The E-rate portion of the bill provides the Universal Service Fund a one-year exemption from the Anti-Deficiency Act ("ADA"). It was this Act, and a change to Federal accounting standards, that led to the E-rate funding freeze and which would have continued to slow new funding commitments in 2005. Assuming the bill is signed by the President, which is expected, the SLD will be able to revert to pre-freeze funding procedures through the end of 2005. This should be sufficient to free up most of the FY 2004 funding and a large portion of the FY 2005 funding. By January 1, 2006, when the ADA waiver expires, it is hoped that sufficient cash reserves will have been generated, or other solutions will have been found, to prevent a reoccurrence of a funding freeze.

As a result of the ADA waiver, we expect the SLD to release a large FY 2004 funding wave by late December or early January, and then to resume bi-weekly funding waves. The next wave should include actual commitments for all the 90% Internal Connections FRNs which were listed "As Yet Unfunded" in Wave 10. The SLD has indicated that it already has a backlog of commitments of about 4,000 applications for $400 million which can now be funded.

Sometime in January, we would expect a further SLD announcement on the discount rate threshold for FY 2004 Internal Connections. We believe that the SLD will be able to fund Internal Connections down to at least the 80% level. The SLD's announcement may also specify a lower percentage at which funding will definitely not be available.

In the latter case, the letter notifies the vendor that the SLD will take no action on any of its pending or future funding requests until the vendor has demonstrated compliance (FRNs that have already been funded are not effected and the BEAR/SPI process can proceed as usual). If, for example, the SLD found that a vendor has been submitting invoices for equipment that has not been installed, the vendor would be required to develop and implement an internal control program to prevent the reoccurrence of such a problem. The SLD would give the vendor six months to demonstrate that satisfactory changes have been made. If this was not done in time (and no extension was provided), all the associated FRNs would be denied.

Since a six month or more delay in funding will affect any of the vendor's customers, the SLD sends copies of the vendor letter to the affected applicants. It is important to note, however, that the SLD has not announced plans to otherwise publicize applicant or vendor-related FRNs that have been put on hold. As a result, potential new customers of non-compliant vendors will have to rely upon their own inquiries, perhaps requiring vendor certifications of good standing in the E rate program.

There appears to be little confusion on the definition of pre-K (which includes any students under kindergarten age) or juvenile justice. The definition of "adult education," however, may be misleading to certain applicants. Many schools, for example, offer a host of general enrichment courses to their communities such as estate planning, cooking, dancing, etc. The SLD does not consider such activities to be adult education in the E-rate sense. "Adult education" for E-rate purposes is meant to refer to more formal academic programs, presumably offering at least the equivalent of a secondary education, provided for students who are past high school age. Only if a school contains formal adult education (or pre-K and juvenile justice) students should Column 9 be checked.

The Inter-Tel case involved competitive bidding and invoicing violations in Michigan and California, focusing most heavily on a situation in San Francisco also involving a subsidiary of NEC America (which pleaded guilty last May), a small video equipment company (VX Company), and its two consultants.

According to the DOJ complaint, VX's consultants were advising San Francisco on the RFP, bid assessment, and Form 471 processes. The consultants allegedly steered the business to the three companies, then prepared Form 471 requests that inflated the amounts bid for the project from $62 million to $88 million, in part to cover video-conferencing equipment that was not E-rate eligible.

A copy of the DOJ's press release and a copy of the more detailed felony charge is available on the DOJ web Site (see Press Release and Charge).