I'm hit with a CER. Only it's for a 2005-2006 FRN for which disbursements are complete. So the client may be looking at a COMAD. It's like Frankenstein's monster and NOMAD working together. And they have a time machine.

Audits for us all!

The FCC's Office of the Inspector General (OIG) has released another semi-annual report. It didn't seem like as good a read as before, although the Judy Green investigation was interesting reading on a consultant gone bad. She got 7.5 years in prison!

One thing the report does make clear is why so many FCC OIG audits are being launched this year. The Improper Payments Information Act (IPIA) apparently requires more auditing if initial audits find more than 2.5% of payments (and at least $10 million) were improper. The E-Rate comes in at 12.9% of payments made improperly. So apparently IPIA has some formula that gets used to determine the new amount of audits, so the OIG will be doing 260 audits this year.

At what cost? Well, the audit I was involved in seemed to provide full employment for 3 auditors for at least 4 weeks (and it was not a big or complicated audit), so let's just use 12 person-weeks per audit. Multiply that by 260, and you get 3,120 person-weeks. Divide that by 52 weeks/year, and you get the equivalent of 60 full-time people. How much would a person like that cost as a contractor (salary+benefits)? $60,000? That's $3.6 million in audits.

Still, the OIG projects an improper payment amount of $210 million, so maybe that's a reasonable cost.

Will the new round of audits bring the program under the IPIA's 2.5% threshold? No way. This program is so complex, and so many of the rules are hidden, that there is no way the percentage of improper payments is going to get anywhere near that low. So what happens when 260 audits also find that the E-Rate is "at risk"? More audits?

So what can we do to cut the amount of improper payments? Simplify the rules. I would bet that 90% of the audit findings (and most of the program fraud, too) come from applicants not understanding the rules. If applicants knew how to follow the rules, they would.

How do we start? Put all the rules in one book, and make that book available to applicants. Once all the rules were in one place, it would be obvious that it was an embarassing amount of rules to have for a program that is mostly giving public entities a few thousand dollars off their phone bill. And it would become more apparent where the rules are contradictory and where the rules don't make clear what should be done. And the rules could be approved by the FCC, so there would be no applicant claims that USAC gave them incorrect information. And it would be clear to auditors later what set of rules should be used.

If only I could find the time, I would start compiling The Book myself. Alas, I have applications to work on.

Look! Up in the sky!

This new appeal made me smile: the Metropolis Public Library missed a 471 deadline. What, they couldn't get Superman to reverse the spin of the Earth and rewind time like he did in the movie? Or perhaps Clark Kent is not a regular library visitor.

Opportunity knocks

A new survey report has been released by eSchoolNews and Funds for Learning. It's worth a read, though most of it is about what you'd expect. Here are some things that jumped out at me:

First, the opening story is a library director getting fired for making a simple mistake on the application.

"The average applicant spends 21 hours a month managing the E-rate process." There is no way this little program should take so much time for most applicants.

"More than 2 in 5 respondents (43 percent) have experienced some type of program audit." Is this the most audited funding program in the world or what? And really, PIA is sort of an audit, so in my book, 100% of applications are audited.

Only 18% of applicants use a consultant. I know it's higher in NJ, but it's not always possible to tell which applicants are using a consultant.

It makes me want to crank up the marketing machine. If I promise to take the bullet for any mistakes, free up 252 hours of staff time each year and handle all audits, I ought to be able to pick up the 82% of applicants not currently using a consultant.

BMIC: Better Mail In the Contract

Well, one change in the 700-page tome of secret PIA rules has become obvious: so far this year, 100% of the time I have been asked to produce a contract for FRNs for Basic Maintenance. So if you haven't hit PIA yet and you have a Basic Maintenance FRN, you might as well send in the contract with your Item 21 Attachment. And, of course, "The agreement or contract must specifically identify the eligible components covered, including product name, model number, and location." (From the Eligible Services List.)

I wonder what the difference is between an agreement and a contract? Is it possible that you can get Basic Maintenance funding without a signed contract? I haven't had the cojones to try.

Doctor's note

Here's a pretty routine appeal with one difference that brought a smile to my face: the appellant actually attached a doctor's note to prove he was in the hospital on February 7, 2008.

Not that a doctor's not is necessary any more. As I've said before, it seems the FCC will remand almost any late filing, even if you provide no excuse.

I wonder if the applicant's spike in blood pressure was due to the E-Rate deadline....

It is aLIVE!!

Man, I hate Cost Effectiveness Reviews (CERs). They're just wrong. I was hoping that a series of appeals would make them go away. Alas, the FCC hasn't made any decision on those appeals, and the CER will not die. And it looks like USAC hired Dr. Frankenstein, because someone took the CER and combined it with parts of the Selective Review, and the result is something unholy. Here's what it looks like.

So now in addition to answering all the CER questions, we also have to supply competitive bidding and budget info about *all* the applicants' FRNs. And we still only get 15 days to do it.

So how does one kill Frankenstein's monster? Wooden stake?

TANSTAAFL on surveys

Why doesn't the FCC just put this issue to bed? Yet another appeal has been filed aksing the FCC to allow applicants to use the percentage of low-income students looking only at those that returned the free lunch form, rather than looking at the entire enrollment.

Schools are allowed to use surveys, so several seem to have taken the idea that the NSLP form can be used as a survey instrument. And as the applicant in this appeal correctly pointed out, the FCC has never expressly forbidden this, nor do the USAC rules tell applicants not to do this.

But the reason for not allowing this is obvious. If I made up an income survey, and on it said: "Please fill out this survey. All low-income families that return it will receive $100. Families that return the form but are not low income will receive nothing." Would the response be representative of the population? Of course not. Well, a low-income family that fills out the NSLP form gets a couple hundred dollars in free lunches. Families that are not low-income get bupkus.

So the FCC should just come out and say outright: "Any survey (including the NSLP form) which rewards low-income families for returning the form, but does not reward families that are not low-income, cannot be used as a survey instrument."

As my physics teacher used to say: TANSTAAFL; There Ain't No Such Thing As A Free Lunch.

USAC gives me REM

I read the warning posted on Wednesday, but it didn't really hit home until I just went to usac.org: no USAC Web site for the whole weekend. I feel bereft. For all the griping I do, I spend a lot more time on that site than I realize.

And this shutdown was positive in two ways. First, we got warning. Only 2 days, it's true, but except for me, there probably aren't many people who are impacted. Second, when I try to access the Web site, I get a nice "Web site down for maintenance, back on Monday" message. That's a step up from the regular maintenance of the Data Request Tool, which is not announced anywhere, and you just get a message saying that no records match your query. Which, let me tell you, can really freak you out when you're trying to get an update on a client's FRNs late at night. "What?! No records?! What happened to those FRNs?! ... Oh, yeah, the database must be offline."

Maybe I'll catch up on sleep this weekend. Most people, E-Rate puts them to sleep. Me, lack of E-Rate allows me to sleep.

Cost-effectiveness can't Win

I've been griping about Cost-Effectiveness Reviews (CERs) for some time now. I just saw an E-Rate Central submisssion supporting the appeal of a CER that nicely lays out the problems with CERs.
The FCC has created the mess by requiring cost-effectiveness, but refusing to define what that means. Now there are three possibilities:

1. The cost-effectiveness "bright-line" standards are part of the secret tome of PIA procedures approved by the FCC,
2. USAC has developed standards, but the FCC has never seen them, or
3. USAC has no standards.

If the first is true, then the FCC is developing rules in secret. Well, actually, the rules would have been developed by USAC in secret and approved by the FCC in secret.

If the second is true, then USAC is exceeding its authority by creating program rules.

The third option would be the worst. It would mean that there is a person (or group of people) sitting in a room somewhere, reviewing applications, and sometimes deciding, "That's out of hand!" And in order to pass a CER, the applicant has to convince him/her/them that the request is not out of hand. With no objective criteria, the process is arbitrary in addition to being secret. It becomes a matter of giving the reviewer(s) a warm fuzzy. After the applicant has sent info off to USAC, hoping to hit on something that will sway the reviewer, the applicant and USAC just end up going back and forth with "Is too cost-effective!" "Is not!" "Is too!" until USAC issues a final "Is not!" in the FCDL and takes its ball home.

There are certainly criteria for triggering a CER; these reviews are not assigned randomly. It is clear to me that USAC takes the amount of the request, divides it by the number of students, and if the result is over a certain number, the applicant gets a CER. So there is a "bright line." The only question is whether this is part of the FCC-approved secret tome of PIA rules, or a rule that USAC just came up with on its own.

As ESPA pointed out in their recent filing, the result is that CERs disproportionately hammer small applicants, whose cost per student is higher than average.
The E-Rate Central filing supports an appeal from a small school serving disabled students. I have two clients like that, and I expect a CER every year. When you have 40 students and 200 staff members, the cost per student for everything from phones to network drops is unusually high.

As I've said before, the CER is the worst of all the program's audits/reviews, because the process is completely secret. No one even knows how many CERs are conducted, and how many applicants pass a CER.

Coal in my stocking

I happened upon a Christmas wish list I made at the end of 2006, and thought it would be fun to see how many of my wishes came true during 2007.

Came true:

1. New online Form 486
2. "Two-signature/two date" finally put to rest
3. The same PIA reviewer 2 years in a row [some of them, anyway]

Didn't come true:

1. COMADs only for Waste, Fraud, Abuse, not errors
2. No Form 486
3. All FCC appeals decided within 90 days
4. Publish the secret 700-page PIA manual
5. How about publishing 200 pages of it?
6. How about just telling us what triggers a Cost Effectiveness Review?
7. Don't take the Data Request Tool offline at night
8. At least let us know when the DRT will be offline
9. At the very least, let us know that the DRT is offline. As it stands now, you just get a message that no records were found.
10. A "copy" button on the 470 and 471 which lets you import all the info from last year's forms [For most small, low-discount applicants, those forms are identical year in and year out, and for all applicants, many elements are identical.]
11. Let applicants edit BEARs after they've been sent to service providers, so we can correct errors the service providers find
12. An online tech plan tool that applicants can use, set up so that it will generate plans that the SLD won't later decide are inadequate
13. A list describing the most outrageous requests. You know that PIA reviewers must pass around really hilarious requests. Let us all in on the joke.
14. Block 4 information in the Data Request Tool
15. Registration of consultants
16. The discount matrix topping out at 80% for equipment
17. Dark fiber eligible
18. An "about us" page for the SLD. There aren't that many people there, and I'd just love to see a brief resume for each of them.
19. Mel Blackwell in a red suit and beard, flying all over the country, handing out Priority Two funding to applicants with a 40% discount. Ho ho ho.

Oh, well.

Tea time

Oh, please. I just finished reading an article in eSchoolNews about the award of a contract for information systems administrator to SAIC, which also gets millions of dollars in E-Rate money as a service provider. Apparently several other service providers are incensed over a potential conflict of interest, since SAIC would have access to information in USAC's systems. It's a tempest in a teapot.

We all have access to most of the information in USAC's systems. The Data Retrieval Tool (DRT) lets you download information from the 471, 486 and 472/474. There is a similar tool for downloading info from the 470. What info would SAIC have access to that are not publicly available?

1. Contact info from the 471, 486 and 472
2. Info on individual invoices (472 or 474), rather than the annual total currently available through the DRT
3. Item 21 Attachments

None of that info is that valuable. Contact info is available through a little research, or from any number of marketing firms. Individual invoice amounts is of little consequence.

The service providers seemed to focus on the possibility that seeing the Item 21 Attachments would be an unfair advantage. Wrong. How would seeing the Item 21s be an advantage? If SAIC sees an applicant with a large contract with a competitor that they'd like to steal, rather than peak at the Item 21, they can just wait until the next 470 is posted and go after the business like everyone else. The information in the Item 21 is not going to be as good as the info they'll get from the applicant during the 470 process.

Of course, USAC could short-circuit this discussion by making Item 21 Attachments publicly available. Which would be a good move.

I know that USAC put out an RFP for this contract, and I trust they have picked the most cost-effective vendor, with price the primary factor. I don't want more of the program's funds spent on administrative costs just so some service providers can have a flimsy veil over the terms of their contracts, which, since we're talking about public schools and libraries, are public information. (And if SAIC, sub-contracting from Solix, is responsible for the significant improvement in USAC's online tools, then I'm overjoyed to see them take on more.)

Anyway, I like this set-up better than the original one, where a not-for-profit subsidiary of the telco's lobbying group gave the contracts to a for-profit subsidiary of the same lobbying group.

A final comment on a different tangent: As usual, most of the service providers demanded anonymity. It is shameful that this program still inspires so much fear that no one wants to publicly say anything negative. But secrecy breeds fear, and the level of secrecy in this program is astonishing.

SRIR hits the gym

Cue the Jaws music: it's the first Selective Review of the year. Good news, though: the Selective Review has slimmed down since last year. The SRIR has gone from 9 pages down to 5. Here's a sample of the new form.

What's gone?

The Item 25 Worksheet:
I'm so happy to see this go. It was that tedious worksheet where you had to give information on expenditures for hardware, training, etc. The one that really got my goat was the "Retrofitting" section. Most applicants are upgrading existing infrastructure, so they didn't need any asbestos abatement, so this number was usually zero, which set off red flags, even if you mentioned the earlier retrofitting in the Resource Plan and E-Rate Implementation Description.

Resource Plan and E-Rate Implementation Description:
This was that narrative where you described your implementation strategy. Not difficult, but tedious, and inevitably scads of people would want to review it, but would not actually add value.

Selective Reviews are still tedious, but both the items above make the process significantly less tedious. Now if they would just stop requesting all the correspondence between me and the applicant.