Schools and School Districts: Getting Comfortable with E-rate Financial Reporting
by Mathilde Pioux, MBA, Staff Associate
Posted on September 19, 2019
A Bird’s-eye View Over the E-rate Process
High-speed internet and telecommunications have become necessary to partake in modern society and gain access to information on education, job training, health care, and much more. Yet, if high broadband has become so valuable, then why do 39 percent of rural areas lack access to such technology?
There are few telecommunication companies in the United States that offer fast broadband speeds. This lack of competition drives internet prices up, making it difficult for low- to middle-income areas to afford fast internet services.
In 1996, Congress wrote the Telecommunications Act which directed the Federal Communications Commission (FCC) to work with the Universal Service Administrative Company (USAC) in providing substantial discounts to assist urban and rural K-12 schools, school districts, and libraries in obtaining affordable internet access and communication services. Thus, the birth of the E-rate program.
E-rate discounts provide schools access to the equipment needed for broadband connectivity as well as services, such as data transmission, internet access, internal connections, basic maintenance, and the management of internal broadband services.
The E-rate program has a four step application process. The first step is to fill out Form 470 which lets USAC know which E-rate services you are requesting. Service providers review this form and submit bids for those services. Sign a contract with the service provider offering the most cost-effective bid for your services.
The second step in the application process is to apply for discounts on the services you have requested by filling out Form 471. This form provides information about your school allowing USAC to calculate the discount level you are eligible for. To be considered for funding, applicants must file Form 471 between mid-January and mid-March in advance of the start of the funding year.
Congratulations! You have now reached the third step which permits the service provider you have contracted with to start services. This stage requires Form 486 to be submitted which notifies USAC that your services have started. Services typically start on July 1, the first day of the funding year, or sometime within the funding year.
The final step in the application process involves invoicing. There are two methods in which you can decide how you would like to pay for your services, thereby determining how USAC gets invoiced. It is important to note here that applicants must elect their preferred method by the second step in the process when applying for discounts.
A Deeper Look into the Two Invoicing Methods
BEAR – The first method involves the school paying the service provider for the services in full. The school then invoices USAC its entitled discounted amount by filing Form 472, otherwise known as a Billed Entity Applicant Reimbursement (BEAR) form. Essentially, the School is asking for a reimbursement on the services received, up to the discounted amount calculated in step two.
SPI – The second method involves the school paying the service provider for only a portion of the services provided, the non-discounted amount. The service provider then invoices USAC for the other portion of the bill, the discounted amount, by filing Form 474, otherwise known as a Service Provider Invoice (SPI) form. This method is not a reimbursement as each party pays for their share of the services.
Understanding Proper Financial Reporting Over E-rate Activity
BEAR – This method is the most simple for financial reporting purposes. Payments made to service providers go through the same expenditure process as any other purchases the school makes. In short, once an expense is created in the school’s accounting software for the services provided, a journal entry is automatically posted, increasing expenditures and decreasing cash.
Reimbursements made from USAC go through the same deposit process as any other receipts the school receives. In other words, once a reimbursement is created in the school’s accounting software for the money received from USAC, a journal entry is automatically posted, increasing both cash and E-rate revenue. Ensure all entries are posted to the school’s E-rate fund (Fund 374 for Arizona school districts).
SPI – SPI is the more complicated of the two methods. But that is okay! Let us walk through it together: Non-discounted payments made by schools to service providers under this method also go through the same expenditure process as any other purchases the school makes. However, what about the remaining portion of the bill that USAC pays for the School?
The discounted amount that USAC pays is a benefit to the school and should be recognized in the school’s accounting records through a journal entry. Since no cash was expensed or received on the school’s side, an entry cannot be automatically posted by the school’s accounting software. Instead, a manual adjustment needs to be made to increase expenditures and increase E-rate revenue.
Does booking this adjustment affect a school’s fund balance? No. An increase in revenue and expense of the same amount cancels each other out. Failing to record the adjustment understates revenues and expenditures in the school’s accounting records for the portion paid by USAC to the vendor on behalf of the school. So, don’t be afraid to properly state E-rate activity for the portion that USAC paid. You have earned that benefit!
Stewardship and Capital Asset Impact on Financial Reporting
Stewardship and capital assets purchased with E-rate funds should be recorded at the full cost of the items, whether or not the assets were paid in full by the school.
BEAR – Recording such items under the BEAR method is straightforward. The stewardship and capital assets purchased should simply be recorded at the cost that was paid to the vendor along with all ancillary costs necessary to put the items into service.
SPI – Since schools only pay a portion of the bill under the SPI method, it is not uncommon that they record assets only at the cost they paid for those assets. This results in an understatement of stewardship and capital additions as well as a potential audit finding. In addition, if a capital asset is not valued at its full cost, it could be mistakenly misclassified as a stewardship item.
If a capital asset or stewardship item is understated, a manual adjustment should be made to properly state the value of the item in the school’s capital asset and stewardship listings. In essence, the school should increase the dollar value of each specific item to its full cost, which includes the amounts paid by the school, the amounts paid by USAC, as well as all ancillary costs necessary.
Comfortable with E-rate Reporting Yet?
One last piece of information to be aware of is that Arizona’s General Retention Schedule for schools suggests a retention period of six years for all E-rate records. However, the Federal Communications Commission asks for E-rate records to be retained for at least 10 years after the later of the last day of the applicable funding year or the service delivery deadline for the funding request.
The E-rate funding application process can be time consuming and intimidating. But do not let that stop you from tapping into one of the largest sources of federal funding for schools. The resulting funds are a steady and dependable source of money that allow schools budgetary freedom to purchase other needed items. For over two decades, the E-rate program has promoted the use of technology in schools and has been increasing educational opportunity for all of America’s students.
 Simpson, April. “State Laws Slow Down High-Speed Internet for Rural America.” The Pew Charitable Trusts, 11 Jan. 2019
 For simplicity purposes, “school” is used for the remainder of this article, but can be used interchangeably with “school district” or “library”.