Report to Congressional Requesters

United States Government Accountability Office

GAO 

TELECOMMUNICATIONS

Long-Term Strategic 

Vision Would Help 

Ensure Targeting of 

E-rate Funds to 

Highest-Priority Uses 

March 2009 

GAO-09-253 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

March 2009

TELECOMMUNICATIONS

Long-Term Strategic Vision Would Help Ensure 

Targeting of E-rate Funds to Highest-Priority Uses

Highlights of GAO-09-253, a report to 

congressional requesters 

The Federal Communications 

Commission’s (FCC) Schools and 

Libraries Universal Service Support 

Mechanism—also known as the 

E-rate program—is a significant 

source of federal funding for 

information technology for schools 

and libraries, providing about 

$2 billion a year. As requested, 

GAO assessed issues related to the 

E-rate program’s long-term goals, 

including (1) key trends in the 

demand for and use of E-rate 

funding and the implications of 

these trends; (2) the rate of

program participation, participants’ 

views on requirements, and FCC’s 

actions to facilitate participation; 

and (3) FCC’s performance goals 

and measures for the program and 

how they compare to key 

characteristics of successful goals 

and measures. To perform this

work, GAO analyzed data going 

back to the first year of the 

program, surveyed a sample of

participating schools and libraries, 

reviewed agency documents, and 

interviewed agency officials and 

program stakeholders. 

What GAO Recommends

To ensure targeted and efficient 

use of program funds, FCC should

(1) report to Congress on its 

strategic vision for the E-rate

program, including long-term goals, 

and (2) report annually in its 

performance plan on undisbursed 

funding associated with expired

funding commitments. FCC took 

no position on GAO’s 

recommendations, and USAC noted

it stood ready to work with FCC to 

develop and report performance 

goals and measures. 

Requests for E-rate funding consistently exceed the annual funding cap, and 

increased commitments for telecommunications and Internet services, 

combined with significant undisbursed funds, limit funding for wiring and 

components needed for data transmission. Although still exceeding available 

funds, total amounts requested have generally declined since 2002, largely due 

to declining requests for wiring and components. Funding commitments in 

recent years reflect this trend, with the amount of funding for wiring and 

components outweighed by funding for telecommunications services and 

Internet access. In addition, a significant amount of committed funds are not 

disbursed to program participants; for commitments made in 1998 through 

2006, about one-quarter of the funds have not been disbursed. Unused funds 

are reallocated for use in future years but are still problematic because they

preclude other applicants from being funded. 

Participation rates and participants’ views on program requirements indicate 

difficulties in the E-rate application process, which FCC and the Universal 

Service Administrative Company (USAC)—the program’s administrator—are 

taking steps to address. The participation rate among the more than 150,000 

eligible schools and libraries is about 63 percent, but participation rates 

among groups vary, from 83 percent among public schools to 13 percent 

among private schools. According to nonparticipants, a key circumstance 

influencing nonparticipation is the complexity of program requirements, even 

though participants reported that participation is becoming easier. Still, Erate program data show that some funding is denied because applicants do 

not correctly carry out application procedures. In recent years, FCC and 

USAC have made changes intended to ease the process of participation for 

schools and libraries, such as giving applicants an opportunity to correct 

clerical errors in their applications. FCC officials said they will consider 

further changes to facilitate participation, but their primary interest is in 

protecting funds from improper use. 

FCC does not have performance goals for the E-rate program, and its 

performance measures are inadequate. In 1998, GAO first recommended that 

FCC develop specific performance goals and measures for the E-rate program 

in accordance with the Government Performance and Results Act of 1993.

FCC set forth specific goals and measures for some of the intervening years,

but it does not currently have performance goals in place. Further, the 

performance measures it adopted in 2007 lack key characteristics of 

successful performance measures, such as being tied to program goals. 

Performance goals and measures are particularly important for the E-rate 

program, as they could help FCC make well-informed decisions about how to 

address trends in request for and use of funds. Without them, FCC is limited 

in its ability to efficiently identify and address problems with the E-rate

program and better target funding to highest-priority uses. FCC’s piecemeal 

approach to performance goals and measures indicates a lack of a strategic 

vision for the program. 

To view the full product, including the scope 

and methodology, click on GAO-09-253.

Additional data on E-rate participation are 

available at GAO-09-254SP. For more 

information, contact Mark Goldstein at 

(202) 512-2843 or goldsteinm@gao.gov. 
Contents 

Letter 1

Background 4

Requests for E-rate Funding Consistently Exceed the Cap, and

Increased Commitments for Priority 1 Services, Combined with 

Significant Undisbursed Funds, Limit Funding for Priority 2 

Services 13

The E-rate Application Process Poses Difficulties for Some 

Entities, Which FCC and USAC Are Taking Steps to Address 29 

FCC Lacks Performance Goals for E-rate Program, and Recently 

Adopted Performance Measures Are Inadequate 43 

Conclusions 49

Recommendations for Executive Action 50 

Agency Comments and Our Evaluation 50 

Appendix I Objectives, Scope, and Methodology 52 

Appendix II Comments from the Federal Communications 

Commission 61 

Appendix III Comments from the Universal Service 

Administrative Company 67 

Appendix IV GAO Contact and Staff Acknowledgments 76 

Related GAO Products 77 

Tables 

Table 1: Discount Percentage That E-rate Applicants Are Eligible 

for Based on the Proportion of Students Eligible for the 

National School Lunch Program 7 

Table 2: Summary of Past GAO Findings and Recommendations on 

E-rate Performance Goals and Measures and FCC’s 

Response 44

Page i GAO-09-253 FCC’s E-rate Program 
Table 3: Service Categories Used for Analysis and Reporting 54 

Table 4: Sample Design for Survey of E-rate Participants 56 

Figures 

Figure 1: E-rate Application, Funding, and Reimbursement 

Processes 9

Figure 2: Amounts Requested, by Service Category, and Annual 

Funding Levels, 1998-2007 14 

Figure 3: Requests for Telecommunications Services and Internet 

Access, by Number of Applicants and Amounts 

Requested, 1998-2007 15 

Figure 4: Requests for Internal Connections, by Number of 

Applicants and Amounts Requested, 1998-2007 16 

Figure 5: Amounts Committed for Telecommunications Services, 

Internet Access, and Internal Connections, 1998-2007 19 

Figure 6: E-rate Applicants, by Percentage of Original Funding

Request Received, 1998-2007 20 

Figure 7: Percentage of Committed Funding That Was Disbursed, 

by Service Category, 1998-2006 23 

Figure 8: Proportion of Entities Receiving Disbursements for 75 

Percent or More of Funding Commitment, Less than 75 

Percent of Funding Commitment, and None, 1998-2006 24 

Figure 9: Disbursed Funds, by Percentage and Dollar Amount, 

1998-2006 28

Figure 10: Participation of Public Schools, Private Schools, and 

Libraries in the E-rate Program, by Number and 

Percentage, 2005 31 

Figure 11: Participants’ Views on Whether Participating in the Erate Program Is Easier, More Difficult, or about the Same, 

Compared with 2005 34 

Figure 12: Percentage of Participants That Find Program Elements 

Very or Somewhat Difficult 35 

Figure 13: E-rate Resources Rated Extremely Useful or Very Useful 

by Participants 39 

Figure 14: Changes to the E-rate Program Strongly or Somewhat 

Favored by More Than Half of Participants 42 

Page ii GAO-09-253 FCC’s E-rate Program 
Abbreviations 

ADA Antideficiency Act 

ALA American Library Association 

CCD Common Core of Data 

CIPA Children’s Internet Protection Act 

FCC Federal Communications Commission 

GPRA Government Performance and Results Act of 1993

NCES National Center for Education Statistics 

NPRM Notice of Proposed Rulemaking 

OMB Office of Management and Budget 

PIA program integrity assurance 

PLS Public Library Survey 

PSS Private School Universe Survey 

STARS Streamlined Tracking and Application Review System 

USAC Universal Service Administrative Company 

USF Universal Service Fund 

This is a work of the U.S. government and is not subject to copyright protection in the 

United States. The published product may be reproduced and distributed in its entirety 

without further permission from GAO. However, because this work may contain 

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Page iii GAO-09-253 FCC’s E-rate Program 
United States Government Accountability Office

Washington, DC 20548 

 

March 27, 2009 

The Honorable Joe Barton 

Ranking Member 

Committee on Energy and Commerce 

House of Representatives 

The Honorable Greg Walden 

Ranking Member 

Subcommittee on Oversight and Investigations 

Committee on Energy and Commerce 

House of Representatives 

The Federal Communications Commission’s (FCC) Schools and Libraries 

Universal Service Support Mechanism is a significant source of federal 

support for technology funding for schools and libraries, providing about 

$2 billion each year to help eligible entities procure telecommunications 

and Internet services—including the installation of wiring and components 

needed to transmit data. “Universal service” traditionally has meant 

providing residential customers with affordable nationwide access to 

basic telephone service. The Telecommunications Act of 1996 expanded

the concept of universal service to include assistance to schools and 

libraries for the acquisition of telecommunications and Internet services.

Created in 1997 pursuant to Section 254(h) of the act, the Schools and 

Libraries Universal Service Support Mechanism—also commonly referred 

to as the E-rate program1

—is similar to a grant program in that schools and 

libraries apply annually for support and, if approved, receive discounts for 

eligible services actually received. FCC designated a not-for-profit 

corporation, the Universal Service Administrative Company (USAC) to 

carry out the day-to-day operations of the program and capped the amount 

of funding provided by the program at $2.25 billion a year.2

 From 1998—

 1

E-rate is short for education rate. 

2

Because there was no historical record of what it would cost to provide support to schools 

and libraries, FCC based the funding cap on data from McKinsey and Company, the U.S.

National Committee on Libraries and Information Services, and others that sought to 

estimate the cost of deploying and supporting the ongoing costs of a communications 

network for public schools and libraries. The cap has remained the same since it was

established in May 1997. However, FCC did direct that no more than $1.925 billion be

committed or disbursed for the Schools and Libraries Support Mechanism during 1998 and 

the first two quarters of 1999, and under current rules, unused funds may be carried

forward for use in subsequent funding years.

Page 1 GAO-09-253 FCC’s E-rate Program 
 

the first funding year of the program—to 2007, USAC made funding 

commitments of nearly $22 billion to schools and libraries across the 

country to help pay telephone bills and Internet access fees, and to install 

network wiring and components. In the years since the program was 

established, schools and school districts have come to rely heavily on 

telecommunications networks to deliver educational content and to 

administer student achievement tests. Public-access computer terminals in 

libraries, particularly those in economically disadvantaged and insular 

areas, are in high demand as the Internet becomes more integral to 

obtaining government services and participating in commerce. At the same 

time, FCC is re-evaluating the purpose, management, and structure of the 

Universal Service Fund (USF) and its support programs3

—including Erate. The issues FCC is examining include whether USAC is administering 

the USF in an effective, efficient, and competitively neutral manner; what 

types of performance measures are appropriate for the universal service 

support programs; how to strengthen oversight of the USF and its support 

programs; and how to improve the support program’s application 

processes and reduce the administrative burden on applicants while still 

maintaining sufficient control over funds. 

In the interest of assessing certain fundamental issues related to the E-rate 

program’s long-term goals and determining whether FCC has the 

information it needs to properly manage the program and to use its 

resources efficiently, we were asked to address the following questions: 

• What are key trends in the demand for and use of E-rate funding and 

what are the implications of these trends? 

 3

Mandated payments from companies providing interstate telecommunications services are 

deposited into the federal Universal Service Fund, from which disbursements are made for 

the various federal universal service programs, including E-rate. 47 U.S.C. §254(d). The 

companies generally pass this cost along to customers by adding some form of universal 

service fee to customers’ bills. Other universal service programs under the Universal 

Service Fund are the High-Cost program, the Low-Income program, and the Rural Health

Care program. The High-Cost program assists customers living in high-cost, rural, or

remote areas through financial support to telephone companies, thereby lowering rates for 

local service. The Low-Income program assists qualifying low-income consumers through 

discounted installation and monthly telephone services and free toll limitation service. The 

Rural Health Care program assists health care providers located in rural areas through 

discounts for telecommunications services. For more information on other universal 

service programs, see GAO, Telecommunications: Federal and State Universal Service

Programs and Challenges to Funding, GAO-02-187 (Washington, D.C.: Feb. 4, 2002). For 

more information on the High-Cost program, see GAO, Telecommunications: FCC Needs to

Improve Performance Management and Strengthen Oversight of the High-Cost Program, 

GAO-08-633 (Washington, D.C.: June 13, 2008).

Page 2 GAO-09-253 FCC’s E-rate Program 
 

• To what extent do eligible entities apply for E-rate funds, how well do 

applicants navigate the E-rate program’s requirements, and what steps 

is FCC taking to facilitate program participation?

• What are FCC’s performance goals and measures for the E-rate 

program, and how do they compare to key characteristics of successful 

goals and measures?4

To answer these questions, we analyzed data from USAC on applications,

funding commitments, and disbursements for the first 10 years of the E-rate

program. We obtained from the Department of Education’s National Center

for Education Statistics the most recent complete listings of public schools, 

private schools, and libraries, and compared these listings to the entities that 

applied for E-rate funding during a comparable time period. We used this 

comparison as a basis to determine the rates at which eligible entities

participated in the E-rate program and characteristics of participants and

nonparticipants. We determined that the data obtained from USAC and the 

Department of Education were sufficiently reliable for the purposes specified. 

We interviewed six nonparticipants chosen on the basis of their entity type—

public school, private school, or library—and whether they were located in a 

rural or urban area to obtain anecdotal information on reasons eligible 

entities do not apply for support. We conducted a Web-based survey of 697 

beneficiaries selected by drawing a stratified, random sample from about

31,000 applications for funding year 2006 to obtain their views on program

requirements and how to improve the program, among other things. This 

report does not contain all of the results from the survey; the survey and a 

more complete tabulation of the results, as well as detailed statistics on the

results of our participation analysis, can be viewed at GAO-09-254SP. We 

reviewed FCC documentation on the agency’s performance goals and

measures for the E-rate program and compared this information with 

literature on results-oriented management and effective practices for setting

performance goals and measures. We interviewed officials from FCC’s Office 

of Managing Director, Office of Inspector General, and Wireline Competition 

Bureau to identify actions undertaken to address previously identified 

problems and plans to address issues of concern in the program; officials

 4

In our past work, we have found that agencies that are successful in measuring 

performance strive to establish measures that demonstrate results, address important

aspects of program performance, and provide useful information for decision making. See, 

for example, GAO, Agency Performance Plans: Examples of Practices That Can Improve 

Usefulness of Decisionmakers, GAO/GGD/AIMD-99-69 (Washington, D.C.: Feb. 26, 1999); 

and Executive Guide: Effectively Implementing the Government Performance and

Results Act, GAO/GGD-96-118 (Washington, D.C.: June 1996). 

Page 3 GAO-09-253 FCC’s E-rate Program 
 

from USAC’s Schools and Libraries Division, Office of General Counsel, and 

Office of Finance to collect information on program operations and USAC’s 

actions to implement prior FCC orders on E-rate; and representatives of Erate stakeholder groups. See appendix I for additional information on our

scope and methodology. 

We conducted this performance audit from July 2007 to March 2009 in 

accordance with generally accepted government auditing standards. Those 

standards require that we plan and perform the audit to obtain sufficient, 

appropriate evidence to provide a reasonable basis for our findings and 

conclusions based on our audit objectives. We believe that the evidence 

obtained provides a reasonable basis for our findings and conclusions 

based on our audit objectives. 

The Telecommunications Act of 1996 sets forth the nation’s goals for 

providing affordable telecommunications services to consumers 

nationwide, particularly to populations such as individuals living in rural,

isolated, or high-cost areas, or those with low incomes; schools and 

libraries; and rural health care facilities. The act instructed FCC to 

establish a universal service support mechanism to ensure that eligible 

schools and libraries have affordable access to and use of certain 

telecommunications services for educational purposes.5

 In addition, 

Congress authorized FCC to “establish competitively neutral rules to 

enhance, to the extent technically feasible and economically reasonable,

access to advanced telecommunications and information services for all 

public and nonprofit elementary and secondary school classrooms . . . and 

libraries. . . .”

6

 Based on this direction, and following the recommendations 

Background 

 5

Specifically, 47 U.S.C. § 254(h)(1)(B) provides: “All telecommunications carriers serving a 

geographic area shall, upon a bona fide request for any of its services that are within the

definition of universal service under subsection (c)(3) of this section, provide such services

to elementary schools, secondary schools, and libraries for educational purposes at rates

less than the amounts charged for similar services to other parties. The discount shall be an 

amount that the Commission, with respect to interstate services, and the States, with 

respect to intrastate services, determine is appropriate and necessary to ensure affordable 

access to and use of such services by such entities. A telecommunications carrier providing 

service under this paragraph shall—(i) have an amount equal to the amount of the discount 

treated as an offset to its obligation to contribute to the mechanisms to preserve and 

advance universal service, or (ii) notwithstanding the provisions of subsection (e) of this

section, receive reimbursement utilizing the support mechanisms to preserve and advance

universal service.” 

6

47 U.S.C. § 254(h)(2). 

Page 4 GAO-09-253 FCC’s E-rate Program 
 

of the Federal-State Joint Board on Universal Service,7 FCC established 

the Schools and Libraries Universal Service Support Mechanism, 

commonly referred to as the E-rate program. FCC designated USAC to 

carry out the day-to-day activities of the program,8

 which is funded from 

statutorily mandated payments to the Universal Service Fund. FCC 

oversees USAC and the program through rule-making proceedings, 

enforcement actions, audits of participants, and reviews of funding 

decision appeals from participants. FCC also reviews USAC’s procedures, 

including its process for reviewing applications for funding; meets 

frequently with USAC staff; and provides guidance letters to USAC. A 

memorandum of understanding between FCC and USAC, first executed in

June 2007 and updated in September 2008, as well as FCC orders and 

rules, set forth the roles and responsibilities of the two parties in the 

management, oversight, and administration of the program.9

 7

The Federal-State Joint Board on Universal Service was established in 1996 to make

recommendations to implement the universal service provisions of the

Telecommunications Act of 1996. The board is composed of FCC commissioners, state 

utility commissioners, and a consumer advocate representative. 

8

USAC, in turn, contracts out many tasks to contractors, including Solix Inc. (formerly 

known as NECA Services Inc. and Independent NECA Services), a private, for-profit 

company. Solix reviews applications for funding from schools and libraries, as well as

requests for reimbursements from schools, libraries, and service providers. Solix performs

these reviews based on procedures approved by FCC and USAC, guidance from FCC and 

USAC, and with the oversight and management of FCC. 

9

In September 2008, FCC and USAC signed an updated memorandum of understanding,

which will remain in effect for 4 years. 

Page 5 GAO-09-253 FCC’s E-rate Program 
 

The E-rate program provides schools, school districts, libraries, and 

consortia10 with discounts on telecommunications services, Internet 

access, and data transmission wiring and components used for 

educational purposes—that is, activities that are integral, immediate, or 

proximate to the education of students or to the provision of services to 

library patrons, such as activities that occur on library or school 

property.11 Based on indicators of need, eligible schools and libraries 

qualify for a discount of 20 percent to 90 percent on the cost of services 

and must show that they can pay for the undiscounted portion of services. 

Indicators of need include the percentage of students eligible for free or 

reduced-price lunches through the National School Lunch Program12 and 

whether the entity is located in a rural area.13 Table 1 shows the discount 

percentages entities are eligible for based on these indicators. Eligible 

entities may apply annually for program support. 

 10Only eligible schools and libraries may receive universal service funds under the schools

and libraries universal service mechanism. To be eligible, a school must meet the statutory

definition of “elementary school” or “secondary school” contained in the Elementary and 

Secondary Education Act of 1965 (Education Act), as amended in the No Child Left Behind 

Act of 2001 (No Child Left Behind Act). See 47 U.S.C. §254(h)(7)(A). Under the No Child 

Left Behind Act, an “elementary school” is defined as “a nonprofit institutional day or

residential school, including a public elementary charter school, that provides elementary 

education, as determined under State law.” 20 U.S.C. §7801(18). A “secondary school” is 

defined as “a nonprofit institutional day or residential school, including a public elementary 

charter school, that provides secondary education, as determined under State law.” 20

U.S.C. §7801(38). The term “secondary school” does not include any education beyond

grade 12. 20 U.S.C. 7801(38). Libraries that may participate in E-rate are those that are

eligible to receive assistance from a state’s library administrative agency under the Library

Services and Technology Act. See, 47 U.S.C. §254(h)(4); 20 U.S.C. §9121 et. seq. Examples

of entities not eligible for support are home school programs, private vocational programs, 

and institutions of higher education. In addition, neither private schools with endowments

of more than $50 million nor libraries whose budgets are part of a school’s budget are 

eligible to participate. 47 U.S.C. §254(h)(4). Some education service agencies, as well as

prekindergarten (such as Head Start), juvenile justice, and adult education student 

populations and facilities are eligible in certain states. Eligible schools, school districts, and 

libraries may also form consortia for the purposes of applying for E-rate funding. 47 C.F.R. 

54.501(d). 

11See, 47 C.F.R. 54.500(b). When a product or service contains ineligible components or is

to be used by both eligible and ineligible locations, an applicant may delineate between the 

eligible and ineligible portions of the cost and apply for discounts only for the eligible 

portion. 47 C.F.R. §54.504(g).

12Need can also be measured based on a federally approved alternative mechanism such as

a survey to collect family income data. 

13An applicant is classified as rural according to a definition adopted by the U.S.

Department of Health and Human Services’ Office of Rural Health Policy. 

Page 6 GAO-09-253 FCC’s E-rate Program 
 

Table 1: Discount Percentage That E-rate Applicants Are Eligible for Based on the 

Proportion of Students Eligible for the National School Lunch Program 

Percent 

Students eligible for National School 

Lunch Program

E-rate program

discount for urban 

applicants 

E-rate program

discount for rural

applicants

Less than 1 20 25

1-19 40 50

20-34 50 60

35-49 60 70

50-74 80 80

75-100 90 90

Source: 47 C.F.R. 54.505(c). 

Based on the broad direction in the act, FCC defined two general types of 

services that are eligible for E-rate discounts: 

• Priority 1 services, which include telecommunications services, such as 

local, long-distance, and wireless (e.g., cellular) telephone services, as 

well as data links (e.g., T-1 lines) and Internet access services, such as 

Web hosting and e-mail services—all of which receive priority for 

funding under FCC’s rules;14 and 

• Priority 2 services, which include cabling, components, routers, 

switches, and network servers that are necessary to transport 

information to individual classrooms, public rooms in a library, or 

eligible administrative areas, as well as basic maintenance of internal 

connections, such as the repair and upkeep of eligible hardware and 

basic technical support.

Lists of specific eligible services, including the conditions under which 

they are eligible, are updated annually by USAC, finalized by FCC after a 

public comment period, and posted on USAC’s Web site. Items ineligible 

for E-rate discounts include, among other things, end-user products and 

services such as Internet content, Web site content maintenance fees, enduser personal computers, and end-user software.

 14According to USAC, Priority 1 services include a wide range of high-speed digital 

transmission services that facilitate, for example, distance learning, which allows students 

to access classes that would otherwise not be offered. 

Page 7 GAO-09-253 FCC’s E-rate Program 
 

All eligible and properly completed requests for Priority 1 services are 

funded up to the available amount of funding.15 Priority 2 services, herein 

referred to as internal connections, are funded with what remains after 

commitments have been made for all approved requests for Priority 1 

services in a given year. Requests for internal connections services are 

prioritized by the discount level of the applicant, with funding going first 

to applicants with the highest discount level—90 percent—and then to 

applicants at each descending discount level until the funding is 

exhausted; in 2007, for example, internal connections funding was 

provided to applicants with discount levels down to 81 percent.16 Because 

of this prioritization, available funding may be exhausted before all eligible 

and properly completed requests for internal connections are funded. 

According to FCC, the rules of priority equitably provide the greatest 

assurance of support to schools and libraries with the greatest level of 

economic disadvantage. The rules ensure that all applicants filing during a 

time period specified by USAC receive at least some support in the event 

that the amounts requested for support exceed the total support available 

in a funding year. 17

The steps applicants must carry out to obtain program support—including 

the application, review, invoicing, and reimbursement processes—are 

illustrated in figure 1. This figure is followed by a more detailed 

description of each of these steps. 

 1547 C.F.R. 54.507(g) 

16Eligible entities are able to receive support for internal connections in 2 out of every 5

years (47 CFR 54.506 (c)). All requests for recurring services that have been found

consistent with FCC rules through the application review process have been funded since 

the beginning of the program. 

17In the Matter of Federal-State Joint Board on Universal Service, Fifth Order on

Reconsideration and Fourth Report and Order, 13 FCC Rcd 14915 (1998). 

Page 8 GAO-09-253 FCC’s E-rate Program 
 

Figure 1: E-rate Application, Funding, and Reimbursement Processes

May receive reimbursement from service 

provider

Applicant USAC Service provider

Assesses technology needs to develop 

technology plan

Files form describing products and 

services sought

May appeal decision May appeal decision

Begins receiving services; submits form 

confirming receipt of services

Acknowledges receipt of form and 

posts to Web site

Searches and responds to applicant 

requests

Selects service provider

Calculates discount percentage and selects

eligible services Publishes annual eligible services list

Submits application for program support Acknowledges receipt

Reviews applications; may request 

additional information and/or documentation

Consults with applicant to 

determine invoicing method

May remit discount amount to applicant, if 

appropriate

Responds to reviewer’s requests

Begins providing services

Acknowledges receipt of form

May provide discounts on applicant’s

bills and invoice USAC directly

Reviews invoices and reimburses service 

provider for discounted portion; may request 

additional information or documentation

Source: GAO analysis of FCC and USAC information.

Always occurs

Occurs only under certain circumstances

May pay service provider full cost of services; 

with service provider, jointly requests

reimbursement of discounted portion

Obtains service provider identification number 

and annually certifies it will comply with FCC rules

Makes funding decision; issues funding 

decision commitment letters

Partially or fully denied

Funded

Page 9 GAO-09-253 FCC’s E-rate Program 
 

Prior to submitting an application for E-rate support, an applicant must 

complete several steps, including the following: 

• Prepare a technology plan. The applicant conducts a technology 

assessment and develops a technology plan to ensure that any services 

it obtains will be used effectively and that it can provide for the 

nondiscounted portion of services as well as for the goods or services 

that are ineligible for E-rate funding.18

• Open competitive bidding. The applicant identifies products and 

services needed to implement its technology plan and submits a form 

to USAC describing the desired products and services. USAC posts 

completed forms on its Web site so that service providers can view and 

consider bidding on these requests.19 To participate in the E-rate

program, service providers must obtain identification numbers from 

USAC and certify compliance with program rules in each year that they

provide services under the program.20

• Select a service provider and enter into a service agreement. At least 

28 days after the applicant’s description of requested services is posted 

to USAC’s Web site,21 an applicant may enter into an agreement with a 

provider of eligible services.22

 18Before services begin, the plan must be approved by a USAC-certified technology plan

approver. However, applicants that seek discounts only for basic local, cellular, personal 

communication service, long-distance telephone service, or voice mail are not required to 

prepare technology plans. 47 C.F.R. 54.504(b)(2)(iii)(c). 

19Applicants may additionally use a request for proposal (RFP) to solicit bids.

20Pursuant to the commission’s rules, USAC must obtain the service provider name,

address, telephone number, and contact names, as well as other information, in order for 

USAC to be able to perform its billing, collection, and disbursement functions. Therefore, 

the commission and USAC developed the Service Provider Identification Number and 

Contact Form, FCC Form 498, to collect this information from carriers and service 

providers that receive support.

21And, if applicable, at least 28 days after an RFP is publicly available. 47 C.F.R. 

54.504(b)(4). 

22Applicants may also choose vendors from a State Master Contract, execute multiyear 

contracts pursuant to a Form 470 (Description of Services Requested), and enter into

voluntary contract extensions, but certain additional contract requirements apply. In all 

cases, applicants must comply with state and local procurement laws. Applicants may 

select a vendor for tariffed or month-to-month services or execute a contract for new 

contractual services. 

Page 10 GAO-09-253 FCC’s E-rate Program 
 

After completing these steps, the applicant submits its application for 

program support to USAC. USAC accepts applications during a filing 

window, the exact dates for which change somewhat each year but are 

generally from November to Feburary.23 The information the applicant 

provides on this form, includes, but is not limited to, the following: 

• the discount percentage to which the applicant is entitled, calculated 

using a worksheet provided on the application;24

• detailed information about each requested service or product and its 

cost—some services have both eligible and ineligible components, in 

which case the applicant must calculate the portion of the service 

eligible for an E-rate discount, a process referred to as cost allocation; 

and 

• certifications that, among other things, the applicant has adequately 

budgeted for the undiscounted portion of services, as well as related 

ineligible services—such as computers, training, software, and 

electrical capacity—needed to make effective use of the services 

ordered.25

USAC reviews requests for funding to determine whether applicants have 

properly complied with program rules and requirements; this process is 

known as the program integrity assurance (PIA) review. Reviewers may 

ask applicants to submit additional information, such as verification of a 

contract award date or enrollment and income data for newly constructed 

schools. Some applications undergo “selective” reviews, which require 

more detailed documentation that the applicant has complied with the 

rules. Applicants are chosen for selective review based on defined criteria 

to test compliance with specific FCC rules. Additionally, applicants that 

 23Requests received during a filing window are treated as if they were received

simultaneously. 13 FCC Rcd 14915. According to FCC officials, requests received outside 

the filing window typically do not receive funding because requests submitted during the 

window exceed the amount of funds available. 

24For the entities they represent, school districts, library systems, and consortia may 

calculate an aggregate discount percentage representing the level of need. For example, 

school districts applying for eligible services on behalf of their individual schools may 

calculate the districtwide percentage of eligible students using a weighted average. 

Alternatively, a district could submit separate applications on behalf of individual schools 

and use the respective percentage discounts for which the individual schools are eligible. 

47 C.F.R. 54.505(b). 

2547 C.F.R. 54.504(c)(1)(iii).

Page 11 GAO-09-253 FCC’s E-rate Program 
 

fail selective review in a given year must go through selective review the 

following year. 

Based on the outcome of the application review, USAC issues funding 

commitment decision letters stating how much funding the applicant may 

receive based on eligible services provided within the funding year 

deadlines. Funding commitments are conditional upon applicants meeting 

additional requirements as described later. Funding commitments may be 

for the full amount requested or less than the amount requested, or 

funding may be denied entirely for reasons such as competitive bidding 

violations or requests for ineligible services. Funding requests for Priority 

2 services may also be denied if the applicant’s discount percentage falls 

below the annual discount percentage threshold for internal connections. 

After eligible services have been delivered, service providers or applicants

submit invoices to USAC to request reimbursement for the discounted 

portion of services. Before seeking reimbursement for the discounted 

portion of services from USAC, applicants must confirm (1) that the 

services are planned to be or are being provided; (2) approval of their 

technology plans by a state or other authorized body, if required; and (3) 

compliance with the Children’s Internet Protection Act (CIPA) and the 

Neighborhood Children’s Internet Protection Act, if required.26 Under these 

acts, if required, schools and libraries receiving support for Internet 

access, internal connections, or basic maintenance must certify that they

have in place certain Internet safety policies and technology protection 

measures. Funding requests for telecommunications services do not 

require certification of CIPA compliance. Service providers may apply the 

discount rate to the applicant’s bill before sending it to the applicant, in 

which case the applicant pays only the nondiscounted portion and the 

service provider invoices USAC directly to obtain reimbursement. 

Alternatively, applicants may pay for services in full and submit a form to 

USAC to request reimbursement. Regardless of which invoicing method is 

used, USAC reviews the invoices and disburses payments for universal 

service support to service providers; under the latter method, service 

providers remit the discounted amount to the applicant. To ensure 

compliance with FCC rules, both USAC and FCC’s Office of Inspector 

 26Under the Children’s Internet Protection Act and the Neighborhood Children’s Internet 

Protection Act, Congress imposed new conditions on schools and libraries with Internet 

access that request discounted service under the E-rate program. 47 U.S.C. §§254(h)(5), (6); 

254(l). 

Page 12 GAO-09-253 FCC’s E-rate Program 
 

General periodically select a sample of participants to audit and conduct

site visits of beneficiaries.27

Each year from 1998 through 2007, the amount of funding applicants 

requested exceeded the amount available, but the amounts requested have 

generally declined since 2002, with most of the decline driven by fewer 

requests for Priority 2 services—the wiring and components needed for 

data transmission.28 Although requests for Priority 1 services—that is, 

telecommunications and Internet access—have remained roughly level 

since 2002, commitments have increased, at least in part, because 

applicants received a greater proportion of the funds they requested. The 

increasing amounts committed for Priority 1 services has the effect of 

decreasing the amounts available for Priority 2 services, which are funded

only after all eligible Priority 1 services requests are satisfied. Regarding 

disbursements, a significant proportion of committed funds are not paid 

out to beneficiaries. Funding that is not disbursed in the year for which it 

was committed is carried over to the next funding year and made available 

for new commitments, but undisbursed funding is still problematic 

because it prevents some applicants from receiving funding in a given 

year.29

From 1998 through 2007, applicants requested a total of about $41 billion 

in E-rate funding—174 percent of the $23.4 billion in program funding 

Requests for E-rate 

Funding Consistently 

Exceed the Cap, and 

Increased 

Commitments for 

Priority 1 Services, 

Combined with 

Significant 

Undisbursed Funds, 

Limit Funding for 

Priority 2 Services 

Requests Consistently 

Outweigh Available 

Funding 

 27Program participants and service providers are expected to maintain records for at least 5

years after the last date of service delivered to be able to comply with audits and other 

inquiries or investigations. 47 C.F.R. § 54.504(c)(1)(x). They also are required to retain, for 

example, competitive bidding documentation, such as bid evaluation worksheets, winning

and losing bids, and correspondence between the beneficiary and prospective bidders; 

executed contracts; National School Lunch Program eligibility documentation; purchase, 

delivery, and installation records; invoices; asset and inventory records; and all program 

forms. See Schools and Libraries Universal Service Mechanism, Fifth Report and Order, 19

FCC Rcd 15808 (2004). 

28We analyzed program requests, commitments, and disbursements on the basis of which 

funding year they were associated with rather than in which calendar year or fiscal year the 

action occurred. For instance, individual requests for funding year 2007 may have been

submitted in calendar year 2006, and individual commitments for funding year 2007 may

have been made in calendar year 2008. 

29Under program rules, on an annual basis in the second quarter of each calendar year, all 

funds that are collected and that are unused from prior years shall be available for use in

the next full funding year in accordance with the public interest and not withstanding the 

annual cap. 47 C.F.R. 54.507(a). 

Page 13 GAO-09-253 FCC’s E-rate Program 
 

available during that time. Further, in each of these years, the amounts 

requested exceeded the amounts available. However, the amounts 

requested have generally declined since 2002. Figure 2 shows the annual 

funding levels and the amount of E-rate funding requested for Priority 1 

services and Priority 2 services for each year from 1998 through 2007. 

Figure 2: Amounts Requested, by Service Category, and Annual Funding Levels, 

1998-2007 

0

1

2

3

4

5

6

7

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Dollars (in billions)

Year

Internal connections (Priority 2)

Telecommunications services and Internet access (Priority 1)

Annual funding level

Source: GAO analysis of USAC data.

Note: The funding level was higher in the years when USAC carried over unused funds from prior 

years. 

Since 2002, the number of applicants and the amounts requested for 

Priority 1 services have been stable. As figure 3 shows, the number of 

applicants for telecommunications services has been generally stable since 

1998, and the number of applicants for Internet access, after showing an 

increase the first few years of the program, has been roughly level since 

2002. From 2002 through 2007, the amounts requested for Priority 1 

services have also been relatively stable. 

Page 14 GAO-09-253 FCC’s E-rate Program 
 

Figure 3: Requests for Telecommunications Services and Internet Access, by

Number of Applicants and Amounts Requested, 1998-2007 

0.0

0.5

1.0

1.5

2.0

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Dollars (in billions) Number of applicants

Source: GAO analysis of USAC data.

Year

Amount requested for telecommunications services and Internet access (Priority 1), in billions of dollars

Number of applicants for Internet access (Priority 1)

Number of applicants for telecommunications services (Priority 1)

0

5,000

10,000

15,000

20,000

25,000

In contrast, the number of applicants and amounts requested for Priority 2 

services have declined for the past several years, accounting for most of 

the decline in the overall amount of funding requested. The amount of 

funding requested for Priority 2 services declined 50 percent from 2002 

through 2007. (See fig. 4.) The ratio of funding requested for Priority 2 

services to that requested for Priority 1 services has also shifted 

significantly. From 1998 through 2002, funding for Priority 2 services was 

sought at a rate of 2.3 to 1 over funding for Priority 1 services, while from 

2003 through 2007, this ratio was 1.4 to 1. 

Page 15 GAO-09-253 FCC’s E-rate Program 
 

Page 16 GAO-09-253 FCC’s E-rate Program 

Figure 4: Requests for Internal Connections, by Number of Applicants and Amounts 

Requested, 1998-2007 

The following factors may help explain the decrease in requests for 

Priority 2 services (internal connections). 

• In 1999, the second funding year, Priority 2 requests were funded down 

to the 20 percent discount level, which means that all eligible requests 

could be funded.30 As a result, according to USAC, many entities with 

lower discounts applied the following years, hoping that the Priority 2 

cutoff point would be similarly low; this is consistent with the dramatic 

increase in the number of applicants and amount requested in 2000. But 

the cutoff point in the following 3 years was in the 80 percent range, 

and, as a result, according to USAC officials, there was a gradual dropoff in Priority 2 requests from entities with lower discounts. According 

to FCC, entities with low discount levels stopped applying for Priority 2 

 30In 1999, requests for E-rate funding exceeded the $2.25 billion cap. However, as a result of 

modifying and denying some funding requests during the PIA process, the fundable part of 

the requests did not exceed the funds available. According to USAC, in all other years, 

requests (both before and after the PIA review) exceeded available funds. 

0

1

2

3

4

5

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Dollars (in billions) Number of applicants

Source: GAO analysis of USAC data.

Year

Amount requested for internal connections (Priority 2)

Number of applicants for internal connections (Priority 2) 

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000
 

funding because they knew that their requests would not receive 

funding. 

• A second factor is an FCC rule implemented in 2005 that limited 

applicants’ receipt of Priority 2 funding to 2 out of every 5 years, 

reducing the number of applicants for these services in a given year.31

FCC adopted this rule in order to make funding for internal 

connections available to more eligible schools and libraries on a 

regular basis. 

The emphasis on Priority 1 services is likely to continue, according to our 

analysis of survey responses on future information technology goals.32 We

asked respondents about a number of goals related to telephone and 

Internet connectivity and equipment needed to make use of such 

connectivity; items in the survey included both those eligible for E-rate 

discounts and those not eligible. 33 Our analysis of responses to this 

question shows that participants are somewhat more focused on goals 

related to maintaining existing information technology services than on 

those related to adding new capabilities. For instance, we estimate that 

providing telephone services is a goal for 96 percent of participants and 

providing access to the Internet is a goal for 91 percent to 94 percent34 of 

participants; in contrast, installing or upgrading wiring and components 

needed for Internet or network access is a goal for 73 percent to 74 

percent of participants.35 Similarly, when we asked what participants’ 

highest-priority information technology goals were, the E-rate-eligible 

expenses cited most often were providing (1) telephone services, (2) 

 31In the Matter of Schools and Libraries Universal Service Support Mechanism, Third

Report and Order and Second Further Notice of Proposed Rulemaking. 18 FCC Rcd 26912 

(2003). 

32Unless indicated otherwise, survey estimates have an error rate of ±4 percent at the 95

percent confidence level. 

33The complete list of information technology goals we asked about can be found in the 

electronic supplement that accompanies this report, GAO-09-254SP. 

34We estimate that providing Internet access for student or library patron use is a goal for 

91 percent of beneficiaries and providing it for administrative or operational use is a goal

for 94 percent of beneficiaries.

35Specifically, we estimate that installing or upgrading components needed for network or 

Internet access is a goal for participants as follows: Wired access for administrative or 

operational use is a goal for 73 percent of participants; wired access for instructional or 

library patron use is a goal for 73 percent; wireless access for administrative or operational 

use is a goal for 74 percent; and wireless access for instructional or library patron use is a

goal for 73 percent. 

Page 17 GAO-09-253 FCC’s E-rate Program 
 

additional bandwidth to locations already equipped with Internet access, 

and (3) Internet access for student or library patron use. According to our 

analysis of survey responses, the highest-priority goal of participants is 

increasing the number of or replacing existing computers for student or 

library patron use but the E-rate program does not cover either. 

While the E-rate program’s statutory purpose is to help schools and 

libraries obtain advanced telecommunication services, it is not clear 

whether the growing emphasis on Priority 1 services and the

corresponding decline in emphasis on Priority 2 services represent the 

most efficient and effective use of the program resources.36 As the Office 

of Management and Budget (OMB) noted in a 2005 assessment of the Erate program, given the increase in schools’ and libraries’ level of Internet 

connectivity, it is no longer clear that the program serves an existing 

need.37 Similarly, it is difficult to determine whether the program’s funding 

structure—including the priority rules and the discount matrix, which 

contributes to the trends in funding—is the best way to distribute funding

in a manner consistent with the program’s intent. As we discuss below, 

FCC does not have specific, outcome-oriented performance goals or longterm goals for the program, and therefore the agency does not have a basis 

on which to determine whether the growing emphasis on Priority 1 

services is appropriate. FCC’s rule-making proceeding on universal service 

reform, which is discussed in more detail in the following section, has 

been ongoing since 2005, but FCC has not made a determination—either 

as part of this proceeding or otherwise—as to what changes, if any, should 

be made to the overall structure of the program to better achieve the goals 

of the act. 

 36The Telecommunications Act of 1996 sought to ensure that eligible schools and libraries 

have affordable access to and use of services within the definition of universal service 

under subsection (c)(3) for educational purposes at discounted rates. 47 U.S.C. 

§254(h)(1)(B). 

37See, http://www.whitehouse.gov/omb/expectmore/detail/10004450.2005.html. OMB’s Erate assessment was last updated in August 2007. 

Page 18 GAO-09-253 FCC’s E-rate Program 
 

Similar to the trend in funding requests, funding commitments also show a 

growing emphasis on Priority 1 services. During the first years of the 

program, more funding was committed for Priority 2 services than for 

Priority 1 services, but this trend reversed in 2004 and continued through 

2007, as figure 5 shows. Although commitments for Priority 2 services 

increased in 2007, they were outweighed by commitments for Priority 1 

services by 64 percent. 

Increased Commitments 

for Priority 1 Services 

Leave Less Funding for 

Priority 2 Services 

Figure 5: Amounts Committed for Telecommunications Services, Internet Access, 

and Internal Connections, 1998-2007 

0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Dollars (in billions)

Source: GAO analysis of USAC data.

Year

Internal connections (Priority 2)

Telecommunications services (Priority 1)

Internet access (Priority 1)

From 1999 through 2007, the amounts committed annually for 

telecommunications services increased each year for a total increase of 79

percent, and the amounts committed annually for Internet access nearly 

doubled. The increase in amounts committed for Priority 1 services is a 

result of individual applicants receiving a greater proportion of the funding 

they request, and not a result of an increasing number of requests because, 

as noted earlier, the number of requests for these services has not been 

growing at a substantial rate. As figure 6 shows, the proportion of 

requested funding that applicants receive as a commitment has been 

increasing, with about half of applicants receiving 75 percent or more of 

Page 19 GAO-09-253 FCC’s E-rate Program 
 

Page 20 GAO-09-253 FCC’s E-rate Program 

the amount they requested in 2000 and almost 80 percent of applicants 

receiving 75 percent or more in 2007. 

Figure 6: E-rate Applicants, by Percentage of Original Funding Request Received, 

1998-2007 

In addition to the proportion of dollars committed in each of these service 

categories, the proportion of participants that receive commitments in 

these categories is important, particularly when considering whether 

funds are being targeted appropriately. Based on our survey, we estimate 

that 99 percent of participants have used E-rate to pay for telephone 

services, and around 75 percent have used E-rate to pay for access to the 

Internet, whereas 36 percent to 38 percent of participants have used E-rate 

to install or upgrade wired internal connections38 and 20 percent to 24 

 38The proportion of participants that we estimate to have used E-rate for wired 

connections includes 36 percent who have used the connections for administrative or 

operational use and 38 percent who have used the connections for student or library patron 

use. 

0

10

20

30

40

50

60

70

80

90

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Percentage

Source: GAO analysis of USAC data.

Year

Applicants that received 75 percent or more of their original request

Applicants that received less than 75 percent of their original request

Applicants that received no funding
 

percent have used it to install or upgrade wireless internal connections.39

USAC stated that it is likely that the lower usage levels for internal 

connections are due to the inherent limitations that the funding cap places 

on access to Priority 2 funding. 

The increasing success of applicants requesting Priority 1 services has 

implications for the amount of funding available in future years for 

Priority 2 services and, accordingly, for how FCC manages the E-rate

program and whether the program’s existing structure is still suitable to

best meet the current technology needs of schools and libraries. From 

2002 through 2007, requests for Priority 1 services averaged 69 percent of

available funding; if a substantially higher proportion of such requests

had been funded, a smaller percentage of funding would have been

available for Priority 2 requests. As it was, from 1998 through 2007, after 

eligible requests for Priority 1 services were satisfied, only about onethird of all requests for Priority 2 services were able to be funded.

Without clearly defined, long-term goals, as well as specific short-term

goals, FCC lacks a basis for determining if allocating funding in this 

manner is appropriate. 

 39The proportion of participants that we estimate to have used E-rate for wireless 

connections includes 20 percent who have used the connections for administrative or 

operational use and 24 percent who have used the connections for student or library patron 

use. 

Page 21 GAO-09-253 FCC’s E-rate Program 
 

Of the $19.5 billion in E-rate funding committed to schools and libraries 

between 1998 and 2006,

40 $5.0 billion—more than one-quarter—was not 

disbursed.41 Starting in 2003, funds that were not disbursed in a given year

were carried forward to subsequent years to be available for commitment, 

thereby increasing the amount that could be committed beyond the $2.25 

billion cap. The amount of committed funding not used includes $2.6 

billion for Priority 1 services and $2.4 billion Priority 2 services. Figure 7 

shows the percentage of committed funding that was disbursed in each 

service category each year from 1998 through 2006. 

A Substantial Amount of 

Committed Funding Is Not 

Disbursed 

 40For the purposes of reporting on the disbursement rate for committed funds, we 

examined data through 2006 because, for many applicants, the deadlines for using 2007

funding have not passed. 

41Schools, libraries, and eligible consortia must use recurring services for which discounts

have been committed within the funding year for which the discounts were sought. The

deadline for implementation of nonrecurring services will be September 30 following the 

close of the funding year. An applicant may request and receive from USAC an extension of

the implementation deadline for nonrecurring services if it satisfies one of the following 

criteria: 

(1) The applicant’s funding commitment decision letter is issued by USAC on or after 

March 1 of the funding year for which discounts are authorized; 

(2) the applicant receives a service provider change authorization or service substitution 

authorization from USAC on or after March 1 of the funding year for which discounts are

authorized;

(3) the applicant’s service provider is unable to complete implementation for reasons 

beyond the service provider’s control; or 

(4) the applicant’s service provider is unwilling to complete installation because funding 

disbursements are delayed while USAC investigates their application for program 

compliance. 47 C.F.R. §54.507(d) 

Page 22 GAO-09-253 FCC’s E-rate Program 
 

Figure 7: Percentage of Committed Funding That Was Disbursed, by Service 

Category, 1998-2006 

50

55

60

65

70

75

80

85

90

95

100

1998 1999 2000 2001 2002 2003 2004 2005 2006

Percentage

Source: GAO analysis of USAC data.

Year

Internal connections (Priority 2)

Telecommunications services (Priority 1)

Internet access (Priority 1)

0

Underuse of committed funding is widespread among participants, but the 

proportion of participants using a higher percentage of the funds 

committed to them is rising. Thirty-five percent of participants in 2006

received disbursements for less than 75 percent of the funds that were 

committed to them, including 9 percent that did not receive any 

disbursement, but the percentage of participants receiving disbursements 

for 75 percent or more of their committed funds increased each year from 

2001 to 2006 (see fig. 8). Similarly, the proportion of participants that did 

not receive any disbursement has been declining since 1999. Nonetheless, 

the overall disbursement rate has not increased because applicants that 

ultimately do not receive disbursements equal to their funding

commitment are receiving relatively larger commitments. 

Page 23 GAO-09-253 FCC’s E-rate Program 
 

Page 24 GAO-09-253 FCC’s E-rate Program 

Figure 8: Proportion of Entities Receiving Disbursements for 75 Percent or More of 

Funding Commitment, Less than 75 Percent of Funding Commitment, and None, 

1998-2006 

For a number of reasons, participants may not use the full amount of their 

funding commitment: 

• Participants’ expenditures are less than the amounts applied for.

Applicants may overestimate costs for Priority 1 services, such as 

telephone bills and Internet access charges, to ensure sufficient 

funding for the year. Based on our survey, we found that lower-thanprojected costs of Priority 1 services was a major reason for not using 

all committed funds for an estimated 54 percent of participants42 and a 

minor reason for an additional 20 percent of participants.43 State E-rate 

officials we met with noted that there is no disincentive to “aim high” in 

the amount of funding requested. Additionally, some of these officials 

 42The 95 percent confidence interval for this estimate is from 47 percent to 62 percent. 

43The 95 percent confidence interval for this estimate is from 14 percent to 27 percent. 

0

10

20

30

40

50

60

70

80

90

100

1998 1999 2000 2001 2002 2003 2004 2005 2006

Percentage

Source: GAO analysis of USAC data.

Year

Entities that used 75 percent or more of committed funds

Entities that used less than 75 percent of committed funds

Entities that used none of their committed funds
 

told us that participants may have planned for Priority 2 services 

projects or upgrades, but changes in their circumstances resulted in 

project delays or cancellations. For example, in the time between 

applying for funding and receiving the commitment decision, the local

funds needed for the project may no longer be available or the 

construction of a new school, including the installation of network 

wiring, could be delayed. 

• Participants do not seek reimbursement for the full amount of E-rate 

eligible expenses because of the complexity of paperwork and lack of 

staff expertise. According to state E-rate officials we spoke with, bills 

and invoices from service providers are complicated, and participants 

do not always identify all items eligible for reimbursement in part 

because it can be unclear which items are eligible and which are not, 

particularly for Priority 1 services. Moreover, participants are 

commonly dealing with multiple applications covering 2 or 3 funding 

years at once. This complexity makes billing even more complicated 

because it can be difficult to determine which year’s funding 

commitment is associated with which bill. 

In addition, school and library staff responsible for E-rate administrative 

tasks face challenges associated with turnover and availability. Based on

our survey, we estimate that about one-quarter of the individuals at 

schools and libraries responsible for E-rate-related tasks have 3 years or 

less experience with the E-rate program. Several state E-rate officials we 

met with said that when new employees take over for someone who has 

left, they may not know it is necessary to apply for reimbursements for the 

prior year’s commitments. These officials also noted that most individuals

who are responsible for E-rate tasks have other primary job 

responsibilities, and E-rate is not their first priority. 

USAC officials also identified a number of factors that can affect the 

timeliness with which disbursements are made: 

• Priority 2 projects do not have to be completed within the funding year 

and are subject to a variety of automatic extensions for delivery of 

service, as well as extensions that can be requested by the applicant. 

• Larger funding requests may take USAC longer to review, which results 

in a later funding decision and later installation of the project by the 

applicant. Moreover, larger projects take longer for the applicant to 

complete than smaller projects. 

• Invoice reviews for larger projects may take longer for USAC to 

complete. 

Page 25 GAO-09-253 FCC’s E-rate Program 
 

• In some instances where heightened scrutiny on applications or law 

enforcement action is involved, disbursements may be held up for a 

period of time while the issues are resolved. 

As a result of these conditions, according to FCC and USAC officials, 

earlier funding years have incrementally more funds disbursed than more 

recent years. Finally, USAC noted that some committed funds are also not

disbursed because when a service provider or beneficiary submits invoices 

for payment, USAC may identify services or uses that are not eligible for 

reimbursement. 

We reported in 2000 on the issue of undisbursed funds in the E-rate 

program, recommending that FCC take steps to identify factors affecting

the rate at which funds are disbursed, and to address these factors. The 

following actions were taken in response to this recommendation: 

• FCC and USAC agreed to commit funds above the $2.25 billion cap and 

used this approach between August 2001 and September 2004. FCC 

then determined that the Antideficiency Act applies to the Universal 

Service Fund.

44 Once this determination was made, funding 

commitments were considered obligations for the purposes of the act,

and therefore USAC could no longer commit funds above the cap 

without larger budgetary resources being made available.45

• In 2003, FCC amended its rules to allow unused funds from prior 

funding years to be carried forward on an annual basis and be available 

for commitment the next funding year; previously, these funds were 

used to reduce the amounts telecommunications companies were 

 44The Antideficiency Act (ADA) prohibits an officer or employee of the U.S. government

from making obligations in excess or in advance of available budgetary resources. See 31 

U.S.C. §§ 1341, 1342 and 1517. We previously reported on the applicability of the ADA to

the E-rate program. See GAO, Telecommunications: Greater Involvement Needed by FCC 

in the Management and Oversight of the E-Rate Program, GAO-05-151 (Washington, D.C.: 

Feb. 9, 2005). 

45An obligation is a definite commitment that creates a legal liability of the government for 

the payment of goods and services ordered or received, or a legal duty on the part of the 

United States that could mature into a legal liability by virtue of actions on the part of the

other party beyond the control of the United States. Payment may be made immediately or 

in the future. An agency incurs an obligation, for example, when it places an order, signs a 

contract, awards a grant, purchases a service, or takes other actions that require the

government to make payments to the public or from one government account to another.

See GAO, A Glossary of Terms Used in the Federal Budget, GAO-05-734SP (Washington,

D.C.: September 2005). 

Page 26 GAO-09-253 FCC’s E-rate Program 
 

required to pay into the Universal Service Fund.46 FCC has carried 

forward funding several times since this change was made, including 

$650 million in June 2007 and $600 million in June 2008. 

• FCC implemented new policies to provide applicants with flexibilities 

that were intended to facilitate the use of funds, such as the ability to 

change service providers or modify the services originally requested. 

• FCC and USAC established new deadlines for notification of the receipt

of services. 

Additionally, FCC required USAC to file quarterly estimates of unused 

funds from prior funding years when it submits its projection of demand

for E-rate funds for the upcoming quarter. According to FCC, the estimates 

are used solely to determine how much funding to carry over. Despite 

these changes, the proportion of disbursed funds is now lower, on 

average, than it was when we made the recommendation. The proportion 

of committed funds that were disbursed from 1998 through 2000 averaged 

79 percent but averaged only 72 percent annually from 2001 through 2006 

(see fig. 9). 

 46In the Matter of Schools and Libraries Universal Service Support Mechanism, Third

Report and Order and Second Further Notice of Proposed Rulemaking, 18 FCC Rcd 26912 

(2003). 

Page 27 GAO-09-253 FCC’s E-rate Program 
 

Figure 9: Disbursed Funds, by Percentage and Dollars, 1998-2006 

0

0.5

1.0

1.5

2.0

1998 1999 2000 2001 2002 2003 2004 2005 2006

0

50

60

70

80

90

100

Dollars (in billions) Percentage

Source: GAO analysis of USAC data.

Year

Percentage of committed funding disbursed

Dollar amount disbursed

Unused funding is problematic because it has the potential to reduce the 

number of participants that will receive commitments for Priority 2 

services in a given year, even when unused funds are carried over to 

subsequent years. Because Priority 1 services always receive priority for 

funding, commitments for Priority 2 services may or may not be made, 

based on the level of commitments for first-priority services. Carrying over 

unused funds may result in more funding for Priority 2 services requests, 

but only if commitments for Priority 1 services remain stable or decline, 

neither of which is the current trend. Thus, some applicants for Priority 2 

services, who would receive funding if aggregate requests and

commitments were more consistent with actual disbursements, do not 

receive funding in the current environment. 

We recently reported on the long-standing problem of unused funds in 

federal grant programs, and although the E-rate program is not technically 

a grant program, it has features in common with grant programs that make 

Page 28 GAO-09-253 FCC’s E-rate Program 
 

some degree of comparison appropriate.47 Our report noted that unused 

balances in expired grant accounts, which may be caused by poorly timed 

communications with grantees, are noteworthy because they can hinder 

the achievement of program objectives. We found that when agencies 

made concerted efforts to address the problem, they were able to decrease 

the amount of undisbursed funding in expired grant accounts. 

The overall participation rate among E-rate-eligible entities is about 63 

percent, with public schools participating at a substantially higher rate 

than private schools and libraries, based on 2005 data. We found that a key 

circumstance influencing nonparticipation was the burdensome nature of 

program participation. Among eligible entities that do participate in the 

program, our survey results show that program participation is generally

viewed as becoming easier but that several program requirements are still 

difficult to complete, particularly those related to the application for 

funding. Moreover, we found that a substantial amount of funding is 

denied because applicants do not correctly carry out application 

procedures. In recent years, FCC and USAC have made changes intended

to ease the process of participation for eligible schools and libraries, but 

the primary focus of FCC remains the prevention and detection of waste, 

fraud, and abuse in the program. 

The participation rate among all types of E-rate-eligible entities is about 63 

percent, based on 2005 data.48 Public schools—which, at more than 

100,000, constitute the largest group of eligible entities—have an overall 

participation rate of 83 percent, but different types of public schools 

participate at different rates. Magnet schools49 participate at a higher than 

The E-rate 

Application Process 

Poses Difficulties for 

Some Entities, Which 

FCC and USAC Are 

Taking Steps to 

Address 

Participation in E-rate 

Program Highest among 

Public Schools in 2005, but 

Obstacles Exist for Other 

Entities 

 47GAO, Grants Management: Attention Needed to Address Undisbursed Balances in

Expired Grant Accounts, GAO-08-432 (Washington, D.C.: Aug. 29, 2008). 

48We defined participation as entities that were included on a certified application for 

funding. Participation figures were based upon matching USAC entities with entities from

U.S. Department of Education databases. Unless otherwise noted, all of the percentage 

estimates based upon matching of entity records have an overall error rate of 3.4 

percentage points or less at the 95 percent level of confidence. 

49According to the U.S. Department of Education, magnet schools were originally 

introduced to increase racial integration and reduce minority group isolation; they continue

to serve this purpose as well as to provide additional options to children whose current

schools need improvement, and to serve as laboratories of successful educational practice. 

Page 29 GAO-09-253 FCC’s E-rate Program 
 

average rate (90 percent), and charter schools,50 vocational schools, and 

special education schools all participate at lower than average rates (37 

percent, 52 percent, 41 percent, respectively). Private schools have a

participation rate of 13 percent, and library systems and library branches 

participate at a rate of 51 percent and 31 percent, respectively.

51 Figure 10

provides the number of participants and participation rates for public and 

private schools and library branches and systems. 

 50According to the U.S. Department of Education, charter schools are public schools that

operate with greater autonomy than many noncharter public schools. States vary in their

charter school laws, but, in general, these schools are exempted from many state 

regulations in exchange for explicit accountability for results, spelled out in the terms of

their charter or contract with a state-approved authorizing (i.e., oversight) agency. 

51FCC and USAC officials noted that the participation rate for private schools was lower 

than they expected. The data set we received from USAC listed 5,122 private schools that

applied for E-rate funding for funding year 2005; the data set we received from the 

Department of Education listing all private schools in the United States showed 29,752

private schools for the 2005-2006 school year. We were able to match 3,914 USAC schools 

with a school in the Department of Education database. We derived the private school 

participation rate by dividing the 3,914 matched schools by the 29,752 total private schools. 

Page 30 GAO-09-253 FCC’s E-rate Program 
 

Figure 10: Participation of Public Schools, Private Schools, and Libraries in the 

E-rate Program, by Number and Percentage, 2005 

0

20,000

40,000

60,000

80,000

100,000

120,000

Library

 systems

Library

 branches

Private

 schools

Public

schools

Number

Participants

Nonparticipants

Source: GAO analysis of USAC and Department of Education data.

83%

17%

87%

13%

31%

51%

49% 69%

In terms of characteristics, we found that participating public schools have 

a higher proportion of students eligible for the national school lunch 

program, averaging 45 percent, compared with nonparticipating public 

schools’ average of 36 percent. Participating private schools have more 

students per teacher (14.1) than nonparticipating private schools (11), but 

this ratio for public schools—16—is the same regardless of E-rate 

participation. Participating libraries tend to have more resources than 

those that do not participate. For example, on average, participating 

library systems have 18 full-time, paid staff members and operating 

revenues of $1.28 million, compared with nonparticipants’ average staff 

size of 11 and operating revenue of $816,000. Participating library systems 

also have larger service area populations, averaging about 37,000, than 

nonparticipating library systems, which average just under 26,000.

GAO-09-254SP, an electronic supplement to this report, provides 

additional details on the differences between participating and 

nonparticipating groups.

Page 31 GAO-09-253 FCC’s E-rate Program 
 

Through our analysis of responses from survey respondents who had not 

participated in the program every year, our interviews with a selection of

nonparticipating schools and libraries, and information obtained from 

beneficiary stakeholder groups, we identified a number of circumstances 

that influence nonparticipation. These circumstances may not be 

applicable for all entities that do not participate, but they provide some 

insight into issues that some nonparticipants are facing, particularly the 

following: 

• Burdensome nature of program participation. Among the six 

nonparticipants we spoke with and the comments we received from 

survey respondents, the predominant reason for nonparticipation was 

that the application process is too complex, takes too much time, or 

requires too many resources. Four of the six nonparticipants we spoke 

with—two libraries and two public schools—cited the difficult or 

cumbersome nature of the application process as a reason for not 

participating. Among 28 survey respondents who responded to an 

open-ended question on reasons for nonparticipation, 5 stated that the 

program is too complicated or difficult or that their staff did not have 

enough time for the required tasks; another 4 stated that the amount of 

time required to participate in the program was not worth the return. 

Another 5 respondents said they intended to apply for funding but 

missed an application deadline. Additionally, a 2007 survey of public 

libraries by the American Library Association (ALA) estimated that 38 

percent of libraries did not participate in E-rate because the application 

process is too complicated.52

• Internet filtering requirements. Public libraries may be reluctant to 

participate in E-rate because of the requirement that recipients of 

Internet access or Priority 2 funding install Internet content filters in 

accordance with the Children’s Internet Protection Act. Both of the 

nonparticipating libraries we spoke with cited this as a reason for 

nonparticipation, and ALA, based on responses to its survey, estimates 

that 34 percent of libraries do not apply for E-rate because of this 

requirement. One library official we spoke with said that Internet filters 

inhibit access to free and open communication. Additionally, according 

 52American Library Association and the College of Information’s Information Institute at 

Florida State University, Libraries Connect Communities: Public Library Funding and

Technology Access Study 2006-2007 (Chicago: Office for Research and Statistics, 2007). 

Estimates from the ALA survey are based on a sample, but GAO was not able to determine

the margin of error associated with this percentage. In the ALA survey, respondents were 

allowed to select more than one answer in response to the question on why they do not

participate; as a result, response categories total to more than 100 percent. 

Page 32 GAO-09-253 FCC’s E-rate Program 
 

to this official, if adult users want to access blocked information, 

library workers have to take the time to manually turn filters off and 

then back on, which creates an administrative burden. 

• Inability to prove discount percentage. As discussed previously, the 

primary mechanism participants use for calculating their discount rate 

is student eligibility for the National School Lunch Program. However, 

some private schools do not participate in this program and therefore 

use an alternative FCC-approved method, such as surveying families of 

children who attend the school to determine the family’s income. One 

nonparticipating private school we spoke with said it had been unable 

to collect this information because families may consider the 

information personal or sensitive and be reluctant to provide it. 

According to USAC officials, without this information, applicants are 

entitled to receive the lowest discount rate under the program—20 

percent. Representatives of the National Association of Independent 

Schools also noted the inability to prove discount percentages as one 

of the main reasons why private schools do not participate in E-rate. 

FCC has been aware for some years that a portion of eligible entities do 

not participate in the E-rate program. For example, in conducting research 

for our December 2000 report on the E-rate program, we learned from 

FCC officials that they had finalized a new performance plan for the E-rate 

program that included tactical goals for increasing participation by urban 

low-income school districts and rural school districts, as well as rural 

libraries and libraries serving small areas, all of which had below-average 

participation rates. During our 2005 review of the E-rate program, when 

we asked FCC officials about the plan, we were told that it had not been 

implemented and that none of the FCC staff currently working on E-rate 

were familiar with the plan. 

Most recently, FCC, in its 2007 report and order on the Universal Service 

Fund, directed USAC to contact a sample of the economically

disadvantaged schools and libraries that have not participated in the Erate program, determine why these schools and libraries do not 

participate, and assist them, if necessary, at the beginning of the 

application process.53 Although USAC has stepped up its outreach efforts, 

it has not taken steps specifically to target and assist nonparticipants. 

 53In the Matter of Federal-State Joint Board on Universal Service, Comprehensive Review

of the Universal Service Fund Management, Administration, and Oversight, Report and

Order, 22 FCC Rcd. 16372 (2007). 

Page 33 GAO-09-253 FCC’s E-rate Program 
 

Among the schools and libraries that received E-rate funding, we found 

that many believe program participation has generally gotten easier, rather 

than harder. We asked survey respondents whether they found 

participating in the E-rate program easier, more difficult, or about the 

same as in 2005. Of those who had been participating in the program since 

that time, we estimate that 15 percent find the program more difficult, with 

the remaining respondents evenly split between finding the program easier 

and finding it to be about the same.54 (See fig. 11.55) 

Participants’ Views of 

E-rate Requirements and 

USAC’s Data on Applicant 

Errors Highlight 

Difficulties 

Figure 11: Participants’ Views on Whether Participating in the E-rate Program Is 

Easier, More Difficult, or about the Same, Compared with 2005 

0

5

10

15

20

25

30

35

40

45

50

The

same

Easier

now

More

difficult

Percentage

Source: GAO.

Level

Confidence interval: displays the upper and lower bounds of the 95 percent confidence interval for

each estimate

While relatively few participants believe that the program has become 

more difficult, some aspects of the program pose difficulties for 

 54The 95 percent confidence interval for the estimate of participants who found 

participating in the E-rate program easier is from 38 percent to 48 percent; for those who

found participating about the same, the interval is from 38 percent to 47 percent. 

55Percentages and analyses are based on those expressing an opinion and exclude those 

indicating “don’t know or no experience within last 3 years.” 

Page 34 GAO-09-253 FCC’s E-rate Program 
 

participants. When we asked survey respondents about the ease or 

difficulty of specific aspects of program participation, we identified nine 

program elements that one-third or more of participants consider to be 

very or somewhat difficult, as shown in figure 12. 

Figure 12: Percentage of Participants That Find Program Elements Very or Somewhat Difficult 

Program element 

Percentage

Source: GAO.

0 10 20 30 40 50 60

Using committed funding within the

time allowed

Determining eligibility of locations

Calculating discount percentages

Receiving timely reimbursement

Working with service providers to

prepare requests for reimbursement

Entering information in USAC's

online forms

Preparing the Item 21 attachment

Complying with competitive bidding

requirements

Determining the eligibility of

products/services

Participating in application review

Participating in selective review

The overall process of applying

for funding

Preparing service substitution

requests

Cost-allocating products, services,

or locations

Preparing the technology plan

Preparing appeals of funding

decisions

Percentage of beneficiaries that find the requirement very or somewhat difficult

Confidence interval: displays the upper and lower bounds of the 95 percent confidence

interval for each estimate

Note: The Item 21 attachment is a required part of the application for funding in which applicants 

describe, in detail, the services for which they are requesting funding. 

Page 35 GAO-09-253 FCC’s E-rate Program 
 

Several of the program elements identified by participants as difficult 

relate to the application process, including preparing the technology plan 

and allocating costs by use or location. Notably, a program element found 

to be among the most difficult was the overall process of preparing the 

application for funding. The question we asked on the overall process 

encompassed such elements as determining the eligibility of products and 

services and complying with competitive bidding requirements. 

Participating in the selective review process was found to be difficult by 39 

percent56 of the participants who had experience with this process. 

Additionally, of participants who had knowledge or experience with 

preparing appeals of funding decisions, 53 percent

57 found this aspect of 

the program to be difficult, making it the most difficult element, according 

to our survey responses.58

A number of survey respondents provided comments indicating that 

although individual program elements may not be overly difficult or time 

consuming, having such a large number of requirements to fulfill causes 

difficulty. Comments included the following: 

• “[The E-rate program is] very complex, lots of steps, lots of time lines 

to keep track of. A very labor intensive process.” 

• “I can’t stress enough the amount of time that it takes to do E-rate 

work. It is not just the applications, but the work-load required for the 

[application] reviews has been very high.” 

• “E-rate has been making the process simpler and easier to file the past 

few years. It is still a very exhausting process to ensure everything has 

been done correctly. It seems no matter what precautions you take, 

errors still exist.” 

Also illustrative of the extent to which applicants have difficulty 

navigating program rules is the rate of funding denials due to applicant

error. Each year, applicant errors account for the denial of a substantial 

 56The 95 percent confidence interval for this estimate is from 34 percent to 44 percent.

57The 95 percent confidence interval for this estimate is from 47 percent to 59 percent.

58Based on our survey, we estimate that 57 percent of participants have experience with the 

appeals process. 

Page 36 GAO-09-253 FCC’s E-rate Program 
 

amount of E-rate funding.

59 Of the approximately $33 billion in funding that 

was requested between 1998 and 2007 but that did not result in a funding 

commitment, about 23 percent was denied because applicants did not 

correctly carry out application procedures.60 However, the proportion of 

funding denied due to applicant error declined from 31 percent in 2002 to 4 

percent in 2007. 

FCC’s Office of Inspector General has examined participant 

noncompliance with program rules and, in 2008, reported that such 

noncompliance puts the E-rate program at risk of significant improper 

payments.61 The Inspector General audited funding requests from 260 Erate participants that received funding in 2007 and found that two of the 

most frequently identified types of noncompliance resulting in improper 

payments were disregarding FCC program rules and inadequate 

documentation62 USAC noted that in the cases of noncompliance 

attributable to lack of documentation, there may not be actual

noncompliance with the requirements. 

A number of resources exist to help participants successfully complete 

program requirements, both through USAC and through other sources. We 

asked survey respondents about the usefulness of a number of these 

resources, as shown in figure 13. The resource most frequently cited as 

useful was paid consultants, with an estimated 79 percent of respondents63

 59Denials can take the form of total funding denials, in which case no funding is awarded,

or partial funding denials, in which a commitment is made that is less than the amount of 

funding that was requested. 

60Other causes of funding requests not resulting in commitments include, for example, 

reductions in the amounts originally requested and, in the case of applications for Priority 2 

services, applicants’ discount rate not falling within the discount percentage range. 

61The Improper Payment Information Act of 2002 requires federal executive branch

agencies to review all programs and activities, identify those that may be susceptible to 

significant improper payments, estimate and report the annual amount of improper 

payments for those programs, and implement actions to cost-effectively reduce improper 

payments. In implementing guidance, OMB defines significant improper payments as those 

that exceed both 2.5 percent of program payments and $10 million in 1 year. Pub.L. No. 107-

300., 116 Stat 2350 (Nov. 26, 2002). 

62FCC Office of Inspector General, Statistical Analysis of Audits of Universal Service

Schools & Libraries Fund (Washington, D.C., Dec. 12, 2008). 

63The 95 percent confidence interval for this estimate is from 72 percent to 86 percent.

Page 37 GAO-09-253 FCC’s E-rate Program 
 

who expressed an opinion64 viewing this resource as very or extremely 

useful. We also found, however, that the use of a consultant had little 

impact on the reported ease or difficulty of completing required program 

elements. Other resources found to be most useful were state E-rate 

coordinators65 (67 percent

66), USAC’s help desk (61 percent67), and USAC’s 

training seminars (57 percent68). Notably, for two of the resources 

applicants found most useful—USAC’s help desk and state E-rate 

coordinators—a substantial percentage of participants—25 percent and 31

percent respectively—responded “do not know/do not use,” indicating that 

sufficient outreach may not have been made to inform applicants of these 

resources. 

 64According to our survey, we estimate that about one-quarter of E-rate participants use the

services of a paid consultant.

65State E-rate coordinators are typically state employees who serve as a resource to

applicants in their state. Services that E-rate coordinators provide vary from state to state

but include validating applicants’ technology plans and providing program training. 

66The 95 percent confidence interval for this estimate is from 62 percent to 72 percent.

67The 95 percent confidence interval for this estimate is from 56 percent to 66 percent.

68The 95 percent confidence interval for this estimate is from 51 percent to 64 percent.

Page 38 GAO-09-253 FCC’s E-rate Program 
 

Figure 13: E-rate Resources Rated Extremely Useful or Very Useful by Participants 

0 10 20 30 40 50 60 70 80 90 100

Guidance from U.S. Departmen of Education

FCC rules and orders

Guidance from the Institute of Museum & Library Services

Web sites of E-rate consulting firms

Service providers

Helping applicants to succeed visits

USAC's weekly e-mail newsletter

School and library associations

Guidance provided on USAC's Web site

USAC employees that review applications for funding

Search tools on USAC's Web site

USAC's training seminars

USAC's help desk

State E-rate coordinators

Paid consultants

Resource

Percentage of beneficiaries who find resource very or extremely useful

Source: GAO.

Confidence interval: displays the upper and lower bounds of the 95 percent confidence interval for

each estimate.

Page 39 GAO-09-253 FCC’s E-rate Program 
 

In recent years, FCC and USAC have made changes intended to ease the 

process of participation for eligible schools and libraries, including the 

following: 

• In response to FCC’s finding that a significant number of applications 

for E-rate funding were being denied for administrative, clerical, or 

procedural errors, FCC adopted the Bishop Perry order in May 2006,

which stated that USAC must provide all E-rate applicants with an 

opportunity to cure clerical errors and errors related to FCC rules and 

orders in their applications.69 FCC and USAC officials told us that the 

increased outreach between application reviewers and applicants that 

the order directed has made a substantial difference in the rate of 

funding denials. 

FCC and USAC Have 

Taken Steps to Ease the 

Process for E-rate 

Applicants and Continue to 

Consider Program 

Improvements 

• USAC has increased beneficiary education and outreach efforts by, for 

example, increasing the number and location of training sessions it 

provides each fall. USAC officials also told us that they intend to

increase the number of staff members dedicated to applicant outreach. 

• USAC has increased the number of program elements that can be 

completed online and has revamped the templates that application 

reviewers use to communicate with applicants to make them easier for 

individuals without technical backgrounds to understand. 

FCC issued a Notice of Proposed Rulemaking (NPRM) in 2005 to broadly 

examine many aspects of the Universal Service Fund, including the E-rate

program.70 Although this proceeding has been continuing for well more 

than 3 years, some matters remain open, including ways to improve the 

administration of the application process for E-rate funding. It is unclear 

when FCC will take final action on these matters.71 We reviewed comments 

submitted in response to the NPRM’s request for possible program 

 69In the Matter of Request for Review of the Decision of the Universal Service 

Administrator by Bishop Perry Middle School New Orleans, LA, et. al., 21 FCC Rcd. 5316 

(2006). 

70In the Matter of Comprehensive Review of Universal Service Fund Management, 

Administration, and Oversight, Notice of Proposed Rulemaking and Further Notice of

Proposed Rulemaking, 20 FCC Rcd 11308 (2005). 

71We reported in 2007 on FCC’s rule-making process, noting that dockets may remain open 

for a number of reasons—for instance, that the docket was intended to be broad with

multiple rule makings, that other rule makings take precedence, and that the number of 

staff available to work on rule makings is limited. See GAO, Telecommunications: FCC 

Should Take Steps to Ensure Equal Access to Rulemaking Information, GAO-07-1046 

(Washington, D.C.: Sept. 6, 2008). 

Page 40 GAO-09-253 FCC’s E-rate Program 
 

improvements to determine what improvements were most commonly 

suggested and why. We then included questions in our survey to obtain 

participants’ views on whether they favor or oppose these improvements. 

Figure 14 shows the changes that were strongly or somewhat favored by

more than half of participants. The improvements most favored by 

participants—each was favored by more than four out of five 

participants—are as follows: 

• Enable applicants to go online to update their applications, make 

service substitutions, correct service provider identification numbers, 

change providers, and cancel or reduce funding. 

• Streamline the application for Priority 1 services. 

• Allow the use of a multiyear application for Priority 1 services. 

• Establish set dates for submitting the application form. 

Page 41 GAO-09-253 FCC’s E-rate Program 
 

Figure 14: Changes to the E-rate Program Strongly or Somewhat Favored by More Than Half of Participants

0 10 20 30 40 50 60 70 80 90 100

Increase training of employees who review applications

Create an advisory panel to USAC consisting of practitioners

experienced with the E-rate application process

Reimburse beneficiaries directly for discounted portion

Establish set dates for submission of the funding application

Allow the use of a multi-year application for Priority 1 services

Streamline the application for Priority 1 services

Enable applicants to go online to update applications, make service

substitutions, change providers, and cancel or reduce funding

Suggested change

Percentage 

Source: GAO. 

Confidence interval: displays the upper and lower bounds of the 95 percent confidence interval

for each estimate.

FCC continues to consider comprehensive Universal Service Fund

reform proposals raised in, or in res

(USF)

ponse to, the 2005 NPRM, including 

ways to simplify the E-rate program; additionally, FCC issued a notice of 

quiry in September 2008 to obtain new and refined information from 

nd

abuse. We agree that FCC should not simplify the program at the expense 

 

in

commenters on how to strengthen the management, administration, a

oversight of USF programs.72 FCC officials told us in November 2008 that 

while they will consider commenters’ suggestions on streamlining the Erate program, they cannot simplify the program if doing so would weaken

internal controls aimed at preventing and detecting waste, fraud, and 

72FCC, In the Matter of Comprehensive Review of the Universal Service Fund

Management, Administration, and Oversight, Notice of Inquiry, 23 FCC Rcd. 13583

(2008). 

Page 42 GAO-09-253 FCC’s E-rate Program 
 

of a robust system of internal controls but continue to believe that FCC 

needs to take action to improve the program rather than simply continuing 

to gather data. 

ccording to FCC officials, the E-rate program operates under the 

Universal Service Fund’s broad goal of providing telecommunications 

ervices to all Americans, but there are no specific goals for the E-rate 

program. Performance goals and measures are particularly important for 

e E-Rate program, as they could help the agency make well-informed 

decisions about how to address the trends described earlier. In 1998, we 

rst recommended that FCC develop specific performance goals and 

measures for the E-rate program; however, although the agency developed 

uch goals and measures for 3 fiscal years since that time, these goals and

measures were inadequate, and FCC currently has no goals. In 2007, FCC 

ut

successful performance measures. 

me in ac

an blish

E-rate program, FCC has taken 

steps in this direction but still has not successfully met this fundamental 

lts-o t. Tabl on

omme o

FCC Lacks 

Performance Goals 

for E-rate Program, 

and Recently Adopted 

Performance 

Measures Are 

Inadequate 

Develop Performan

Goals and Measure

the E-rate Program, but 

H cc

A

s

th

fi

s

adopted two types of performance measures for the E-rate program, b

these measures fall short when compared with characteristics of 

Since our first recom

Government Perform

performance goals and 

ndation in 1998 that,

ce and Results Act of 1993

measures for the

cordance with the 

(GPRA), FCC esta

requirement of resu

our past findings related

measures, our rec

riented managemen

to the E-rate program’s p

ndations, and FCC’s resp

e 2 provides details

erformance goals and

nses.

FCC Has Made Efforts to

ce

s for

as Not Been Su essful

Page 43 GAO-09-253 FCC’s E-rate Program 
 

Table 2: Summary of Past GAO Findings and Recommendations on E-rate Performance Goals and Measures and FCC’s 

Response 

Year/GAO report number GAO findings Recommendation

FCC response to 

recommendation

1998/GAO/T-RCED-98-243 FCC did not pro

goals, performa

levels of perfor

program, as GP See p. 15.) libraries program. measures to address it. 

vide specific strategic 

nce measures, or target 

mance for the E-rate 

RA requires. (

FCC should develop 

performance goals and 

measures for the schools and

FCC responded that our 

recommendation was 

reasonable and took 

1999/GAO/RCED-99-51 FCC still failed

goals, performa

for the E-rate p

to provide well-defined 

nce targets, and measures 

rogram. (See p. 13.) 

We reiterated that the 

recommendation we made in 

1998 for the development of 

performance goals and 

measures still needed 

implementation. 

FCC responded that it 

recognized the importance 

of our recommendation and 

intended to address it, but

the agency did not indicate 

when it would do so. 

2000/GAO-01-105 After some fals

performance go

E-rate program

e starts, FCC developed 

als and measures for the 

. (See pp. 33-34.) 

Not applicable. Not applicable.

2005/GAO-05-151 The goals and 

fiscal years 200

measured conn

were not useful in assessing the impact of 

E-rate program

did not consiste

the two other m

groups—librarie

(See pp. 20-22

CC establish performance 

goals and measures for the 

recommendation, noting that 

it was already taking steps 

measures that FCC set for 

0 through 2002, which 

ectivity in public schools, 

For the second time in 7 

years, we recommended that 

F

FCC responded that it 

concurred with our 

 funding. In addition, FCC 

ntly set annual goals for 

ajor E-rate beneficiary 

s and private schools. 

.)

E-rate program, consistent 

with GPRA. 

to address the 

recommendation. 

Source: GAO.

In response to our 1998 recommendation that it should develop 

performance goals and measures, FCC included goals and measures in its 

annual performance reports, as GPRA required, for 3 fiscal years. But we

determined that FCC’s goals and measures were not meaningful. For 

instance, in 1999 FCC set an annual performance goal of ensuring tha

percent of eligible schools and libraries would have Internet access by th

end of fiscal year 2000, even though at that time well over 30 percent

t 30

e

of

schools and libraries were already connected to the Internet. Further, FCC 

has not included annual performance goals in its performance reports 

since 2002. 

each of the Universal Service Fund 

We reiterated our recommendation in 2005, and FCC, in response, issued 

an NPRM in which it sought comments on establishing useful outcome, 

output, and efficiency measures for 

Page 44 GAO-09-253 FCC’s E-rate Program 
 

(USF) programs, including the E-rate program.73 After reviewing commen

submitted in response to the 2005 NPRM, FCC in August 2007 issued an 

order in which it adopted performance measures for the E-rate program,

although as we

ts

discuss below, these measures lack key characteristics of 

successful performance measures.74 In the order, FCC said it anticipated 

,

when

CC has the authority to terminate or 

significantly modify the USF programs. Subsequently, in January 2009, 

CC officials told us that the commission chairman at that time had 

d

ld

t

adopting performance goals as it and USAC gained experience with the 

performance measures. 

When we met with FCC in November 2008 for a status update on their 

plans for establishing performance goals, officials did not have a clear 

timeline for establishing such goals, but FCC had issued a notice of inquiry

in September 2008, as mentioned earlier, to obtain further stakeholder

comments on performance goals and measures for the USF programs

among other things. The notice sought comment on whether FCC should 

establish additional performance goals and measures, whether FCC has 

the authority to set long-term goals for the USF programs, and if and

long-term goals are met, whether F

F

circulated a draft NPRM on the E-rate program addressing performance 

measures, data collection, approaches for distributing funding, and 

allowed uses of the funding.75 However, even if the commission adopte

the NPRM, this would not by itself establish performance goals but wou

instead present the commission’s proposal and request for comment on 

the proposal. 

FCC’s efforts to date in establishing performance goals and measures have

progressed in a piecemeal manner, which indicates a lack of a coheren

vision for the E-rate program. As we note, FCC has issued several notices, 

often in response to our recommendations. In these notices, FCC seeks

 73According to the Office of Management and Budget, output measures describe the level of 

a program’s activity, whereas outcome measures describe the intended result from carrying 

out a program or activity and efficiency measures capture a program’s ability to perform its 

d

on circulation on January 7, 2009, under docket number WCB 

f the 

ed

g. Items under circulation are not publicly available. 

function and achieve its intended results. 

74In the Matter of Federal-State Joint Board on Universal Service, Comprehensive Review

of the Universal Service Fund Management, Administration, and Oversight, Report an

Order, 22 FCC Rcd. 16372 (2007). 

75The proposal was placed

02-6. FCC’s circulation process involves electronically sending written items to each o

commissioners for approval; if approved, the item will be issued as a notice of propos

rulemakin

Page 45 GAO-09-253 FCC’s E-rate Program 
 

stakeholder comment on proposals for performance goals and measur

for the E-rate program and, in some cases, repeatedly seeks commen

the same topic. This pattern indicates that FCC does not have a clear 

strategic vision for what it intends the E-rate program to accomplish 

within the broad statutory framework provided by Congress; for examp

how can the E-rate program best serve schools and libraries? A cohe

strategic vision for the E-rate progr

es

t on

le,

rent

am could lead to more effective 

performance goals and measures. 

ures

r

r of

hese

services. According to FCC, the collection of these data—once analyzed 

,

C

C

t data would be used, in 

part, as one element of a performance-based evaluation and compensation 

program for USAC’s executives.78 FCC officials told us that these data 

would also be used to publicly demonstrate USAC’s performance in

 

In its August 2007 order, FCC adopted two types of performance meas

for the E-rate program—one for Internet connectivity and the other fo

application processing.76 This order required that USAC measure, and 

report to FCC annually, data from program participants on broadband

connections provided to program participants, including the numbe

buildings served by broadband services and the bandwidth of t

collectively—will allow the agency to determine how the E-rate program 

can better meet the needs of applicants. With respect to performance 

measures for application processing, the order required that USAC collect

and annually report to FCC, performance data on a number of specific 

output measures, including the number of applicants served and the 

discount rate they received, and average dollar amount awarded per

funding request number.77 A memorandum of understanding between FC

and USAC also requires USAC to report to FCC on performance data

relative to funding applications. Subsequent to the 2007 order, FC

determined that the performance measuremen

implementing the E-rate program. 

 

The Performance 

Measures That FCC 

Adopted for the E-rate 

Program Lack Key 

Characteristics of 

Successful Performance 

Measures 

76See 22 FCC Rcd 16372. 

77USAC assigns funding request numbers to individual funding requests submitted on

applications for funding; funding request numbers are used to track the status of the 

request. 

78Other elements of USAC’s executive compensation program include the speed with which

customer complaints are resolved and the success with which recommendations from

financial statement audits are implemented. 

Page 46 GAO-09-253 FCC’s E-rate Program 
 

In addition to the performance measurements specific to the E-rate 

gram, the 2007 order sets forth performance measures applicable to th

inistration of the Universal Service Fund programs, including the 

uracy of billing and disbursements, administrative costs, and the 

ount of improper payments that are recovered, among other th

morandum of understanding further describes the data USAC is to 

lect related to these administrative performance measures and 

itionally describes service quality performance measures.

pro e 

adm

acc

am ings. The 

me

col

add

to on the 

E-r d

wit our

pas

per

add

inf

cha

dev

•

t FCC

es not

riate measures for results. 

 

79

While FCC’s efforts to develop performance measures have the potential

eventually produce better information than is currently available

ate program’s performance, these measures fall short when compare

h the key characteristics of successful performance measures. In

t work, we have found that agencies that are successful in measuring 

formance strive to establish measures that demonstrate results, 

ress important aspects of program performance, and provide useful

ormation for decision making.80 Following is a discussion of these 

racteristics and the extent to which FCC has fulfilled them in 

eloping measures for E-rate performance. 

Measures should be tied to goals and demonstrate the degree to which 

the desired results are achieved. These program goals should in turn 

be linked to the overall agency goals. However, the measures tha

has adopted are not based on such linkage because the agency do

currently have performance goals for the E-rate program. By 

establishing performance measures before establishing the specific 

goals it seeks to achieve through the E-rate program, FCC may waste 

valuable time and resources collecting the wrong data and,

consequently, not develop the most approp

 79Se o

pro

det

80Se

Enf

23,

Usefulness to Decisionmakers, GAO/GGD/AIMD-99-69 (Washington, D.C.: Feb. 26, 1999);

and Executive Guide: Effectively Implementing the Government Performance and

Results Act, GAO/GGD-96-118 (Washington, D.C.: June 1996). We have also identified 

, GAO-03-143 (Washington, D.C.: Nov. 22, 2002). 

rvice quality performance measures include requirements that USAC provide notice t

gram stakeholders of how to file complaints with USAC and track all complaints to 

ermine the response time for each. 

e, for example, GAO, Pipeline Safety: Management of the Office of Pipeline Safety’s

orcement Program Needs Further Strengthening, GAO-04-801 (Washington, D.C.: July

2004); Agency Performance Plans: Examples of Practices That Can Improve 

specific attributes of successful performance measures linked to these characteristics. See 

GAO, Tax Administration: IRS Needs to Further Refine Its Tax Filing Season 

Performance Measures

Page 47 GAO-09-253 FCC’s E-rate Program 
 

• ce.

sess

accomplishments, make decisions, realign processes, and assign 

accountability without having an excess of data that could obscure 

rather than clarify performance issues. Also, performance measures 

es

lso

hese

data, combined with the absence of specific program goals, raises 

ures. 

 

Measures should address important aspects of program performan

For each program goal, a few performance measures should be 

selected that cover key performance dimensions and take different 

priorities into account. For example, limiting measures to core 

program activities enables managers and other stakeholders to as

should cover key governmentwide priorities—such as quality, 

timeliness, and customer satisfaction. The two types of performance

measures that FCC adopted appear to address certain key performance

dimensions—particularly because the connectivity measure centers on

the program’s statutory goal of providing eligible schools and librari

with access to advanced telecommunications services, and, by

selecting just two types of measures, there are fewer chances of 

obscuring the most important performance issues. The measures a

appear to take into account such priorities as timeliness and customer 

satisfaction. However, again, without first setting specific performance

goals for the E-rate program, FCC cannot be sure it has adopted the

most appropriate performance measures. 

• Measures should provide useful information for decision making. 

Performance measures should provide managers with timely, actionoriented information in a format that helps them make decisions that 

improve program performance.81 According to FCC officials, the 

application-processing data that FCC is currently requiring USAC to 

collect will be used in making compensation decisions for USAC 

executives, and it will also be available in USAC’s annual report to 

provide the general public with information on E-rate’s performance in 

this regard. However, the application-processing data are output, not 

outcome, oriented, and the intended uses of the data do not include 

such program-management activities as allocating resources or 

adopting new program approaches if needed. The limited use of t

concern about the effectiveness of these performance meas

81See, for example, GAO/GGD-96-118 and GAO, Results-Oriented Government: GPRA Has 

Established a Solid Foundation for Achieving Greater Results, GAO-04-38 (Washington,

D.C.: Mar. 10, 2004). 

Page 48 GAO-09-253 FCC’s E-rate Program 
 

Page 49 GAO-09-253 FCC’s E-rate Program 

In the Telecommunications Act of 1996, Congress said that access to 

advanced telecommunications for schools and libraries was one of the 

principles for the preservation and advancement of universal service.82 In 

managing the E-rate program, FCC has been guided by how well the 

program meets the broad, overarching goal of universal service, rather 

than strategic goals specific to the E-rate program. After 12 years of 

program operations and committing more than $20 billion in funding 

awards, FCC has not developed adequate performance goals and measures 

for the E-rate program. Because we have repeatedly identified the lack of 

adequate performance goals and measures as a weakness in the E-rate 

program, we reiterate our 2005 recommendation that FCC define annual, 

outcome-oriented performance goals for the E-rate program that are 

linked to the overarching goal of providing universal service. Moreover, 

we have identified several trends that raise questions about the direction 

of the program. Is it in the national interest, in an increasingly broadbandoriented world, that a substantial and growing portion of commitments is 

for telecommunications services such as local and cellular telephone 

service? Does the program’s high participation rate among public schools, 

but lower participation rate among private schools and libraries, lead to an 

acceptable distribution of E-rate funding among eligible entities? Without 

a strategic vision for the program, and accompanying performance goals 

and measures, it is difficult for FCC to make informed decisions about the 

future of the program and more effectively target available funding. 

Additionally, we have previously identified the program’s low 

disbursement rate as an area of concern. In response to a previous 

recommendation, FCC took steps to increase the disbursement rate. 

However, we found that the disbursement rate has not increased and a 

substantial amount of committed funding is not disbursed. In the current 

E-rate environment, where requests for funding consistently exceed the 

annual funding cap, many applicants seeking support for Priority 2 

services are denied funding, yet a significant amount of funding committed 

to applicants is not disbursed. If applications and commitments more 

closely tracked disbursements—that is, if the disbursement rate were 

higher—some applicants who were denied funding might have received 

funding for internal connection projects. Moreover, in light of the nation’s 

current fiscal constraints, it is appropriate to make the most effective 

possible use of available E-rate funding by minimizing the amounts of 

committed funds that are not disbursed. 

 8247 U.S.C. § 254(b)(6). 

Conclusions 
 

Page 50 GAO-09-253 FCC’s E-rate Program 

To better provide a foundation for effective management of the E-rate 

program and to ensure that program funds are used efficiently and in a 

manner to support desired program outcomes, we recommend that the 

Federal Communications Commission take the following two actions: 

• Review the purpose and structure of the E-rate program and prepare a 

report to the appropriate congressional committees identifying FCC’s 

strategic vision for the program; this report should include the 

program’s long-term goals, whether the vision can be achieved using 

the existing program structure (e.g., the priority rules and discount 

matrix), and whether legislative or regulatory changes are necessary. 

• Provide information in its annual performance plan on 

• the amount of undisbursed funding associated with commitments 

that have expired and why these funds were not disbursed, and 

• the actions taken to reduce the amount of undisbursed funding and 

the outcomes associated with these actions. 

We provided a draft of this report to FCC and USAC for their review and 

comment. FCC and USAC provided technical comments that we 

incorporated, where appropriate. 

In its comments, FCC reiterated the status of its performance goals and 

measures, as well as the disbursement rate. In particular, FCC noted that it 

identified goals for the E-rate program when it first adopted the program 

and recently requested comment on establishing new goals. Further, FCC 

noted that its performance measures do, or will, meet the three 

characteristics of successful measures that we identified. We acknowledge 

the efforts FCC has made to date and recognize the successes of the E-rate 

program that FCC identified in its letter. However, these efforts are not 

consistent with successful performance goals and measures. For example, 

agencies should establish explicit performance goals and measures, use 

intermediate goals and measures to illustrate progress, and identify 

projected target levels of performance for multiyear goals. Establishing 

effective performance goals and measures will help FCC guide the E-rate 

program. Finally, FCC noted that it has taken action to address the 

disbursement rate and that our analysis may inaccurately portray a 

decrease in the disbursement rate since disbursements typically occur 

over several years and therefore the disbursement rate in the first few 

years after commitments are made will be lower than in later years. We 

agree that the disbursement rate in the first few years could be lower than 

in later years. However, the disbursement rate for every funding year 

Recommendations for 

Executive Action 

Agency Comments 

and Our Evaluation 
 

Page 51 GAO-09-253 FCC’s E-rate Program 

(including 2001 through 2004) remains less than the rate in 2000, when we 

made our initial recommendation on this issue. Thus, we modified the text 

to note that the disbursement rate remains low but is not necessarily 

decreasing. FCC’s full comments and our responses appear in appendix II. 

In its comments, USAC noted that it stands ready to work with FCC in 

developing and reporting additional performance goals and measures. 

USAC also noted that it is aware of committed funds going unused but that 

funding years 2005, 2006, and 2007 remain open, implying that the 

disbursement rate could increase. It further noted that the gap between 

commitments and disbursements is attributable more to the structure of 

the program than to USAC’s administration of the program. We agree that 

the disbursement rate associated with commitments made in 2005 through 

2007 may increase, but, as mentioned above, the disbursement rate for 

every funding year remains less than the rate in 2000, when we made our 

initial recommendation. Lastly, USAC noted that it intends to evaluate the 

participant survey data to determine whether it can devise strategies to 

improve program participation. USAC’s full comments and our responses 

appear in appendix III. 

As agreed with your offices, unless you publicly announce the contents of 

this report earlier, we plan no further distribution until 30 days from the 

report date. At that time, we will send copies to the appropriate 

congressional committees, the Chairman of the Federal Communications 

Commission, and the Chairman of the Universal Service Administrative 

Company. In addition, the report will be available at no charge on the GAO 

Web site at http://www.gao.gov. 

If you have any questions about this report, please contact me at 

(202) 512-2834 or goldsteinm@gao.gov. Contact points for our Offices of 

Congressional Relations and Public Affairs may be found on the last page 

of this report. Major contributors to this report are listed in appendix IV. 

Mark L. Goldstein 

Mark. L. Goldstein 

Director, Physical Infrastructure 
Appendix I: 

Methodology 

Objectives, Scope, and 

Page 52 GAO-09-253 FCC’s E-rate Program 

Appendix I: Objectives, Scope, and 

Methodology 

Our objectives were to address the following questions: (1) What are key 

trends in the demand for and use of E-rate funding and what are the 

implications of these trends? (2) To what extent do eligible entities apply 

for E-rate funds, how well do applicants navigate the E-rate program’s 

requirements, and what steps is the Federal Communications Commission 

(FCC) taking to facilitate program participation? (3) What are FCC’s 

performance goals and measures for the E-rate program, and how do they 

compare to key characteristics of successful goals and measures? 

The following sections describe the various procedures we undertook to 

answer these objectives. In addition, we conducted the following 

background research that helped inform each of our reporting objectives. 

We reviewed prior GAO reports on E-rate, FCC’s Universal Service 

Monitoring Reports on the E-rate program, and documentation from FCC 

and the Universal Service Administrative Company (USAC) on the 

structure and operation of the E-rate program. We interviewed officials 

from FCC’s Office of Managing Director, Office of Inspector General, and 

Wireline Competition Bureau to identify actions undertaken to address 

previously identified problems and plans to address issues of concern in 

the program; and officials from USAC’s Schools and Libraries Division, 

Office of General Counsel, and Office of Finance to collect information on 

program operations and USAC’s actions to implement prior FCC orders on

E-rate. We also interviewed representatives of E-rate stakeholder groups, 

including the U.S. Bureau of Indian Education, the Council of Great City 

Schools, the National Association of Independent Schools, the American 

Library Association, the Education and Library Networks Coalition, the 

State E-rate Coordinators Alliance, and the E-rate Service Provider 

Association, as well as individual school districts, libraries, and 

telecommunications companies. 

Analysis of E-rate Program 

Data 

To determine trends in the demand for and use of E-rate funding, we 

obtained data from the Streamlined Tracking and Application Review 

System (STARS), which is used to process applications for funding and 

track information collected during the application review process. When 

analyzing and reporting on the data we took the limitations on how data 

can be manipulated and retrieved from STARS into consideration since 

this system was designed to process applications and not to be a data

retrieval system. We assessed the reliability of the data by questioning 

officials about controls on access to the system and data back-up 

procedures; additionally, we reviewed the data sets provided to us for 

obvious errors and inconsistencies. Based on this assessment, we 
Appendix I: Objectives, Scope, and 

Methodology 

determined that the data were sufficiently reliable to describe broad 

trends in the demand for and use of E-rate funding. 

We obtained the following data—including annual and cumulative 

figures—for funding years 1998 through 2007:1

• the number and characteristics of applicants, including their entity 

type, discount level, and location; 

• dollar amounts of funding requests, commitments, denials, and 

disbursements, by service category;

• dollar amounts of individual funding requests, commitments, and 

disbursements, for each applicant for each funding year; and

• reasons accounting for funding requests not being granted, by dollar 

amount and by service category. 

In order to provide these data, USAC’s subcontractor, Solix, performed 

queries on the system and provided the resulting reports to us between 

April 2008 and December 2008. Data from the STARS system can change

on a daily basis as USAC processes applications for funding and 

reimbursement, applicants request adjustments to requested or committed 

amounts, and other actions are taken. As a result, the data we obtained 

and reported on reflect the amounts at the time that Solix produced the 

data and may be somewhat different if we were to perform the same 

analyses with data produced at a later date. 

For the purposes of analyzing and reporting on the amounts of funding for 

telecommunications services, Internet access, and internal connections 

that were requested, committed, and disbursed, we collapsed the six 

service categories in USAC’s database into three categories, as shown in 

table 3. 

 1

We analyzed program requests, commitments, and disbursements on the basis of which 

funding year they were associated with rather than in which calendar year or fiscal year the 

action occurred. For instance, individual requests for funding year 2007 may have been

submitted in calendar year 2006, and individual commitments for funding year 2007 may

have been made in calendar year 2008. 

Page 53 GAO-09-253 FCC’s E-rate Program 
Appendix I: Objectives, Scope, and 

Methodology 

Table 3: Service Categories Used for Analysis and Reporting

Category used for analysis and

reporting Service categories in original USAC data

Telecommunications services Telecommunications services

Dedicated servicesa

Internal connections Internal connections 

Shared internal connectionsb

Internal connections maintenancec

Internet access Internet access

Sources: GAO and USAC. 

a

The dedicated services category was used only in funding years 1998 and 1999. 

The shared internal connections category was used only in funding years 1998 and 1999. 

Internal co

b

c nnections maintenance became a funding category in funding year 2005. 

Survey of E-rate 

Beneficiaries 

To obtain information on how well E-rate beneficiaries navigate the 

program’s requirements and procedures, the extent to which they use 

funds committed to them, and their views on how to improve the program, 

we conducted a Web-based survey of schools and libraries that participate 

in the E-rate program (see GAO-09-254SP). To develop the survey 

questionnaire, we reviewed existing studies about the program, including 

previous and ongoing GAO work, and interviewed stakeholder groups 

knowledgeable about the program and issues of concern to beneficiaries. 

We designed draft questionnaires in close collaboration with a GAO social 

science survey specialist. We conducted pretests with eight E-rate 

participants representing different types of applicants—schools, school 

districts, and libraries—and from rural and urban areas, to help further 

refine our questions, develop new questions, and clarify any ambiguous 

portions of the survey. We conducted these pretests in person and by 

telephone. 

We drew our survey sample from Form 471 applications for funding year 

2006 that received a commitment greater than zero dollars. For each such 

application, we obtained data from USAC that included the following: 

billed entity number (a USAC-assigned, unique identifier assigned to each 

applicant); entity type; whether the entity is located in an urban, rural, or 

mixed area; the amount of funds committed for Priority 1 services; and the 

amount of funds committed for internal connections. Based on these data,

we created three stratification variables: 

• Entity type. The four categories of entities eligible to apply for funding 

are school districts, schools, libraries, and educational consortia. 

Page 54 GAO-09-253 FCC’s E-rate Program 
Appendix I: Objectives, Scope, and 

Methodology 

Educational consortia—which can be made up of any combination of 

schools, school districts, and libraries—constituted less than 2.5 

percent of the applications in the data set we received and were treated

as out of scope for this survey. The remaining three entity types were 

therefore used for our first stratification variable.

• Urban/rural status. Applicants must report whether they are located in

a rural or urban area because this information is used to determine 

their discount level. Three percent of the applications were for entities 

located in a mixed urban-rural area; we excluded this category of 

applications as out of scope for this survey. The remaining cases were 

divided between urban and rural for our second stratification variable. 

• Priority level of funding. The third stratification variable was the 

priority level for the funding commitments made for each application. 

To control the funding priority in our sample, we divided the 

applications into those associated with beneficiaries that requested (1) 

only Priority 1 services funding, (2) only internal connections funding, 

and (3) both. We combined funding priority categories (2) and (3) for 

analysis of survey results. 

Analysis of the application data that we received revealed that many 

beneficiaries filed more than one application with USAC for funding year 

2006 and received funding commitments for these requests.2

 As a result, 

since our sample design was based on applications and not entities, some 

entities had more than one application selected. We sent these entities 

only one survey and weighted their responses accordingly. 

The number of applications in each of our sample strata and the sample 

size are shown in table 4. 

 2

USAC encourages applicants to file separate applications for Priority 1 and Priority 2. 

Page 55 GAO-09-253 FCC’s E-rate Program 
Appendix I: Objectives, Scope, and 

Methodology 

Table 4: Sample Design for Survey of E-rate Participants 

Stratum Entity type Urban/rural status Funding priority level Population size Sample size

1 School district Rural 1 8,164 155

2 School district Urban 1 7,297 139

3 Library Rural 1 1,766 34

4 Library Urban 1 2,082 40

5 School Rural 1 2,010 38

6 School Urban 1 3,837 73

7 School district Rural 2 141 20

8 School district Urban 2 62 20

9 Library Rural 2 7 7

10 Library Urban 2 9 9

11 School Rural 2 150 20

12 School Urban 2 260 20

13 School district Rural 3a1,778 34

14 School district Urban 3 1,603 30

15 Library Rural 3 83 20

16 Library Urban 3 80 20

17 School Rural 3 431 20

18 School Urban 3 1,191 23

Total 30,951 722

Source: GAO analysis of USAC data. 

a

Funding priority level 3 includes applications for both Priority 1 services and Priority 2 services. 

We used a proportional allocation to assign sample units to strata with an 

adjustment for strata that had small populations. If the proportional 

allocation was less than 20, we used either the total number of 

applications in the stratum if it was less than 20 or set the sample 

allocation at 20. The stratum sample sizes for our survey were determined 

to provide a 4 percent overall precision for an attribute measure at the 95

percent level of confidence. 

Our goal was to survey individuals who were responsible for completing 

E-rate-related tasks—such as preparing forms and responding to 

information requests—for each sampled entity. Our data set included the 

name and contact information for the individual listed as the contact on 

Form 471; we sent these individuals the survey. Because some entities 

employ a consultant to fill out their application and others use a regional 

Page 56 GAO-09-253 FCC’s E-rate Program 
Appendix I: Objectives, Scope, and 

Methodology 

or state official who is responsible for multiple entities’ applications, our 

sample included different entities that shared the same contact person. We

contacted these individuals to identify an alternate entity-specific contact 

to receive the survey. If no such alternate could be found, the original 

contact was sent one survey for each sample entity. We contacted such 

individuals to make arrangements for them to fill out the questions that 

pertained to all applications only once, then separately obtained the 

application-specific information for each of their surveys. A total of 697 

individuals received questionnaires for our sample of 722 Form 471 E-rate 

applications. The results from our sample are weighted to reflect the 

population of beneficiaries that use the E-rate program. 

We launched our Web-based survey on April 21, 2008, and closed the 

survey to responses on June 18, 2008. Log-in information was e-mailed to 

all sampled participants. We sent up to three follow-up e-mail messages to 

nonrespondents over the next 4 weeks. We then contacted by telephone 

those who had not completed the questionnaire. We received responses 

for 543 questionnaires, for an overall response rate of 78 percent. 

Because we followed a probability procedure based on random selections, 

our sample is only one of a large number of samples we might have drawn. 

Since each sample could have provided different estimates, we express 

our confidence in the precision of our particular sample’s results as a 95 

percent confidence interval (e.g., plus or minus 4 percentage points). This 

is the interval that would contain the actual population value for 95 

percent of the samples we could have drawn. 

In addition to sampling errors, the practical difficulties of conducting any 

survey may introduce nonsampling errors. For example, differences in 

how a particular question is interpreted, the sources of information 

available to respondents, or the types of people who do not respond can

introduce unwanted variability into the survey results. We included steps 

in both the data collection and data analysis stages to minimize such 

nonsampling errors. As indicated above, we collaborated with a GAO 

social science survey specialist to design draft questionnaires, and 

versions of the questionnaire were pretested with eight members of the 

surveyed population. In addition, we provided a draft of the questionnaire 

to FCC and USAC for their review and comment. From these pretests and 

reviews, we made revisions as necessary. We examined the survey results 

and performed computer analyses to identify inconsistencies and other 

indications of error. A second, independent analyst checked the accuracy 

of all computer analyses.

Page 57 GAO-09-253 FCC’s E-rate Program 
Appendix I: Objectives, Scope, and 

Methodology 

To determine the percentage of eligible entities that participate in the Erate program and the characteristics of program participants and 

nonparticipants, we performed a matching analysis using data from the 

Department of Education and USAC. We obtained three databases from 

the U.S. Department of Education’s National Center for Education 

Statistics (NCES): 

E-rate Participation 

Analysis 

• Common Core of Data (CCD). CCD is a program of NCES that 

annually collects data about all public schools, public school districts, 

and state education agencies in the United States. We used the most 

recent complete data set for individual public schools, which was for 

the 2005-2006 school year. 

• Private School Universe Survey (PSS). The target population for PSS 

consists of all private schools in the United States that meet the NCES 

definition of private schools. Data from the 2005-2006 school year were 

used. 

• Public Libraries Survey (PLS). PLS is designed as a universe survey 

and provides a national census of public libraries and their public 

service outlets, as well as data on these entities. Data from 2005 were 

used. 

We assessed the reliability of these data sets by (1) reviewing NCES’s 

technical and methodological reports on these studies and (2) examining 

the data for obvious inconsistencies. We determined that the data were 

sufficiently reliable to use as sources of summary statistics about program 

participants and nonparticipants. 

We also used data from USAC’s STARS system for the 2005 funding year.

USAC provided us with data on each entity that was included on 

applications for the 2005 funding year. We received two files from USAC—

one for schools and one for libraries—that included the entity’s name, 

NCES identification number,3

 address, city, state, and ZIP code. The 

school file also included information on whether each school was public 

or private; we used this information to separate public from private 

schools. We assessed the reliability of the STARS data system as discussed 

previously. Additionally, we examined the data set that we obtained for 

matching purposes to identify inconsistencies or obvious errors. We found 

 3

The NCES ID is a unique identifier assigned to all public schools. USAC collects this 

information on the Form 471 application for funding but does not validate the numbers that

applicants report. 

Page 58 GAO-09-253 FCC’s E-rate Program 
Appendix I: Objectives, Scope, and 

Methodology 

that some of the data fields were not fully completed. For example, there 

were a number of records with missing data, incomplete data, and 

incorrect NCES identification numbers. However, we concluded that the

incomplete nature of some of the records did not significantly affect our 

intended purpose of identifying program participants, and we therefore 

determined that the data were sufficiently reliable. 

We matched USAC’s public school data against CCD, USAC’s private 

school data against PSS, and USAC’s library data against the PLS from 

NCES. To identify which entities in the NCES data sets were E-rate 

participants, we used SAS, a statistical software application, to compare 

USAC records with NCES records, matching first on identification 

numbers, then on combinations of entity names, states, cities, ZIP codes 

and street addresses. When this procedure could find no exact match, we

used an SAS function that measures asymmetric spelling distance between 

words (SPEDIS), to determine the likelihood that entity names from the 

two data sets did match and to generate possible pairs of matching 

entities. The possible matches for an entity were written to a spreadsheet,

which we reviewed manually to select the best possible match. For both 

computerized and manual matches, we assessed a random sample of the 

matches to calculate error rates for the analysis. Based upon our sample 

results, we estimate the error rate for matching records between the USAC

and the Department of Education’s databases as 1.7 percentage points.4

Unless otherwise noted, all of the percentage estimates cited in the report,

which are based upon matching of entity records, have an overall error 

rate of 3.4 percentage points or less at the 95 percent level of confidence.

Having identified whether each entity in the NCES data sets participated in

the E-rate program, we then ran summary statistics on data fields of 

interest for the groups of participants and nonparticipants. 

Nonparticipant Interviews To better understand why eligible entities do not participate in the E-rate 

program, we obtained anecdotal, nongeneralizeable information through 

interviews with six nonparticipants. These entities included library 

systems, public school districts, and private schools and were located in 

both urban and rural areas. We identified nonparticipant interviewees by 

asking the State E-rate Coordinators Alliance for the names of schools that 

they knew did not participate and by searching in USAC’s online database 

 4

This estimate has a confidence interval from 0.3 percent to 3.4 percent at the 95 percent

level of confidence. 

Page 59 GAO-09-253 FCC’s E-rate Program 
Appendix I: Objectives, Scope, and 

Methodology 

of program participants for entities that were not listed has having applied 

for funding. We asked interviewees about their reasons for not 

participating in the E-rate program, potential future changes to the 

program that could result in their participaton, and sources of funding that

they use to pay for information technology and telecommunications 

expenses. 

Document Review and 

Interviews with FCC and 

USAC on Performance 

Goals and Measures 

We reviewed the Telecommunications Act of 1996 to determine what the

performance goals and measures for the E-rate program are and how the 

measures compare to key characteristics of successful performance 

measures. We then reviewed our past products and other literature on 

results-oriented management and effective practices for setting 

performance goals and measures. We compared this information to the 

program goals and measures that FCC set forth in agency 

documentation—including an order, proposed rulemaking, strategic plan,

and performance and accountability reports. We also reviewed the Office 

of Management and Budget’s Program Assessment Rating Tool 2003 report 

on the E-rate program’s effectiveness and its 2007 update to this report. In 

addition, we interviewed officials from FCC’s Wireline Competition 

Bureau, Office of Managing Director, and Office of Inspector General, and

officials from USAC to obtain their views on and plans to implement Erate performance goals and measures. 

We conducted this performance audit from July 2007 to March 2009 in 

accordance with generally accepted government auditing standards. Those 

standards require that we plan and perform the audit to obtain sufficient, 

appropriate evidence to provide a reasonable basis for our findings and 

conclusions based on our audit objectives. We believe that the evidence 

obtained provides a reasonable basis for our findings and conclusions 

based on our audit objectives. 

Page 60 GAO-09-253 FCC’s E-rate Program 
Appendix II: Comments from the Federal 

Communications Commission 

Page 61 GAO-09-253 FCC’s E-rate Program

Appendix II: Comments from the Federal 

Communications Commission 

Note: GAO comments 

supplementing those in 

the report text appear at 

the end of this appendix. 
Appendix II: Comments from the Federal 

Communications Commission 

See comment 1. 

See comment 2. 

Page 62 GAO-09-253 FCC’s E-rate Program
Appendix II: Comments from the Federal 

Communications Commission 

See comment 3. 

Page 63 GAO-09-253 FCC’s E-rate Program
Appendix II: Comments from the Federal 

Communications Commission 

Page 64 GAO-09-253 FCC’s E-rate Program
Appendix II: Comments from the Federal 

Communications Commission 

See comment 4. 

Page 65 GAO-09-253 FCC’s E-rate Program
Appendix II: Comments from the Federal 

Communications Commission 

The following are GAO’s comments on the Federal Communications 

Commission’s letter dated March 10, 2009. 

1. We acknowledge the efforts that FCC has made to develop

performance goals; however, the goals FCC identified are not 

consistent with successful performance goals. For example, agencies 

should establish explicit performance goals and measures, use 

intermediate goals and measures to illustrate progress, and identify 

projected target levels of performance for multiyear goals. 

GAO’s Comments 

2. We are not suggesting that the E-rate program may no longer serve an 

existing need; this was the conclusion of the Office of Management 

and Budget (OMB). Rather, we note that without performance goals, 

FCC does not have a basis on which to determine whether the growing 

emphasis on Priority 1 services is appropriate. We cite OMB’s 

conclusion to emphasize that effective performance goals would help 

FCC guide the E-rate program. 

3. We agree that FCC’s performance measures address one characteristic 

of successful measures—measures should address important aspects 

of program performance. However, FCC’s measures do not currently 

meet the remaining two characteristics, as FCC noted that the 

measures “will be tied to goals” and “will provide useful information to 

decision-making.” [emphasis added] 

4. We agree that the disbursement rate for more-recent funding years 

may increase due to applicants seeking extensions, which can take 

time to resolve. As a result, we modified the report to note that the 

disbursement rate remains low but is not necessarily decreasing. 

However, the disbursement rate for every funding year, including 2001 

through 2004, remains less than the rate in 2000 when we made our 

initial recommendation to address the low disbursement rate. 

Page 66 GAO-09-253 FCC’s E-rate Program
Appendix III: Comments from the Universal 

Service Administrative Company

Page 67 GAO-09-253 FCC’s E-rate Program

Appendix III: Comments from the Universal 

Service Administrative Company 

Note: GAO comments 

supplementing those in 

the report text appear at 

the end of this appendix. 
Appendix III: Comments from the Universal 

Service Administrative Company

Page 68 GAO-09-253 FCC’s E-rate Program
Appendix III: Comments from the Universal 

Service Administrative Company

Page 69 GAO-09-253 FCC’s E-rate Program
Appendix III: Comments from the Universal 

Service Administrative Company

See comment 1. 

See comment 2. 

Page 70 GAO-09-253 FCC’s E-rate Program
Appendix III: Comments from the Universal 

Service Administrative Company

Page 71 GAO-09-253 FCC’s E-rate Program
Appendix III: Comments from the Universal 

Service Administrative Company

Page 72 GAO-09-253 FCC’s E-rate Program
Appendix III: Comments from the Universal 

Service Administrative Company

Page 73 GAO-09-253 FCC’s E-rate Program
Appendix III: Comments from the Universal 

Service Administrative Company

Page 74 GAO-09-253 FCC’s E-rate Program
Appendix III: Comments from the Universal 

Service Administrative Company

The following are GAO’s comments on the Universal Service 

Administrative Company’s letter dated March 6, 2009. 

1. We agree that the disbursement rate for funding years 2005, 2006, and 

2007 may increase as applicants receive delivery of services and 

submit invoices. However, the disbursement rate for every funding 

year, including 2001 through 2004, remains less than the rate in 2000, 

when we made our initial recommendation to address the low 

disbursement rate. 

GAO’s Comments 

2. We are not suggesting that USAC’s administration of the E-rate 

program is a significant contributing factor to the low disbursement 

rate. Rather, we identify several factors that appear to contribute to 

the low disbursement rate, including the incentives inherent in the 

program. For example, we note that under current program rules, 

applicants have an incentive to overestimate costs for Priority 1 

services. These and other factors that we identify in the report likely 

contribute to the low disbursement rate. 

Page 75 GAO-09-253 FCC’s E-rate Program
Appendix IV: 

A

GAO Contact and Staff 

cknowledgments 

Page 76 GAO-09-253 FCC’s E-rate Program

Appendix IV: GAO Contact and Staff 

Acknowledgments 

Mark L. Goldstein, (202) 512-2834 or goldsteinm@gao.gov

In addition to the contact named above, Michael Clements and Faye 

Morrison, Assistant Directors; Eli Albagli; Carl Barden; Jennifer Clayborne; 

Elizabeth Curda; Abe Dymond; Elizabeth Eisenstadt; Michele Fejfar; 

Simon Galed; Heather Halliwell; Kristen Jones; Ying Long; John Mingus; 

Josh Ormond; Betty Ward-Zukerman; Mindi Weisenbloom; and Crystal 

Wesco made key contributions to this report. 

GAO Contact 

Staff 

Acknowledgments 
Related GAO Products 

Page 77 GAO-09-253 FCC’s E-rate Program

Related GAO Products 

Telecommunications: Greater Involvement Needed by FCC in the 

Management and Oversight of the E-Rate Program. GAO-05-151. 

Washington, D.C.: February 9, 2005. 

Schools and Libraries Program: Update on E-rate Funding. GAO-01-672. 

Washington, D.C.: May 11, 2001. 

Schools and Libraries Program: Update on State-Level Funding by 

Category of Service. GAO-01-673. Washington, D.C.: May 11, 2001. 

Schools and Libraries Program: Application and Invoice Review 

Procedures Need Strengthening. GAO-01-105. Washington, D.C.: 

December 15, 2000. 

Schools and Libraries Program: Actions Taken to Improve Operational 

Procedures Prior to Committing Funds. GAO/RCED-99-51. Washington, 

D.C.: March 5, 1999. 

Telecommunications and Information Technology: Federal Programs 

That Can Be Used to Fund Technology for Schools and Libraries.

GAO/T-HEHS-98-246. Washington, D.C.: September 16, 1998. 

Schools and Libraries Corporation: Actions Needed to Strengthen 

Program Integrity Operations before Committing Funds.

GAO/T-RCED-98-243. Washington, D.C.: July 16, 1998. 

Telecommunications: Court Challenges to FCC’s Universal Service Order

and Federal Support for Telecommunications for Schools and Libraries.

GAO/RCED/OGC-98-172R. Washington, D.C.: May 7, 1998. 

Telecommunications: FCC Lacked Authority to Create Corporations to 

Administer Universal Service Programs. GAO/T-RCED/OGC-98-84. 

Washington, D.C.: March 31, 1998. 

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