[Federal Register Volume 69, Number 180 (Friday, September 17, 2004)]
[Rules and Regulations]
[Pages 55983-55985]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-21005]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 54

[CC Docket Nos. 96-45, 97-21, and 02-6; FCC 04-181]


Federal-State Joint Board on Universal Service; Changes to the 
Board of Directors for the National Exchange Carrier Association, Inc.; 
and Schools and Libraries Universal Service Support Mechanism.

AGENCY: Federal Communications Commission.

ACTION: Final rule; clarification.

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SUMMARY: In this document, the Commission addresses pending petitions 
for reconsideration filed by Sprint Corporation, United States Telecom 
Association, Inc., and MCI Worldcom, Inc. The Commission agrees with 
petitioners that the Commission should seek recovery from schools and 
libraries in certain instances, and therefore grants their petitions in 
part. The Commission resolves the limited question raised in the Second 
Further Notice of Proposed Rulemaking (Second FNPRM) in CC Docket No. 
02-06 of from whom the Commission will seek recovery of schools and 
libraries funds disbursed in violation of the statute or a rule. The 
Commission modifies its requirements in this area so that recovery will 
be sought from whichever party or parties has committed the statutory 
or rule violation.

DATES: Effective September 17, 2004.

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 Order 
on Reconsideration and Fourth Report and Order in CC Docket Nos. 96-45, 
97-21, and 02-6 released on July 30, 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 address pending petitions for reconsideration 
filed by Sprint Corporation (Sprint), United States Telecom 
Association, Inc. (USTA), and MCI Worldcom, Inc. (MCI). Petitioners 
seek reconsideration of an order which, among other things, directed 
the Universal Service Administrative Company (Administrator or USAC) to 
cancel any funding commitments under the schools and libraries support 
mechanism that were made in violation of the Communications Act, as 
amended (the Act), and to recover from the service providers any funds 
that had already been distributed pursuant to an unlawful funding 
decision. For the reasons discussed below, we agree with petitioners 
that we should seek recovery from schools and libraries in certain 
instances, and therefore grant their petitions in part. We also resolve 
the limited question raised in the Second FNPRM, 69 FR 6181, February 
10, 2004, in CC Docket No. 02-06 of from whom we will seek recovery of 
schools and libraries funds disbursed in violation of the statute or a 
rule. We modify our requirements in this area so that recovery is 
directed at whichever party or parties has committed the statutory or 
rule violation.

II. Discussion

    2. Based on the more fully developed record now before us, we 
conclude that recovery actions should be directed to the party or 
parties that committed the rule or statutory violation in question. We 
do so recognizing that in many instances, this will likely be the 
school or library, rather than the service provider. We thus grant the 
petitions for reconsideration in part, and deny the petitions to the 
extent they argue that recovery should always be directed at the school 
or library. This revised recovery approach shall apply on a going 
forward basis to all matters for which USAC has not yet issued a demand 
letter as of the effective date of this order, and to all recovery 
actions currently under appeal to either USAC or this agency. We do not 
intend to modify any recovery action in which the service provider has 
satisfied the outstanding obligation or for which USAC has already 
issued an initial demand letter.
    3. We now recognize that the beneficiary in many situations is the 
party in the best position to ensure compliance with the statute and 
our schools and libraries support mechanism rules. At the time the 
Commission adopted the Commitment Adjustment Order, USAC had been 
distributing funds through the schools and libraries mechanism for only 
one year. The Commission and USAC then faced a limited range of 
situations in which statutory or rule violations had occurred requiring 
the recovery of funds. Thus, the Commission lacked a full appreciation 
for the wide variety of situations that could give rise to recovery 
actions in which the school or library would be the party most 
culpable. The school or library is the entity that undertakes the 
various necessary steps in the application process, and receives the 
direct benefit of any services rendered. The school or library submits 
to USAC a completed FCC Form 470, setting forth its technological needs 
and the services for which it seeks discounts. The school or library is 
required to comply with the Commission's competitive bidding 
requirements as set forth in Sec. Sec.  54.504 and 54.511(a) of our 
rules and related orders. The school or library is the entity that 
submits FCC Form 471, notifying the Administrator of the services that 
have been ordered, the service providers with whom it has entered into 
agreements, and an estimate of the funds needed to cover the discounts 
to be provided on eligible services.
    4. To be sure, service providers have various obligations under the 
statute and our rules as well. Among other things, the service provider 
is the entity that provides the supported service, and as such, must 
provide the services approved for funding within the relevant funding 
year. The service provider is required under our rules to provide 
beneficiaries a choice of payment method, and, when the beneficiary has 
made full payment for services, to remit discount amounts to the 
beneficiary within twenty days of receipt of the reimbursement check. 
But in many situations, the service provider simply is not in a 
position to ensure that all applicable statutory and regulatory 
requirements have been met. Indeed, in many instances, a service 
provider may

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well be totally unaware of any violation. In such cases, we are now 
convinced that it is both unrealistic and inequitable to seek recovery 
solely from the service provider.
    5. We conclude that recovering disbursed funds from the party or 
parties that violated the statute or a Commission rule will further our 
goals of minimizing waste, fraud and abuse in the schools and libraries 
support mechanism. We are concerned that the current recovery 
requirements that are subject to petitions for reconsideration do not 
place sufficient incentive on beneficiaries to ensure compliance with 
all relevant statutory requirements and our implementing rules. Indeed, 
some parties note that under our current recovery procedures 
beneficiaries often do not directly bear the consequence of any failure 
to comply with our rules. We conclude that directing recovery actions 
to beneficiaries in those situations where the beneficiary bears 
responsibility for the rule or statutory violation will promote greater 
accountability and care on the part of such beneficiaries.
    6. We believe that recovering disbursed funds from the party or 
parties that violated the statute or rule sufficiently addresses USTA's 
concern that our prior holding in the Commitment Adjustment Order was 
inequitable. We note, however, that contrary to USTA's claim that we 
had no rules providing the recovery of funds disbursed in violation of 
the statute or a rule, our debt collection rules have been in place for 
some time. And, as explained below, those rules are applicable to the 
situation presented here.
    7. We direct USAC to make the determination, in the first instance, 
to whom recovery should be directed in individual cases. In determining 
to which party recovery should be directed, USAC shall consider which 
party was in a better position to prevent the statutory or rule 
violation, and which party committed the act or omission that forms the 
basis for the statutory or rule violation. For instance, the school or 
library is likely to be the entity that commits an act or omission that 
violates our competitive bidding requirements, our requirement to have 
necessary resources to make use of the supported services, the 
obligation to calculate properly the discount rate, and the obligation 
to pay the appropriate non-discounted share. On the other hand, the 
service provider is likely to be the entity that fails to deliver 
supported services within the relevant funding year, fails to properly 
bill for supported services, or delivers services that were not 
approved for funding under the governing FCC Form 471. We recognize 
that in some instances, both the beneficiary and the service provider 
may share responsibility for a statutory or rule violation. In such 
situations, USAC may initiate recovery action against both parties, and 
shall pursue such claims until the amount is satisfied by one of the 
parties. Pursuant to Sec.  54.719(c) of the Commission's rules, any 
person aggrieved by the action taken by a division of the Administrator 
may seek review from the Commission.
    8. We note that USAC's determination concerning which party should 
be the recipient of the demand letter 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. Any recipient of the 
demand letter is obligated to repay the recovery amount by the 
deadlines described in the Commitment Adjustment Implementation Order. 
Failure to do so may subject such recipients to enforcement action by 
the Commission in addition to any collection action.
    9. We also specifically address the issue of whether a service 
provider should be subject to a recovery action in situations where it 
is serving as a Good Samaritan. In light of our decision today, we 
anticipate that recovery would be directed in most instances to the 
school or library. We conclude that Good Samaritans should not be 
subject to recovery actions except in those situations where the Good 
Samaritan itself has committed the act or omission that violates our 
rules or the governing statute.
    10. We briefly address petitioners' remaining arguments. First, 
USTA argues that the authorities on which the Commission relied, 
chiefly the OPM decision and the DCA, are inapplicable to the funds at 
issue and thus offer no support for our determination to seek repayment 
of funds disbursed to providers in violation of the Act. We cannot 
agree. The authority, as well as the responsibility, of the Government 
to seek repayment of wrongfully distributed funds is well established 
as a matter of federal law.
    11. Although parties assert that the OPM decision is limited in its 
holding to funds disbursed from the general Treasury, and is therefore 
not relevant here because universal service funds are taken from a 
special fund that is not deposited in the Treasury, that is too narrow 
a reading of the principle found in OPM. Rather, the principle to be 
drawn from OPM is that the Commission cannot disburse funds in the 
absence of statutory authority. It is `` `central to the real meaning 
of the rule of law, [and] not particularly controversial' that a 
federal agency does not have the power to act unless Congress, by 
statute, has empowered it to do so.'' Thus, contrary to petitioners' 
argument, we are bound by statutory restrictions in the disbursement of 
the universal service fund regardless of whether such funds are drawn 
from the Treasury.
    12. Moreover, the Commission's disbursement of funds in violation 
of the statute or a rule gives rise to a claim for recoupment. As the 
Commission stated in the Commitment Adjustment Order, the DCA imposes a 
duty on agencies to attempt to collect on such claims. Specifically, 
the DCA requires that ``[t]he head of an executive, judicial, or 
legislative agency * * * shall try to collect a claim of the United 
States Government for money or property arising out of the activities 
of, or referred to, the agency.'' Here, we find that the disbursement 
of funds in violation of the statute or a rule gives rise to claims 
that ``arise out of the activities'' of the Commission, i.e., the 
activity of ensuring that schools and libraries received discounts for 
telecommunications services, voice mail, Internet access, and internal 
connections pursuant to section 254(h). Therefore, we are obligated by 
law to seek recoupment of funds that were disbursed in violation of our 
statutory authority. In addition, parties' assertions that the 
collection mandate of the DCA is inapplicable to the schools and 
libraries universal service program because its direct application is 
limited to claims for money owing to the United States Treasury, is 
inaccurate. By its terms, the DCA is not limited to funds that are owed 
to the Treasury. The DCA defines ``debt or claim'' as funds which are 
``owed to the United States,'' not merely those which are ``owed to the 
U.S. Treasury.'' In fact, the DCA defines a ``claim'' to include 
overpayments from an agency-administered program, such as the federal 
universal service program.
    13. We therefore reject the Petitioners' argument that the 
authorities on which we relied in the Commitment Adjustment Order are 
inapplicable. We conclude that under these authorities, the Commission 
has an obligation to seek recovery of universal service funds disbursed 
in violation of the statute or a rule.
    14. USTA argues that we unlawfully delegated our authority to 
recoup universal service funds disbursed in violation of the statute or 
a rule to the Administrator because this duty is not found in 
Sec. Sec.  54.702 or 54.705 of the Commission's rules. We reject this

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argument. The Administrator oversees the administration of the schools 
and libraries support mechanism, including the administration of 
disbursing schools and libraries funds consistent with, and under the 
direction of, the Commission's rules and precedent. If the 
Administrator allows funds to be disbursed in violation of the statute 
or a rule, it is within the ambit of its administration and 
disbursement duties to seek recoupment in the first instance. Moreover, 
we note that the Commission retains its authority to seek final payment 
of its claim. Thus, we have not unlawfully delegated the Commission's 
authority to seek recoupment of funds disbursed in violation of the 
statute or a rule.

III. Procedural Matters

A. Paperwork Reduction Act Analysis

    15. This document does not contain new or modified information 
collection requirements subject to the Paperwork Reduction Act of 1995 
(PRA), Public Law 104-13. In addition, therefore, it does not contain 
any new or modified ``information collection burden for small business 
concerns with fewer than 25 employees,'' pursuant to the Small Business 
Paperwork Relief Act of 2002, Public Law 107-198, see 44 U.S.C. 
3506(c)(4).

B. Final Regulatory Flexibility Certification

    16. The Regulatory Flexibility Act of 1980, as amended (RFA), 
requires that a regulatory flexibility analysis be prepared for notice-
and-comment rule making proceedings, unless the agency certifies that 
``the rule will not, if promulgated, have a significant economic impact 
on a substantial number of small entities.'' 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 Small Business 
Administration (SBA).
    17. An initial regulatory flexibility analysis (IRFA) was 
incorporated in the Second FNPRM. The Commission sought written public 
comment on the proposals in the Second FNPRM, including comment on the 
IRFA. No comments were received to the Second FNPRM or IRFA that 
specifically raised the issue of the impact of the proposed rules on 
small entities.
    18. In this order, we now direct that recovery of funds disbursed 
to schools and libraries in violation of the Communications Act, or of 
a program rule, be sought from whichever party or parties have 
committed the violation. This has no effect on any parties who have not 
violated our rules, except to make more money available for them to 
obtain through the schools and libraries support program. It only 
imposes a minimal burden on small entities that have violated our rules 
by requiring them to return funds they received in violation of our 
rules. We believe that the vast majority of entities, small and large, 
are in compliance with our rules and thus will not be subject to 
efforts to any recover improperly disbursed funds.
    19. Therefore, we certify that the requirements of the order will 
not have a significant economic impact on a substantial number of small 
entities.
    20. In addition, the order and this final certification will be 
sent to the Chief Counsel for Advocacy of the SBA, and will be 
published in the Federal Register.
    21. The Commission will not send a copy of this Order on 
Reconsideration and Fourth Report and Order pursuant to the 
Congressional Review Act, see 5 U.S.C. 801(a)(1)(A).

IV. Ordering Clauses

    22. Pursuant to the authority contained in sections 1, 4(i), 4(j), 
and 254 of the Communications Act of 1934, as amended that this Order 
on Reconsideration and Fourth Report and Order in CC Docket No. 02-06 
is adopted.
    23. The Petitions for Reconsideration filed by MCI WorldCom, Inc., 
United States Telecom Association, and Sprint on November 8, 1999 are 
granted to the extent provided herein.
    24. The terms of this Order on Reconsideration and Fourth Report 
and Order are effective September 17, 2004.
    25. The Commission's Consumer and Governmental Affairs Bureau, 
Reference Information Center, shall send a copy of this Order on 
Reconsideration and Fourth Report and Order, including the Final 
Regulatory Flexibility Certification, to the Chief Counsel for Advocacy 
of the Small Business Administration.

Federal Communications Commission.
Marlene H. Dortch,
Secretary.
[FR Doc. 04-21005 Filed 9-16-04; 8:45 am]
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