Client Alert

On December 12, 2008, the Office of Inspector General released its statistical analysis of audits from 2006 through 2008 of the Universal Service Schools and Libraries (S&L) program, which show that the S&L program is “at risk” under Improper Payments Information Act of 2002 (“IPIA”) standards. Under IPIA standards, a program is at risk if the erroneous payment rate exceeds 2.5% and the amount of erroneous payments is greater than $10 million. The erroneous payment rate for the S&L program was estimated by the Office of Inspector General to be 13.8% in the last year, with total estimated erroneous payments estimated at $232.7 million.¹ Based on these numbers, the Office of Inspector General has concluded that the S&L program is “at risk” under the IPIA.

Undertaken to determine whether distributions to S&L program beneficiaries were being made in accordance with the Commissions directives and to provide data for statistical estimates of erroneous payments (as required by the IPIA), the audits were performed in two rounds. Round One was undertaken in the 2006/2007 funding year, and Round Two was performed in 2007/2008. In Round One, the estimated erroneous payment rate was found to be 12.9%, and the estimated amount of erroneous payments was $210 million.² Both of these numbers, already placing the S&L program firmly in the “at risk” category under the IPIA, increased in 2007/2008, when the estimated erroneous payment rate was found to be 13.8%, with total estimated erroneous payments of $232.7 million.

The Office of Management and Budget defines an “erroneous payment” as “any payment that should not have been made or that was made in an incorrect amount under statutory, contractual, administrative, or other legally applicable requirements.” Incorrect payments include both overpayments and underpayments (including inappropriate denial of payment or service). Erroneous payments also include payments which the auditors could not accurately verify because of insufficient documentation. During the audit, data were collected on the causes for each erroneous payment. The principal causes of erroneous payments included: inadequate documentation (17.5%); disregard for FCC controls (12.2%); weak internal controls (6.7%); and inadequate systems for collecting, reporting, and/or monitoring data (3.5%). The audit found the percentage of erroneous payments caused by error by the Universal Service Administrative Company (“USAC”) to be 0, and found the percentage of errors caused by underpayments to equal only 5% of total erroneous payments.

The Office of Inspector General noted that the results are still awaiting third-party quality checks, and that a final report and data will be available later this month. These preliminary results, however, are not expected to change substantially.

If you have any questions regarding this Client Alert, please contact either the Womble Carlyle attorney with whom you usually work, or one of the following attorneys:

Mark J. Palchick - (202) 857-4411
Sarah Byer Miller - (202) 857-4448

Notes
¹ The Margin of Error for the 2007/2008 analysis was ± 3.1% at the 90% confidence level.
² The Margin of Error for the 2006/2007 analysis was ± 4.5%.