Telecommunications: Long-Term Strategic Vision Would Help Ensure Targeting of E-rate Funds to Highest-Priority Uses
Published: 2009-03-27T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: 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.
section_title: What GAO Found
paragraphs: 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, E-rate 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.

section_title: Letter
paragraphs: 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 program—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. From 1998— 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 programs—including E- rate. 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?
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?
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  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 E- rate 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.
subsections: section_title: Background
paragraphs: 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. 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. . . .” Based on this direction, and following the recommendations  of the Federal-State Joint Board on Universal Service, 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, 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.
The E-rate program provides schools, school districts, libraries, and  consortia 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. 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 Program and  whether the entity is located in a rural area. Table 1 shows the discount  percentages entities are eligible for based on these indicators. Eligible  entities may apply annually for program support.
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; 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, end- user personal computers, and end-user software.
All eligible and properly completed requests for Priority 1 services are  funded up to the available amount of funding. 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. 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.
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.
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.
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. 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.
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, an applicant may enter into an agreement with a  provider of eligible services.
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. 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;    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.
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  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. 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  General periodically select a sample of participants to audit and conduct  site visits of beneficiaries.
section_title: 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
paragraphs: 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. 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.
subsections: section_title: Requests Consistently Outweigh Available Funding
paragraphs: 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  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.
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.
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.
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. 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 drop- off in Priority 2 requests from entities with lower discounts. According  to FCC, entities with low discount levels stopped applying for Priority 2  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.  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. 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.  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 percent 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. 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)  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. As the Office  of Management and Budget (OMB) noted in a 2005 assessment of the E- rate program, given the increase in schools’ and libraries’ level of Internet  connectivity, it is no longer clear that the program serves an existing  need. 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 long- term 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.
section_title: Increased Commitments for Priority 1 Services Leave Less Funding for Priority 2 Services
paragraphs: 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.
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  the amount they requested in 2000 and almost 80 percent of applicants  receiving 75 percent or more in 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 connections and 20 percent to 24  percent have used it to install or upgrade wireless internal connections.  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 one- third 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.
section_title: A Substantial Amount of Committed Funding Is Not Disbursed
paragraphs: Of the $19.5 billion in E-rate funding committed to schools and libraries  between 1998 and 2006, $5.0 billion—more than one-quarter—was not  disbursed. 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.
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.
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-than- projected costs of Priority 1 services was a major reason for not using  all committed funds for an estimated 54 percent of participants and a  minor reason for an additional 20 percent of participants. 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  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.
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. 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.
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  required to pay into the Universal Service Fund. 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).
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  some degree of comparison appropriate. 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.
section_title: The E-rate Application Process Poses Difficulties for Some Entities, Which FCC and USAC Are Taking Steps to Address
paragraphs: 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.
subsections: section_title: Participation in E-rate Program Highest among Public Schools in 2005, but Obstacles Exist for Other Entities
paragraphs: The participation rate among all types of E-rate-eligible entities is about 63  percent, based on 2005 data. 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 schools participate at a higher than  average rate (90 percent), and charter schools, 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. Figure 10  provides the number of participants and participation rates for public and  private schools and library branches and systems.
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.
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.
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  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 E- rate program, determine why these schools and libraries do not  participate, and assist them, if necessary, at the beginning of the  application process. Although USAC has stepped up its outreach efforts,  it has not taken steps specifically to target and assist nonparticipants.
section_title: Participants’ Views of E-rate Requirements and USAC’s Data on Applicant Errors Highlight Difficulties
paragraphs: 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. (See fig. 11.)
While relatively few participants believe that the program has become  more difficult, some aspects of the program pose difficulties for  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.
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  percent 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 found this aspect of  the program to be difficult, making it the most difficult element, according  to our survey responses.
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:  “ 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   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  amount of E-rate funding. 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. 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. The Inspector General audited funding requests from 260 E- rate 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  documentation 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 respondents  who expressed an opinion 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  coordinators (67 percent), USAC’s help desk (61 percent), and USAC’s  training seminars (57 percent). 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.
section_title: FCC and USAC Have Taken Steps to Ease the Process for E-rate Applicants and Continue to Consider Program Improvements
paragraphs: 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. 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.
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. 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. We reviewed comments  submitted in response to the NPRM’s request for possible 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.
FCC continues to consider comprehensive Universal Service Fund (USF)  reform proposals raised in, or in response to, the 2005 NPRM, including  ways to simplify the E-rate program; additionally, FCC issued a notice of  inquiry in September 2008 to obtain new and refined information from  commenters on how to strengthen the management, administration, and  oversight of USF programs. FCC officials told us in November 2008 that  while they will consider commenters’ suggestions on streamlining the E- rate program, they cannot simplify the program if doing so would weaken  internal controls aimed at preventing and detecting waste, fraud, and  abuse. We agree that FCC should not simplify the program at the expense  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.
section_title: FCC Lacks Performance Goals for E-rate Program, and Recently Adopted Performance Measures Are Inadequate
subsections: section_title: FCC Has Made Efforts to ce Develop Performan s for Goals and Measure the E-rate Program, but Has Not Been Su essful cc
paragraphs: Since our first recom mendation in 1998 that,cordance with the  Government Perform in ac (GPRA), FCC esta ance and Results Act of 1993 performance goals and measures for the  E-rate program, FCC has taken  steps in this direction but still has not successfully met this fundamental  requirement of resu on  lts-o our past findings related omme measures, our rec riented managemen t. Tabl  to the E-rate program’s p o ndations, and FCC’s resp e 2 provides details  erformance goals and  nses.
section_title: The Performance Measures That FCC Adopted for the E-rate Program Lack Key Characteristics of Successful Performance Measures
paragraphs: In its August 2007 order, FCC adopted two types of performance measures  for the E-rate program—one for Internet connectivity and the other for  application processing. 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 hese  buildings served by broadband services and the bandwidth of t services. According to FCC, the collection of these data—once analyzed  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 perfunding request number. 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 part, as one element of a performance-based evaluation and compensation  program for USAC’s executives. FCC officials told us that these data  would also be used to publicly demonstrate USAC’s performance in  implementing the E-rate program.  t data would be used, in  In addition to the performance measurements specific to the E-rate  program, the 2007 order sets forth performance measures applicable to th administration of the Universal Service Fund programs, including the  accuracy of billing and disbursements, administrative costs, and the  amount of improper payments that are recovered, among other th memorandum of understanding further describes the data USAC is to  collect related to these administrative performance measures and  additionally describes service quality performance measures.
While FCC’s efforts to develop performance measures have the potential  to eventually produce better information than is currently available  E-rate program’s performance, these measures fall short when compare with the key characteristics of successful performance measures. In pas our  pert work, we have found that agencies that are successful in measuring  addformance strive to establish measures that demonstrate results,   infress important aspects of program performance, and provide usefulormation for decision making. Following is a discussion of these  characteristics and the extent to which FCC has fulfilled them in  developing 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 that FCC  has adopted are not based on such linkage because the agency does not  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 appropriate measures for results.
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 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  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 performancece.  dimensions—particularly because the connectivity measure centers onthe program’s statutory goal of providing eligible schools and librari es  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, action- oriented information in a format that helps them make decisions that  improve program performance. 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 these  data, combined with the absence of specific program goals, raises  concern about the effectiveness of these performance measures.
section_title: Conclusions
paragraphs: 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. 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 broadband- oriented 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.
section_title: Recommendations for Executive Action
paragraphs: 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.
section_title: Agency Comments and Our Evaluation
paragraphs: 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  (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.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: 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.
subsections: section_title: Analysis of E-rate Program Data
paragraphs: 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  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: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.
section_title: Survey of E-rate Beneficiaries
paragraphs: 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.
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. 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.
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  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.
section_title: E-rate Participation Analysis
paragraphs: To determine the percentage of eligible entities that participate in the E- rate 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):    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, 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  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.  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.
section_title: Nonparticipant Interviews
paragraphs: 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  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.
section_title: Document Review and Interviews with FCC and USAC on Performance Goals and Measures
paragraphs: 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 E- rate 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.
section_title: Appendix II: Comments from the Federal Communications Commission
paragraphs: The following are GAO’s comments on the Federal Communications  Commission’s letter dated March 10, 2009.
subsections: section_title: GAO’s Comments
paragraphs: 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.  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.”   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.
section_title: Appendix III: Comments from the Universal Service Administrative Company
paragraphs: The following are GAO’s comments on the Universal Service  Administrative Company’s letter dated March 6, 2009.
subsections: section_title: GAO’s Comments
paragraphs: 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.   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.
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: Staff Acknowledgments
paragraphs: 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.
section_title: Related GAO Products
paragraphs: 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.