[Federal Register Volume 69, Number 176 (Monday, September 13, 2004)]
[Rules and Regulations]
[Pages 55097-55111]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-20363]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Parts 0, 1, and 54

[CC Docket No. 02-6; FCC 04-190]


Schools and Libraries Universal Service Support Mechanism

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: In this document, the Commission adopts measures to protect 
against waste, fraud, and abuse in the administration of the schools 
and libraries universal service support mechanism (also known as the E-
rate program). In particular, the Commission resolves a number of 
issues that have arisen from audit activities conducted as part of 
ongoing oversight over the administration of the universal service 
fund, and we address programmatic concerns raised by our Office of 
Inspector General.

DATES: Effective October 13, 2004 except for Sec. Sec.  1.8003, 
54.504(b)(2), 54.504(c)(1), 54.504(f), 54.508, and 54.516 which contain 
information collection requirements that are not effective until 
approved by the Office of Management and Budget. The FCC will publish a 
document in the Federal Register announcing the effective date for 
those sections.

FOR FURTHER INFORMATION CONTACT: Jennifer Schneider, Attorney, Wireline 
Competition Bureau, Telecommunications Access Policy Division, (202) 
418-7400.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Fifth 
Report and Order, and Order in CC Docket No. 02-6 released on August 
13, 2004. The full text of this document is available for public 
inspection during regular business hours in the FCC Reference Center, 
Room CY-A257, 445 Twelfth Street, SW., Washington, DC, 20554.

I. Introduction

    1. In this order, we adopt measures to protect against waste, 
fraud, and abuse in the administration of the schools and libraries 
universal service support mechanism (also known as the E-rate program). 
In particular, we resolve a number of issues that have arisen from 
audit activities conducted as part of ongoing oversight over the 
administration of the universal service fund, and we address 
programmatic concerns raised by our Office of Inspector General (OIG). 
First, we set forth a framework regarding what amounts should be 
recovered by the Universal Service Administrative Company (USAC or 
Administrator) and the Commission when funds have been disbursed in 
violation of specific statutory provisions and Commission rules. 
Second, we announce our policy regarding the timeframe in which USAC 
and the Commission will conduct audits or other investigations relating 
to use of E-rate funds. Third, we eliminate the current option to 
offset amounts disbursed in violation of the statute or a rule against 
other funding commitments. Fourth, we extend our red light rule 
previously adopted pursuant to the Debt Collection Improvement Act 
(DCIA) to bar beneficiaries or service providers from receiving 
additional benefits under the schools and libraries program if they 
have failed to satisfy any outstanding obligation to repay monies into 
the fund. Fifth, we adopt a strengthened document retention requirement 
to enhance our ability to conduct all necessary oversight and provide a 
stronger enforcement tool for detecting statutory and rule violations. 
Sixth, we modify our current requirements regarding the timing, content 
and approval of technology plans. Seventh, we amend our beneficiary 
certification requirements to enhance our oversight and enforcement 
activities. Eighth, we direct USAC to submit a plan for timely audit 
resolution, and we delegate authority to the Chief of the Wireline 
Competition Bureau to resolve audit findings. Finally, we direct USAC 
to submit on an annual basis a list of all USAC administrative 
procedures to the Wireline Competition Bureau (Bureau) for review and 
further action, if necessary, to ensure that such procedures 
effectively serve our objective of preventing waste, fraud and abuse.

II. Fifth Report and Order

    2. Since the inception of the schools and libraries support 
mechanism, schools and libraries have been subject to audits to 
determine compliance with the program rules and requirements. Audits 
are a tool for the Commission and USAC, as directed by the

[[Page 55098]]

Commission, to ensure program integrity and to detect and deter waste, 
fraud, and abuse. Because audits may provide information showing that a 
beneficiary or service provider failed to comply with the statute or 
Commission rules applicable during a particular funding year, audits 
can reveal instances in which universal service funds were improperly 
disbursed or used in a manner inconsistent with the statute or the 
Commission's rules. As explained below, we adopt measures relating to 
recovery of such funds and other measures to strengthen the integrity 
of the schools and libraries mechanism of the universal service program 
and enhance our ongoing oversight over this program.
    3. We stress that the measures we adopt herein are not the final 
steps we plan to take for strengthening oversight of the universal 
service program and combating waste, fraud, and abuse. We remain 
committed to deterring inappropriate uses of universal service monies 
and to rapidly detecting and addressing potential misconduct (including 
waste, fraud, and abuse), and we recognize that achieving these goals 
is a continual process. We note that we previously sought comment on 
additional oversight mechanisms, including a requirement that 
beneficiaries obtain and pay for independent audits of their compliance 
with our rules. We are continuing to work on various proposals for 
improving our oversight of the universal service program, and we expect 
to issue an order adopting additional measures in the near future.

A. Recovery of Funds

a. What To Recover
    4. It is clear that funds disbursed in violation of the statute or 
a rule that implements the statute or a substantive program goal must 
be recovered. In this order we identify rules of this type and provide 
advance notice to all stakeholders that violation of these rules will 
result in recovery. In addition, we recognize that other rules may be 
necessary to protect against waste, fraud and abuse, and that violation 
of these types of rules will warrant recovery as well, as set forth in 
this order.
    5. On the other hand, we agree with commenters that recovery may 
not be appropriate for violation of all rules regardless of the reason 
for their codification. For example, when the administrative costs of 
recovering funds disbursed in violation of a rule exceed the improperly 
disbursed amount, it may be reasonable not to seek recovery. Likewise 
recovery may not be appropriate for violation of procedural rules 
codified to enhance operation of the e-rate program. We seek to ensure 
that the determination is made and communicated to applicants in 
advance. Consistent with this policy, as described more fully below, we 
intend to evaluate whether there are USAC procedures that should be 
codified into the Commission's rules and whether violation of each 
should also be a basis for recovery. Applicants will be required to 
comply with procedural rules in applying for support--and applications 
that do not comply will be rejected. If, however, the procedural 
violation is inadvertently overlooked during the application phase and 
funds are disbursed, the Commission will not require that they be 
recovered, except to the extent that such rules are essential to the 
financial integrity of the program, as designated by the agency, or 
that circumstances suggest the possibility of waste, fraud, or abuse, 
which will be evaluated on a case-by-case basis.
    6. Amounts disbursed in violation of the statute or a rule that 
implements the statute or a substantive program goal must be recovered 
in full. In situations where disbursement of funds is warranted under 
the statute and rules, but an erroneous amount has been disbursed, the 
amount of funds that should be recovered is the difference between what 
the beneficiary is legitimately allowed under our rules and the total 
amount of funds disbursed to the beneficiary or service provider. We 
set forth below a number of examples to illustrate the applications of 
this principle.
    7. Competitive Bidding Requirements. We conclude that we should 
recover the full amount disbursed for any funding requests in which the 
beneficiary failed to comply with the Commission's competitive bidding 
requirements as set forth in Sec.  54.504 and Sec.  54.511 of our rules 
and amplified in related Commission orders. For instance, it is 
appropriate to recover the full amount of funds disbursed for a funding 
request when the beneficiary signs a contract before the end of the 28-
day posting period. Likewise, it is appropriate to recover the full 
amount disbursed in a situation where the beneficiary failed to 
consider price as the primary factor when evaluating among competing 
bids. This conclusion is based on our position that the competitive 
bidding process is a key component of the schools and libraries 
program, ensuring that funds support services that satisfy the precise 
needs of an applicant and that services are provided at the lowest 
possible rates.
    8. Necessary Resources Certification. We conclude that a lack of 
necessary resources to use the supported services warrants full 
recovery of funds disbursed for all relevant funding requests. The 
requirements that beneficiaries have sufficient computer equipment, 
software, staff training, internal connections, maintenance and 
electrical capacity to make use of the supported services are integral 
to ensuring that these monies are used for their intended purposes, 
without waste, fraud or abuse.
    9. Service Substitution. Parties have the opportunity to make 
legitimate changes to requested services when events occur that make 
the original funding request impractical or even impossible to fulfill. 
Last December, we codified rules to address requests for service or 
equipment changes, concluding that allowing parties to make such 
substitutions is consistent with our goal of affording schools and 
libraries maximum flexibility to choose the offering that meets their 
needs more effectively and efficiently. We conclude that in situations 
where a service substitution would meet the criteria now established in 
our rules, the appropriate amount to recover is the difference between 
what was originally approved for disbursement and what would have been 
approved, had the entity requested and obtained authorization for a 
service substitution. In situations where the service substitution 
would not meet the criteria established in our rules, the appropriate 
amount to recover is the full amount associated with the service in 
question.
    10. Failure To Pay Non-Discounted Share. We conclude that all funds 
disbursed should be recovered for any funding requests in which the 
beneficiary failed to pay its non-discounted share. While our rules do 
not set forth a specific timeframe for determining when a beneficiary 
has failed to pay its non-discounted share, we conclude that a 
reasonable timeframe is 90 days after delivery of service. Allowing 
schools and libraries to delay for an extended time their payment for 
services would subvert the intent of our rule that the beneficiary must 
pay, at a minimum, ten percent of the cost of supported services. We 
believe, based on USAC's experience to date as Administrator, that a 
relatively short period `` comparable to what occurs in commercial 
settings--should be established in which beneficiaries are expected to 
pay their non-discounted share after completion of delivery of service. 
In other contexts, companies refer payment matters to collection 
agencies if a customer fails to pay after

[[Page 55099]]

several requests for payment. Accordingly, we clarify prospectively 
that a failure to pay more than 90 days after completion of service 
(which is roughly equivalent to three monthly billing cycles) 
presumptively violates our rule that the beneficiary must pay its 
share. For purposes of resolving any outstanding issues relating to 
audits conducted prior to the issuance of this clarification, we direct 
USAC to determine whether full payment had been made as of the time the 
audit report was finalized. If any amounts remained outstanding at the 
conclusion of the audit work, that constitutes a rule violation 
warranting recovery of all amounts disbursed. Information on payment of 
the non-discounted share shall be sought from the beneficiary.
    11. Duplicative Services. As noted in the Schools and Libraries 
Second Order, 68 FR 36931, June 20, 2003, our rules prohibit the 
funding of duplicative services, defined as services that provide the 
same functionality to the same population in the same location during 
the same period of time. In such circumstances, we ordinarily will 
recover the amount associated with the more expensive of the 
duplicative services, except in situations where there are indications 
of fraud, where we may recover the full amount of the funding request.
    12. Failure To Complete Service Within the Funding Year. We 
conclude that the failure to complete delivery of services by the 
relevant deadline for a particular funding year is a rule violation 
that warrants recovery of all funds disbursed for services installed or 
delivered after the close of the funding year. We note that parties are 
always free to seek an extension of time to install non-recurring 
services from USAC, consistent with the conditions set by the 
Commission for such an extension. Such extensions have been granted in 
situations where installation cannot be completed for reasons outside 
the control of the beneficiary. Generally, however, the Commission 
requires service to be completed within one Funding Year, in order to 
promote equity among applicants and to avoid waste.
    13. Discount Calculation Violation. When applicants fail to 
calculate properly their appropriate discount rate, the amount 
disbursed in violation of this rule is the difference between the 
amount of support to which the beneficiary is legitimately allowed and 
the amount requested or provided. For instance, in a situation in which 
the beneficiary made a clerical error in calculating the level of 
participation in the school lunch program, or failed to use an approved 
methodology for calculating the level of school lunch participation, 
the beneficiary may legitimately receive support under a recalculated 
discount rate. In these circumstances, the amount to recover is the 
difference between the incorrectly calculated amount and the amount 
recalculated with the appropriate discount. We emphasize, however, that 
in the narrow circumstance where there is evidence that an applicant 
has manipulated its discount rate in a deliberate attempt to defraud 
the government, full recovery may be appropriate. Moreover, in 
situations where the applicant would not have qualified for any support 
for internal connections had it properly applied the discount, the 
recovery would be the entire amount disbursed.
    14. Service Not Provided for Full Funding Year. Similarly, if an 
applicant requested and received funding for a full year, and the 
service provider billed for the full year, but provided services for 
less than the full year, we believe it would be appropriate to pro-rate 
support and recover the excess. Such adjustments are ordinarily made 
prior to disbursement when discovered by USAC through normal review 
processes.
    15. Recovery Only for Waste, Fraud and Abuse. We reject the 
argument some commenters make that applicants should not be required to 
repay the fund unless waste, fraud or abuse is established. We believe 
that there may be instances in which rule violations undermine 
statutory requirements or substantive policy goals of the program, but 
may not rise to the level of waste, fraud or abuse. For example, a 
request for an ineligible service might not entail waste, fraud or 
abuse, but it is still a violation for which recovery is necessary. 
While we appreciate that it may impose some hardship to make repayment 
in some situations, a statutory or rule violation cannot be absolved 
merely because the nature of the violation does not implicate waste, 
fraud or abuse. Moreover, to limit recovery to situations involving 
waste, fraud or abuse would place us in the position of condoning 
violation of the program's rules Further, it would provide no 
incentives to applicants or service providers to take the necessary 
steps to familiarize themselves with our rules and put controls in 
place to ensure rule compliance. Nor do we believe it appropriate for a 
beneficiary to retain an overpayment if, for some reason, USAC has 
mistakenly disbursed an amount in excess of that which the entity is 
allowed under our rules. If there are unique reasons why a particular 
entity believes recovery for a rule violation is inappropriate, that 
party is always free to present such information in seeking review of 
USAC's decision to recover monies, pursuant to Sec.  54.722. We note, 
however, that we are without authority to waive statutory violations.
    16. While we have not, to date, enunciated a bright line standard 
for determining whether a particular funding request or activities 
related to it depart from this standard to a degree that constitutes 
waste, fraud or abuse, we emphasize that we, and USAC in the first 
instance, retain the discretion to make such determinations on a case-
by-case basis in the course of examining specific factual 
circumstances. For example, section 254(h)(1)(B) of the Act requires 
that applicants make a bona fide request for services to be used for 
educational purposes. A funding request may not be bona fide in a 
situation in which a service provider has charged the beneficiary an 
inflated price. Thus, it would be appropriate to recover amounts 
disbursed in excess of what similarly situated customers are normally 
charged in the marketplace. Similarly, in a situation in which the 
beneficiary has requested a clearly excessive level of support `` which 
necessarily must be judged in the context of the specific circumstances 
of the school or library `` it would also be appropriate to recover the 
full amount of the funding request, because the beneficiary has not 
made a bona fide request based on its reasonable needs. In addition, in 
specific cases where there is evidence of fraudulent conduct, it would 
be appropriate to refer such matters to law enforcement officials.
b. When To Recover Funds
    17. In this section, we establish an administrative limitations 
period in which the Commission or USAC will determine that a violation 
has occurred. We believe that announcing a general policy in this area 
is in the public interest because it provides applicants and service 
providers with some certainty of the timing by which an audit or 
further review of e-rate funding may occur. We also conclude that a de 
minimis exception is in the public interest and direct USAC generally 
not to seek recovery when the administrative cost is greater than the 
recovery amount. Finally, we decline to implement a rule generally 
requiring full recovery when a pattern of violations is discovered, 
recognizing the punitive nature of such a rule. Rather, we direct USAC 
to conduct more rigorous scrutiny of applications in subsequent funding 
years when systematic noncompliance of FCC rules is suspected, and we 
direct USAC to

[[Page 55100]]

refer such situations to the Bureau, as appropriate, for further 
consideration.
    18. Administrative Limitations Period for Audits or Other 
Investigations by the Commission or USAC. We believe that some 
limitation on the timeframe for audits or other investigations is 
desirable in order to provide beneficiaries with certainty and closure 
in the E-rate applications and funding processes. For administrative 
efficiency, the time frame for such inquiry should match the record 
retention requirements and, similarly, should go into effect for 
Funding Year 2004. Accordingly, we announce our policy that we will 
initiate and complete any inquiries to determine whether or not 
statutory or rule violations exist within a five year period after 
final delivery of service for a specific funding year. We note that 
USAC and the Commission have several means of determining whether a 
violation has occurred, including reviewing the application, post 
application year auditing, invoice review and investigations. Under the 
policy we adopt today, USAC and the Commission shall carry out any 
audit or investigation that may lead to discovery of any violation of 
the statute or a rule within five years of the final delivery of 
service for a specific funding year.
    19. In the E-rate context, disbursements often occur for a period 
up to two years beyond the funding year. Moreover, audit work typically 
is not performed until after the disbursement cycle has been completed. 
For consistency, our policy for audits and other investigations mirrors 
the time that beneficiaries are required to retain documents pursuant 
to the rule adopted in this order. We believe that conducting inquiries 
within five years strikes an appropriate balance between preserving the 
Commission's fiduciary duty to protect the fund against waste, fraud 
and abuse and the beneficiaries' need for certainty and closure in 
their E-rate application processes.
    20. One commenter argues that fund recovery actions should be 
subject to a one year statute of limitations, comparable to the 
limitation for imposition of forfeitures, while others argue that a two 
year timeframe, beginning the date of the funding commitment decision 
letter, is appropriate. We emphasize that our policy regarding 
initiation of audits or other investigations does not affect the 
statutes of limitations applicable under the DCIA for collection of 
debts established by the Commission.
    21. Recovery for De Minimis Amounts. We conclude that it does not 
serve the public interest to seek to recover funds associated with 
statutory or rule violations when the administrative costs of seeking 
recovery outweigh the dollars subject to recovery. Accordingly, we 
direct USAC not to seek recovery of such de minimis amounts. We direct 
USAC to provide the Wireline Competition Bureau and the Office of 
Managing Director sufficient information regarding the administrative 
costs of seeking recovery of improperly disbursed funds so that a de 
minimis amount can be determined.
    22. Recovery for Pattern of Rule Violations. We decline at this 
time to adopt a rule requiring recovery of the full amount disbursed in 
situations in which there is a pattern of rule or statutory violations, 
but the specific individual violations collectively do not require 
recovery of all disbursed amounts. We believe it would be difficult to 
establish a workable bright line standard that USAC could apply in such 
cases, and therefore decline to adopt such a rule at this time. We 
direct the Wireline Competition Bureau to consider such situations on a 
case-by-case basis in the course of resolving audit findings. Moreover, 
we emphasize that USAC should subject any school or library that 
exhibits systematic noncompliance with governing FCC rules to more 
rigorous scrutiny in the subsequent funding years. We direct USAC to 
implement this practice and to refer such situations to the Bureau, as 
appropriate, for further consideration.
c. How To Recover
    23. Elimination of the Offset Options. In the Commitment Adjustment 
Implementation Order, the Commission authorized USAC to offer service 
providers two offset methods for repayment of funds disbursed in 
violation of the statute or a rule. One offset method allowed a service 
provider to offset the debt by ``reductions in the amounts owed to the 
service provider from other existing valid commitments involving the 
same applicant and service provider in the same funding year.'' The 
other offset method permitted a service provider to offset commitments 
involving the same applicant and service provider in subsequent funding 
years.
    24. Based on our experience with implementation of the Commitment 
Adjustment Implementation Order, we now conclude that it would better 
serve our interest in protecting universal service funds to eliminate 
the offset methods adopted in that order as options for recovery of 
funds in the schools and libraries universal service mechanism. We have 
observed that, when used, such offset methods can result in a lengthy 
process that imposes a significant administrative burden on USAC. We 
note that although a service provider may fully intend to repay the 
outstanding debt in a timely manner when choosing the offset options 
adopted in the Commitment Adjustment Implementation Order, events may 
occur during the current or subsequent funding year which may delay or 
prevent payment. For example, the offset option was made available when 
there were sufficient pending funding requests to pay for the 
outstanding debt during the subsequent funding year, but if actual 
disbursements requested during that funding year do not satisfy the 
outstanding debt, the debt may continue during later funding years, or 
indefinitely if there remains an unsatisfied commitment. Even within 
the current funding year, such an offset may prove to be an attenuated, 
lengthy process, given that the beneficiary may have more than a full 
year after the close of the funding year to complete installation of 
non-recurring services, and may obtain extensions beyond that in 
specified circumstances. The potential for carrying the outstanding 
debt over several funding years, or non-payment altogether, hinders the 
ability of USAC to fully collect funds as necessary. To avoid this, and 
to promote administrative efficiency, we eliminate the offset options 
adopted in the Commitment Adjustment Implementation Order from the fund 
recovery plan.
    25. Booking of Recovery Amounts. The Commission is committed to 
meeting its obligations under federal laws by maintaining complete and 
accurate financial reporting. As we have noted in other orders, 
universal service monies are reflected on the Commission's financial 
statements. To ensure the Commission meets its goals with respect to 
accounting for universal service funds on its financial statements, the 
Commission previously has directed USAC as Administrator of the 
Universal Service Fund to prepare financial statements for the 
Universal Service Fund consistent with generally accepted principles 
for federal agencies. In accordance with the Commission's rules, 
recovery amounts should be recorded in the accounting records for the 
Universal Service Fund consistent with Federal Generally Accepted 
Accounting Principles (GAAP).
d. Treatment of Applicants Subject to Recovery Actions
    26. Some commenters stress that an opportunity to contest recovery 
should be afforded to applicants and service providers, and one 
commenter argues that applicants and service providers

[[Page 55101]]

should receive a full administrative hearing before recovery of funds 
is sought. We decline to adopt a rule providing for an administrative 
hearing before the issuance of a letter demanding recovery of funds. 
Parties are already free today to challenge any action of USAC--
including the issuance of a demand for recovery of funds--by filing a 
request for review with this Commission pursuant to Sec.  54.722 of our 
rules. We believe that this opportunity sufficiently addresses 
beneficiaries' needs. We see no significant additional public benefit 
to justify the creation of another layer of administrative process and 
the associated administrative costs for all involved.
    27. Earlier this year we amended our rules to implement the Debt 
Collection Improvement Act of 1996, which generally governs the 
collection of claims owed to the United States. Among other things, we 
adopted a rule, Sec.  1.1910, providing that the Commission shall 
withhold action on any application or request for benefits made by an 
entity that is delinquent in its non-tax debts owed to the Commission, 
and shall dismiss such applications or requests if the delinquent debt 
is not resolved. This rule (which we refer to as the ``red light 
rule'') applies to any application that is subject to the FCC 
Registration Number requirement set forth in part 1, subpart W, of our 
rules. The new DCIA rules specify that the term ``Commission'' includes 
the Universal Service Fund.
    28. In response to the Schools and Libraries Second Further Notice, 
69 FR 6181, February 10, 2004, several commenters suggested that we 
should bar or limit participation in the program when entities have 
some particular forms of outstanding claims. At present, applicants and 
some service providers under the schools and libraries mechanism are 
not required to obtain an FCC Registration Number, and as such, are not 
subject to the literal terms of Sec.  1.1910 of our rules. We believe 
adopting analogous requirements for the schools and libraries program 
would be beneficial to the administration of the program in the 
prevention of waste, fraud and abuse, however, as it would strengthen 
incentives for beneficiaries and service providers to comply with the 
statute and our rules. We therefore amend our rules to bring all E-rate 
beneficiaries and service providers within the ambit of the red light 
rule. Accordingly, we amend our rules at 47 CFR 1.8002 and 1.8003 to 
require all entities that participate in the schools and libraries 
universal service support mechanism to obtain an FCC Registration 
Number. This rule change shall go into effect pursuant to the DCIA 
Order, 69 FR 27843, May 17, 2004, and shall apply to all applications 
and recovery actions pending at that time. Thereafter, USAC shall 
dismiss any outstanding requests for funding commitments if a school or 
library, or service provider, as applicable, has not paid the 
outstanding debt, or made otherwise satisfactory arrangements, within 
30 days of the date of the notice provided for in our commitment 
adjustment procedures. In this regard, we expressly recognize that a 
school or library's ability to pay outstanding debts may be dependent 
on action by state or local officials on budgetary requests, and the 
timing of such budgetary action may be considered in determining 
satisfactory repayment options. We direct USAC to work with the 
Wireline Competition Bureau and Office of Managing Director to resolve 
any implementation issues associated with this rule.
    29. Applications will not be dismissed pursuant to our red light 
rule if the applicant has timely filed a challenge through 
administrative appeal or a contested judicial proceeding to either the 
existence or amount of the debt owed to the Commission. Our recent DCIA 
Order expressly notes that appeals made to USAC shall be deemed 
administrative appeals. Our rules thus provide the opportunity to 
contest any finding that monies are owed to the fund, and thereby toll 
the potentially harsh consequences of the red light rule. This 
addresses the concerns raised by some parties that deferring action on 
pending requests when there is an outstanding commitment adjustment 
action would unfairly dissuade parties from pursuing their legitimate 
appeal rights.
    30. Moreover, even if outstanding debts to the universal service 
fund have been repaid, we think it appropriate to subject subsequent 
applications from beneficiaries that have been found to have violated 
the statute or rules in the past to greater review. We believe it 
prudent to subject any pending applications to more rigorous scrutiny 
if USAC has determined, based on audit work or other means, that the 
applicant violated the statute or a Commission rule in the past. Such 
action is consistent with the framework previously enunciated in our 
Puerto Rico Department of Education Order for situations in which one 
or more entities is under investigation, or there is other evidence of 
potential program violations. Such heightened scrutiny could entail, 
for instance, requiring additional documentary evidence to demonstrate 
current compliance with all applicable requirements, or submission of a 
corrective plan of action to address past errors. It may also include 
site visits or other investigatory activities. Such heightened scrutiny 
could continue as long as necessary. We envision, however, that in most 
instances, such heightened scrutiny would no longer be necessary in 
subsequent years, after USAC determines that a pending application is 
compliant with the statute and Commission requirements.

B. Document Retention Requirements

    31. Most commenters addressing this issue support the adoption of a 
five-year record retention rule, but suggest that the Commission should 
provide clear guidance on what information needs to be retained for 
possible audits and/or reviews. We agree. Therefore, in this Order, we 
amend Sec.  54.516 of our rules to require both applicants and service 
providers to retain all records related to the application for, receipt 
and delivery of discounted services for a period of five years after 
the last day of service delivered for a particular Funding Year. This 
rule change shall go into effect when this order becomes effective and, 
as such, will apply to Funding Year 2004 and thereafter. We conclude 
that the adoption of a five-year record retention requirement will 
facilitate improved information collection during the auditing process 
and will enhance the ability of auditors to determine whether 
applicants and service providers have complied with program rules. 
Further, we believe that specific recordkeeping requirements not only 
prevent waste, fraud and abuse, but also protect applicants and/or 
service providers in the event of vendor disputes.
    32. Although we agree with commenters that an explicit list of 
documents that must be retained in the recordkeeping requirement would 
be most useful for service providers and program beneficiaries, we do 
not believe that an exhaustive list of such documents is possible. We 
base this conclusion on our knowledge that due to the diversity that 
exists among service providers and program beneficiaries, the 
descriptive titles or names of relevant documents will vary from entity 
to entity. To address commenters' concerns, however, we provide for 
illustrative purposes the following description of documents that 
service providers and program beneficiaries must retain pursuant to 
this recordkeeping requirement, as applicable:
     Pre-bidding Process. Beneficiaries must retain the 
technology plan and

[[Page 55102]]

technology plan approval letter. If consultants are involved, 
beneficiaries must retain signed copies of all written agreements with 
E-rate consultants.
     Bidding Process. All documents used during the competitive 
bidding process must be retained. Beneficiaries must retain documents 
such as: Request(s) for Proposal (RFP(s)) including evidence of the 
publication date; documents describing the bid evaluation criteria and 
weighting, as well as the bid evaluation worksheets; all written 
correspondence between the beneficiary and prospective bidders 
regarding the products and service sought; all bids submitted, winning 
and losing; and documents related to the selection of service 
provider(s). Service providers must retain any of the relevant 
documents described above; in particular, a copy of the winning bid 
submitted to the applicant and any correspondence with the applicant. 
Service providers participating in the bidding process that do not win 
the bid need not retain any documents.
     Contracts. Both beneficiaries and service providers must 
retain executed contracts, signed and dated by both parties. All 
amendments and addendums to the contracts must be retained, as well as 
other agreements relating to E-rate between the beneficiary and service 
provider, such as up-front payment arrangements.
     Application Process. The beneficiary must retain all 
documents relied upon to submit the Form 471, including National School 
Lunch Program eligibility documentation supporting the discount 
percentage sought; documents to support the necessary resources 
certification pursuant to Sec.  54.505 of the Commission's rules, 
including budgets; and documents used to prepare the Item 21 
description of services attachment.
     Purchase and Delivery of Services. Beneficiaries and 
service providers should retain all documents related to the purchase 
and delivery of E-rate eligible services and equipment. Beneficiaries 
must retain purchase requisitions, purchase orders, packing slips, 
delivery and installation records showing where equipment was delivered 
and installed or where services were provided. Service providers must 
retain all applicable documents listed above.
     Invoicing. Both service providers and beneficiaries must 
retain all invoices. Beneficiaries must retain records proving payment 
of the invoice, such as accounts payable records, service provider 
statement, beneficiary check, bank statement or ACH transaction record. 
Beneficiaries must also be able to show proof of service provider 
payment to the beneficiary of the BEAR, if applicable. Service 
providers must retain similar records showing invoice payment by 
beneficiary to the service provider, USAC payment to the service 
provider, payment of the BEAR to the beneficiary, through receipt or 
deposit records, bank statements, beneficiary check or automated 
clearing house (ACH) transaction record, as applicable.
     Inventory. Beneficiaries must retain asset and inventory 
records of equipment purchased and components of supported internal 
connections services sufficient to verify the location of such 
equipment. Beneficiaries must also retain detailed records documenting 
any transfer of equipment within three years after purchase and the 
reasons for such a transfer.
     Forms and Rule Compliance. All program forms, attachments 
and documents submitted to USAC must be retained. Beneficiaries and 
service providers must retain all official notification letters from 
USAC, as applicable. Beneficiaries must retain FCC Form 470 
certification pages (if not certified electronically), FCC Form 471 and 
certification pages (if not certified electronically), FCC Form 471 
Item 21 attachments, FCC Form 479, FCC Form 486, FCC Form 500, FCC Form 
472. Beneficiaries must also retain any documents submitted to USAC 
during program integrity assurance (PIA) review, Selective Review and 
Invoicing Review, or for SPIN change or other requests. Service 
providers must retain FCC Form 473, FCC Form 474 and FCC Form 498, as 
well as service check documents. In addition, beneficiaries must retain 
documents to provide compliance with other program rules, such as 
records relevant to show compliance with CIPA.
    33. We emphasize that the rule we adopt here requires that program 
participants retain all documents necessary to demonstrate compliance 
with the statute and Commission rules regarding the application for, 
receipt, and delivery of services receiving schools and libraries 
discounts. Thus, the descriptive list above is provided as a guideline 
but cannot be considered exhaustive. For example, service providers 
must provide beneficiaries' billing records, if requested, and will be 
held accountable for properly billing those applicants for discounted 
services and for complying with other rules specifically applicable to 
service providers. Service providers are responsible for maintaining 
records only with respect to the services they actually provide, not 
records for applicants on whose contracts they may have bid, but not 
won.
    34. We make additional clarifications to our rules providing for 
audits of program beneficiaries and service providers participating in 
the program. In particular, we clarify that schools, libraries, and 
service providers remain subject to both random audits and to other 
audits (or investigations) to examine an entity's compliance with the 
statute and the Commission's rules initiated at the discretion of the 
Commission, USAC, or another authorized governmental oversight body. We 
also conclude that failing to comply with an authorized audit or other 
investigation conducted pursuant to Sec.  54.516 of the Commission's 
rules (e.g., failing to retain records or failing to make available 
required documentation) is a rule violation that may warrant recovery 
of universal service support monies that were previously disbursed for 
the time period for which such information is being sought.

C. Technology Plans

    35. To ensure transparency and consistency in the application of 
our rules we now modify our requirements regarding technology plan 
timing and content. Our revised rules require applicants to have an 
approved technology plan in place before the start of services and to 
certify at the time that they apply for discounts that their receipt of 
e-rate support is contingent upon timely approval of the technology 
plan. Our revised rules also largely adopt the United States Department 
of Education guidelines for technology plan content, and, in cases 
where applicants do not fall under the ambit of the Department of 
Education technology planning requirement, we adopt requirements 
consistent with USAC's guidelines. Because we continue to believe that 
the focus of technology planning should be research and planning for 
technology needs, we decline at this time to adopt rules to require 
technology plans to include an analysis of the cost of leasing versus 
purchasing E-rate eligible products and services or a showing that the 
applicant has considered the most cost-effective way to meet its 
educational objectives. We see no need, at this time, to address the 
question of what specific qualifications technology plan approvers 
should have. We note that the technology plans of libraries and public 
schools are already reviewed by individual states, and that USAC 
certifies reviewers for non-public schools. As we describe below, the 
state is the certified technology plan approver

[[Page 55103]]

for libraries and public schools, and we codify this practice in this 
order. We modify our rules so that non-public schools and entities that 
cannot or do not choose to secure approval of their technology plan 
from their states may obtain technology plan approval from USAC-
certified entities.
    36. Technology Plan Timing. We revise Sec.  54.504(b)(2)(vii) so 
that applicants with technology plans that have not yet been approved 
when they file FCC Form 470 must certify that they understand their 
technology plans must be approved prior to the commencement of service. 
In making this change, we recognize that the timing of technology plan 
approval in particular states and localities may not coincide perfectly 
with the application cycle of the schools and libraries support 
mechanism. At the same time, we emphasize that applicants still are 
expected to develop a technology plan prior to requesting bids on 
services in FCC Form 470; all that we are deferring is the timing of 
the approval of such plan by the state or other approved certifying 
body. Second, we amend our rules to require that applicants formally 
certify, in FCC Form 486, that the technology plans on which they based 
their purchases were approved before they began to receive service. 
This revision conforms our rules to the current instructions for filing 
FCC Form 470 and is consistent with the views of commenters. The 
revision permits applicants to meet our technology plan requirements as 
long as their technology plans will be approved before they begin 
receiving service. It also ensures that applicants formally confirm 
that their technology plans were approved when service begins.
    37. In light of the current inconsistency between our rules and the 
instructions to FCC Form 470, we conclude that it is appropriate to 
waive the rule for the limited purpose of extinguishing liability for 
recovery of funds in the narrow circumstance in which a beneficiary 
obtained approval of its technology plan after the filing of FCC Form 
470, but before service commenced. We hereby grant a waiver of Sec.  
54.504(b)(2)(vii) of our rules to all applicants that failed to have a 
technology plan approved at the time they filed their FCC Form 470 or 
that had obtained approval of a technology plan that covered only part 
of the funding year, but that obtained approval of a plan that covered 
the entire funding year before the commencement of service in the 
relevant funding year. We conclude that in this situation, it would not 
serve the public interest to enforce the terms of Sec.  
54.504(b)(2)(vii) in light of the ambiguity created by the phrasing of 
the certification contained in the current FCC Form 470. We emphasize, 
however, that this limited waiver does not extend to instances where 
the applicant failed to obtain an approval of a technology plan at all. 
Such failure to obtain any approval is inconsistent with our rules and 
warrants recovery of all funds disbursed under the relevant funding 
requests.
    38. Technology Plan Content. We conclude that technology plans 
should continue to focus on ensuring that technologies are used 
effectively to achieve educational goals rather than assuming a greater 
role in monitoring the procurement process. We reiterate our conclusion 
that the technology plan should focus on ``research and planning for 
technology needs `` rather than act as preliminary RFPs. Thus, while we 
expect that applicants will compare purchase and leasing options and 
the cost-effectiveness of different technologies as part of their 
procurement processes, we decline, consistent with the views of most 
commenters, to add a requirement that these matters be addressed in 
technology plans.
    39. We agree with the virtually unanimous view of commenters that 
the Commission's technology plan requirements should be harmonized with 
the technology planning goals and requirements of the U.S. Department 
of Education and the U.S. Institute for Museum and Library Services. In 
fact, USAC has already been treating technology plans approved under 
the Department of Education's Enhancing Education Through Technology 
(EETT) as acceptable technology plans subject to one qualification. 
Consistent with the Commission requirement that program applicants 
demonstrate that they have the necessary resources required to utilize 
e-rate discounts, USAC has required that the EETT technology plans be 
supplemented by an analysis that indicates that the applicant is aware 
of and will be able to secure the financial resources it will need to 
achieve its technology aims, including technology training, software, 
and other elements outside the coverage of the Commission's support 
program. We adopt this existing policy in recognition of the Department 
of Education's expertise and USAC's attention to our requirement that 
applicants show that they have done the necessary planning and are able 
to secure the required resources to effectively employ the services 
they desire to purchase. Accordingly, we adopt a rule that codifies 
this method of compliance with the technology plan requirement.
    40. We also adopt a rule that applicants that do not have EETT 
technology plans, must demonstrate that their plans contain the 
following elements:
    (1) Establish clear goals and a realistic strategy for using 
telecommunications and information technology to improve education or 
library services;
    (2) Have a professional development strategy to ensure that the 
staff understands how to use these new technologies to improve 
education or library services;
    (3) Include an assessment of the telecommunication services, 
hardware, software, and other services that will be needed to improve 
education or library services;
    (4) Provide for a sufficient budget to acquire and support the non-
discounted elements of the plan: the hardware, software, professional 
development, and other services that will be needed to implement the 
strategy; and
    (5) Include an evaluation process that enables the school or 
library to monitor progress toward the specified goals and make mid-
course corrections in response to new developments and opportunities as 
they arise.

With these elements included in technology plans, applicants will be 
demonstrating at an early stage of the application process that they 
are or are preparing to be in compliance with the Commission's rules.
    41. Consistent with this rule, the ability of an entity whose 
technology plan complies with the criteria in the preceding paragraphs 
to order services is only limited by the scope of its technology plan's 
strategy for using telecommunications services and information 
technology to meet its educational goals. Commenters should not fear 
that strengthened technology plan requirements will lock them into 
specific services. In fact, applicants are free to switch from wireline 
to wireless technologies, from high to even higher speed transmission 
speeds, and to make other similar changes in the services they order as 
long as those services are designed to deliver the educational 
applications they have prepared to provide. Only if an applicant 
desires to order services beyond the scope of its existing technology 
plan does it need to prepare and seek timely approval of an 
appropriately revised technology plan.
    42. We also decline at this time to take any of the other actions 
regarding technology plans suggested by commenters. We decline to adopt 
ALA's suggestion that we require separate filings of proposals to 
provide service and prices, since we find that it would

[[Page 55104]]

be much more costly for USAC to process such filings separately, given 
the redundancy. We decline to require USAC to provide examples of 
acceptable technology plans given that applicants can already approach 
their states or other entities from which they must gain certification 
for such examples. Although we do not require technology plans from 
those seeking only ``POTS'' local and long distance telecommunications 
services, or cellular service, we decline to eliminate the requirement 
for those seeking internet access, because we believe that certified 
plans are important to ensuring that applicants have carefully 
considered how to employ the service. For administrative efficiency, we 
also decline to require all applicants to submit their technology plans 
as attachments to current forms, but note that USAC may request 
submission of a technology plan for any applicant as part of the 
application review process and that such plans are subject to the 
document retention rules adopted in this order. As such, a violation of 
the technology plan rules we adopt herein will be subject to recovery 
on a prospective basis.
    43. Technology Plan Approval. We also modify our rules to address 
non-public schools that are not eligible to secure approval of their 
technology plan from their states. USAC has been handling this matter 
by permitting such schools to obtain approval of their plans from 
entities that USAC has certified as qualified to provide such 
evaluations and approval. We now amend our rules to codify this 
practice.

D. Certifications

    44. Form 470. Section 54.504 of the Commission's rules governs 
applicants' requests for services and provides specific requirements 
for completing the FCC Form 470. Pursuant to Sec.  54.504(b)(2), there 
are several requirements to which applicants must certify compliance 
before submitting their FCC Form 470 applications. Most of these 
certification requirements are also listed in Block 5 of the FCC Form 
470. However, as noted above, the language in the form does not mirror 
the precise language in the rule. In particular, Sec.  54.504(b)(2)(v) 
of the Commission's rules states that applicants certify that ``all of 
the necessary funding in the current funding year has been budgeted and 
approved to pay for the ``non-discount'' portion of requested 
connections and services, as well as any necessary hardware or 
software, and to undertake the necessary staff training required to use 
the services effectively.'' The form states more generally, however, 
that applicants must certify that ``support under the support mechanism 
is conditional upon the school(s) and library(ies) securing access to 
all of the resources, including computers, training, software, 
maintenance, and electrical connections necessary to use the services 
purchased effectively.''
    45. As explained above, the certification language on the FCC Form 
470 is consistent with the intent of the rule and more closely 
resembles the real-world experience. Therefore, we revise the current 
language of Sec.  54.504(b)(2)(v) to require applicants to certify that 
support under the support mechanism is conditional. We replace the 
current language of Sec.  54.504(b)(2)(v) with the following sentence: 
``Support under this support mechanism is conditional upon the 
school(s) and library(ies) securing access to all of the resources, 
including computers, training, software, maintenance, internal 
connections, and electrical connections necessary to use the services 
purchased effectively. `` In addition, we re-designate the current 
Sec.  54.504(b)(2)(v) as new Sec.  54.504(b)(2)(vi). We believe these 
revisions will facilitate the ability of applicants to determine what 
certifications are necessary for proper completion of the application 
and will facilitate our enforcement and oversight activities.
    46. Furthermore, to emphasize that applicants must make cost 
effective service selections consistent with the Ysleta Order we will 
require applicants to certify on the Form 470 that the services for 
which bids are being sought are the most cost effective means for 
meeting their educational needs and technology plan goals. Therefore, 
we modify Sec.  54.504(b)(2) to add a new certification, Sec.  
54.504(b)(2)(vii), which states the following: ``All bids submitted 
will be carefully considered and the bid selected will be for the most 
cost-effective service or equipment offering, with price being the 
primary factor, and will be the most cost-effective means of meeting 
educational needs and technology plan goals.''
    47. Form 471. Under Sec.  54.504(c) of the Commission's rules, 
applicants are required to submit a completed FCC Form 471 after 
signing a contract for eligible services. Like the FCC Form 470, the 
FCC Form 471 lists several matters to which applicants must certify in 
order to have their applications considered. Currently, however, these 
requirements are not expressly addressed in part 54 of the Commission's 
rules. We therefore find it appropriate to amend Sec.  54.504(c) of the 
Commission's rules by adding a new subsection (1) which will state that 
the FCC Form 471 shall be signed by the person authorized to order 
telecommunications and other supported services for the eligible 
school, library, or consortium and shall include that person's 
certification that the entity(ies) is/are eligible to receive support 
and has/have secured access to all of the resources necessary to make 
effective use of the service purchased; the entity(ies) is/are covered 
by technology plans that have been or will be approved by a state or 
other authorized body; the entity(ies) has/have complied with program 
rules as well as all state and local laws regarding procurement of 
services; the services will be used solely for educational purposes and 
will not be sold, resold, or transferred; the applicant understands 
that the discount level used for shared services is conditional; and 
the applicant recognizes that its application may be audited. We 
conclude that codifying these existing certification requirements in 
the Commission's rules will diminish confusion regarding the criteria 
to which applicants must certify when completing their FCC Forms 471 
while enhancing our enforcement and oversight activities.
    48. Consistent with the requirement imposed on the Form 470, we 
will require applicants to certify on the Form 471 that the selection 
of services and service providers is based on the most cost effective 
means of meeting educational needs and technology plan goals. 
Therefore, we modify Sec.  54.504(c)(1) to add a new certification, 
Sec.  54.504(c)(1)(xi), which states the following: ``All bids 
submitted were carefully considered and the most cost-effective bid for 
services or equipment was selected, with price being the primary factor 
considered, and is the most cost-effective means of meeting educational 
needs and technology plan goals.''
    49. Form 473. In the Schools and Libraries Second Further Notice, 
we sought comment on whether the Commission, as a condition of support, 
should require each service provider to make certifications that it has 
not sought to subvert the effectiveness of the E-rate program's 
competitive bidding process. Although the Commission recognized that 
many of those subversive actions are already prohibited by the federal 
antitrust laws, if not other state or federal statutes or rules, it 
observed that requiring such certifications would better enable the 
Commission or other government agencies to enforce the Commission's 
rules and to seek criminal sanctions where appropriate.

[[Page 55105]]

    50. We now adopt three certification requirements modeled after the 
certificate of independent price determination required under federal 
acquisition regulations, as referenced in the Schools and Libraries 
Second Further Notice. These certifications will serve to emphasize to 
potential service providers that any practices that thwart the 
competitive bidding process will not be tolerated, and will facilitate 
the ability of government agencies to prosecute any misdeeds in this 
area. Service providers receiving funds through the E-rate program 
accordingly now must make the following certifications with respect to 
their participation in the competitive bidding process of the E-rate 
program in the Service Provider Annual Certification Form, FCC Form 
473:
    1. I certify that the prices in any offer that this service 
provider makes pursuant to the schools and libraries universal service 
support program have been arrived at independently, without, for the 
purpose of restricting competition, any consultation, communication, or 
agreement with any other offeror or competitor relating to (i) those 
prices, (ii) the intention to submit an offer, or (iii) the methods or 
factors used to calculate the prices offered;
    2. I certify that the prices in any offer that this service 
provider makes pursuant to the schools and libraries universal service 
support program will not be knowingly disclosed by this service 
provider, directly or indirectly, to any other offeror or competitor 
before bid opening (in the case of a sealed bid solicitation) or 
contract award (in the case of a negotiated solicitation) unless 
otherwise required by law; and
    3. I certify that no attempt will be made by this service provider 
to induce any other concern to submit or not to submit an offer for the 
purpose of restricting competition.

III. Order

    51. In this order, we set forth how audit findings related to the 
schools and libraries support mechanism shall be resolved. This 
discussion applies to audits conducted by USAC's own internal audit 
division, as well as audits conducted by independent public accounting 
firms under contract to USAC.
    52. As modified above, USAC shall continue to recover funds 
whenever it discovers a statutory or rule violation, as described 
above. The standard for determining such a violation is the same 
standard that we use in our enforcement actions: specifically, whether 
a party has willfully or repeatedly failed to comply with any provision 
of the Act or any rule, regulation, or order issued by the Commission, 
based on a preponderance of the evidence. To the extent audit findings 
raise matters outside the scope of our orders or existing rules, we 
expect USAC to clearly identify such findings to the agency.
    53. We conclude that a standardized, uniform process for resolving 
audit findings is necessary, and we direct USAC to submit, no later 
than 45 days from the publication in the Federal Register, a proposed 
plan for resolving audit findings. USAC's audit resolution plan should 
detail USAC's proposed procedures for resolving all findings arising 
from audits conducted by USAC's internal audit department, independent 
public accounting firms under contract with USAC, or government audit 
organizations. In addition, USAC's audit resolution plan should specify 
deadlines to ensure audit findings are resolved in a timely manner.
    54. We have set forth in the accompanying Fifth Report and Order a 
general framework for what amounts should be recovered in specific 
situations, and we expect future audits to be resolved consistent with 
that framework. To the extent audits in the future raise issues not 
addressed herein, we provide a limited delegation to the Wireline 
Competition Bureau to address such matters. In particular, we direct 
the Chief of the Wireline Competition Bureau to address audit findings 
and to act on requests for waiver of rules warranting recovery of 
funds. We hereby amend Sec. Sec.  0.91 and 0.291 to reflect such 
delegation of authority in this limited instance. We emphasize the 
limited nature of this delegation which we adopt because of the 
importance of providing rapid responses to audit findings and requests 
for waiver of rules warranting recovery of funds. We also emphasize 
that any party aggrieved by any action by the Bureau is, of course, 
free to seek review by this Commission, pursuant to Sec.  1.115 and 
commit that we will address any such appeal within six months. 
Moreover, any action by USAC implementing direction from the Bureau is 
subject to full Commission review pursuant to Sec.  54.723(b).
    55. The Managing Director is the agency'' designated follow-up 
official. Pursuant to the Commission's Audit Follow-up Directive, that 
office ensures that systems for audit follow-up and resolution are 
documented and in place, that timely responses are made to all audit 
reports, and that corrective actions are taken. We clarify that the 
Office of Managing Director remains the agency's audit follow-up 
official, and that all actions taken by the Wireline Competition Bureau 
relating to E-rate fund audits shall be consistent with the agency's 
general framework for audit resolution and follow-up.
    56. USAC shall maintain records of the status of all audit reports 
and any recommendations made therein, and make such records available 
to the Commission upon request. USAC also shall submit a report to the 
Commission on a semi-annual basis summarizing the status of all 
outstanding audit findings. To the extent findings cannot be resolved 
within six months, USAC shall describe the status of its efforts, and 
provide a projected timeframe for completion. We also note that USAC's 
determination concerning the resolution of audit findings does not 
limit the Enforcement Bureau's ability to take enforcement action for 
any statutory or rule violation pursuant to section 503 of the Act.
    57. We recognize that, to date, a number of audit reports have 
contained findings that indicate noncompliance with USAC administrative 
procedures. Consistent with its obligation to administer this support 
mechanism without waste, fraud and abuse, we expect USAC to identify 
for Commission consideration on at least an annual basis all findings 
raising management concerns that are not addressed by the Commission's 
existing rules and precedent, and, as appropriate, identify any USAC 
administrative procedures that should be codified in our rules to 
facilitate program oversight.
    58. Recently, issues have been raised regarding recovery of funds 
disbursed in instances when applicants failed to follow certain USAC 
administrative procedures. As discussed above, a number of these 
procedures, such as guidelines for the content of technology plans and 
specific guidance on document retention, are being incorporated into 
the Commission's rules, and their violation may warrant recovery of 
universal service monies on a prospective basis. We believe that it 
will be particularly useful to continue to evaluate, on an ongoing 
basis, whether other procedures adopted by USAC should also be 
incorporated into the rules and whether their violation should also 
warrant recovery of previously disbursed monies.
    59. We believe that USAC's experience in processing tens of 
thousands of these applications provides it with insightful information 
regarding ways in which waste, fraud and abuse may occur in that 
process. Based on that information, we believe that USAC's development 
of procedures

[[Page 55106]]

to serve our objective to prevent waste, fraud and abuse is invaluable. 
We direct USAC to submit to the Commission within 45 days from 
publication in the Federal Register, and annually thereafter, a list 
summarizing all current USAC administrative procedures identifying, 
where appropriate, the specific rules or statutory requirements that 
such procedures further, and those procedures that serve to protect 
against waste, fraud and abuse. We shall review those procedures to 
determine whether action is needed to ensure appropriate recovery, and 
shall determine whether such procedures should be adopted as binding 
rules. Thereafter, USAC and the Commission will generally seek recovery 
of funds disbursed in violation of the statute or a rule that 
implements the statute or substantive program goal or that serves to 
protect against waste, fraud and abuse. USAC and the Commission will 
not seek recovery of funds disbursed in violation of other rules, 
except to the extent that such rules are important to ensuring the 
financial integrity of the program, as designated by the agency.

IV. Procedural Matters

A. Paperwork Reduction Act Analysis

    60. This document contains modified information collection 
requirements subject to the Paperwork Reduction Act of 1995 (PRA), 
Public Law 104-13. It will be submitted to the Office of Management and 
Budget (OMB) for review under Sec.  3507(d) of the PRA. OMB, the 
general public, and other Federal agencies are invited to comment on 
the new or modified information collection requirements contained in 
this proceeding. In addition, we note that pursuant to the Small 
Business Paperwork Relief Act of 2002, Public Law 107-198, see 44 
U.S.C. 3506(c)(4), we previously sought specific comment on how the 
Commission might ``further reduce the information collection burden for 
small business concerns with fewer than 25 employees.''
    61. In this present document, we have assessed the effects of the 
measures adopted to protect against waste, fraud and abuse in the 
administration of the schools and libraries universal service support 
mechanism, and find that the added certification requirements in 
various FCC Forms will not be unduly burdensome on small businesses.

B. Final Regulatory Flexibility Analysis

    62. As required by the Regulatory Flexibility Act of 1980, as 
amended (RFA), an Initial Regulatory Flexibility Analysis (IRFA) was 
incorporated in the Schools and Libraries Second Further Notice. The 
Commission sought written public comment on the proposals in the 
Schools and Libraries Second Further Notice, including comment on the 
IRFA. This present Final Regulatory Flexibility Analysis (FRFA) 
conforms to the RFA.
1. Need for, and Objectives of, the Fifth Report and Order
    63. In this Fifth Report and Order, we adopt measures to protect 
against waste, fraud and abuse in the administration of the schools and 
libraries universal service support mechanism, particularly with regard 
to audit requirements and how to respond to audit findings. We set 
forth a framework for how much USAC should seek recovery when 
violations are found and set a five year administrative limitations 
period for such recovery actions as well as a corresponding five year 
document retention rule. We also eliminate the option of allowing 
parties to offset current debts to USAC against expected future 
payments, and we bar those with outstanding debts to the fund from 
receiving additional amounts. We also conform our rules concerning the 
content of and timing of certifications regarding technology plans to 
current practices. These rules will advance the goals of the schools 
and libraries program by deterring waste, fraud and abuse, leaving more 
support available applicants.
2. Summary of Significant Issues Raised by Public Comments in Response 
to the IRFA
    64. There were no comments filed specifically in response to the 
IRFA. Nevertheless, the agency has considered the potential impact of 
the rules proposed in the IRFA on small entities. Based on analysis of 
the relevant data, the Commission concludes the new rules limit the 
burdens on small entities and result in a de minimis recordkeeping 
requirement. The Commission also concludes that the new rules will 
positively impact schools and libraries, including small ones, seeking 
universal service support.
3. Description and Estimate of the Number of Small Entities to Which 
Rules Will Apply
    65. The RFA directs agencies to provide a description of and, where 
feasible, an estimate of the number of small entities that may be 
affected by the proposed rules, if adopted. The RFA generally defines 
the term ``small entity'' as having the same meaning as the terms 
``small business,'' ``small organization,'' and ``small governmental 
jurisdiction.'' In addition, the term ``small business'' has the same 
meaning as the term ``small business concern'' under the Small Business 
Act. A small business concern is one which: (1) Is independently owned 
and operated; (2) is not dominant in its field of operation; and (3) 
satisfies any additional criteria established by the SBA. A small 
organization is generally ``any not-for-profit enterprise which is 
independently owned and operated and is not dominant in its field.'' 
Nationwide, as of 1992, there were approximately 275,801 small 
organizations. The term ``small governmental jurisdiction'' is defined 
as ``governments of cities, towns, townships, villages, school 
districts, or special districts, with a population of less than fifty 
thousand.'' As of 1997, there were about 87,453 governmental 
jurisdictions in the United States. This number includes 39,044 county 
governments, municipalities, and townships, of which 37,546 
(approximately 96.2%) have populations of fewer than 50,000, and of 
which 1,498 have populations of 50,000 or more. Thus we estimate the 
number of small governmental jurisdictions overall to be 84,098 or 
fewer.
    66. The Commission has determined that the group of small entities 
directly affected by the rules herein includes eligible schools and 
libraries and the eligible service providers offering them discounted 
services, including telecommunications service providers, Internet 
Service Providers (ISPs) and vendors of internal connections. Further 
descriptions of these entities are provided below. In addition, the 
Universal Service Administrative Company is a small organization (non-
profit) under the RFA, and we believe that circumstances triggering the 
new reporting requirement will be limited and does not constitute a 
significant economic impact on that entity.
4. Schools and Libraries
    67. As noted, ``small entity'' includes non-profit and small 
government entities. Under the schools and libraries universal service 
support mechanism, which provides support for elementary and secondary 
schools and libraries, an elementary school is generally ``a non-profit 
institutional day or residential school that provides elementary 
education, as determined under state law.'' A secondary school is 
generally defined as ``a non-profit institutional day or residential 
school that provides secondary education, as determined under state 
law,'' and not offering education beyond grade 12. For-profit schools 
and libraries, and schools and libraries with endowments in excess of 
$50,000,000, are not eligible to receive discounts under the program, 
nor are

[[Page 55107]]

libraries whose budgets are not completely separate from any schools. 
Certain other statutory definitions apply as well. The SBA has defined 
for-profit, elementary and secondary schools and libraries having $6 
million or less in annual receipts as small entities. In Funding Year 2 
(July 1, 1999 to June 20, 2000) approximately 83,700 schools and 9,000 
libraries received funding under the schools and libraries universal 
service mechanism. Although we are unable to estimate with precision 
the number of these entities that would qualify as small entities under 
SBA's size standard, we estimate that fewer than 83,700 schools and 
9,000 libraries might be affected annually by our action, under current 
operation of the program.
5. Telecommunications Service Providers
    68. We have included small incumbent local exchange carriers in 
this RFA analysis. A ``small business'' under the RFA is one that, 
inter alia, meets the pertinent small business size standard (e.g., a 
telephone communications business having 1,500 or fewer employees), and 
``is not dominant in its field of operation.'' The SBA's Office of 
Advocacy contends that, for RFA purposes, small incumbent local 
exchange carriers are not dominant in their field of operation because 
any such dominance is not ``national'' in scope. We have therefore 
included small incumbent carriers in this RFA analysis, although we 
emphasize that this RFA action has no effect on the Commission's 
analyses and determinations in other, non-RFA contexts.
    69. Incumbent Local Exchange Carriers (LECs). Neither the 
Commission nor the SBA has developed a size standard for small 
incumbent local exchange services. The closest size standard under SBA 
rules is for Wired Telecommunications Carriers. Under that size 
standard, such a business is small if it has 1,500 or fewer employees. 
According to Commission data, 1,337 incumbent carriers reported that 
they were engaged in the provision of local exchange services. Of these 
1,337 carriers, an estimated 1,032 have 1,500 or fewer employees and 
305 have more than 1,500 employees. Consequently, the Commission 
estimates that most providers of incumbent local exchange service are 
small businesses that may be affected by the rules and policies adopted 
herein.
    70. Competitive Local Exchange Carriers (CLECs), Competitive Access 
Providers (CAPs) and ``Other Local Exchange Carriers.'' Neither the 
Commission nor the SBA has developed a size standard for small 
businesses specifically applicable to providers of competitive exchange 
services or to competitive access providers or to ``Other Local 
Exchange Carriers.'' The closest applicable size standard under SBA 
rules is for Wired Telecommunications Carriers. Under that size 
standard, such a business is small if it has 1,500 or fewer employees. 
According to Commission data, 609 companies reported that they were 
engaged in the provision of either competitive access provider services 
or competitive local exchange carrier services. Of these 609 companies, 
an estimated 458 have 1,500 or fewer employees and 151 have more than 
1,500 employees. In addition, 35 carriers reported that they were 
``Other Local Exchange Carriers.'' Of the 35 ``Other Local Exchange 
Carriers,'' an estimated 34 have 1,500 or fewer employees and one has 
more than 1,500 employees. Consequently, the Commission estimates that 
most providers of competitive local exchange service, competitive 
access providers, and ``Other Local Exchange Carriers'' are small 
entities that may be affected by the rules and policies adopted herein.
    71. Interexchange Carriers (IXCs). Neither the Commission nor the 
SBA has developed a size standard for small businesses specifically 
applicable to interexchange services. The closest applicable size 
standard under SBA rules is for Wired Telecommunications Carriers. 
Under that size standard, such a business is small if it has 1,500 or 
fewer employees. According to the Commission's most recent data, 261 
companies reported that their primary telecommunications service 
activity was the provision of payphone services. Of these 261 
companies, an estimated 223 have 1,500 or fewer employees and 48 have 
more than 1,500 employees. Consequently, the Commission estimates that 
the majority of payphone service providers are small entities that may 
be affected by the rules and policies adopted herein.
    72. Wireless Service Providers. The SBA has developed a small 
business size standard for wireless small businesses within the two 
separate categories of Paging and Cellular and Other Wireless 
Telecommunications. Under both SBA categories, a wireless business is 
small if it has 1,500 or fewer employees. According to the Commission's 
most recent data, 1,761 companies reported that they were engaged in 
the provision of wireless service. Of these 1,761 companies, an 
estimated 1,175 have 1,500 or fewer employees and 586 have more than 
1,500 employees. Consequently, the Commission estimates that most 
wireless service providers are small entities that may be affected by 
the rules and policies adopted herein.
    73. Private and Common Carrier Paging. In the Paging Third Report 
and Order, 62 FR 16004, April 3, 1997, we developed a small business 
size standard for ``small businesses'' and ``very small businesses'' 
for purposes of determining their eligibility for special provisions 
such as bidding credits and installment payments. A ``small business'' 
is an entity that, together with its affiliates and controlling 
principals, has average gross revenues not exceeding $15 million for 
the preceding three years. Additionally, a ``very small business'' is 
an entity that, together with its affiliates and controlling 
principals, has average gross revenues that are not more than $3 
million for the preceding three years. An auction of Metropolitan 
Economic Area licenses commenced on February 24, 2000, and closed on 
March 2, 2000. Of the 985 licenses auctioned, 440 were sold. Fifty-
seven companies claiming small business status won. At present, there 
are approximately 24,000 Private-Paging site-specific licenses and 
74,000 Common Carrier Paging licenses. According to Commission data, 
474 carriers reported that they were engaged in the provision of either 
paging and messaging services or other mobile services. Of those, the 
Commission estimates that 457 are small, under the SBA approved small 
business size standard.
6. Internet Service Providers
    74. Internet Service Providers. The SBA has developed a small 
business size standard for ``On-Line Information Services,'' NAICS code 
514191. This category comprises establishments ``primarily engaged in 
providing direct access through telecommunications networks to 
computer-held information compiled or published by others.'' Under this 
small business size standard, a small business is one having annual 
receipts of $18 million or less. Based on firm size data provided by 
the Bureau of the Census, 3,123 firms are small under SBA's $18 million 
size standard for this category code. Although some of these Internet 
Service Providers (ISPs) might not be independently owned and operated, 
we are unable at this time to estimate with greater precision the 
number of ISPs that would qualify as small business concerns under 
SBA's small business size standard. Consequently, we estimate that 
there are 3,123 or fewer small entity ISPs that may be affected by this 
analysis.

[[Page 55108]]

7. Vendors of Internal Connections
    75. The Commission has not developed a small business size standard 
specifically directed toward manufacturers of internal network 
connections. The closest applicable definitions of a small entity are 
the size standards under the SBA rules applicable to manufacturers of 
``Radio and Television Broadcasting and Communications Equipment'' 
(RTB) and ``Other Communications Equipment.'' According to the SBA's 
regulations, manufacturers of RTB or other communications equipment 
must have 750 or fewer employees in order to qualify as a small 
business. The most recent available Census Bureau data indicates that 
there are 1,187 establishments with fewer than 1,000 employees in the 
United States that manufacture radio and television broadcasting and 
communications equipment, and 271 companies with less than 1,000 
employees that manufacture other communications equipment. Some of 
these manufacturers might not be independently owned and operated. 
Consequently, we estimate that the majority of the 1,458 internal 
connections manufacturers are small.
8. Miscellaneous Entities
    76. Wireless Communications Equipment Manufacturers. The SBA has 
established a small business size standard for radio and television 
broadcasting and wireless communications equipment manufacturing. Under 
this standard, firms are considered small if they have 750 or fewer 
employees. Census Bureau data for 1997 indicate that, for that year, 
there were a total of 1,215 establishments in this category. Of those, 
there were 1,150 that had employment under 500, and an additional 37 
that had employment of 500 to 999. The percentage of wireless equipment 
manufacturers in this category is approximately 61.35%, so the 
Commission estimates that the number of wireless equipment 
manufacturers with employment under 500 was actually closer to 706, 
with and additional 23 establishments having employment of between 500 
and 999. Given the above, the Commission estimates that the majority of 
wireless communications equipment manufacturers are small businesses.
9. Description of Projected Reporting, Recordkeeping, and Other 
Compliance Requirements for Small Entities
    77. In this Fifth Report and Order, we eliminate the option that 
entities formerly had with respect to funds they had received from the 
program in error. Instead of requiring them to immediately repay such 
funds, the program rules allowed them to offset the amounts they owed 
against future payments that they were due. Unfortunately, as discussed 
above, the administrative costs of tracking such debts appears to 
outweigh the benefits of the option and so it has been eliminated.
    78. In our continuing effort to crack down on waste, fraud, and 
abuse by those who owe funds to the program, we also modify our rules 
to bring all E-rate program beneficiaries and service providers within 
the ambit of the program's ``red light'' rule: denying future funding 
to any party with outstanding debts to the program. To achieve this, we 
amend Sec. Sec.  1.8002 and 1.8003 of the Commission's rules to require 
all entities that participate in the schools and libraries universal 
service support program to obtain an FCC Registration Number. The 
agency has already certified that this process imposes only a de 
minimis burden.
    79. While we adopt a 5-year document retention rule, this rule 
should actually reduce, not increase, the burden on small businesses. 
After all, Sec.  54.516 of the Commission rules previously required 
relevant documents to be retained by parties indefinitely. Those 
parties are no longer required to do so. Meanwhile, as discussed above, 
these record retention rules are required to ensure that program 
auditors can make full audits where and when they see fit, thereby 
maximizing the amount of program funds available for legitimate uses. 
In particular such funds can help finance funding requests that are now 
approved but left unfunded due to a lack of funds.
    80. Although the Commission has formalized its rules concerning the 
substance and timing of technology plans, the modified rules do not 
impose any additional, non-trivial burdens; they merely provide further 
guidance on the requirements of the current technology plan. Schools 
and libraries must now certify on FCC Form 486 that their technology 
plans had been approved before they started to receive any E-rate 
supported services based on them, but schools and libraries have always 
been required to prepare a technology plan on which to base their E-
rate program product and service requests and to get that plan 
approved. The action of signing an additional time on a form that they 
already have to file to certify that they have complied with existing 
rules represents no more than a trivial burden.
    81. The framework adopted today, setting forth what amounts should 
be recovered by USAC when specific statutory and Commission rule 
requirements are violated, does not involve additional reporting, 
recordkeeping, or compliance requirements for small entities. 
Similarly, the rule adopted in this Fifth Report and Order, adopting a 
five year administrative limitations period for initiation of fund 
recovery actions, does not involve additional reporting, recordkeeping, 
or compliance requirements for small entities. Rather, it reduces their 
recordkeeping requirements. The rules adopted, barring entities from 
receiving additional benefits under the schools and libraries program 
if they have failed to repay an outstanding debt to the fund, do not 
impose additional reporting, recordkeeping, or compliance requirements 
for small entities. Finally, other rules we adopt regarding the 
certification requirements made on FCC Forms do not require additional 
reporting or recordkeeping for small entities, as they merely conform 
our rules to current practices.
10. Steps Taken To Minimize the Significant Economic Impact on Small 
Entities, and Significant Alternatives Considered
    82. The RFA requires an agency to describe any significant 
alternatives that it has considered in developing its approach, which 
may include the following four alternatives (among others): ``(1) 
establishment of differing compliance or reporting requirements or 
timetables that take into account the resources available to small 
entities; (2) the clarification, consolidation, or simplification of 
compliance and reporting requirements under the rule for such small 
entities; (3) the use of performance rather than design standards; and 
(4) an exemption from coverage of the rule, or any part thereof, for 
such small entities.''
    83. Although we received no IRFA comments, we considered 
alternatives to the proposed recordkeeping requirements for small 
entities. Although we eliminated the options that schools and libraries 
had to offset amounts they owed to the fund due to rule violations 
against expected future payments, we did so only after giving the 
options a reasonable trial. We only eliminated them after concluding 
that they can involve a lengthy process resulting in a significant 
administrative burden on USAC, as discussed in more detail above.
    84. Although the Commission adopts the standards currently used by 
SLD,

[[Page 55109]]

the rules clearly enable schools and libraries to minimize any 
duplicative administrative actions by permitting the technology plans 
that schools must prepare in response to the recent ``No Child Left 
Behind'' initiative to serve double duty to the extent that that is 
appropriate. Thus, schools whose plans have already been approved 
through the Department of Education's EETT need only meet the single 
additional standard of showing that they have sufficient resources to 
finance their portion of the cost of the entire implementation of using 
telecommunications to advance educational goals. Furthermore, we 
formally authorize USAC to certify entities that are qualified to 
approve the technology plans of non-public schools, among others.
    85. The new requirement that schools and libraries certify--on FCC 
Form 486--that their technology plans were already approved before they 
began receiving any E-rate supported services also relaxes the former 
rule that required applicants to certify that their plans had been 
approved before they filed their FCC Form 470.
    86. A copy of the Order and FRFA (or summaries thereof) will also 
be published in the Federal Register. In addition, the Commission will 
send a copy of this order in a report to be sent to Congress and the 
General Accounting Office pursuant to the Congressional Review Act 
pursuant to 5 U.S.C. 801(a)(1)(A).

VI. Ordering Clauses

    87. Pursuant to the authority contained in sections 1, 4(i), 4(j), 
201-205, 214, 254, and 403 of the Communications Act of 1934, as 
amended, this Fifth Report and Order is adopted.
    88. The Commission's rules, 47 CFR parts 0, 1 and 54 are amended as 
set forth, effective October 13, 2004 except for Sec. Sec.  1.8003, 
54.504(b)(2), 54.504(c)(1), 54.504(f), 54.508, and 54.516 which contain 
information collection requirements that are not effective until 
approved by the Office of Management and Budget. The FCC will publish a 
document in the Federal Register announcing the effective date for 
those sections.
    89. The Commission will send a copy of this Fifth Report and Order, 
including the FRFA, in a report to be sent to Congress and the General 
Accounting Office pursuant to the Congressional Review Act, see 5 
U.S.C. 801(a)(1)(A). In addition, the Commission will send a copy of 
the Order, including the FRFA, to the Chief Counsel for Advocacy of the 
Small Business Administration.

List of Subjects

47 CFR Part 0

    Organization and functions (Government agencies), Privacy, 
Reporting and recordkeeping requirements.

47 CFR Part 1

    Administrative practice and procedure, Communications common 
carriers, Investigations, Telecommunications.

47 CFR Part 54

    Reporting and recordkeeping requirements, Telecommunications, 
Telephone.

Federal Communications Commission.
Marlene H. Dortch,
Secretary.

Final Rules

0
For the reasons discussed in the preamble, the Federal Communications 
Commission amends 47 CFR parts 0, 1, and 54 as follows:

PART 0--COMMISSION ORGANIZATION

0
1. The authority citation continues to read as follows:

    Authority: Sec. 5, 48 Stat. 1068, as amended; 47 U.S.C. 155, 
225, unless otherwise noted.

0
2. Amend Sec.  0.91 by adding paragraph (n) to read as follows:


Sec.  0.91  Functions of the Bureau.

* * * * *
    (n) Address audit findings relating to the schools and libraries 
support mechanism, subject to the overall authority of the Managing 
Director as the Commission's audit follow-up official.

0
3. Amend Sec.  0.291 by adding paragraph (i) to read as follows:


Sec.  0.291  Authority delegated.

* * * * *
    (i) Authority concerning schools and libraries support mechanism 
audits. The Chief, Wireline Competition Bureau, shall have authority to 
address audit findings relating to the schools and libraries support 
mechanism. This authority is not subject to the limitation set forth in 
paragraph (a)(2) of this section.

PART 1--PRACTICE AND PROCEDURE

0
4. The authority citation continues to read as follows:

    Authority: 47 U.S.C. 151, 154(i), 154(j), 155, 225, 303(r), 309 
and 325(e).

0
5. Amend Sec.  1.8002 by revising paragraph (a)(6) to read as follows:


Sec.  1.8002  Obtaining an FRN.

* * * * *
    (a) * * *
    (6) Any applicant or service provider participating in the Schools 
and Libraries Universal Service Support Program, part 54, subpart F, of 
this chapter.
* * * * *

0
6. Revise Sec.  1.8003 to read as follows:


Sec.  1.8003  Providing the FRN in Commission filings.

    The FRN must be provided with any filings requiring the payment of 
statutory charges under subpart G of this part, anyone applying for a 
license (whether or not a fee is required), including someone who is 
exempt from paying statutory charges under subpart G of this part, 
anyone participating in a spectrum auction, making up-front payments or 
deposits in a spectrum auction, anyone making a payment on an auction 
loan, anyone making a contribution to the Universal Service Fund, any 
applicant or service provider participating in the Schools and 
Libraries Universal Service Support Program, and anyone paying a 
forfeiture or other payment. A list of applications and other instances 
where the FRN is required will be posted on our Internet site and 
linked to the CORES page.

PART 54--UNIVERSAL SERVICE

0
7. The authority citation continues to read as follows:

    Authority: 47 U.S.C. 1, 4(i), 201, 205, 214, and 254 unless 
otherwise noted.

0
8. Amend Sec.  54.504 by revising paragraph (b)(2), by adding 
paragraphs (c)(1) and (f), and by adding and reserving paragraph 
(c)(2), to read as follows:


Sec.  54.504  Request for services.

* * * * *
    (b) * * *
    (2) FCC Form 470 shall be signed by the person authorized to order 
telecommunications and other supported services for the eligible 
school, library, or consortium and shall include that person's 
certification under oath that:
    (i) The schools meet the statutory definition of elementary and 
secondary schools found under section 254(h) of the Act, as amended in 
the No Child Left Behind Act of 2001, 20 U.S.C. 7801(18) and (38), do 
not operate as for-profit businesses, and do not have endowments 
exceeding $50 million;

[[Page 55110]]

    (ii) The libraries or library consortia eligible for assistance 
from a State library administrative agency under the Library Services 
and Technology Act of 1996 do not operate as for-profit businesses and 
whose budgets are completely separate from any school (including, but 
not limited to, elementary and secondary schools, colleges, and 
universities).
    (iii) All of the individual schools, libraries, and library 
consortia receiving services are covered by:
    (A) Individual technology plans for using the services requested in 
the application; and/or
    (B) Higher-level technology plans for using the services requested 
in the application; or
    (C) No technology plan needed because application requests basic 
local and/or long distance service and/or voicemail only.
    (iv) The technology plan(s) has/have been approved by a state or 
other authorized body; the technology plan(s) will be approved by a 
state or other authorized body; or no technology plan needed because 
applicant is applying for basic local, cellular, PCS, and/or long 
distance telephone service and/or voicemail only.
    (v) The services the applicant purchases at discounts will be used 
solely for educational purposes and will not be sold, resold, or 
transferred in consideration for money or any other thing of value.
    (vi) Support under this support mechanism is conditional upon the 
school(s) and library(ies) securing access to all of the resources, 
including computers, training, software, maintenance, internal 
connections, and electrical connections necessary to use the services 
purchased effectively.
    (vii) All bids submitted will be carefully considered and the bid 
selected will be for the most cost-effective service or equipment 
offering, with price being the primary factor, and will be the most 
cost-effective means of meeting educational needs and technology plan 
goals.
* * * * *
    (c) * * *
    (1) FCC Form 471 shall be signed by the person authorized to order 
telecommunications and other supported services for the eligible 
school, library, or consortium and shall include that person's 
certification under oath that:
    (i) The schools meet the statutory definition of elementary and 
secondary schools found under section 254(h) of the Act, as amended in 
the No Child Left Behind Act of 2001, 20 U.S.C. 7801(18) and (38), do 
not operate as for-profit businesses, and do not have endowments 
exceeding $50 million.
    (ii) The libraries or library consortia eligible for assistance 
from a State library administrative agency under the Library Services 
and Technology Act of 1996 do not operate as for-profit businesses and 
whose budgets are completely separate from any school (including, but 
not limited to, elementary and secondary schools, colleges, and 
universities).
    (iii) The entities listed on the FCC Form 471 application have 
secured access to all of the resources, including computers, training, 
software, maintenance, internal connections, and electrical 
connections, necessary to make effective use of the services purchased, 
as well as to pay the discounted charges for eligible services from 
funds to which access has been secured in the current funding year. The 
billed entity will pay the non-discount portion of the cost of the 
goods and services to the service provider(s).
    (iv) All of the schools and libraries listed on the FCC Form 471 
application are covered by:
    (A) An individual technology plan for using the services requested 
in the application; and/or
    (B) Higher-level technology plan(s) for using the services 
requested in the FCC Form 471 application; or
    (C) No technology plan needed; applying for basic local and long 
distance telephone service only.
    (v) Status of technology plan(s) has/have been approved; will be 
approved by a state or other authorized body; or no technology plan is 
needed because applicant is applying for basic local, cellular, PCS, 
and/or long distance telephone service and/or voicemail only.
    (vi) The entities listed on the FCC Form 471 application have 
complied with all applicable state and local laws regarding procurement 
of services for which support is being sought.
    (vii) The services the applicant purchases at discounts will be 
used solely for educational purposes and will not be sold, resold, or 
transferred in consideration for money or any other thing of value.
    (viii) The entities listed in the application have complied with 
all program rules and acknowledge that failure to do so may result in 
denial of discount funding and/or recovery of funding.
    (ix) The applicant understands that the discount level used for 
shared services is conditional, for future years, upon ensuring that 
the most disadvantaged schools and libraries that are treated as 
sharing in the service, receive an appropriate share of benefits from 
those services.
    (x) The applicant recognizes that it may be audited pursuant to its 
application, that it will retain for five years any and all worksheets 
and other records relied upon to fill out its application, and that, if 
audited, it will make such records available to the Administrator.
    (xi) All bids submitted were carefully considered and the most 
cost-effective bid for services or equipment was selected, with price 
being the primary factor considered, and is the most cost-effective 
means of meeting educational needs and technology plan goals.
* * * * *
    (f) Filing of FCC Form 473. All service providers eligible to 
provide telecommunications and other supported services under this 
subpart shall submit annually a completed FCC Form 473 to the 
Administrator. FCC Form 473 shall be signed by an authorized person and 
shall include that person's certification under oath that:
    (1) The prices in any offer that this service provider makes 
pursuant to the schools and libraries universal service support program 
have been arrived at independently, without, for the purpose of 
restricting competition, any consultation, communication, or agreement 
with any other offeror or competitor relating to those prices, the 
intention to submit an offer, or the methods or factors used to 
calculate the prices offered;
    (2) The prices in any offer that this service provider makes 
pursuant to the schools and libraries universal service support program 
will not be knowingly disclosed by this service provider, directly or 
indirectly, to any other offeror or competitor before bid opening (in 
the case of a sealed bid solicitation) or contract award (in the case 
of a negotiated solicitation) unless otherwise required by law; and
    (3) No attempt will be made by this service provider to induce any 
other concern to submit or not to submit an offer for the purpose of 
restricting competition.

0
9. Add Sec.  54.508 to subpart E to read as follows:


Sec.  54.508  Technology plans.

    (a) Contents. The technology plans referred to in this subpart must 
include the following five elements:
    (1) A clear statement of goals and a realistic strategy for using 
telecommunications and information technology to improve education or 
library services;

[[Page 55111]]

    (2) A professional development strategy to ensure that the staff 
understands how to use these new technologies to improve education or 
library services;
    (3) An assessment of the telecommunication services, hardware, 
software, and other services that will be needed to improve education 
or library services;
    (4) A budget sufficient to acquire and support the non-discounted 
elements of the plan: the hardware, software, professional development, 
and other services that will be needed to implement the strategy; and
    (5) An evaluation process that enables the school or library to 
monitor progress toward the specified goals and make mid-course 
corrections in response to new developments and opportunities as they 
arise.
    (b) Relevance of approval under Enhancing Education through 
Technology. Technology plans that meet the standards of the Department 
of Education's Enhancing Education Through Technology (EETT), 20 U.S.C. 
6764, are sufficient for satisfying paragraphs (a)(1), (a)(2), (a)(3) 
and (a)(5) of this section, but applicants must supplement such plans 
with an analysis demonstrating that they meet the budgetary requirement 
described in paragraph (a)(4) of this section. Furthermore, to the 
extent that the Department of Education adopts future technology plan 
requirements that require one or more of the five elements described in 
paragraph (a) of this section, such plans will be acceptable for 
satisfying those elements of paragraph (a) of this section. Applicants 
with such plans will only need to supplement such plans with the 
analysis needed to satisfy those elements of paragraph (a) of this 
section not covered by the future Department of Education technology 
plan requirements.
    (c) Timing of certification. As required under 54.504(b)(2)(vii) 
and (c)(1)(v), applicants must certify that they have prepared any 
required technology plans. They must also confirm, in FCC Form 486, 
that their plan was approved before they began receiving services 
pursuant to it.
    (d) Parties qualified to approve technology plans required in this 
subpart. Applicants required to prepare and obtain approval of 
technology plans under this subpart must obtain such approval from 
either their state, the Administrator, or an independent entity 
approved by the Commission or certified by the Administrator as 
qualified to provide such approval. All parties who will provide such 
approval must apply the standards set forth in paragraphs (a) and (b) 
of this section.

0
10. Revise Sec.  54.516 to read as follows:


Sec.  54.516  Auditing.

    (a) Recordkeeping requirements--(1) Schools and libraries. Schools 
and libraries shall retain all documents related to the application 
for, receipt, and delivery of discounted telecommunications and other 
supported services for at least 5 years after the last day of service 
delivered in a particular Funding Year. Any other document that 
demonstrates compliance with the statutory or regulatory requirements 
for the schools and libraries mechanism shall be retained as well. 
Schools and libraries shall maintain asset and inventory records of 
equipment purchased as components of supported internal connections 
services sufficient to verify the actual location of such equipment for 
a period of five years after purchase.
    (2) Service providers. Service providers shall retain documents 
related to the delivery of discounted telecommunications and other 
supported services for at least 5 years after the last day of the 
delivery of discounted services. Any other document that demonstrates 
compliance with the statutory or regulatory requirements for the 
schools and libraries mechanism shall be retained as well.
    (b) Production of records. Schools, libraries, and service 
providers shall produce such records at the request of any 
representative (including any auditor) appointed by a state education 
department, the Administrator, the FCC, or any local, state or federal 
agency with jurisdiction over the entity.
    (c) Audits. Schools, libraries, and service providers shall be 
subject to audits and other investigations to evaluate their compliance 
with the statutory and regulatory requirements for the schools and 
libraries universal service support mechanism, including those 
requirements pertaining to what services and products are purchased, 
what services and products are delivered, and how services and products 
are being used. Schools and libraries receiving discounted services 
must provide consent before a service provider releases confidential 
information to the auditor, reviewer, or other representative.

[FR Doc. 04-20363 Filed 9-10-04; 8:45 am]
BILLING CODE 6712-01-P