Prior to the Telecommunications Act of 1996, the Universal Service Fund (USF) operated as a mechanism by which interstate long distance carriers were assessed to subsidize telephone service to low-income households and high-cost areas. The Communications Act of 1934 stated that all people in the United States shall have access to rapid, efficient, nationwide communications service with adequate facilities at reasonable charges.

The Telecommunications Act of 1996 expanded the traditional definition of universal service - affordable, nationwide telephone service to include among other things rural health care providers and eligible schools and libraries. Today, FCC provides universal service support through four mechanisms:

  1. High Cost Support Mechanism provides support to certain qualifying telephone companies that serve high cost areas, thereby making phone service affordable for the residents of these regions.
  2. Low Income Support Mechanism assists low-income customers by helping to pay for monthly telephone charges as well as connection charges to initiate telephone service.
  3. Rural Health Care Support Mechanism allows rural health care providers to pay rates for telecommunications services similar to those of their urban counterparts, making telehealth services affordable.
  4. Schools and Libraries Support Mechanism, popularly know as the "E-Rate," provides telecommunication services (e.g., local and long-distance calling, high-speed lines), Internet access, and internal connections (the equipment to deliver these services) to eligible schools and libraries.

Schools and Libraries - Background

Generally, any school that meets the Elementary and Secondary Education Act of 1965's definition of schools is eligible to participate, as are libraries that can receive assistance from a state's library administrative agency under the Library Services and Technology Act.

The FCC has defined the support mechanism by which eligible schools and libraries will receive support from the universal service program. Specifically, schools and libraries do not receive direct funding from the program. Instead, they receive discounts on the costs of services provided by vendors. The amount of discount each school or library can receive under the program ranges from 20 to 90 percent and is determined using a matrix designed by FCC, with schools and libraries located in rural and low-income areas receiving the highest discounts from the fund. The USF compensates the schools' and libraries' vendors for the amount of the discount.

The Universal Service Administrative Company (USAC) was appointed by the FCC to administer the program, although FCC retains responsibility for overseeing the program's operations and ensuring compliance with its rules. USAC's Schools and Libraries Division is responsible for carrying out the program's day-to-day operations.

OIG Oversight

Oversight of the Schools and Libraries Program has increased because of complaints the OIG has received alleging improprieties within the program. The alleged improprieties include the submission of false claims, failure to comply with appropriate procurement regulations and laws, conflict of interest, forgery and securities related offenses. In order to maintain program integrity, the OIG is working with local and federal law enforcement entities to investigate the complaints and follow-up with prosecution where appropriate. Furthermore, the OIG has developed the USF Strategic Audit Plan to provide overall goals and implementation strategies for oversight of this program.