Databus Issue: 2008 2 07/17/2008
E-rate UpdateFred Brakeman President
E-rate Audit Findings PDF
USAC (Erate) has recently published a set of most common mistakes Erate applicants make during the course of managing their annual Erate projects. For many of you long time Erate filers, much of this list is “old hat” but it needs to be communicated to those new filers that may have just recently taken over the Erate reins at their district.
Nine Erate mistakes to avoid at all costs:
• Applications request ineligible products and services. If 30 percent or more of the services requested in an Erate funding application are deemed ineligible, the application is automatically denied. This is known as the "30 Percent Rule”. The best way to avoid an automatic denial because of this rule is to "break out," or separate, funding requests as much as possible. When in doubt, do the math. If your calculations for ineligible services come in over 30 percent, revise your application before submitting it to USAC.
• Contracts are not signed or aren't in the right place. When asked to supply contract information, make sure the documents are signed and are included in the right place throughout your funding application. If there is no signature, or if the reviewer cannot find the appropriate documentation within the application, USAC has no choice but to deny the request.
• Insufficient documentation. USAC requires applicants to be prepared to respond to a Program Integrity Assurance (PIA) Review with copies of their service contacts and other relevant document information. If the documentation is lost or cannot be located in time, the application could be denied. Applicants must keep all documentation for five years after their initial application is submitted. Failure to do so could lead to penalties, including potential program disbarment and funding recovery.
• Insufficient support resources. Program applicants also must prove that they have the appropriate support resources to complete their intended projects. While the Erate pays for a portion of the technology necessary to make infrastructure upgrades, no amount of program money is intended to fully finance any one project. To avoid having your application denied, you must secure access to the equipment and resources necessary to complete the upgrade. This includes sufficient funds to pay your share, minus the Erate discount, as well as additional hardware, software, electrical capacity, and support.
• A Form 470 is not filed. Applicants are not allowed to extend contracts to service providers until their Form 470 application is posted and approved by USAC.
• Competitive-bidding violations. One of the most common--and certainly the most controversial--reasons for denial is a violation of the competitive-bidding process. USAC officials stressed the need for applicants to engage in a "fair and open" competitive-bidding process, where eligible service providers are given ample opportunity to compete for technology contracts. During this phase, officials warned, no service provider should have contact with the applicant, except with regard to the bid itself. That means no helping with official Erate forms--and absolutely no assistance with creating the technology plan. Remember, bidding is the applicant's responsibility, "not the service provider's,".
• Failing to wait the required 28 days before signing contracts. Once a Form 470 is posted to the SLD web site, applicants must wait 28 days before contracts are signed. Jumping the gun could result in a denial of funds.
• Requesting services from an ineligible telecommunications provider. Under Erate rules, Priority One telecommunications services such as telephone lines, data circuits, long distance, cell phones, and certain “managed” telecommunications services must be provided by an eligible provider. These providers, which pay into the Universal Service Fund that supports the Erate, can be found through a search on the SLD web site.
• Failing to certify required forms on time. Submitting and certifying forms are two different things, USAC officials warn. To avoid having your request for funds denied, certify your forms online before the filing window closes.
Applicant Audits and the Non-Existent “Rules”
In early January, 2008, the first round of audit notification letters was sent to selected applicants around the country requesting detailed documentation within two weeks and scheduling on-site visits shortly thereafter. Unlike last year's audits, conducted by KPMG under USAC's direction, the 2008 audits are being conducted by multiple auditing firms (including KPMG, Ernst & Young, and others) under the direction of the FCC's Office of Inspector General ("OIG"). Although no formal announcement has been made, we estimate that this year's program will involve up to 300 applicant audits. The audits are targeting FRNs authorized for disbursement from July 2006 to June 2007, often involving commitments across multiple funding years.
The one consolation for the applicants being audited is that their selection is reportedly random, not the result of targeted enforcement activities. The term "random" is a relative one, heavily weighted by funding. Although small applicants will be included in the audit mix, larger applicants are more likely to be selected. An important aspect of the audit program, looking beyond findings related to specific applicants, is the statistical assessment of program risk as required by the Improper Payments Information Act of 2002 ("IPIA"). A report to Congress on E-rate and the other Universal Service programs is due by November, 2008.
One disturbing aspect of this round of audits, as reported by some of the early auditees, is that adverse findings are being made based on the auditors' interpretation of "rules" that have never been actual program requirements. Here are a few examples of non-existent "rules" that have shown up in audit findings:
• The technology plan, for an applicant applying for discounts on Centrex service, must specifically mention Centrex training as a component of professional development.
• An applicant must retain Internet filtering incident reports for five years.
• An applicant must obtain and/or retain copies of invoices submitted to USAC by the service providers (i.e., SPIs) on discounted services, and should reconcile these invoices monthly.
• Item 21 Attachments must include an exhaustive list of every service component or billing line item.
Our thanks to our friends at Erate Central who compiled the above Applicant Audits and the Non-Existent “Rules” information.
Knowledge is power. Proper planning and record keeping can avoid the nine mistakes listed above. The KPMG audit findings show the depth of documentation Erate auditors are looking for. As more and more schools participate in the Erate program and become more and more dependent on Erate funding, better understanding of Erate rules and regulations is required.
Fred Brakeman is President of Infinity Communications & Consulting, Inc, a full service consulting firm including Erate/CTF and Microsoft Ed Tech K-12 consulting, technology design services, and low voltage construction management and inspection services serving approximately 15% of all the school districts and county offices of education in California. Infinity Communications & Consulting is located in Bakersfield, California. He can be reached at firstname.lastname@example.org, office phone (661) 716-1840, or via mail at P.O. Box 6069, Bakersfield, California 93386.