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Tuesday, June 03, 2008

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.

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