Recovery Act: Further Opportunities Exist to Strengthen Oversight of Broadband Stimulus Programs
Published: 2010-08-04T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Access to affordable broadband service is seen as vital to economic growth and improved quality of life. To extend broadband access and adoption, the American Recovery and Reinvestment Act (Recovery Act) provided $7.2 billion to the Department of Commerce's National Telecommunications and Information Administration (NTIA) and the Department of Agriculture's Rural Utilities Service (RUS) for grants or loans to a variety of program applicants. The agencies are awarding funds in two rounds and must obligate all funds by September 30, 2010. This report addresses the results of the first broadband stimulus funding round, the extent to which NTIA's and RUS's application reviews substantiated application information, the challenges facing NTIA and RUS in awarding the remaining funds, and actions taken to oversee grant and loan recipients. GAO analyzed program documentation, reviewed a judgmentally-selected sample of applications from first round award recipients, and interviewed agency officials and industry stakeholders.
section_title: What GAO Found
paragraphs: In the first round of broadband stimulus funding that began in July 2009 and ended in April 2010, NTIA and RUS received over 2,200 applications and awarded 150 grants, loans, and loan/grant combinations totaling $2.2 billion to a variety of entities in nearly every state and U.S. territory. This funding includes $1.2 billion for 82 projects awarded by NTIA and more than $1 billion for 68 projects awarded by RUS. NTIA primarily awarded grants to public entities, such as states and municipalities, whereas RUS made grants, loans, and loan/grant combinations primarily to private-sector entities, such as for-profit companies and cooperatives. NTIA and RUS consistently substantiated information in first round award recipients' applications. The agencies and their contractors reviewed financial, technical, environmental, and other documents and determined the feasibility and reasonableness of each project. GAO's review of 32 award recipient applications found that the agencies consistently reviewed the applications and substantiated the information as specified in the first funding notice. In each of the files, GAO observed written documentation that the agencies and their contractors reviewed and verified pertinent application materials, and requested additional documentation where necessary. To meet the Recovery Act's September 30, 2010, deadline for obligating broadband funds, NTIA and RUS must award approximately $4.8 billion--or more than twice the amount they awarded during the first round--in less time than they had for the first round. As the end of the Recovery Act's obligation deadline draws near, the agencies may face increased pressure to approve awards. NTIA and RUS also lack detailed data on the availability of broadband service throughout the country, making it difficult to determine whether a proposed service area is unserved or underserved, as defined in the program funding notices. To address these challenges, NTIA and RUS have streamlined their application review processes by, for example, eliminating joint reviews and reducing the number of steps in the due-diligence review process, and NTIA began using Census tract data to verify the presence of service. NTIA and RUS are putting oversight plans in place to monitor compliance and progress for broadband stimulus funding recipients, but some risks remain. The agencies will need to oversee far more projects than in the past and these projects are likely to be much larger and more diverse than projects funded under the agencies' prior broadband-related programs. Additionally, NTIA and RUS must ensure that the recipients construct the infrastructure projects in the entire project area, not simply the area where it may be most profitable for the company to provide service. Both NTIA and RUS face the risk of having insufficient resources to actively monitor Recovery Act funded broadband projects. Because of this, planning for a possible lack of resources for program oversight after September 30, 2010, can help the agencies mitigate the effect of limited resources on postaward oversight. The Secretaries of Agriculture and Commerce should incorporate into their risk-based monitoring plans, steps to address variability in funding levels for postaward oversight beyond September 30, 2010. Both agencies took no position on GAO's recommendation and noted steps being taken to complete their respective programs.

section_title: Letter
paragraphs: Access to affordable broadband telecommunications is increasingly  viewed as vital to long-term economic growth and improved quality of life,  just as electricity, telephone, and the interstate highway system filled  similar roles in previous generations. According to the Federal  Communications Commission (FCC), broadband technology is a key  driver of economic growth. The ability to share large amounts of  information at ever-greater speeds increases productivity, facilitates  commerce, and drives innovation. Furthermore, broadband can improve  citizens’ quality of life. For example, broadband technology makes it  possible for a patient to visit a local clinic and receive medical attention  from specialists hundreds of miles away, for a student to access  information not available from the local library, and for a firefighter to  download blueprints of a burning building. Broadband is particularly  critical in rural areas, where advanced communications can reduce the  distances that isolate remote communities and individuals. One of the  goals of FCC’s National Broadband Plan is to provide all Americans with  affordable access to robust broadband service, and the means and skills to  subscribe if they choose. While the number of Americans who have  broadband at home has grown from 8 million in 2000 to nearly 200 million  in 2009, millions of Americans do not yet have access to, or do not use,  broadband.
To extend access to broadband throughout the United States, as well as to  stimulate the economy and create jobs, Congress appropriated $7.2 billion  for broadband programs under the American Recovery and Reinvestment  Act (Recovery Act), enacted on February 17, 2009. This $7.2 billion  included $4.7 billion for the Department of Commerce’s National  Telecommunications and Information Administration (NTIA) and $2.5  billion for the Department of Agriculture’s Rural Utilities Service (RUS).  Specifically, the Recovery Act authorized NTIA, in consultation with FCC,  to create the Broadband Technology Opportunities Program (BTOP) to  manage competitive grants to a variety of entities for broadband  infrastructure, public computer centers, and innovative projects to  stimulate demand for, and adoption of, broadband. Up to $350 million of  the $4.7 billion was available pursuant to the Broadband Data  Improvement Act and for the purposes of developing and maintaining a  nationwide map featuring the availability of broadband service, with some  funds available for transfer to FCC for the development of the national  broadband plan. The Recovery Act also authorized RUS to establish the  Broadband Initiatives Program (BIP) to make loans and award grants and  loan/grant combinations for broadband infrastructure projects primarily in  rural areas. Both NTIA and RUS have established their newly authorized  broadband programs and put procedures in place for implementing them.  For example, the agencies instituted two rounds of funding and each  developed a multistep application review process that includes due- diligence reviews to substantiate information provided by applicants. The  first funding round began in July 2009 and ended in April 2010, and the  second funding round began in January 2010 and will end September 30,  2010.
This report is part of GAO’s ongoing efforts to monitor Recovery Act  programs and follows-up on our November 2009 report on NTIA’s and  RUS’s broadband stimulus programs. In that report, we examined the  challenges and risks facing NTIA and RUS in evaluating applications and  awarding funds, and the challenges and risks facing the agencies in  overseeing funded projects. We recommended that the agencies take  several actions, such as providing time to review applications in the  second funding round and establishing quantifiable, outcome-based  performance goals by which to measure program effectiveness. NTIA and  RUS agreed with our recommendations and have taken some actions to  address them. In this report, we examine the first funding round and what  remains to implement the agencies’ broadband programs. Specifically, this  report addresses four questions: (1) What are the results of the first  broadband stimulus funding round? (2) To what extent did NTIA’s and  RUS’s due-diligence reviews substantiate information in the awardees’  applications? (3) What challenges, if any, do NTIA and RUS face in  awarding the remaining broadband stimulus funds? (4) What actions, if  any, are NTIA and RUS taking to oversee grant and loan recipients?
To address these questions, we reviewed NTIA and RUS program  documentation and interviewed relevant officials about the agencies’  efforts to implement the broadband stimulus programs. To determine the  results of the first funding round, we obtained program and funding data  directly from the agencies, and from the agencies’ Web sites and press  releases. We are reporting publicly available data that NTIA and RUS  provided on the first round broadband stimulus awards with the intent to  describe the number of awards, the entities receiving first round funding,  and the types of projects. This information is presented for descriptive  purposes. To determine the extent to which NTIA’s and RUS’s due- diligence reviews substantiated information in awardees’ applications, we  reviewed a judgmental sample of application files for first-round grant and  loan recipients. In choosing our sample, we considered the award amount,  type of applicant, geographic location of the project, and type of project.  We then reviewed the selected application files electronically and  compared the information in those files to the requirements of the first- round funding notice. We did not evaluate the agencies’ decisions to  award or deny applications or the potential for success of any project.  Rather, we assessed the extent to which NTIA and RUS developed and  implemented a due-diligence review process. To determine the challenges,  if any, that NTIA and RUS face in awarding the remaining broadband  stimulus funds, we studied the requirements set forth in the Recovery Act,  evaluated changes between the first- and second-round funding notices,  and interviewed agency officials and representatives of five  telecommunications associations. Finally, to determine the actions NTIA  and RUS are taking to oversee grant and loan recipients, we interviewed  agency officials and reviewed agency plans and guidance, and compared  those plans to best practices identified by our prior work and by the Office  of Management and Budget (OMB).
We conducted our work from February through August 2010 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: NTIA and RUS have until September 30, 2010, to obligate the Recovery Act  funding for broadband projects. While the completion time will vary  depending on the complexity of the project, recipients of BTOP grants and  BIP awards must substantially complete projects supported by these  programs no later than 2 years, and projects must be fully completed no  later than 3 years, following the date of issuance of the award. As we  reported in November 2009, NTIA and RUS faced a number of challenges  in evaluating applications and awarding broadband stimulus funds during  the first funding round. For example, although both agencies had  previously administered small telecommunications grant or loan  programs, they had to review more applications and award far more funds  with fewer staff to carry out their Recovery Act programs. In addition, the  agencies faced tight time frames for awarding funds. To address these  challenges, NTIA and RUS awarded contracts to Booz Allen Hamilton and  ICF International, respectively, to help the agencies implement the  programs within the required time frames. The contractors have supported  the development and implementation of application review processes,  helped with the review of technical and financial materials, and assisted in  the development of postaward monitoring and reporting requirements.
To meet the September 30, 2010, deadline to award Recovery Act funds,  NTIA and RUS have established project categories for directing funds to  meet the act’s requirements; released two funding notices; conducted  public outreach to increase participation among all eligible entities;  developed processes to accept, evaluate, advance, and award applications;  and advanced efforts to oversee recipients to ensure proper use of  Recovery Act funds. For the first funding round, NTIA and RUS  coordinated their efforts and issued one joint funding notice detailing the  requirements, rules, and procedures for applying for funding. The first 18  broadband stimulus awards were announced on December 17, 2009. NTIA  and RUS completed the first round of awards on April 26 and March 30,  2010, respectively. Table 1 shows the funding timeline for NTIA’s and  RUS’s broadband stimulus programs.
Table 2 summarizes the categories of projects eligible for funding during  the first round for both BTOP and BIP.
Based on the agencies’ experiences with the first round, and drawing on  public comments, both NTIA and RUS made changes to how the second- round funding for BTOP and BIP will be structured and conducted. Unlike  the first round, NTIA and RUS issued separate funding notices and  applicants had the option of applying to either BTOP or BIP, but not to  both. In the second round, NTIA will again award grants for three  categories of eligible projects, however the infrastructure program has  been reoriented toward Comprehensive Community Infrastructure grants,  which will support Middle Mile projects serving anchor institutions such  as community colleges, libraries, hospitals, universities, and public safety  institutions. RUS has prioritized Last Mile projects and added 3 new grant  programs: Satellite, Rural Library, and Technical Assistance projects.  Table 3 provides information on the second-round project categories.
The first funding notice, published July 9, 2009, set forth the processes for  reviewing applications that NTIA and RUS followed during the first  funding round. Both agencies developed a multistep application review  process designed to balance the applicants’ need for time to prepare their  applications with the agencies’ need for time to review them, as well as to  minimize the burden on the applicants that did not ultimately qualify for  program funding. Generally, both agencies initially screened applications  to determine whether they were complete and eligible and then submitted  the qualifying applications to a due-diligence review. For this review, the  applicants were asked to submit additional documentation to further  substantiate their financial, technical, and other project information. Table  4 compares the agencies’ first-round application review processes.
In addition to implementing the BTOP program, NTIA is implementing the  broadband mapping provisions referenced in the Recovery Act. Up to $350  million of the $4.7 billion was available to NTIA pursuant to the Broadband  Data Improvement Act and for the purpose of developing and maintaining  a nationwide map of broadband service availability. NTIA explained that  this program would fund projects that collect comprehensive and accurate  state-level broadband mapping data, develop state-level broadband maps,  aid in the development and maintenance of a national broadband map, and  fund statewide initiatives directed at broadband planning. NTIA accepted  applications for the State Broadband Data and Development Grant  program until August 14, 2009. NTIA originally funded state data collection  efforts for a 2-year period, allowing the agency to assess initial state  activities before awarding funding for the remainder of this 5-year  initiative. On May 28, 2010, NTIA announced that state governments and  other existing awardees had until July 1, 2010, to submit amended and  supplemental applications for 3 additional years of mapping and data  collection activities and to support all other eligible purposes under the  Broadband Data Improvement Act.
section_title: NTIA and RUS Funded 150 Projects Totaling $2.2 Billion in the First Funding Round
paragraphs: In the first round of broadband stimulus funding, NTIA and RUS received  almost 2,200 applications and awarded 150 grants, loans, and loan/grant  combinations totaling over $2.2 billion in federal funds to a variety of  entities for projects in nearly every state and U.S. territory. This funding  includes over $1.2 billion for 82 BTOP projects and more than $1 billion  for 68 BIP projects. More than 70 percent of these projects were awarded  to non-governmental entities, such as for-profit corporations, nonprofit  organizations, and cooperative associations. Ten BTOP and 3 BIP grants  were awarded to applicants with multistate projects. For example, RUS  awarded a grant to Peetz Cooperative Telephone Company for a Last Mile  Remote project covering parts of Colorado and Nebraska and NTIA  awarded a grant to One Economy Corporation for a Sustainable  Broadband Adoption project covering parts of 32 states. Figure 1  illustrates the locations of the broadband stimulus projects and the total  project funding per state awarded in the first round.
BTOP. During the first funding round, NTIA awarded more than $1 billion  in BTOP funds for 49 broadband infrastructure projects to deploy Middle  Mile and Last Mile broadband technology to unserved and underserved  areas of the United States; $57 million for 20 Public Computer Center  projects to provide access to broadband, computer equipment, computer  training, job training, and educational resources to the general public and  specific vulnerable populations; and $110 million for 13 Sustainable  Broadband Adoption projects to promote broadband demand through  innovation, especially among vulnerable population groups that have  traditionally underused broadband technology.
NTIA awarded grants to a variety of entities in the first funding round,  including public entities, for-profits, nonprofits, cooperative associations,  and tribal entities. Our analysis of NTIA’s data shows that public entities,  such as states, municipalities, or other local governments, received the  largest number of BTOP grants and largest percentage of the funding. This  funding supports BTOP projects in 45 states and territories. Table 5 shows  the entity types and the amounts of funding per entity type during the first  round.
Of the 82 grants awarded, over half were for infrastructure projects, and  NTIA awarded over 40 percent of these grants to for-profit entities in the  first round. NTIA awarded Public Computer Center and Sustainable  Broadband Adoption projects to public entities and nonprofit  organizations. Table 6 shows the types of entities awarded funds for each  BTOP funding category.
BIP. During the first funding round, RUS announced 49 broadband  infrastructure awards totaling nearly $740 million in program funding for  Last-Mile nonremote projects, 13 awards totaling $161 million for Last  Mile remote projects, and 6 awards totaling $167 million for Middle Mile  broadband infrastructure projects. The majority of funding was awarded  in the form of loan/grant combinations. Of the nearly $1.1 billion in first  round funding, RUS awarded 53 loan/grant combinations totaling over  $957 million in program funds, 12 grants totaling about $69 million, and 3  loans totaling over $41 million.
RUS awarded grants, loans, and loan/grant combinations to a variety of  entities. Eighty-five percent of BIP recipients are for-profit companies or  cooperative associations. Four tribal entities also received BIP funding. In  addition, 43 of the 68 BIP recipients are Title II borrowers and have  previously received rural electrification and telephone loans from RUS.
These represent the incumbent local telecommunications providers in the  funding area. Table 7 shows the entity types and amount of funding  received during the first round.
RUS made nearly three-quarters of its awards for Last Mile non-remote  projects and the majority of these awards went to for-profit and  cooperative associations. Table 8 shows the types of entities that received  awards and the number of projects awarded in each BIP funding category.
As of June 29, 2010, RUS had provided $899.6 million in program funds for  61 of these 68 projects, representing approximately 85 percent of the  awards announced in the first round. This amount represents about $485  million charged against RUS’s Recovery Act budget authority. Of the  remaining projects, 4 are still in the contract award process and 3 awards  were declined by the recipients.
section_title: NTIA’s and RUS’s Due- Diligence Reviews Consistently Substantiated Information in the Awardees’ Applications
paragraphs: To substantiate information in the applications, NTIA, RUS, and their  contractors reviewed financial, technical, environmental, and other  documents and determined the feasibility and reasonableness of each  project. The agencies reviewed application materials for evidence that the  applicants satisfied the criteria established in the first funding notice. The  first funding notice identified several types of information that would be  subject to due-diligence review, including details related to the following  items:    Proposed budget, capital requirements and the source of these funds, and  operational sustainability.
Technology strategy and construction schedule, including a map of the  proposed service area and a diagram showing how technology will be  deployed throughout the project area (for infrastructure projects) and a  timeline demonstrating project completion.
Completed environmental questionnaire and historic preservation  documentation.
Evidence of current subscriber and service levels in the project area to  support an “unserved” or “underserved” designation.
Recipient’s eligibility to receive a federal award.
Any other underlying documentation referenced in the application,  including outstanding and contingent obligations (debt), working capital  requirements and sources of these funds, the proposed technology, and  the construction build-out schedule.
To implement the due-diligence review, the agencies with their  contractors reviewed the application materials for adherence to the first- round funding notice’s guidelines. The contractors formed teams with  specific financial or technical expertise to perform the due-diligence  evaluation of applications. Generally, the agencies followed similar due- diligence review processes, but there were some differences. For example,  NTIA teams analyzed and discussed the application materials and assigned  scores to applications based on the criteria established in the first-round  funding notice: (1) project purpose, (2) project benefits, (3) project  viability, and (4) project budget and sustainability. Also, NTIA teams  contacted applicants when necessary to obtain additional materials or  clarify information in the application. Both NTIA and RUS officials  reviewed environmental questionnaires addressing National  Environmental Policy Act (NEPA) concerns and other documents  addressing National Historic Preservation Act (NHPA) concerns. Agency  officials requested that applicants provide full environmental and  historical impact reports for their projects unless the projects received an  exclusion. At the time we reviewed our sample of application files, these  reports were pending for NTIA applications; all RUS applications we  reviewed received categorical exclusions. During the due-diligence  review, agency officials said that the contractor teams had frequent  contact with NTIA and RUS to discuss issues that arose during the review.
The review teams produced detailed briefing reports describing the  information contained in each file and used professional judgment to  make recommendations as to each project’s viability and sustainability,  and the applicant’s apparent capacity to implement and maintain the  project. Agency officials used these reports and other information in  making award decisions. The review teams also recommended follow-up  actions the agencies might consider to gather more information on  unresolved issues. Both agencies’ officials reported that they were  satisfied with the quality of their contractors’ work.
Based on our analysis of the files of 32 awarded applications, we found  that the agencies consistently reviewed the applications and substantiated  the information as specified in the first-round funding notice, a finding  consistent with the Department of Commerce Inspector General’s April  2010 report. In each of the files we reviewed, we observed written  documentation that the agencies and their contractors had reviewed and  verified pertinent application materials, or made notes to request  additional documentation where necessary. In general, we saw evidence  that the agencies and the contractors verified the following information:    basic fit with the programs (project descriptions);  financial reasonableness (capital and operating budgets, financial  statements);  technological viability (maps of the proposed coverage area, a description  of the technology to be used and how it would be employed);   environmental and historic preservation/remediation;    project planning (construction schedules, project milestones);    organizational capacity (resumes or biographies of the principals involved  in the project, matching funds, support from both the affected  communities and other governmental entities); and    congressional districts affected.
The two agencies developed different processes to investigate the merits  of public comments on whether proposed projects met the definition of  “unserved” or “underserved” published in the first funding notice. This  investigation is known as an “overbuild analysis” and is needed because of  the continued lack of national broadband data. In general, the public  comments were submitted by companies that claimed they were already  providing service in the proposed service areas and that the applicant’s  project would thus lead to overbuilding. NTIA’s contractor researched the  commenting companies’ claims of provided service via industry databases,  the companies’ Web sites and advertisements, and then produced an  overbuild analysis for review by agency officials that described the  research results and the contractor’s level of confidence in the accuracy of  the analysis. For RUS, field staff personally contacted the entities that  submitted the comments to verify their claims that they provided service  in the affected areas. According to RUS, field staff reconciled any  difference between the application and commenter, and where necessary,  conducted an actual field visit to the proposed service territory. In all  cases in our sample, we observed that agencies and their contractors  found that the projects met the definitions of “unserved” and  “underserved” set forth in the first funding notice. In at least one case,  public comments were retracted following a request for additional  information; in other cases, the additional information provided did not  support claims of overbuilding.
Finally, we interviewed representatives of five industry associations and  two companies that received funding during the first round to learn their  perspectives on the thoroughness of the due-diligence reviews. Generally,  the industry association representatives confirmed that their constituents  who had applied for and received broadband funding had undergone due- diligence reviews, but they were not familiar with the extent to which  NTIA and RUS had verified applicant information. According to  representatives of two companies that received funding during the first  round, the agencies’ due-diligence process was thorough and rigorous.
section_title: NTIA and RUS Face Challenges in Awarding Funds on Time and Have Taken Actions to Streamline Application Reviews
subsections: section_title: NTIA and RUS Must Award a Significant Amount of Funds in a Short Time
paragraphs: During the second funding round, NTIA and RUS have more funds to  award and less time to award these funds than they had for the first round,  and although the agencies received fewer applications for the second  round, they are conducting more due-diligence reviews than they did for  the first round. NTIA and RUS have until September 30, 2010, to obligate  approximately $4.8 billion in remaining broadband stimulus funds, or more  than twice the $2.2 billion they awarded during the first funding round.  More specifically, in the second funding round, NTIA must award $2.6  billion in BTOP grants and RUS must award $2.1 billion in BIP loans and  loan/grant combinations. Moreover, NTIA has 2 fewer months in the  second funding round to perform due-diligence reviews and obligate funds  for selected BTOP projects than in the first funding round, and RUS has 3  months less for BIP. Whereas NTIA took 8 months for these tasks during  the first funding round from the August 20, 2009, application deadline  through April 26, 2010, it has 6 months for the second round, from the  March 26, 2010, application deadline to the program’s September 30, 2010,  obligation deadline. Similarly, RUS took at least 9 months for the first  funding round and has 6 months for the second round. (As of July 1, 2010,  RUS had not obligated funds for four first-round awards.)
For the second funding round, NTIA and RUS received 1,662 applications,  compared with 2,174 for the first round. For the first round, NTIA  reviewed 940 applications for BTOP, RUS reviewed 401 applications for  BIP, and the agencies concurrently reviewed 833 joint applications for  both programs. For the second funding round, NTIA received 886  applications for BTOP and RUS received 776 for BIP. No joint applications  were solicited for the second round as the agencies published separate  funding notices. As of July 2, 2010, NTIA and RUS have awarded a total of  66 second round broadband stimulus projects totaling $795 million.
While NTIA and RUS have fewer applications to review for the second  round, they expect their due-diligence workload to increase. According to  agency officials, the quality of the second-round applications is  substantially better and more applications will be eligible for due-diligence  reviews. Agency officials believe that their staffs’ increased experience,  together with some process changes implemented in response to lessons  learned during the first funding round (discussed later in this report) will  enable their staffs to manage the increased workload and maintain the  same high standards in the time allotted. However, as the Recovery Act’s  obligation deadline draws near, the agencies may face increased pressure  to approve awards. Agency officials state that their programs’ goals remain  to fund as many projects as possible that meet the requirements of the act  and to select the projects that will have the most economic impact; simply  awarding funds is not the goal.
section_title: Agencies Must Award Remaining Funds with Still-Incomplete Broadband Mapping Data, Slowing the Review Process
paragraphs: The continued lack of national broadband data complicates NTIA and RUS  efforts to award broadband stimulus funding in remote, rural areas where  it may be needed the most. Although NTIA recently issued grants to states  and territories to map broadband services, the National Broadband Map  showing the availability of broadband service will not be completed until  2011. The most recent FCC report on currently available Internet access  nationwide relies on December 2008 data. Because of the lack of current  data, NTIA and RUS are using a cumbersome process to verify the status  of broadband services in particular geographic locations. The agencies  must collect and assess statements by applicants as well as the  aforementioned public comments submitted by existing broadband  providers delineating their service areas and speeds available. NTIA and  RUS are investing time and resources to review these filings, and in some  cases due-diligence reviews have found information in the filings to be  inaccurate. During our review of 32 judgmentally selected applications, we  found several instances noted by RUS in which companies provided  inaccurate information when claiming they were already providing service  in a proposed service area. For example, when an RUS field representative  asked one company to provide supporting information to verify its number  of subscribers in its service area during the due-diligence review process,  the company admitted the information in its filing was incorrect and  withdrew the comment. In addition, for a number of applications we  reviewed, NTIA’s contractor had a low or medium level of confidence in  the accuracy of the overbuild analysis because data were inconclusive.  Because the National Broadband Map will not be completed until 2011,  NTIA and RUS will have to complete awards for round two based on  existing data.
section_title: Agencies Have Taken Actions to Streamline Their Application Review Process, but It Is Not Clear If They Can Obligate All Remaining Funds by September 30, 2010
paragraphs: Both agencies have taken steps to streamline their application review  processes in an effort to obligate the remaining funds by September 30,  2010. First, the agencies agreed to generally target different types of  infrastructure projects and issued separate funding notices for the second  round to save time during the eligibility screening phase. Second, the  agencies reduced the number of steps in the application review process  from two to one, adding some time to the application window and agency  review process. NTIA also reduced the basic eligibility factors for BTOP  from five to three, moved from a largely unpaid to a paid reviewer model  to ensure that reviews were conducted in a timely fashion, and decreased  the number of reviewers per application from three to two. These steps  allowed the agency to complete the initial portion of its review ahead of  schedule, according to BTOP officials. NTIA also split the second round  applications into four groups for due-diligence reviews, allowing staff to  concentrate on one group at a time. Due-diligence reviews for the first  group were completed in June; awards for this group will be announced in  July. Reviews for the second group will be completed in July, with awards  to be announced in August; reviews for the third and fourth group will be  complete in August, with final awards to be announced in September.  Third, NTIA began to use Census tract data, which companies already  compile and report to FCC, to verify applicants’ claims and simplified the  process to allow existing broadband providers to supply information about  their services. RUS is relying on its mapping tool, which does show Census  block data, but not Census track data, to determine whether the service  area is eligible. According to RUS officials, the tool has been upgraded  several times to make it easier for applicants to submit information about  existing service providers to the agency. Finally, RUS eliminated funding  for the Last-Mile Remote project designation, reducing the number of  project types to screen for award, and also stopped accepting paper  applications.
Notwithstanding these efficiencies, a few second round changes may  lengthen the time required to complete due-diligence reviews and obligate  funds. For example, on May 28, 2010, after the application deadline was  closed for round two, NTIA notified State Broadband Data and  Development Grant program recipients that they were able to submit  amended and supplemental applications for eligible mapping activities in  those states. With regards to BTOP, NTIA also solicited applications for  public safety broadband infrastructure projects nationwide through July 1,  2010, which adds additional burden on the agency. The time remaining  for due diligence to be performed on these applications is a month shorter  than for the first group of round two applications. RUS increased the  opportunity for more applications to obtain funding by instituting a  “second-chance review” process to allow an applicant to adjust an  application that may not have contained sufficient documentation to fully  support an award. During the second-chance review, BIP application  reviewers will work with applicants to assist them in providing the  documentation needed to complete their applications. Adding these  activities to the BIP application reviewers’ duties may lengthen the time  required to complete due-diligence reviews and obligate funds by  September 30, 2010.
Both agencies have renegotiated with their contractors for greater staffing  flexibility. RUS has extended its contract with ICF International to provide  BIP program support through 2012. In addition, RUS also indicated that its  previously established broadband support program made no awards in  2010, freeing staff time for BIP activities. Despite this, NTIA and RUS  officials told us that existing staff are overworked and there has been  some turnover with contractor support. With the completion of second  round funding and the beginning of the postaward phase, it will be critical  for NTIA and RUS to ensure that they have enough staff dedicated to  project oversight.
section_title: Agencies Are Developing Postaward Oversight Plans, but Some Risks to the Success of the Broadband Stimulus Programs Remain
subsections: section_title: The Recovery Act, Specific Program Requirements, and Leading Practices Identify Components of Effective Oversight
paragraphs: Under Section 1512 of the Recovery Act and related OMB guidance, all  nonfederal recipients of Recovery Act funds must submit quarterly reports  that are to include a list of each project or activity for which Recovery Act  funds were expended or obligated and information concerning the amount  and use of funds and jobs created or retained by these projects and  activities. Under OMB guidance, awarding agencies are responsible for  ensuring that funding recipients report to a central, online portal no later  than 10 calendar days after each calendar quarter in which the recipient  received assistance. Awarding agencies must also perform their own  data-quality review and request further information or corrections by  funding recipients, if necessary. No later than 30 days following the end of  the quarter, OMB requires that detailed recipient reports be made available  to the public on the Recovery.gov Web site.
In addition to governmentwide reporting, BTOP and BIP funding  recipients must also submit program-level reports.
BTOP-specific reports. The Recovery Act requires BTOP funding  recipients to report quarterly on their use of funds and NTIA to make these  reports available to the public. Specifically, NTIA requires that funding  recipients submit quarterly reports with respect to Recovery Act reporting,  as well as BTOP quarterly and annual financial and performance progress  reports. BTOP financial reports include budget and cost information on  each quarter’s expenses and are used to assess the overall financial  management and health of each award and ensure that BTOP  expenditures are consistent with the recipient’s anticipated progress.  BTOP performance reporting includes project data, key milestones, and  project indicator information, such as the number of new network miles  deployed, the number of new public computer centers, or the number of  broadband awareness campaigns conducted.
BIP-specific reports. RUS requires BIP funding recipients to submit  quarterly balance sheets, income and cash-flow statements, and data on  how many households are subscribing to broadband service in each  community, among other information. In addition, RUS requires funding  recipients to specifically state in the applicable quarter when they have  received 67 percent of the award funds, which is RUS’s measure for  “substantially complete.” BIP funding recipients must also report annually  on the number of households; businesses; and education, library, health  care, and public safety providers subscribing to new or more accessible  broadband services.
A final source of guidance is the Domestic Working Group, which has  highlighted leading practices in grants management. Effective grants  management calls for establishing adequate internal control systems,  including efficient and effective information systems, training, policies,  and oversight procedures, to ensure grant funds are properly used and  achieve intended results. Some agencies have developed risk-based  monitoring criteria to assess where there is a need for heightened  monitoring or technical assistance. These criteria can include total  funding, prior experience with government grants or loans, independent  audit findings, budget, and expenditures. Given the large number of BTOP  and BIP grant and loan recipients, including many first-time recipients of  federal funding, it is important that NTIA and RUS identify, prioritize, and  manage potential at-risk recipients.
section_title: NTIA Is Finalizing a New Postaward Framework; RUS Plans to Rely on Existing Oversight Mechanisms
paragraphs: NTIA. NTIA has developed and is beginning to implement a postaward  framework to ensure the successful execution of BTOP. This framework  includes three main elements: (1) monitoring and reporting, (2)  compliance, and (3) technical assistance. NTIA will use desk reviews and  on-site visits to monitor the implementation of BTOP awards and ensure  compliance with award conditions by recipients. NTIA plans to provide  technical assistance in the form of training, webinars, conference calls,  workshops, and outreach for all recipients of BTOP funding to address any  problems or issues recipients may have implementing the projects, as well  as to assist in adhering to award guidelines and regulatory requirements.  NTIA has provided training to recipients in grant compliance and  reporting, and has also developed a recipient handbook with a number of  checklists to assist recipients with performance and compliance under  their federal awards. In addition, NTIA has developed training, handbooks,  and other guidance for program staff and grant recipients throughout the  entire postaward process and through the completion of BTOP projects in  2013. According to NTIA officials, the agency is preparing a risk-based  model for postaward project monitoring and designating three levels of  monitoring for grant recipients: routine, intermediate, and advanced.  Under this model, program staff will reassess the risk level of each  recipient on an annual basis and conduct site visits accordingly.
NTIA has recently reorganized several senior positions to distribute grants  management and grants administration responsibilities more evenly  among a larger group of personnel, and to more effectively balance  workloads. As a result, more NTIA employees will share postaward  responsibilities up to September 30, 2010. For fiscal year 2011, the  President’s budget request includes nearly $24 million to continue  oversight activities, yet even if this amount is appropriated, agency  officials said that there is some risk that NTIA will have insufficient  resources to implement this comprehensive postaward framework.
RUS. RUS is also putting into place a multifaceted oversight framework to  monitor compliance and progress for recipients of BIP funding. Unlike  NTIA, which is developing a new oversight framework, RUS plans to  replicate the oversight framework it uses for its existing Community  Connect, Broadband Access and Loan, Distance Learning and  Telemedicine, and Rural Electrification Infrastructure Loan programs.  However, RUS still has several open recommendations from a Department  of Agriculture Inspector General’s report pertaining to oversight of its  grant and loan programs. The main components of RUS’s oversight  framework are (1) financial and program reporting and (2) desk and field  monitoring. According to RUS officials, no later than 30 days after the end  of each calendar-year quarter, BIP recipients will be required to submit  several types of information to RUS through its Broadband Collection and  Analysis System, including balance sheets, income statements, statements  of cash flow, summaries of rate packages, the number of broadband  subscribers in each community, and each project’s completion status. BIP  funding recipients will also be required to submit detailed data on the  numbers of households and businesses subscribing to or receiving  improved broadband service and the numbers of schools, libraries, health  care facilities, and public safety organizations obtaining either new or  improved access to broadband service. In addition, RUS will conduct desk  and site reviews using 52 permanent general field representatives and field  accountants. RUS also has access to 15 additional temporary field staff  who can assist with BIP oversight. Moreover, RUS extended its contract  with ICF International through 2012, giving the agency additional  resources in conducting program oversight. The President’s budget  request does not include additional resources to continue BIP oversight  activities in fiscal year 2011, but RUS officials believe they have sufficient  resources to oversee BIP-funded recipients.
section_title: Despite Steps Taken, Some Risks to Projects’ Success Remain
paragraphs: Overall, both NTIA and RUS have taken steps to address the concerns we  noted in our November 2009 report. For example, the agencies are  developing plans to monitor BTOP- and BIP-funded recipients and are  working to develop objective, quantifiable, and measurable goals to assess  the effectiveness of the broadband stimulus programs. Finally, NTIA now  has audit requirements in place for annual audits of commercial entities  receiving BTOP grants. Despite this progress, some risks to projects’  success remain.
Scale and Number of Projects. NTIA and RUS will need to oversee a far  greater number of projects than in the past. As we reported in 2009, the  agencies face the challenge of monitoring these projects with fewer staff  than were available for their legacy grant and loan programs. Although the  exact number of funded projects is still unknown, based on the first  funding round’s results and the amount of funding remaining to be  awarded, the agencies could fund several hundred projects each before  September 30, 2010. In addition, BTOP- and BIP-funded projects are likely  to be much larger and more diverse than projects funded under the  agencies’ prior broadband-related programs. For example, NTIA and RUS  expect to fund several types of broadband projects, and these projects will  be dispersed nationwide, with at least one project in every state. NTIA is  funding several different types of broadband projects, including Last Mile  and Middle Mile broadband infrastructure projects for unserved and  underserved areas, public computer centers, and sustainable broadband  adoption projects. RUS can fund Last Mile and Middle Mile infrastructure  projects in rural areas across the country.
Adding to these challenges, NTIA and RUS must ensure that the recipient  constructs the infrastructure project in the entire project area, not just the  area where it may be most profitable for the company to provide service.  For example, the Recovery Act mandates that RUS fund projects where at  least 75 percent of the funded area is in a rural area that lacks sufficient  access to high-speed broadband service to facilitate rural economic  development; these are often rural areas with limited demand, and the  high cost of providing service to these areas make them less profitable for  broadband providers. The rest of the project can be located in an area that  may already have service from an existing provider. Companies may have  an incentive to build first where they have the most opportunity for profit  and leave the unserved parts of their projects for last in order to achieve  the highest number of subscribers as possible. In addition, funding  projects in low-density areas where there may already be existing  providers could potentially discourage further private investment in the  area and undermine the viability of both the incumbents’ investment and  the broadband stimulus project. During our review of BIP applications, we  found several instances in which RUS awarded projects that would  simultaneously cover unserved areas and areas with service from an  existing provider. To ensure that Recovery Act funds reach hard-to-serve  areas, recipients must deploy their infrastructure projects throughout the  proposed area on which their award was based. NTIA and RUS oversight  and monitoring procedures will help ensure that the unserved areas are in  fact built out.
Lack of Sufficient Resources. Both NTIA and RUS face the risk of  having insufficient staff and resources to actively monitor BTOP- and BIP- funded projects after September 30, 2010. BTOP and BIP projects must be  substantially complete within 2 years of the award date and fully complete  within 3 years of the award date. As a result, some projects are not  expected to be complete until 2013. However, the Recovery Act does not  provide budget authority or funding for the administration and oversight  of BTOP- and BIP-funded projects beyond September 30, 2010. Effective  monitoring and oversight of over $7 billion in Recovery Act broadband  stimulus funding will require significant resources, including staffing, to  ensure that recipients fulfill their obligations. NTIA and RUS officials  believe that site visits, in particular, are essential to monitoring progress  and ensuring compliance; yet, it is not clear if they will have the resources  to implement their oversight plans. As discussed earlier, NTIA requested  fiscal year 2011 funding for oversight, but the agency does not know  whether it will receive the requested funding and whether the amount  would be sufficient. RUS intends to rely on existing staff and believes it  has sufficient resources; however, RUS field staff members have other  duties in addition to oversight of BIP projects. Because of this, it is critical  that the oversight plans the agencies are developing recognize the  challenges that could arise from a possible lack of resources for program  oversight after September 30, 2010. For example, the agencies’ staff will  need to conduct site visits in remote locations to monitor project  development, but a lack of resources will pose challenges to this type of  oversight. Planning for these various contingencies can help the agencies  mitigate the effect that limited resource levels may have on postaward  oversight.
section_title: Conclusion
paragraphs: The Recovery Act broadband stimulus programs are intended to promote  the availability and use of broadband throughout the country, as well as  create jobs and stimulate economic development. In the first round, NTIA  and RUS funded a wide variety of projects in most states and territories to  meet these goals. In doing so, the agencies developed and implemented an  extensive and consistent process for evaluating project applications. In  addition, the agencies made efforts to gather and apply lessons learned  from the first funding round to the second round in order to streamline the  application review process, making it easier for applicants to submit and  officials to review applications. However, the agencies must also oversee  funded projects to ensure that they meet the objectives of the Recovery  Act. To date, NTIA and RUS have begun to develop and implement  oversight plans to support such efforts and have developed preliminary  risk-based frameworks to monitor the progress and results of broadband  stimulus projects. However, the Recovery Act does not provide funding  beyond September 30, 2010. As the agencies continue to develop their  oversight plans, it is critical that they anticipate possible contingencies  that may arise because of the limited funding and target their oversight  resources to ensure that recipients of Recovery Act broadband funding  complete their projects in a manner consistent with their applications and  awards.
section_title: Recommendation for Executive Action
paragraphs: To ensure effective monitoring and oversight of the BTOP and BIP  programs, we recommend that the Secretaries of Agriculture and  Commerce incorporate into their risk-based monitoring plans, steps to  address the variability in funding levels for postaward oversight beyond  September 30, 2010.
section_title: Agency Comments
paragraphs: We provided a draft of this report to the Departments of Agriculture and  Commerce for review and comment. In its written comments, RUS agreed  that awarding and obligating the remaining funds under the BIP program  will be challenging and noted that the loan obligation process for the  second funding round will be expedited because financial documents have  been crafted and are now in place. In addition, RUS agreed that there is a  lack of data on broadband availability throughout the country and stated  that the agency is using field representatives and other Rural Development  field staff to support the BIP program as needed. RUS also noted that it is  developing contingency plans to retain the majority of its temporary  Recovery Act staff beyond September 30, 2010. RUS took no position on  our recommendation. In its comments, NTIA stated that it is on schedule  to award all of its Recovery Act funds by September 30, 2010. In addition,  NTIA noted that the President’s fiscal year 2011 budget request, which  includes authority and funding for NTIA to administer and monitor project  implementation, is vital to ensuring that BTOP projects are successful and  that recipients fulfill their obligations. NTIA took no position on our  recommendation. Finally, the agencies provided technical comments that  we incorporated, as appropriate. RUS’s and NTIA’s full comments appear  in appendixes III and IV, respectively.
We are sending copies of this report to the Secretary of Agriculture and  the Secretary of Commerce, and interested congressional committees.  This report is available at no charge on the GAO Web site at  http://www.gao.gov.
If you have any further 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. Key contributors to this report are listed in appendix V.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: The objectives of this report were to examine (1) the results of the first  broadband stimulus funding round; (2) the extent to which the National  Telecommunications and Information Administration’s (NTIA) and the  Rural Utilities Service’s (RUS) due-diligence review substantiated  information in the awardees’ applications; (3) the challenges, if any, facing  NTIA and RUS in awarding the remaining broadband stimulus funds; and  (4) the actions, if any, NTIA and RUS are taking to oversee grant and loan  recipients.
To describe the results of the first funding round, we obtained and  analyzed data from NTIA and RUS and the agencies’ Web sites and press  releases, interviewed agency officials, and reviewed agency program  documentation. We are reporting publicly available data that NTIA and  RUS provided on the first round broadband stimulus awards with the  intent to describe the number of awards, the entities receiving first round  funding, and the types of projects. This information is presented for  descriptive purposes. The data are available online at BroadbandUSA.gov,  the Web site through which NTIA and RUS publicly report Broadband  Technology Opportunities Program (BTOP) and Broadband Initiatives  Program (BIP) application and award data. In addition, we obtained and  reviewed internal application information and award documentation from  both agencies. We also interviewed NTIA and RUS officials who were  involved in reviewing applications and awarding the broadband stimulus  funds. During these interviews, we reviewed the progress NTIA and RUS  were making to complete the first funding round and discussed the status  of the awards, including the number of awards that had been obligated,  and progress made during the second funding round. To familiarize  ourselves with the programs and track their ongoing status, we reviewed  NTIA and RUS program documentation, both publicly available online and  internal documents provided by the agencies; reviewed a November 2009  GAO report on NTIA’s and RUS’s broadband stimulus programs; and  reviewed April 2010 reports by the Congressional Research Service (CRS)  and the Department of Commerce Inspector General (Commerce IG)  covering first funding round applications, awards, and program  management.
To determine the extent to which NTIA’s and RUS’s due-diligence reviews  substantiated information in awardees’ applications, we reviewed a  judgmental sample of 32 awarded application files, including 15 from  BTOP and 17 from BIP. In choosing our sample, we considered individual  award amounts, aggregate amounts of awards per state or territory (state),  type of project, type of applicant, and geographic location of the state. To  determine our sample criteria, we analyzed descriptive statistics for all  awards and grouped states into three categories: “below $50 million”  (low); “between $50 million and $100 million” (middle); and “above $100  million” (high). Because BIP’s aggregate award amounts to the states to  which it awarded funds were slightly higher than those for BTOP overall,  we chose to review a slightly larger number of BIP application files than  BTOP files. We chose states from among the three award categories so  that the representation of low-, middle-, and high-award states  approximated that in the overall population. After choosing our sample,  we met with agency officials to discuss the contents of the application files  and clarify the requirements of the due-diligence review process. Then, we  arranged to inspect the agency files: RUS provided electronic access to its  due-diligence materials for each application via an online Web site and we  performed our file review remotely; NTIA provided us with a CD-ROM  containing the relevant project files and we reviewed these at the  Department of Commerce. We reviewed the decision memos summarizing  the total output of the due-diligence review, documentation of  environmental reviews, project budgets, construction schedules, and  assessment of public notice filings. We recorded our findings on a data  collection instrument and verified the results by using two separate  reviewers. We did not evaluate the agencies’ decisions to award or deny  applications or the potential for success of any project. Rather, we  assessed the extent to which NTIA and RUS developed and implemented a  due-diligence review process. In addition to reviewing the sample, we  interviewed agency officials and two award recipients.
To determine the challenges, if any, that NTIA and RUS face in awarding  the remaining broadband stimulus funds, we studied the requirements set  forth in the Recovery Act; evaluated changes between the first- and  second-round funding notices; and interviewed agency officials,  representatives of five telecommunications associations, and two award  recipients. We also reviewed prior GAO, CRS, and Commerce IG reports to  learn about issues affecting the broadband stimulus programs. We also  monitored agency press releases and tracked notices published on the  Broadbandusa.gov Web site.
Finally, to determine the actions NTIA and RUS are taking to oversee grant  and loan recipients, we interviewed agency officials about plans to  monitor and oversee awardees. During these meetings, we discussed  Recovery Act reporting requirements, as well as specific BTOP and BIP  requirements. We also reviewed agency plans and guidance provided to  recipients. We compared those plans to requirements established in the  Recovery Act and guidance from the Office of Management and Budget,  the Domestic Working Group, and GAO.
We conducted this performance audit from February through August 2010  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: Broadband Projects with Multistate Service Areas, First Funding Round
paragraphs: Table 9 provides information on the 10 BTOP and 3 BIP projects covering  areas in multiple states.
section_title: Appendix III: Comments from the Department of Agriculture
section_title: Appendix IV: Comments from the Department of Commerce
section_title: Appendix V: GAO Contact and Staff Acknowledgments
subsections: section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Michael Clements, Assistant  Director; Jonathan Carver; Elizabeth Eisenstadt; Brandon Haller; Tom  James; Elke Kolodinski; Kim McGatlin; Josh Ormond; and Mindi  Weisenbloom made key contributions to this report.