July 1998 Announcements

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Summary Statement of Ira Fishman CEO of the Schools and Libraries Corporation Before the Senate Committee on Commerce, Science and Transportation

July 16, 1998

Mr. Chairman and Members of the Committee, I am pleased to be here today to report to you on the status of the Schools and Libraries Corporation’s administration of the universal service fund for schools and libraries with a particular focus upon the issues that are the subject of the General Accounting Office’s investigation.

At the Chairman’s request, the U.S. General Accounting Office (GAO) has been conducting an investigation of the operations of the Schools and Libraries Corporation (SLC), particularly our procedures to protect against waste, fraud, and abuse. We at the SLC have viewed the GAO’s investigation as a way to improve our operations. We have cooperated completely and been fully forthcoming with the GAO auditors

The GAO has made four specific recommendations about our operations. We concur in those recommendations and will implement them.

Our mission is straightforward: to administer the universal service fund for schools and libraries efficiently and effectively so that every school and library has the opportunity to participate. We are fully accountable to the FCC for how we implement its rules and administer the universal service fund. In addition to FCC oversight, under the FCC rules, we are also subject to an annual, independent financial audit. And we see ourselves as equally accountable to the Congress and this Committee.

This first year of implementation has been very challenging – likely the most challenging, extensive, and intensive we will ever face – as we have built the SLC Web Site, established a client service bureau and a program integrity assurance program, developed operating policies and procedures, and implemented an extensive outreach program.

The Schools and Libraries Corporation itself has only 15 employees. The bulk of the SLC’s day-to-day operations are conducted by contractors – primarily by the National Exchange Carrier Association (NECA).

We share the Committee’s commitment to ensuring that the resources available for the universal service fund for schools and libraries go, to the maximum extent possible, to eligible entities for eligible services and that schools and libraries receive the discounts to which they are entitled but no more. At least 35 percent of our current budget projection is for program integrity assurance. Indeed, our commitment to program integrity is evidenced from the outset of our operations not only by our investment in our operations but in our communications to schools and libraries. The first letter we wrote in November 1997 to potential participants made it clear that guarding against waste, fraud and abuse is one of our primary responsibilities. It is a warning that has been repeated consistently since then.

The FCC designed the schools and libraries universal service program with a number of features specifically intended to guard against waste, fraud and abuse. The program combines market-driven incentives with direct regulatory sanctions. First, the FCC required posting on the SLC Web Site of new service requests to encourage competitive bidding and the lowest prices. Second, the schools and libraries must pay from their own budgets the non-discounted portion of the services for which they are seeking discounts.

Supplementing these market-based protections are a number of direct regulatory requirements. First, the FCC required certification, under penalty of civil and criminal enforcement, that the applicant is complying with program rules. In addition, the FCC required that schools and libraries receiving discounts have a sufficient budget to maintain and effectively use the new services and equipment.

The SLC program integrity measures represent another set of overlapping protections against waste, fraud, and abuse. Our computer system will flag applications that raise potential issues of program compliance. Different flags are used to target the risks that we are guarding against.

In addition to reviewing applications flagged by the system as potentially raising program compliance issues, we will conduct reviews of a risk-based sample of applications even though they are not flagged as raising such issues. These reviews will include assessments of the adequacy of the applicant’s resources to support the services for which it is requesting discounts, to assure the validity of the applicant’s certification on this issue.

We have not relied solely upon our own abilities in this area. As the FCC required, we have underway an independent assessment of controls by Pricewaterhouse Coopers.

And program integrity is, of course, the primary focus of GAO’s investigation of the SLC. As they finalized their testimony for this hearing, GAO developed specific recommendations for changes in our program integrity assurance procedures. We have agreed to implement those recommendations.

As of April 15, 1998, the end of the 75-day window during which all applications are to be treated as if simultaneously received, we had received more than 30,000 FCC Forms 471 requesting discounts. We have received applications from schools and libraries in all 50 states. Particularly heartening is that participation has come from urban and rural, big and small, rich and poor, public and private.

Universal service for schools and libraries is off to a strong start. SLC will continue to work diligently to ensure that the fund is administered properly and efficiently. In particular, we will aggressively implement the procedures we have in place to ensure that discounts go only to eligible entities for eligible services at the appropriate discount percentage and that other program rules reflected in the certifications an applicant must make on the application forms are observed.

A meeting of the Board of Directors of the SLC will begin immediately following the 1:30 P.M. USAC Board meeting on Monday, July 20, 1998.   The SLC meeting is expected to begin at 4:00 P.M. EST.  If necessary, it will resume at 8:30 A.M., Tuesday, July 21, 1998. 

The meeting will be held at the following location:

Washington Marriott
1221 22nd Street, NW
Washington, DC 20037
Phone: 202 872-1500
Fax:     202 872-9899