In August, the FCC issued a Notice of Proposed Rulemaking (WC Docket No. 26-173) proposing changes to how USAC administers E-rate and the other Universal Service Fund programs. Sixteen organizations and individuals filed reply comments by the October 30 deadline, including Funds For Learning. Two of the proposals would change what happens to a school or library after an audit. No reply supports either proposal as written. 

The replies came from school and library associations, E-rate consultants, and service providers. None proposes replacing USAC as administrator. 

Repayment while an appeal is pending 

Under current rules, an applicant that files a timely appeal of a USAC recovery decision does not have to repay while the appeal is pending. The FCC proposed that once the Wireline Competition Bureau or the full Commission rules against an applicant, the applicant would have to repay, even if it is still seeking further review. This approach is known as pay-and-dispute. 

Eleven of the 16 replies oppose the proposal. The other five do not address it. Commenters noted that a school district pays a recovery out of its current-year budget and that a later favorable decision does not undo that. FFL’s reply stated, “A refund two years later does not restore a school year.” One consulting firm described an appeal that took more than ten years to resolve and was decided in the applicant’s favor. 

FFL asked that, if the FCC adopts the rule, schools, libraries, and other beneficiaries that are not carriers be exempt. The Schools, Health & Libraries Broadband (SHLB) Coalition and the American Library Association (ALA) requested the same exemption for E-rate. 

Extrapolated recoveries 

The FCC also proposed allowing USAC to calculate recoveries by extrapolation. An auditor would review a sample of an applicant’s funding, determine an error rate, and apply that rate to the funding that was not reviewed. 

SHLB, ALA, and two E-rate consulting firms asked the FCC not to apply extrapolation to E-rate. Service providers were divided. Two trade associations would limit it to the program that supports rural networks, which would exclude E-rate. Others would allow it only under defined statistical standards. 

FFL’s reply noted that each E-rate funding request goes through its own Form 470, competitive bidding, contract, and eligibility review, so an error in one request does not indicate an error in another. FFL asked that any sampling stay within a single funding request or contract, and that applicants be able to review and challenge the method before findings are final. 

First-level appeals of audit findings 

Currently, an applicant’s first appeal of a USAC audit finding goes to USAC. FFL asked the FCC to move first-level review outside USAC, to FCC staff, an independent review office, or, for large recoveries, an administrative law judge. Two other filers supported similar changes. 

Processing deadlines and status visibility 

Many replies asked the FCC to set deadlines for USAC action, often called shot clocks, and to give applicants more information about where their filings stand. One E-rate consultant described an FY2026 Form 471 that received a USAC inquiry on February 26 and no further contact until September 23. SHLB and ALA asked for status details in EPC, including the review stage and whether the next action belongs to the applicant or to USAC. Several filers also asked for an ombudsman to assist with stalled filings. 

Some delays result from pending FCC decisions rather than USAC review. FFL asked that applicants be notified whenever a filing is held outside USAC’s normal review process. 

Random audit exemption for small requests 

No reply opposes exempting small recipients from random audits. Filers differed on the threshold. FFL supported exempting funding requests of $10,000 or less at a minimum and noted the FCC could set a higher amount. Other filers proposed limits of up to $250,000 per year for small carriers. Under FFL’s proposal, risk-based audits and investigations would continue. 

USAC board composition 

The FCC asked for comment on the makeup of the USAC board of directors. School and library commenters asked for board members with program experience, and several asked the FCC to keep the board’s Schools and Libraries Committee. 

One commenter had proposed barring Universal Service Fund consultants from the board. No reply supports that proposal. FFL, which assists applicants with their filings, opposed excluding board members based on occupation. FFL instead supported uniform conflict-of-interest rules for all board members, including annual public disclosure and recusal. 

What this means for applicants 

No rules have changed. The FCC has not said when it will act, and applicants don’t need to take any action in this proceeding. Applicants should continue to keep their bidding records, contracts, and invoices organized and accessible. That practice matters under any audit rules, and it would matter more if the FCC adopts extrapolated recoveries. 

FFL’s reply comments and all filings in the proceeding are available on the FCC’s website. If you have questions about an audit or an appeal, contact your E-rate Guide or reach out to us.