IPcentral Weblog
  The DACA Blog

Monday, December 15, 2008

Another Day, Another Billion or So Unaccounted For
(previous | next)

benjamins.gifNo, I am not referring to the economic bailout numbers coming out of Washington.  Sadly, I am once again referring to the amount of telephone consumer funds potentially lost through lax oversight of Universal Service Fund recipients by the Federal Communications Commission.  The FCC's Office of the Inspector General has just released two more statistical analyses and audit reports on the USF "Low Income Program" and "Schools and Libraries Program (known as the "e-rate"), available here and here, concerning failures of oversight and administration of these support programs.  The results, to paraphrase my colleague Adam Thierer, "are not pretty." 


The Low Income Program is designed to ensure that quality telecommunications services are available to low-income customers at just, reasonable and affordable rates.  There are three components, Lifeline, Link Up and Toll Limitation Service.  The FCC establishes eligibility criteria, and also certification and validation procedures designed to minimize potential abuse of the system.  Consumers who wish to participate and receive reductions in their local phone rates apply to their local carrier or designated agency, and the companies then seek reimbursement from the federal Low Income Program for the revenue they forgo when providing discounted service to eligible low-income consumers.


As the report makes clear, $1.6 billion of support for telecommunications services provided to the nation's neediest customers must be considered "erroneous" because the Fund Administrator, the Universal Service Administration Company (USAC) was making initial disbursements to carriers "on the basis of its estimate of their foregone revenues rather than reimbursing [eligible telecommunications carriers] for actual claims."  That is not to say the payments were necessarily incorrect or inflated.  It is to say that there is no way to verify that they were not any of the above, because the Administrator failed to retain the "source documentation that would permit verification of the calculations of the amounts disbursed," and "the lack of that documentation necessitates a determination that payment made in reliance on such documentation must be considered an erroneous payment."  In other words, it seems that lax internal controls here have so undermined the integrity of the program that the propriety of any given payment cannot be verified. 


Although an "informal sampling" of the projected foregone revenues and the after-the-fact eligible provider claims found that the two were nearly identical in most cases, the OIG committed to examining those patterns more closely in the future.  Thus, while the 100% "erroneous payment" designation is clearly the result of a huge failure of documentation, it is nonetheless highly troubling in and of itself.  The OIG gently suggests that in light of the passage of time and industry changes since the program was established, "the Commission may want to re-examine the assumptions underlying the [Low Income] Program's disbursement structure and disbursements mechanism."  I'll say.


It seems that the reimbursement claims were paid out on the basis of cost estimations that cannot be verified after-the-fact because of USAC's "longstanding" practice of "destroy[ing] or writ[ing] over the data" underlying its projections.  The report cogently observes that the hiring of a CPA to annually review the inputs and criteria used in the USAC cost model "does not negate the need for the underlying source documentation to be maintained and available for review."  Good point, but where has the FCC been all these years?  How did a longstanding practice of documentation destruction come to be "longstanding" without being previously detected?  As I have said with respect to the "at risk" High Cost Program, ultimate responsibility for the oversight of the operation of these support programs and the Fund Administrator rests with the FCC, and it has apparently failed in that regard.


At first glance, in comparison to the 100% erroneous payment conclusion in theLow Income Program report, the OIG's conclusion that only 13.8% of disbursements from the Schools and Libraries Program constituted "erroneous payments" doesn't look that bad.  But looks can be deceiving.  The news release accompanying the report states: 


The erroneous payment rate is estimated to be 13.8% for the Schools & Libraries which exceeds the erroneous payment rate from the 2007 audits which was 12.9%.  Total estimated erroneous payments for the Schools and Libraries Program is $232.7 million as compared with $210 million for the 2007 audits.  Accordingly, the FCC-OIG has concluded that the Schools & Libraries Fund is 'at risk' under the IPIA criteria.


That is, at risk and evidently getting riskier each year.  The report's discussion of the audit reports reveals that 99.5% of the erroneous payments were over-payments.  And, similar to the problems identified with the High Cost fund, the principal causes for the erroneous overpayments were oversight and accounting failures and disregard for FCC rules.


As distressing as they are, problems with the FCC's oversight of these important programs are neither new nor especially surprising.  They warrant repeated emphasis, however, in light of two factors.


First, as we have seen, agency resources under FCC Chairman Martin have been repeatedly diverted to pursue a regulatory program concerning cable rate levels that is beyond the scope of the agency's jurisdiction.  The recent cable rate probes are just one example.  As consumer-friendly as the Chairman's obsession with cable pricing may appear, it bears repeating that pursuant to Congressional directive, rates for the cable programming service tier (the most popular tier purchased by consumers) have been de-regulated.  That is, Congress has told the agency to "stand down" and instead let competition in the multichannel video programming market protect consumer interests.  In light of this, the Chairman's repeated efforts allegedly directed at lowering cable rates appear at best to be a misdirection of Commission resources. 


Many other efforts, particularly the Chairman's Ahab-like quest of cable a la carte pricing, are catalogued in the sad, but telling report issued by the Majority Staff of the House Energy and Commerce Committee.  At the same time we find out that while FCC attention has been directed at ends not sanctioned by Congress, telecommunications service consumer rates, which remain within the agency's core statutory responsibilities, have been repeatedly and adversely affected by the FCC's inattention to its express statutory obligations to exercise oversight over important telecommunications service support funds to ensure that rates are just, reasonable and affordable.  In short, that which should not have been done has been done, and that which should have been done has gone wanting.


Second, with renewed calls on the part of many to expand Universal Support funding for broadband services, it is absolutely critical that the Commission ensure that these programs are accountable and are being properly administered.  In the month of December alone, the FCC-OIG has released the results of statistical analyses and audit reports demonstrating that every examined support fund under the Commission's supervision is "at risk," and that (i) nearly $1 billion of the over $4 billion USF High Cost Program went out the door last year in erroneous overpayments; (ii) 100% of the $810 million in Low Income Program payments during 2007-2008 lacked adequate documentation; (iii) 100% of the $795.8 million Low Income Program payments for 2006-2007 lacked adequate documentation; (iv) the total estimated erroneous overpayments for the Schools and Libraries Program for 2007-2008 is $232.7 million; and (v) the Telecommunications Relay Service Fund is increasing in size 50-80% per year, ballooning from about $38 million ten years ago to over $850 million today. 


A billion here, several hundred million there, and pretty soon you realize you are talking about potentially significant overpayments for interstate telecommunications services by every consumer in America, all under the auspices of support funds overseen by the FCC.  Those who are concerned about protecting the country's telecommunications rate payers should be outraged at this record and should demand that the agency return to its core mission as outlined by Congress in the Communications Act.

posted by Barbara Esbin @ 11:22 AM | The FCC , Universal Service

Share |

Link to this Entry | Printer-Friendly

Post a Comment:

Blog Main
RSS Feed  
Recent Posts
  EFF-PFF Amicus Brief in Schwarzenegger v. EMA Supreme Court Videogame Violence Case
New OECD Study Finds That Improved IPR Protections Benefit Developing Countries
Hubris, Cowardice, File-sharing, and TechDirt
iPhones, DRM, and Doom-Mongers
"Rogue Archivist" Carl Malamud On How to Fix Gov2.0
Coping with Information Overload: Thoughts on Hamlet's BlackBerry by William Powers
How Many Times Has Michael "Dr. Doom" Copps Forecast an Internet Apocalypse?
Google / Verizon Proposal May Be Important Compromise, But Regulatory Trajectory Concerns Many
Two Schools of Internet Pessimism
GAO: Wireless Prices Plummeting; Public Knowledge: We Must Regulate!
Archives by Month
  September 2010
August 2010
July 2010
June 2010
  - (see all)
Archives by Topic
  - A La Carte
- Add category
- Advertising & Marketing
- Antitrust & Competition Policy
- Appleplectics
- Books & Book Reviews
- Broadband
- Cable
- Campaign Finance Law
- Capitalism
- Capitol Hill
- China
- Commons
- Communications
- Copyright
- Cutting the Video Cord
- Cyber-Security
- Digital Americas
- Digital Europe
- Digital Europe 2006
- Digital TV
- E-commerce
- e-Government & Transparency
- Economics
- Education
- Electricity
- Energy
- Events
- Exaflood
- Free Speech
- Gambling
- General
- Generic Rant
- Global Innovation
- Googlephobia
- Googlephobia
- Human Capital
- Innovation
- Intermediary Deputization & Section 230
- Internet
- Internet Governance
- Internet TV
- Interoperability
- IP
- Local Franchising
- Mass Media
- Media Regulation
- Monetary Policy
- Municipal Ownership
- Net Neutrality
- Neutrality
- Non-PFF Podcasts
- Ongoing Series
- Online Safety & Parental Controls
- Open Source
- PFF Podcasts
- Philosophy / Cyber-Libertarianism
- Privacy
- Privacy Solutions
- Regulation
- Search
- Security
- Software
- Space
- Spectrum
- Sports
- State Policy
- Supreme Court
- Taxes
- The FCC
- The FTC
- The News Frontier
- Think Tanks
- Trade
- Trademark
- Universal Service
- Video Games & Virtual Worlds
- VoIP
- What We're Reading
- Wireless
- Wireline
Archives by Author
PFF Blogosphere Archives
We welcome comments by email - look for a link to the author's email address in the byline of each post. Please let us know if we may publish your remarks.

The Progress & Freedom Foundation