The Schools and Libraries Program
Initial Statistical Analysis of Data from the 2006/2007
Compliance Audits 
By
Office of Inspector General
Federal Communications Commission
October 3, 2007 
2
Background and Introduction
This report contains a statistical analysis of data from the 2006/2007 Audit of the 
Schools and Libraries (“S&L”) Program of the Federal Communications Commission
(“FCC” or “Commission”).  The primary objective of the Inspector General (“IG”) in 
auditing the S&L program was to determine the extent to which the Schools s & Libraries 
program was being administered in accordance with the Commission's rules, orders and 
interpretative opinions.  An additional objective was to provide audit results that would 
permit statistical estimates of the error rates under the Improper Payments Information 
Act of 2002 (“IPIA”).1 Under IPIA standards, a program is at risk if the erroneous 
payment rate exceeds 2.5 percent and the amount of erroneous payments is greater than 
$10 million. To assess compliance and risk, a stratified simple random sample of 155 
FRNs2 was drawn and compliance attestation audits were completed. Statistical results 
from the sample suggest that the program is at risk. The erroneous payment rate is 
estimated at 12.9 percent with a margin of error ± 4.5 percent at the 90 percent
confidence level.3   Compliance with rules and regulations was generally high (90
percent or more).
Schools and Libraries Program Description
The S&L Program of the Universal Service Fund (“USF”), commonly known as 
"E-rate," is administered by the Universal Service Administrative Company (“USAC”) 
under the direction of the FCC, and provides discounts to assist most schools and 
libraries in the United States to obtain affordable telecommunications and Internet access
services. It is one of four support programs funded through a USF charged to companies 
that provide interstate and/or international telecommunications services.4
 The S&L Program supports connectivity, in other words, the conduit or pipeline 
for communications that use telecommunications services as well as the Internet. 
Applicants must provide additional resources including end-user equipment (e.g., 
computers, telephones, etc.), software, professional development, and the other elements 
that are necessary to utilize the connectivity funded by the Schools and Libraries 
Program. Funding is requested under four categories of service: telecommunications 
services, Internet access, internal connections, and basic maintenance of internal 
connections. Discounts for support depend on the level of poverty and the urban or rural 
  
1 Pub. L. 107-300; 11 Stat. 2350.
2 A FRN is a Funding Request Number that is assigned to a project for which USF support is requested.
3 During the audit period, approximately $1.6 billion was distributed to schools and libraries.
4 Under section 54.712 of the Commission’s rules, 47 C.F.R. § 54.712, carriers may recover universal 
service contributions from their end user customers so long as the line-item charge does “. . . not exceed the 
interstate telecommunications portion of the bill times the relevant contribution factor.”
3
status of the population served and range from 20 percent to 90 percent of the costs of 
eligible services.5 Eligible schools, school districts and libraries may apply individually 
or as part of a consortium.6
Overview of Administrative Process:  
Federal and state law determine eligibility of schools, school districts, and 
libraries for S&L support.  In general, a school is eligible for S&L support if it meets the 
following eligibility requirements:
· schools must provide elementary or secondary education as determined under 
state law;
· schools may be public or private institutional day or residential schools, or 
public charter schools;
· schools must operate as non-profit businesses; and 
· schools cannot have an endowment exceeding $50 million.7
In many cases, non-traditional facilities and students may be eligible.8
Libraries must meet the statutory definition of library or library consortium found 
in the 1996 Library Services and Technology Act (“LSTA”)9 to meet eligibility 
requirements for S&L support.  Libraries must be eligible for assistance from a state 
library administrative agency under that Act; must have budgets completely separate 
from any schools (including, but not limited to, elementary and secondary schools, 
colleges and universities); and cannot operate as for-profit businesses.
Schools, school districts, and libraries that want to apply for S&L support, 
commonly referred to as "E-rate," must first prepare a technology plan.10 An approved 
technology plan sets out how information technology and telecommunications 
infrastructure will be used to achieve educational goals, specific curriculum reforms, or 
library service improvements.
A technology plan designed to improve education or library services should cover 
the entire funding year (July 1 to June 30) but not more than three years. The plan must 
  
5 See 47 C.F.R § 54.505.
6 See 47 C.F.R. § 54.501(d).
7 See 47 C.F.R. § 54.501.
8 For example, an Educational Service Agency, which may operate owned or leased instructional facilities, 
may be eligible for S&L support if it provides elementary or secondary education as defined in state law.
9 Pub. L. 104-208, 110 Stat. 3009.
10 See 47 C.F.R. § 54.508.
4
contain the following five elements: (1) goals and a realistic strategy for using 
telecommunications and information technology; (2) a professional development 
strategy; (3) an assessment of telecommunication services, hardware, software, and other 
services needed; (4) budget resources; and (5) an ongoing evaluation process.  The 
technology plan must be approved by a USAC-certified technology plan approver before 
discounted services can begin.11 The state is the certified technology plan approver for 
libraries and public schools. 
Applicants must file the Description of Services Requested and Certification
Form (Form 470)12 to begin the competitive process and must ensure an open and fair 
competitive bidding process for specific products.  Applicants must file a new Form 470
each funding year for requests for tariffed or month-to-month services and for new 
contractual services.13 When the Form 470 is filed, USAC will make it available to 
interested service providers by posting it to the USAC website.  Applicants must: (1) 
describe specific services or functions for support; (2) identify the correct category of 
services: telecommunications, Internet access, internal connections, or basic maintenance 
of internal connections: (3) identify recipients of services for support; (4) follow all 
applicable state and local procurement laws: and (5) wait 28 days after the Form 470 is 
posted to the USAC website or after public availability of your Request for Proposals 
(“RFP”), whichever is later, before selecting a vendor or executing a contract.  Applicants 
may use RFPs or other solicitation methods tailored to specific needs and circumstances 
in addition to the required Form 470. 
The Form 470 must be completed by the entity that will negotiate for eligible 
products and services with potential service providers. A service provider that 
participates in the competitive bidding process as a bidder cannot be involved in the 
preparation or certification of the entity's Form 470.  
Applicants must select the most cost-effective provider of the desired products or 
services eligible for support, with price as the primary factor.14  At the conclusion of the 
28-day waiting period after the Form 470 is posted on the USAC website, the applicant 
may select a vendor for tariffed or month-to-month services or execute a contract for new 
contractual services.  Applicants may also choose vendors from a State Master Contract, 
execute multi-year contracts pursuant to a Form 470, and enter into voluntary contract 
  
11 The state is the certified technology plan approver for libraries and public schools.  Non-public schools 
and other entities that do not secure approval of their technology plan from their states may locate a USAC-
certified technology plan approver from USAC.  Applicants that seek S&L Program support only for basic 
telephone service do not need a technology plan.
12 A new AForm 470 is not required if an applicant intends to seek discounts on services provided under a 
multi-year contract executed under a posted Form 470 in a prior funding year.
13 See f.n. 11, supra.
14 See 47 C.F.R. §54.504(b)(4).
5
extensions, but certain additional contract requirements apply. In all cases, applicants 
must comply with state and local procurement laws.
Applicants must save all documentation pertaining to the competitive bidding 
process and vendor selection for five years.15 Applicants must certify and acknowledge 
on the Form 470 and the Services Ordered and Certification Form (Form 471) that they 
may be audited and that they must retain all records that can verify the accuracy of 
information provided.
An applicant that applies for S&L Program support for eligible services must 
calculate the discount percentage that it and the schools or libraries it represents are 
eligible to receive.  Applicants use the Form 471 to calculate the discount and begin by 
listing the recipients of services for support. FCC rules include a discount matrix that 
takes into consideration poverty level and the urban or rural location of the participating 
entity.16
The primary measure for determining Schools and Libraries support discounts is 
the percentage of students eligible for free and reduced lunches under the National 
School Lunch Program (“NSLP”), calculated by individual school.  A school district 
applicant calculates its shared discount by calculating a weighted average of the discounts 
of all individual schools included in the school district. 
Library branches or outlets must obtain and use the NSLP data for the public 
school district in which they are located to calculate the discount.  A library system 
applicant calculates its shared discount by calculating an average of the discounts of all 
library branches or outlets included in the system. 
A consortium calculates its shared discount by calculating the average of the 
discounts of all eligible libraries and schools that are included in its membership. 
Every school or library in the United States is located in either a rural or an urban 
area, based on Metropolitan Statistical Area (“MSA”) data.  The applicant must 
determine if the individual school or library is rural or urban to properly calculate its 
percentage discount. Non-instructional facilities that serve educational purposes may be 
eligible to receive discounts on telecommunications and Internet access services (Priority 
1 services).
  
15 See 47 C.F.R. § 54.516(a).
16 See 478 C.F.R. § 54.505.
6
Compliance and IPIA Audits
In 2006, the Inspector General (“IG”) established two objectives that an audit of 
the S&L Program was to achieve. Because the S&L program was considered at risk,17
the primary objective of each audit was to determine was to determine the extent of 
compliance with FCC rules, orders and interpretative opinions. An additional objective 
was to estimate, statistically, the erroneous payment rate
In order to determine compliance (as captured within the general administrative 
process described above), a compliance attestation audit of each school and library on a 
specific FRN was undertaken. With compliance attestation audits, the auditee 
(management of the school or library receiving S&L support) is required to sign an 
assertion letter acknowledging its responsibility for compliance with applicable 
requirements of Commission rules (e.g. 47 C.F.R. §§ 54.500 - 54.523) as well as related 
FCC orders and interpretive opinions; and to make specific assertions relative to an 
applicant’s compliance with those rules. Auditors test the assertions, and provide the 
cause(s) for the failure of an assertion.  That is, auditors determine whether a beneficiary 
of the S&L program is in compliance with FCC rules and, if the beneficiary is not in 
compliance, the auditors provide the cause(s) of, or reason(s) for non-compliance.
Because FCC Rules changed over the time frame audited, there were multiple 
assertion letters. Table 1 contains the fundamentals of an assertion letter that 
management of an auditee signed. Appendix A contains all assertion letters that applied
to the entities that were audited in this program. We statistically analyze data generated 
from compliance attestation audits based on the assertion letters that are contained in 
Appendix A.
TABLE 1
What kinds of service are you seeking: Telecommunications Services, Internet Access, 
Internal
Connections Other than Basic Maintenance, or Basic Maintenance of Internal 
Connections?
Telecommunications Services 
a. Do you have a Request for Proposal (RFP) that specifies the services you are seeking? If you check YES, your 
RFP
must be available to all interested bidders for at least 28 days.
b. List below the Telecommunications Services you seek. Specify each service or function
(e.g. local voice service) and quantity and/or capacity (e.g. 20 existing lines plus 10 new ones).
Internet Access
a. Do you have a Request for Proposal (RFP) that specifies the services you are seeking
RFP must be available to all interested bidders for at least 28 days.
  
17 See FCC Report to Congress on Improper Payments, March 31, 2004.
7
b. List below the Internet Access services you seek. Specify each service or function (e.g.,
monthly Internet service) and quantity and/or capacity (e.g., for 500 users)
Internal Connections Other than Basic Maintenance 
a. Do you have a Request for Proposal (RFP) that specifies the services you are seeking? If you check YES, your 
RFP
must be available to all interested bidders for at least 28 days.
b. List below the Internal Connections services you seek. Specify each service or function
(e.g., a router, hub and cabling) and quantity and/or capacity (e.g., connecting 1 classroom of 30 students).
Basic Maintenance of Internal Connections 
a. Do you have a Request for Proposal (RFP) that specifies the services you are seeking? If you check YES, your RFP 
must be
available to all interested bidders for at least 28 days.
b. List below the Basic Maintenance services you seek. Specify each service or function (e.g.,
basic maintenance of routers) and quantity and/or capacity (e.g., for 10 routers).
(Optional) Please name the person on your staff or project who can provide additional technical details or 
answer
specific questions from service providers about the services you are seeking.
Check [this box] if there are any restrictions imposed by state or local laws or regulations on how or when 
service providers may contact you or on other bidding procedures. Please describe below any such 
restrictions or procedures and/or provide a Web address where they are posted and a contact name and 
telephone number.
Check [this box] if no state and local procurement/competitive bidding requirements apply to the 
procurement of services sought on this Form 470.
If you have plans to purchase additional services in future years, or expect to seek new contracts for existing 
services, you may summarize below (including the likely timeframes). If you are requesting services for a 
funding year for which a Form 470 cannot yet be filed online, include that information here.
Although the following services and facilities are ineligible for support, they are usually necessary to make 
effective use of the eligible services requested in this application. Unless you indicated that your application 
is ONLY for basic telephone service, you must check one or both boxes. You may provide details for 
purchases being sought.
Desktop software: Software required
a has been purchased; and/or is being sought.
Electrical systems:
b adequate electrical capacity is in place or
has already been arranged; and/or
upgrading for electrical capacity is being sought.
Computers: a sufficient quantity of computers
c has been purchased; and/or is being sought.
Computer hardware maintenance: adequate arrangements
d have been made; and/or are being sought.
Staff development:
E all staff have had an appropriate level of
training/additional training has been scheduled;
and/or training is being sought.
Check the ONE choice that best describes this application and the eligible entities that will
receive the services described in this application. You will then list the entity/entities that will pay the bills for
these services.
a Individual school or single-site library.
b Statewide application for (enter 2-letter state
code) representing (check all that apply):
All public schools/districts in the state.
All non-public schools in the state.
All libraries in the state.
c School district, library system or consortium application to serve multiple eligible 
8
entities.
Table 2 Contains one of the nine assertion Letters. The assertion letter applies to 
Schools in 2004.
TABLE 2
Report of Management on Compliance with Applicable Requirements of 
47 C.F.R Section 54 of the Federal Communications Commission’s Rules 
and Regulations and Related Orders
Management of [BENEFICIARY NAME] (the “District”) is responsible for ensuring the 
District’s compliance with applicable requirements of 47 C.F.R. Sections 54.500 through 54.523 
of the Federal Communications Commission’s (“FCC”) Rules and Regulations for Universal 
Service Support for Schools and Libraries, as amended, and related FCC Orders.
Management has performed an evaluation of the District’s compliance with the applicable 
requirements of 47 C.F.R. Section 54.500 through 54.523, as amended, and related FCC Orders 
with respect to disbursements made from the Universal Service Fund during the year ended 
September 30, 2005 on our behalf relative to Funding Request No. xxxxxxx and the related 
Funding Year 2004 application for funding and service provider selection for such Funding 
Request Number (“FRN”).  Based on this evaluation, we assert that as of [DATE], 2006, the 
District complied with all applicable requirements of 47 C.F.R. Sections 54.500 through 54.523, 
as amended, and related FCC Orders in all material respects.
The District used [SERVICE PROVIDER NAME] as its service provider relative to FRN 
xxxxxxx.  In addition to providing the goods and/or services for which the disbursements were 
made relative to that FRN, [SERVICE PROVIDER NAME] performed the following specific 
functions to qualify as a service provider for the Schools and Libraries Support Mechanism and 
on behalf of the District:
Ø Preparation and submission of FCC Form 473, Service Provider Annual 
Certification Form
Ø Preparation and submission of FCC Forms 474, Service Provider Invoice
Ø Receipt of disbursements from the Universal Service Fund as requested by FCC 
Forms 472, Billed Entity Applicant Reimbursement, or FCC Forms 474, Service 
Provider Invoice
Ø Reimbursement to the District of disbursements from the Universal Service Fund 
as requested by FCC Forms 472, Billed Entity Applicant Reimbursement
The District has obtained and relied upon assurance from [SERVICE PROVIDER NAME] to 
verify that controls and procedures relating to these assertions have been established and 
maintained by [SERVICE PROVIDER NAME] in accordance with all applicable requirements of 
47 C.F.R. Sections 54.500 through 54.523, as amended, and related FCC Orders.
The District represents the following assertions per the applicable FCC Rules and 
Regulations, as amended, and related FCC Orders (which are identified herein with each 
assertion) with respect to disbursements made from the Universal Service Fund during the 
9
year ended September 30, 2005 on our behalf relative to FRN xxxxxxx and the related 
Funding Year 2004 application for funding and service provider selection for such FRN:
A. General Matters – The District:
1. maintained for its purchases of telecommunications and other supported services at
discounted rates the kind of procurement records that it maintains for other purchases 
(Section 54.516 (a) which was effective from July 17, 1997 through November 12, 
2004)
2. retained, to date, all documents related to the application for, receipt, and delivery of 
discounted telecommunications and other supported services, to the extent there were 
such documents, and retained any other document that demonstrates compliance with 
the statutory or regulatory requirements for the schools and libraries mechanism 
(Sections 54.516 (a) (1) and 54.504 (c) (1) (x) which were effective as of November 
12, 2004 and require a five-year retention period for such documents)
3. maintained, to date, asset and inventory records of equipment purchased as 
components of supported internal connections services sufficient to verify the actual 
location of such equipment (Section 54.516 (a) which was applicable from March 11, 
2004 to November 11, 2004 and Section 54.516 (a) (1) which was effective as of 
November 12, 2004, both of which require maintenance of such records for a period 
of five years after purchase)
B. Application Matters – The District:
1) requested discounts from the Universal Service Fund for telecommunications and 
other supported services only for schools: (a) meeting the statutory definitions of 
"elementary school," as defined in 20 U.S.C. § 7801(14), or "secondary school," as 
defined in 20 U.S.C. § 7801(25); (b) which are not operated as for-profit businesses; 
and (c) do not have endowments exceeding $50,000,000 as of the date such services 
were received (Section 54.501 (b) which was effective as of July 17, 1997)
2) submitted a properly completed FCC Form 470, including the required certification 
of an authorized person (Sections 54.504 (a) and (b) which were effective as of July 
17, 1997, with clarification included in FCC Order 03-313, paragraph 56 which was 
issued on December 8, 2003)
3) had the resources required to make use of the services requested, or such resources 
were budgeted for purchase for the current, next or other future academic years, at 
the time the FCC Form 470 was filed (Section 54.504 (b) (1) which was effective as 
of July 17, 1997)
4) identified all co-purchasers related to aggregated purchases with other entities, if any, 
and the services or portion of the services purchased by the District on the FCC Form 
470 (Section 54.504 (b) (2) (iv) which was effective as of July 17, 1997)
5) had a technology plan that had been certified by its state, USAC or an independent 
entity approved by the FCC at the time of filing the FCC Form 470 (Section 54.504 
(b) (2) (vii) which were effective as of July 17, 1997)
6) accurately determined its level of poverty, for use in determining its available 
discount rate, by using the percentage of its student enrollment that is eligible for a 
free or reduced price lunch under the national school lunch program or a federally-
approved alternative mechanism in the public school district in which they are 
10
located (Section 54.505 (b) which was effective as of July 17, 1997)
7) accurately applied the approved discount matrix, with the correct consideration of 
urban or rural location, to its determined level of poverty to set its discount rate to be 
applied to eligible goods and /or services (Section 54.505 (c), as revised, which was 
originally effective as of July 17, 1997)
8) submitted a completed FCC Form 471 only after signing a contract for eligible goods 
and/or services (Section 54.504 (c) which was effective as of February 12, 1998)
9) requested only, and funds were disbursed by the Universal Service Fund only for, 
eligible goods and services (Telecommunications services - Section 54.502;  Internet 
access services – Section 54.503;  Installation and maintenance of internal 
connections – Sections 54.503, 54.506 (b) and 54.518, all of which were effective as 
of February 12, 1998)
10) allocated the cost of any contract, for which request for discount was made, to 
eligible and ineligible components (Section 54.504 (g) which was effective as of 
March 11, 2004)
11) submitted a certification on FCC Form 486 that an Internet safety policy is being 
enforced (Section 54.520 (c) which was effective as of August 5, 2002)
12) complied with the certification on FCC Form 486, such that:
a) it enforced a policy of Internet safety that includes monitoring the online 
activities of minors and the operation of a technology protection measure, 
with respect to any of its computers with Internet access, that protects against 
access through such computers to visual depictions that are obscene, child 
pornography or harmful to minors (Section 54.520 (c) (1) (i) which was 
effective as of August 5, 2002); and
b) its Internet safety policy addresses each of the following (Section 54.520 (c) 
(1) (ii) which was effective as of August 5, 2002):
i) access by minors to inappropriate matter on the Internet and World Wide 
Web; 
ii) the safety and security of minors when using electronic mail, chat rooms, 
and other forms of direct electronic communications; 
iii) unauthorized access, including so-called `hacking', and other unlawful 
activities by minors online; 
iv) unauthorized disclosure, use, and dissemination of personal identification 
information regarding minors; and
v) measures designed to restrict minors’ access to materials harmful to 
minors
C. Service Provider Selection Matters – The District:
1) sought competitive bids for all eligible goods and/or services for which Universal 
Service Fund support was requested and complied with applicable state and local 
procurement processes included in the District’s documented policies and 
11
procedures (Section 54.504 (a) which was effective as of July 17, 1997)
2) waited at least four weeks after the posting date of the FCC Form 470 on the 
USAC Schools and Libraries website before making commitments with the 
selected service providers (Section 54.504 (b) (4) which was effective as of 
February 12, 1998)
3) considered all bids submitted and selected the most cost-effective service 
offering (Section 54.511 (a) which was effective as of July 17, 1997, with 
clarification included in FCC Order 03-101, paragraph 24, which was issued on 
July 15, 2003)
4) did not surrender control of its competitive bidding process to a service provider 
that participated in that bidding process and did not include service provider 
contact information on its FCC Forms 470 or 471 (FCC Order 00-167, paragraph 
10, which was issued on May 23, 2000)
D. Receipt of Services and Reimbursement Matters – The District:
1) applied its discount percentage to the appropriate pre-discount price (Section 
54.505 (a) which was effective as of July 17, 1997)
2) received reimbursement from its service provider for purchases for which it had 
paid full price to the service provider (Section 54.514 (b) which was effective as 
of August 14, 2003) 
3) requested, and funds were disbursed by the Universal Service Fund,  amounts 
related to service substitutions that were based on the lower of the pre-discount 
price of the service for which support was originally requested or the pre-
discount price of the new, substituted service (Section 54.504 (f)), which was 
effective as of March 14, 2004 as confirmation of earlier administrative 
practices)
4) used the services requested solely for educational purposes (Section 54.504 (b) 
(2) (ii) which was effective as of July 17, 1997 and 54.500 (b) which was 
effective as of August 14, 2003)
5) , with respect to eligible services and equipment components purchased at a 
discount,
a) did not sell or resell such items for money or any other thing of value;
b) did not transfer such items, with or without consideration of money or any 
other thing of value, for a period of three years after purchase, other than in 
the event that such transfer was made to another eligible school or library in 
the event the particular location where the service was originally received 
was permanently or temporarily closed;
c) notified USAC of any such allowable transfer; and
d) maintained, as did the recipient, detailed records documenting the transfer 
and the reason for the transfer for a period of five years 
(Section 54.504 (b) (2) (iii) which was effective as of July 17, 1997 and 54.513 
12
(c) which was effective March 11, 2004)
6) paid all “non-discount” portions of requested goods and/or services (Section 
54.504 (b) (2) (v) which was effective as of July 17, 1997)
7) allocated the costs of any contract that included both eligible and ineligible 
components to those eligible and ineligible components in the related request for 
discount (Section 54.504, which was effective as of July 17, 1997 ,with 
confirmation of earlier administrative practices included in FCC Order 03-313, 
paragraph 60 which was issued on December 8, 2003, and codified in Section 
54.504 (g) which was effective as of March 11, 2004)
8) deducted from the pre-discount cost of services indicated in funding requests the 
value of all price reductions, promotional offers and “free” products or services 
(Section 54.504 which was effective as of July 17, 1997, with confirmation of 
earlier administrative practices included in FCC Order 03-313, paragraph 60 
which was issued on December 8, 2003)
Sample Design
The S&L program sample design was a stratified simple random sample of 155
FRNs from a population data base of 95,558. The seven strata were defined in terms of
“total amount disbursed” as follows:
1. Negative; i.e., funds returned to USAC.
2. Zero; i.e., no funds paid out or received.
3. Amount disbursed from $1 to less than $10,000.
4. Amount disbursed from $10,000 to less than $100,000.
5. Amount disbursed from $100,000 to less than $500,000.
6. Amount disbursed from $500,000 to less than $10,000,000.
7. Amount disbursed from $10,000,000 or more.
The number of FRNs in the population and sample within each stratum is shown 
in the table below. Although data from audits conducted by KPMG in 2000 were 
analyzed, they were not FRN-based and provided little help in determining sample size 
needed to estimate erroneous payments with a margin of error of 2.5 percent at the 90
percent confidence level. Consequently, Neyman (optimal) allocation was applied to
arrive at stratum sample sizes so as to optimally estimate total amount disbursed from the 
sample. With sufficient correlation between erroneous payments and disbursement 
amount, it was conjectured that the error rate may come close to 2.5 percent, but this 
could not be guaranteed since an advance estimate of the correlation was not available.
13
Number of FRN Stratified by Total Amount Disbursed
Amount <$0 $0 $1 to 
$10k
$10k 
to 
$100k
$100k 
to 
$500k
$500k 
to $10m
$10m or 
more
Total 
Sample
Number 
of FRNs
78 4297 73295 15805 1758 318 7 95558
Sample 
Size
10 10 20 36 19 53 7 155
Sample Selection
The sample was selected from the sampling frame of all 95,560 FRNs using the 
SAS procedure PROC SURVEYSELECT. Additional FRNs were randomly selected in 
each stratum for use, as needed, to augment the sample and/or replace FRNs that could 
not be audited for various reasons.  
Issues Associated with Sampling
Some FRNs were replaced due to auditor (KPMG) conflict of interest or to law 
enforcement issues.  In particular, the $10million or greater stratum originally had 9 
members.
One of the 155 audits resulted in a disclaimer due to lack of sufficient document-
ation for KPMG to give an opinion. Consequently, the entire amount disbursed to this 
provider was regarded as erroneous.
In less than 10 percent of the sampled FRNs, the number of pieces of equipment 
was so large that KPMG attested to the correctness of disbursements for a random 
sample, rather than all, items. Sampled items were required to be at least 60 in number, 
and in no case was an improper payment found. Therefore, this necessity to sub-sample 
items for FRN had no effect on the error rate. 
14
Estimation Formulas18
The SL_2005 sample design was stratified into seven strata. One stratum 
consisted of the 7 units with disbursements of $10,000,000 or more, all of which were 
audited. Simple random samples were selected from the other strata.
To estimate the amount and proportion of erroneous payments in the population, 
the combined ratio estimator  was used. The remainder of this section gives the formulas 
used to compute the combined ratio estimator and its margin of error.
ix = amount dispersed to FRN i.
iy = absolute value of improper payment amount for FRN i.
known population total of x.xt =
Number of FRNs in stratum hhN = .
sample size from stratum h.hn =
1
h i
ihh
xxn
Î
= å = sample mean disbursement x in stratum h.
1
ih
ihh
yyn
Î
= å = sample mean of improper payments y in stratum h.
µ h
xh htNx= = estimate of total disbursements in stratum h.
µ
yh h htNy= = estimate of total erroneous payments in stratum h.
µ
yh
h
xh
h
t
p
t
=
å
å
$
$ = estimated proportion of erroneous payments in the population.
µ residual
ii idypx=- =
1
h i
ihh
ddn
Î
= å = sample mean residual in stratum h.
( )22 1 1 hdh i
ihh
sddn
Î
=-- å = sample variance of residuals d in stratum h.
  
18 See W.G. Cochran, Sampling Techniques, 3rd edition (1977), John Wiley & Sons, New York.
15
ME = (1.645) 22111hdh
hxhh
NstnNæö-ç÷
èøå
= 90 percent margin of error for estimated 
proportion.
Estimation Results
The erroneous payment rate is estimated at 12.9 percent with a margin of error ± 
4.5 percent at the 90 percent confidence level.  In other words, a 90 percent confidence 
interval for the error rate is 8.4 percent to 17.4 percent.  
Compliance with rules and regulations was generally high (90 percent or more) 
with the notable exception of submitting/obtaining technical plan approval. Table 3
below contains the details.
TABLE 3
Schools and Libraries Program Compliance*
ASSERTION Materially Non-Material
Compliant Non-Compliant Non-Compliant Other
A.1 
PROC RECORDS 95.3% 0.1% 4.6%
A.2
E-RATE RECORDS
97.9% 0.7% 1.4%
A.3
ASSET RECORDS 81.6% 11.3% 7.1%
B.1
ELIGIBLE ORGANIZATION 99.8% 0.1% 0.1%
B.2
FORM 470 99.4% 0.5% 0.1%
B.2-C ELIGIBLE LIBRARY CONSORTIUM 100.0%
B.3
RESOURCES 99.9% 0.1%
B.3-C
TELECOMMUNICATIONS CONSORTIUM 100.0%
16
B.4
CO-PURCHASERS 100.0%
B.4-C
ELIGIBLE SERVICES 93.8% 6.3%
B.5
TECH PLAN 84.0% 3.6% 12.3%
B.5-C
FORM 470 100.0%
B.6
LEVEL OF POVERTY 99.0% 1.0%
B.6-C
RESOURCES 100.0%
B.7
DISCOUNT MATRIX 95.9% 4.1%
B.7-C
CO-PURCHASERS 100.0%
B.8
CONTRACT BEFORE FORM 471 99.3% 0.5% 0.2%
B.8-C
TECH PLAN APPROVED 50.3% 38.9% 10.8%
B.9
ELIGIBLE GOODS/SERVICES 95.0% 4.1% 0.9%
B.9-C
WEIGHTED AVERAGE DISCOUNTS 98.8% 1.2%
B.10
COST ALLOCATION 100.0%
B.10-C
CONTRACT BEFORE FORM 471 57.7% 42.3%
B.10-LS
CIPA CERT ON FORM 486 100%
B.11-C
17
ELIGIBLE GOODS/SERVICES 99.6% 0.4%
B.11 -LS
CIPA 99.9% 0.1%
B.12
CIPA 65.9% 5.5% 28.6%
B.12-C
CONSORTIA FORM 479 89.9% 8.4% 1.7%
B.13-C
MAINTAINED LETTERS OF AGENCY 94.1% 5.9%
C.1
COMPETITIVE BIDS 99.5% 0.5%
C.2
28 DAYS AFTER FORM 470 91.9% 8.1%
C.3
BID SELECTION 99.5% 0.5%
C-4
PROPER BID PROCESS 100.0%
D,1
APPLIED PROPER PERCENTAGE 78.4% 12.8% 8.8%
D.2
REIMBURSED BY SERV PROV 100.0%
D.3
SERVICE SUBSTITUTION 99.4% 0.5%
D.4
EDUCATIONAL PURPOSES 98.1% 1.6% 0.2%
D.5
TRANSFER 99.9% 0.1%
D.5-A
RESALE 100.0%
D.5-B
TRANSFER 99.9% 0.1%
18
D.5-C
NOTIFIED USAC 98.8% 1.0% 0.1%
D.5-D
TRANSFER RECORDS 99.9% 0.1%
D.6
PAID NON-DISCOUNT PORTION 99.3% 0.6% 0.1%
D.7
COST ALLOCATION 100.0%
D.8
INCENTIVES DEDUCTED 99.5% 0.5%
* Weighted Percent Totals 
Causes of Non-Compliance
When there was non-compliance on any assertion, data were collected on causes 
of non-compliance. Table 4 contains all 21 possible causes of non-compliance. Data were 
collected such that, if an auditor found multiple causes of non-compliance, all 
information would be retained. 
TABLE 4
1-Imprecise FCC Rule/s
2-Contradictory FCC Rule/s
3-Overly Complex FCC Rules
4-Disregarded FCC Rule/s
5-Followed State Rule/s (apparent conflict with FCC Rule/s)
6-Followed USAC Procedures (apparent conflict with FCC Rule/s)
7-Inadequate Documentation Retention
8-Inadequate Auditee Processes and/or Polices and Procedures
9-Inadequate Systems for Collecting, Reporting, and/or Monitoring Data
10-Insufficient Resources/Time to Complete Task/Activity
11-Failure to Review/Monitor Work, Material, or Data/Application Submitted by 
Consultant/Agent
12-Applicant/Auditee Weak Internal Controls
13-Applicant/Auditee Data Entry Error
14-Service Provider Weak Internal Controls
15-Service Provider Data Entry Error
16-Service Provider Error (other)
19
17-USAC Error
18-SOLIX Error
19-NECA Error
20-Force Majeure (Acts of God and Nature)
21-Other
The statistical analysis of cause is contained in Table 5 below. Causality of non-
compliance depends on the particular assertion (rule or regulation). Inadequate 
documentation, inadequate systems for collecting & reporting and inadequate auditee 
processes appear to be principal causes. Non-material non-compliance with the 
requirement to have a ‘Tech Plan Approved’ seems to be ‘caused’ by following USAC 
procedures, whereas material non-compliance seems to be ‘caused’ by a variety of other 
factors including disregard of FCC rules or following State’s rules.
Table 5 
Schools and Libraries:  21 Reasons for Non-Compliance*
Assertion
N 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
A.1 
PROC RECORDS N 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Materially non-compliant 3 0 0 0 0 0 0 3 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Non-materially non-compliant 6 0 0 0 0 0 0 4 0 1 0 0 0 0 0 0 1 0 0 0 0 0
A.2
E-RATE RECORDS N 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Materially non-compliant 4 0 0 0 0 0 0 4 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Non-materially non-compliant 5 0 0 0 0 0 0 4 0 0 0 0 0 0 0 0 1 0 0 0 0 0
A.3
ASSET RECORDS N 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Materially non-compliant 2 0 0 0 0 0 0 0 1 1 0 0 2 0 0 0 0 0 0 0 0 0
Non-materially non-compliant 5 0 0 0 0 0 0 0 2 2 0 0 1 0 0 0 0 0 0 0 0 0
B.1
ELIGIBLE ORGANIZATION N 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Materially non-compliant 6 0 0 0 0 0 0 0 0 5 0 0 1 0 0 0 0 0 0 0 0 0
Non-materially non-compliant 4 0 0 0 1 0 0 0 0 2 0 0 0 0 0 0 0 0 0 0 0 1
B.2
FORM 470 N 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Materially non-compliant 1 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0
Non-materially non-compliant 2 0 0 0 0 1 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0
B.3
20
RESOURCES N 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Materially non-compliant 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1
B.5
TECH PLAN N 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Other 2 0 0 0 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Materially non-compliant 7 0 0 0 2 1 0 1 0 0 1 0 1 0 0 0 0 0 0 0 0 1
Non-materially non-compliant 22 0 0 0 0 2 17 1 1 0 0 0 0 0 0 0 0 0 0 0 0 1
B.6
LEVEL OF POVERTY N 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Non-materially non-compliant 4 0 0 0 1 0 0 0 0 0 0 0 0 2 0 0 0 1 0 0 0 0
B.7
DISCOUNT MATRIX N 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Materially non-compliant 1 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0
B.8
CONTRACT BEFORE FORM 
471 N 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Materially non-compliant 2 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1
Non-materially non-compliant 1 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0
B.9
ELIGIBLE GOODS/SERVICES N 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Other 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1
Materially non-compliant 2 0 0 0 0 0 0 0 0 0 0 0 2 0 0 0 0 0 0 0 0 0
Non-materially non-compliant 9 0 0 0 0 0 0 0 1 0 0 0 7 0 1 0 0 0 0 0 0 0
B.12
CIPA N 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Materially non-compliant 2 0 0 0 1 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0
Non-materially non-compliant 5 0 0 0 0 0 0 0 5 0 0 0 0 0 0 0 0 0 0 0 0 0
C.1
COMPETITIVE BIDS N 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Materially non-compliant 1 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0
C.2
28 DAYS AFTER FORM 470 N 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Materially non-compliant 2 0 0 0 0 0 0 0 2 0 0 0 0 0 0 0 0 0 0 0 0 0
C.3
BID SELECTION N 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Other 2 0 0 0 0 0 0 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Materially non-compliant 1 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0
D,1
APPLIED PROPER 
PERCENTAGE N 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Other 1 0 0 0 0 0 0 1 0 0 0 0 1 0 1 0 0 0 0 0 0 0
21
Materially non-compliant 8 0 0 0 0 0 0 0 0 1 0 0 5 1 0 0 0 0 0 0 0 1
Non-materially non-compliant 9 0 0 0 0 0 0 0 1 0 0 0 6 0 3 0 0 0 0 0 0 0
D.3
SERVICE SUBSTITUTION N 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Other 1 0 0 0 0 0 0 1 0 0 0 0 1 0 1 0 0 0 0 0 0 0
Non-materially non-compliant 1 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0
D.4
EDUCATIONAL PURPOSES N 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Other 1 0 0 0 0 0 0 1 0 0 0 0 1 0 1 0 0 0 0 0 0 0
Materially non-compliant 7 0 0 0 2 0 0 0 1 2 0 0 5 0 0 0 0 0 0 0 0 0
Non-materially non-compliant 4 0 0 0 1 0 0 0 1 1 1 0 1 0 0 0 0 0 0 0 0 0
D.5.a
RESALE N 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Other 1 0 0 0 0 0 0 1 0 0 0 0 1 0 1 0 0 0 0 0 0 0
Non-materially non-compliant 1 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0
D.5.b
TRANSFER N 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Other 1 0 0 0 0 0 0 1 0 0 0 0 1 0 1 0 0 0 0 0 0 0
Materially non-compliant 1 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Non-materially non-compliant 1 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0
D.5.c
NOTIFIED USAC N 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Materially non-compliant 1 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Non-materially non-compliant 2 0 0 0 0 0 1 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0
D.5.d
TRANSFER RECORDS N 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Non-materially non-compliant 1 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0
D.6
PAID NON-DISCOUNT 
PORTION N 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Other 1 0 0 0 0 0 0 1 0 0 0 0 1 0 1 0 0 0 0 0 0 0
Materially non-compliant 3 0 0 0 1 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Non-materially non-compliant 1 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0
D,7
COST ALLOCATION N 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Materially non-compliant 1 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0
D.8
INCENTIVES DEDUCTED N 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Non-materially non-compliant 1 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0
B.4 -C
ELIGIBLE SERVICES N 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
22
Materially non-compliant 2 0 0 0 0 0 0 0 0 0 0 0 2 0 0 0 0 0 0 0 0 0
B.8 -C
TECH PLAN APPROVED N 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Materially non-compliant 1 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Non-materially non-compliant 6 0 0 0 0 0 6 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0
B.9 -C
WEIGHTED AVERAGE 
DISCOUNTS N 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Non-materially non-compliant 4 0 0 0 1 0 0 0 0 3 0 0 0 0 0 0 0 0 0 0 0 0
B.10 -C
CONTRACT BEFORE FORM 
471 N 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Non-materially non-compliant 1 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
B.11 -C
ELIGIBLE GOODS/SERVICES N 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Other 1 0 0 0 0 0 0 1 0 0 0 0 1 0 1 0 0 0 0 0 0 0
B.12 -C
CONSORTIA FORM 479 N 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Materially non-compliant 1 0 0 0 0 0 0 0 0 1 0 0 1 0 0 0 0 0 0 0 0 0
Non-materially non-compliant 4 0 0 0 1 0 0 0 0 3 0 0 0 0 0 0 0 0 0 0 0 0
B.13 -C
MAINTAINED LETTERS OF 
AGENCY
Non-materially non-compliant 1 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0
B.11 -LS
CIPA N 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Non-materially non-compliant 2 0 0 0 1 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0
* Cause
1-Imprecise FCC Rule/s
2-Contradictory FCC Rule/s
3-Overly Complex FCC Rules
4-Disregarded FCC Rule/s
5-Followed State Rule/s (apparent conflict with FCC Rule/s)
6-Followed USAC Procedures (apparent conflict with FCC Rule/s)
7-Inadequate Documentation Retention
8-Inadequate Auditee Processes and/or Polices and Procedures
9-Inadequate Systems for Collecting, Reporting, and/or Monitoring Data
10-Insufficient Resources/Time to Complete Task/Activity
11-Failure to Review/Monitor Work, Material, or Data/Application Submitted by 
Consultant/Agent
12-Applicant/Auditee Weak Internal Controls
13-Applicant/Auditee Data Entry Error
14-Service Provider Weak Internal Controls
23
15-Service Provider Data Entry Error
16-Service Provider Error (other)
17-USAC Error
18-SOLIX Error
19-NECA Error
20-Force Majeure (Acts of God and Nature)
21-Other
** N is the sample size.
Discussion and Conclusions
The S&L Program of USF appears to be at risk because the estimated erroneous 
payment rate is 12.9 percent. There was, however, general compliance with FCC 
regulations (90 percent or more) with the notable exception of submitting/obtaining 
technical plan approval. Why is the compliance rate high and the erroneous payments 
rate larger than the 2.5 percent required under IPIA. Of the 155 compliance attestation 
examinations/audits, 1 audit or 0.65 percent of the audits is a disclaimed opinion by 
auditors. This implies disclaimed opinions cannot explain the relatively high erroneous 
payment rate. Some insight is gained from examining compliance data. Just over 7.1 
percent of the population had materially inadequate asset records, and 11 percent (11.3
percent) of the beneficiaries had immaterially inadequate asset records.  Just under 4
percent (3.6 percent) of the beneficiaries were materially non-compliant with rules 
regarding technical plan approval, and 12.3 percent of the beneficiaries were not
materially non-compliant with rules regarding technical plan approval. IPIA compliance
appears to been a problem with 5.5 percent materially non-compliant  and 28.6 percent of 
beneficiaries non-materially non-complaint. Non-compliance with assertion D1
(application of the correct discount percentage) is a problem with material non-
compliance at 12.8 percent and non-material non-compliance at 8.8 percent.
Where auditors could render opinions on compliance/non-compliance with FCC 
rules, more frequently observed causes of non-compliance were: inadequate 
documentation, and inadequate systems for collecting and reporting, and inadequate 
auditee processes appear to be principal causes. Non-material non-compliance with the 
requirement to have a Technology Plan Approved seems to have been caused by 
following USAC procedures, whereas material non-compliance seems to be caused by a 
variety of other factors including disregard of FCC rules or following state rules.
Under the IPIA, estimates of both the erroneous payment rate and amount of 
erroneous payment are intended guide the Commission in assessing risk that is associated 
with the Schools and Libraries Program. Under IPIA standards, a program is at risk if the 
erroneous payment rate exceeds 2.5 percent and the amount of erroneous payment is 
24
greater than $10 million. To assess compliance and risk, a stratified random sample of 
FRNs was drawn and compliance attestation examinations/audits were completed. The 
statistical results from a stratified random sample of 155 auditees suggest that the 
program is at risk, and there are significant administrative problems in the program. The 
erroneous payment error rate was 12.9 percent.