New FCC Rules on the Recovery of Funds
Message Posted October 3, 2004
(Note: This is the third message of four, dealing with the FCC's recent 5th
Order. Please read this message carefully as the FCC is now stating that
they will be taking back your E-rate funding if you are found to have
violated any one of a list of specific rules -- some of them incredibly
minor.)
In an initial Order (FCC 99-292), adopted by the FCC in 1999, a so-called
Commitment Adjustment (“COMAD”) process was set forth directing USAC to
recover E-rate funds incorrectly committed or disbursed in contravention of
FCC rules. With limited exceptions, the COMAD process required repayments
to be made by the service providers (to whom the actual payments had been
made). Recovery of funds from the applicants, if appropriate, was left to
the vendors.
Earlier this summer, the FCC released a Fourth Report and Order (FCC 04-181)
modifying the COMAD process so that the recovery of improperly disbursed
funds would henceforth be “…directed at whichever party or parties has
committed to determine which applicant and/or vendor “…was in a better
position to prevent the…violation, and which party committed the act or
omission that forms the basis for the…violation.”
The Fifth Order, released only two weeks after the Fourth, deals with the
what, when, and how of funds recovery. The Order notes that recovery may
not be appropriate for the violation of all rules, regardless of
codification, but does provide a fairly specific list of recoverable
violations, including those involving:
o Competitive bidding requirements.
o Necessary resources (i.e., Item 25) certifications.
o Service substitutions.
o Failure to pay non-discounted shares.
o Duplicative services.
o Completion of services outside the funding year.
o Discount calculation violations.
o Partial year services funded for the entire year.
o On a case-by-case basis, situations in which “…a service provider has
charged…an inflated price” or in which the applicant “…has not made a bona
fide request based on its reasonable need.”
The Order effectively establishes a statutory term limit on an applicant’s
or vendor’s reimbursement responsibilities by limiting audits or
investigations that would lead to recovery to five years from the final
delivery of service for a specific funding year. This corresponds to the
five-year record retention rule also formalized in the Fifth Order.
The Order also establishes rules governing the rights and responsibilities
of parties subject to an E-rate recovery action. Three aspects of the rules
are particularly important.
1) As with other E-rate decisions, recovery actions remain subject to SLD
or FCC appeal. One important point to note, however, is that the rules
apparently require challenges to the validity of any debt to be made within
15 days of the notice of the debt. Other E-rate appeals may be filed
anytime within 60 days of a decision.
2) Payments are generally due within 30 days of the requests. The
collection process is not stayed by any appeal. Interest, fees, and
penalties may apply after 30 days. Installment payments, or other
“arrangements,” can be negotiated under certain circumstances. Recovery
amounts cannot be offset from future E-rate funds.
3) A “red light rule” applies to any delinquent payer. The rule requires
USAC to dismiss any outstanding request for funding commitments by either a
delinquent applicant or a delinquent service provider. If the recovery
request is under appeal, USAC will defer, rather than dismiss, new funding
decisions. The SLD has not yet indicated if it will develop a system to
alert applicants of vendor red light situations, or vice versa, although we
are advocating strongly for such a notification system to be developed.
Please note: This means that if your service provider has not paid their
debts to USAC for their quarterly contributions, the SLD will NOT process
any invoices with that SPIN. Therefore it is extremely important for
everyone -- both service providers and applicants -- to make sure they are
paid-up with any outstanding debts or fines to the FCC.
I will be discussing this topic in greater detail at the E-rate training
workshops being held this fall. Please register now if you haven't done so
already.
-- Julie
Julie Tritt Schell
jtschell@comcast.net
(717) 730.7133 (voice)
(717) 730.9060 (fax)
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