================================================================= ALAWON Volume 7, Number 84 ISSN 1069-7799 July 17, 1998 American Library Association Washington Office Newsline In this issue: (253 lines) - SLC & GAO TESTIFY AT JULY 16 HEARING ON E-RATE PROGRAM INTEGRITY - GAO RELEASES REPORT ON E-RATE MANAGEMENT TO SENATE COMMERCE COMMITTEE _________________________________________________________________ SLC & GAO TESTIFY AT JULY 16 HEARING ON E-RATE PROGRAM INTEGRITY On July 16 Sen. John McCain (R-AZ) convened a hearing of the Senate Commerce Committee to hear from Ira Fishman, chief executive officer of the Schools and Libraries Corp. and to receive a report from the Government Accounting Office on administrative procedures and controls of the e-rate telecommunications discount program by the SLC. Judy A. England-Joseph, director of housing and community development issues and primary author of the GAO report, testified for GAO (see below). In his opening statement, Sen. McCain said that the purpose of the hearing was not to kill the program but rather "...it's about giving benefits to schools and libraries." McCain indicated his concerns about whether taxpayers are "forced" to pay for the discount program. He stated that while he is in favor of the e-rate concept, he did not like the program "concocted" by the Federal Communications Commission and implemented by the SLC. The GAO testimony noted that the SLC had progressed in implementing the program, although the process was taking longer than expected. Of the over 32,000 applications, 62 percent had been processed by July 7, the final date of the audit. The GAO expressed concern about whether or not all applications were treated consistently. Fishman believes it will be early fall before discount funds are committed or dispensed in order to ensure program integrity and effective responses to all of the over 32,000 applications received thus far at the SLC. Fishman said that the SLC has agreed to all of the GAO recommendations. It also was noted that Federal Communications Commission Chairman William Kennard sent a July 16 letter instructing the SLC to take appropriate steps before committing discount funds in line with all of the GAO recommendations. "We will aggressively implement the procedures we have in place to ensure the integrity of the program," Fishman testified. He is sometimes called a "policeman" among applicants, "a badge I wear proudly," he added. He noted that 35 percent of the SLC budget is allocated for program integrity assurance, and there are criminal and civil penalties for applicants to further protect against waste, fraud and abuse. Fishman testified that in one review by the SLC of 7,000 applications, only 1 was actually found to have an ineligible item requested (paint). This seems to contradict allegations made by some e-rate critics that schools and libraries are asking for many ineligible services on their applications. In response to a question about the $18.8 million SLC budget, Fishman noted the necessary intensive startup costs to establish a new program and ensure program integrity requires a front end commitment to costly systems. Having received over 32,000 applications, 90,000 phone calls, and 10,000 e-mails also required an extensive commitment to customer services in the first year by the SLC. Sen. Jay Rockefeller(D-WV), one of the four original sponsors of the e-rate provision in the Telecommunications Act of 1996, noted that it is important for Congress to be "vigilant." Emphasizing the importance of classroom connectivity, he also noted that only 27 percent of classrooms and only 14 percent in poor schools are connected. Sen. Olympia Snowe (R-ME) recognized the SLC for a "remarkable" job in only a few months of operation. Snowe, also an original e-rate sponsor, commented that no other program appears to have had as much investigation before funds were dispersed and that there was nothing in the GAO report to suggest that the program should be curtailed or delayed. "The e-rate program is the key to our future," she said, adding that all appropriate steps have been taken by the SLC to assure the integrity of the program. Snowe, referring to the practice of auditing programs before they have even started, quipped, "The audit uncovered problems before money was spent. We should have done this with certain defense programs." Sen. John Kerry (D-MA) characterized himself as "particularly passionate" about the e-rate and suggested that the problems during this startup period were possible a "clash of cultures" between the education and telecommunication communities. Sen. McCain appeared noticeably frustrated that Fishman receives a larger salary than the FCC chairman to whom he is responsible and called the SLC operation a "bloated bureaucracy." Meanwhile, Rockefeller noted that no funding commitments or disbursements had yet been made. "One could say then that waste, fraud and abuse has not happened because money has not been committed," Rockefeller added. Sen. Byron Dorgan (D-ND) indicated that he was confident that the SLC would be acting positively on the GAO recommendations. "Let's be careful not to create a program that we will have to address later," he said, also noting that parts of the program cause him "heartburn." Dorgan asked about how schools and libraries could be prevented from taking advantage of the program. Fishman answered that the e-rate requires a technology planning process, an eligibility determination, as well as the commitment of local funding. It is not a free program. Sen. Conrad Burns (R-MT) inquired and Fishman responded to the point that logically it may turn out that the startup costs both for operations and for demand for new services, like internal wiring, would be intensive in the first year or so and possibly diminish. This will have to continue to be monitored, Fishman said. Burns was especially supportive of the e-rate to make broadband technology available to schools, especially rural schools, for interactive distance learning. He suggested that people might support paying 50 or 75 cents on their monthly phone bills in order to see such educational opportunities in their communities. Burns added, "We need to look at it from the needy standpoint, not the greedy standpoint." Sen. Richard Bryan (D-NV) indicated his support for the e-rate, emphasizing the importance of a trained workforce. Snowe agreed with Bryan noting the necessity for Congress to recently have adjusted some immigration quotas in order to get the necessary workforce in the technology fields. Sen. Sam Brownback (R-KS) stated that he is "appalled" at what GAO reported and that the audit indicates "poor management." He felt that the GAO audit indicates a lack of adequate program integrity and that additional steps beyond what the GAO has suggested may need to be taken to prevent "waste, fraud, and abuse." In other questions from McCain about policies like line items on phone bills or requiring software filters to obtain the e-rate, Fishman said he was not a policy maker and could not make recommendations on those issues. Rockefeller noted the time it has taken to investigate the e-rate and for the SLC to respond to congressional critics. He defended the startup costs and noted that the time and money was necessary to prevent the alleged waste, fraud and abuse that McCain and others were worried about. The Commerce Committee will continue to have close oversight over the e-rate program while the SLC will be working to get it fully operational in early fall. _________________________________________________________________ GAO RELEASES REPORT ON E-RATE MANAGEMENT TO SENATE COMMERCE COMMITTEE Testifying at the July 16 hearing of the Senate Commerce Committee were Judy A. England-Joseph, director of housing and community development issues and chief author of the GAO report and Ira Fishman, chief executive officer of the Schools and Libraries Corporation. The GAO report stated that: "Overall, we found that the Corporation has made substantial progress in establishing an operational framework that is consistent with relevant FCC orders." During questioning Joseph also commented on the openness and cooperation demonstrated by SLC staff that allowed GAO to complete its investigation within the six week time frame requested by McCain. Sen. McCain has been concerned about the amount of controls necessary to prevent "waste, fraud and abuse" by e-rate applicants. The audit did not include an analysis of telecommunications or Internet service providers potential for waste, fraud or abuse in setting appropriate local prices or participating in bid processes. GAO made four recommendations related to actions the SLC is taking or should take related to program integrity. These recommendations deal primarily with some of the methods for assuring program integrity and the timing of program integrity checks relative to the issuance of funding commitments and disbursements. Specifically, GAO recommended the following steps SLC should take or complete before funds are committed: (1) Conduct detailed reviews of a random sample of applications to assess not only the soundness of these applications but also the overall effectiveness of the Corporations's program integrity procedures for detecting ineligible applicants, ineligible services, and inappropriate discount levels as defined by FCC orders. (2) Finalize procedures, automated systems, and internal controls for the post-commitment phase of the program's funding cycle including fund disbursement. (3) Obtain a report from its independent auditor that finds that the Corporation has developed an appropriate set of internal controls to mitigate against waste, fraud, and abuse. (4) For applications identified as "high risk" the Corporation should conduct detailed reviews of the technology plans and related documents to determine whether applicants are eligible and have the resources to effectively use the services requested. The GAO also recommended that FCC develop goals, measures, and performance targets for the e-rate program by the end of the current Federal fiscal year and noted that the SLC "is currently faced with the task of implementing procedural changes in response to changes in the program made recently by the FCC. In addition, Corporation officials are currently considering changes to procedures and internal controls aimed at addressing concerns that we raised with them during our review." The audit report also indicates that of the total 32,600 applications, 20,400 have been entered into SLC's database as of July 7, 1998. Of those 20,400 applications, nearly 14,000 will require some additional verification. A copy of the written testimony (Schools and Libraries Program: Actions Needed to Strengthen Program Integrity Operations Before Committing Funds, by Judy A. England-Joseph, director of housing and community development issues, before the Senate Committee on Commerce, Science, and Transportation. GAO/T-RCED-98-243, July 16) is expected to be posted at http://www.gao.gov/reports.htm. _________________________________________________________________ ALAWON is a free, irregular publication of the American Library Association Washington Office. To subscribe, send the message: subscribe ala-wo [your_firstname] [your_lastname] to listproc @ala.org. To unsubscribe, send the message: unsubscribe ala-wo to listproc@ala.org. ALAWON archives at http://www.ala.org/ washoff/alawon. Visit our Web site at http://www.alawash.org. ALA Washington Office 202.628.8410 (V) 1301 Pennsylvania Ave., NW, #403 202.628.8419 (F) Washington, DC 20004-1701 800.941.8478 (V) Lynne E. 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