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Universal Service Fund, part three--Issues of fraud and lack of oversight for billions of dollars

from December 2002; Updated January 2003

When you pay a Universal Service Fund fee on your monthly phone bills, the money is supposed to help with things like Internet access for schools and libraries. But how well are those billions of dollars being used?

The FCC Office of Inspector General (OIG) issues a report every six months. For the period ending September 30, 2002 the report cover memo notes, "[...] OIG activity continued to focus on the Universal Service Fund activities because of continuing allegations of waste and fraud, and the results of beneficiary audits [...]" Nearly $5.2 million in questioned costs and $278,701 in unsupported costs were found. Almost $5.2 million of the combined costs had been disallowed and another $250,000 not yet decided upon. That could be just the tip of the proverbial iceberg.

OIG states that most of the obstacles and concerns identified in their last report still exist. Here is a list of their oversight concerns:

Schools and Libraries (E-Rate) $1,464,229,000

  • Lack of resources for adequate oversight
  • Inadequate competitive bidding requirements
  • No suspension or debarment process
    High Cost $2,602,457,000
  • Largest component of USF
  • Only recent OIG oversight
  • Lack of resources for adequate oversight
    Low Income $584,032,000
  • No oversight activities to date
    Rural Health Care $7,890,000
  • No oversight activities to date

How much more than $5 million of our phone fees could be going to waste?

On January 9, 2003 The Center for Public Integrity published a special report, Phone fund for schools, libraries riddled with fraud." The report contains very interesting details about the E-Rate fund and shocking revelations about some of the fraud uncovered. Here are some highlights:

  • "It's not unfair to say we have found something wrong everywhere we have looked," says Tom Cline, an auditor in the FCC Inspector General's Office. "It appears to be both intentional and unintentional."
  • The FCC report to Congress says other wrongdoing uncovered so far within the program ranges from simple paperwork and reporting errors to false billing and other fraud potentially involving hundreds of millions of dollars.
  • "Until such time as resources and funding are available to provide adequate oversight (for the schools and libraries program), we are unable to give the (FCC) chairman, Congress and the public any level of assurance that the program is protected from fraud, waste and abuse," says the report.
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