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

Letter

Background

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.

NTIA and RUS Funded 150 Projects Totaling $2.2 Billion in the First Funding Round

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.

NTIA’s and RUS’s Due- Diligence Reviews Consistently Substantiated Information in the Awardees’ Applications

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.

NTIA and RUS Face Challenges in Awarding Funds on Time and Have Taken Actions to Streamline Application Reviews

NTIA and RUS Must Award a Significant Amount of Funds in a Short Time

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.

Agencies Must Award Remaining Funds with Still-Incomplete Broadband Mapping Data, Slowing the Review Process

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.

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

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.

Agencies Are Developing Postaward Oversight Plans, but Some Risks to the Success of the Broadband Stimulus Programs Remain

The Recovery Act, Specific Program Requirements, and Leading Practices Identify Components of Effective Oversight

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.

NTIA Is Finalizing a New Postaward Framework; RUS Plans to Rely on Existing Oversight Mechanisms

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.

Despite Steps Taken, Some Risks to Projects’ Success Remain

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.

Conclusion

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.

Recommendation for Executive Action

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.

Agency Comments

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.

Appendix I: Objectives, Scope, and Methodology

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.

Appendix II: Broadband Projects with Multistate Service Areas, First Funding Round

Table 9 provides information on the 10 BTOP and 3 BIP projects covering areas in multiple states.

Appendix III: Comments from the Department of Agriculture

Appendix IV: Comments from the Department of Commerce

Appendix V: GAO Contact and Staff Acknowledgments

Staff Acknowledgments

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.