Schools' Internet Subsidies Are Called Fraud-Riddled

[Dave Farber <dave () farber net>]

Schools' Internet Subsidies Are Called Fraud-Riddled

January 10, 2003
By JOHN SCHWARTZ 




The $2.25 billion E-Rate program has helped connect
thousands of schools and libraries to the Internet, but it
may also be enriching unscrupulous contractors, according
to a report released yesterday.

The program is ‘‘honeycombed with fraud and financial
shenanigans,’’ said the report from the Center for Public
Integrity in Washington.

The report is in large part based on investigations by the
Federal Communications Commission. ‘‘They found problems
everywhere they’ve looked, and they haven’t looked very
hard at this point,’’ said Bob Williams, the author of the
report. 

E-Rate, created in 1996 by Congress, offers subsidies of 20
percent to 90 percent for buying telecommunications
services like Internet connection fees and wiring
classrooms. 

Under the program, paid from fees on telephone bills, the
highest rates go to the poorest schools. The Universal
Service Administrative Company in Washington runs program
for the F.C.C. The company also administers programs to
develop phone service in rural areas and impoverished
communities. 

The Center for Public Integrity issued its report after the
announcement of the first criminal case related to E-Rate.
Last month, federal prosecutors in New York accused an
Internet service on Staten Island and three employees with
conspiring to steal millions of dollars. Prosecutors said
the defendants, who worked for Connect2 Internet Networks
Inc., offered free service and equipment to many poor
schools by lying, saying the schools had paid their share
of the costs when they had not.

‘‘In this way,’’ the complaint said, ‘‘the defendants were
able to sell almost limitless quantities of E-Rate eligible
goods and services to schools across the New York City
area, with little or no control on the price they charged,
and impose the entire cost on the government.’’

The prosecutors added that from 1998 to 2001, Connect2
received more than $9 million under E-Rate.

A report released last fall by the inspector general of the
F.C.C. found that E-Rate was ‘‘subject to unacceptably high
risk of malfeasance through noncompliance and program
weakness’’ and called for more money for auditing and
oversight. 

The inspector general’s office assigns two full-time
auditors to the program, the report stated, and although
other auditors move in and out of assignments, ‘‘this
staffing is hard pressed to support our current workload.’’


Previous efforts to audit E-Rate have uncovered problems,
but those efforts were limited in scope. A review of 22
schools by the Arthur Andersen accounting firm in 2001
found several million dollars in ‘‘inappropriate’’ payments
and unsupported costs. Efforts to formulate a more thorough
review were hampered by the collapse of Andersen after the
Enron scandal. 

A spokesman for the communications commission said
officials were taking the inspector general’s report
seriously. 

‘‘The F.C.C. is looking hard at the resource issue,’’ the
spokesman said, ‘‘and is going to be taking all steps
necessary to deal with any problems.’’ At Universal Service
Administrative, a spokesman, Mel Blackwell, said problems
were showing up precisely because the company and the
commission had been reviewing contracts that they believed
were high risk and that dated from the early days of the
program. 

‘‘Most people are honest,’’ Mr. Blackwell said. If someone
is dishonest, he said, ‘‘do we look the other way? No.’’
> From the beginning, E-Rate has been unpopular with many
Republican lawmakers, who called it the ‘‘Gore tax,’’ and
phone companies. Supporters of the program said scandals
should be seen in the broader context.

‘‘Any waste or abuse should be thoroughly investigated and
prosecuted to the fullest extent possible,’’ said Lynne
Bradley, director of government relations for the American
Library Association.

The program, Ms. Bradley added, has faced such exacting
scrutiny from its critics that its rates of fraud and abuse
would probably turn out to be less widespread than the
Center for Public Integrity suggested.

‘‘The full picture isn’t going to look like this
sampling,’’ she predicted. A commissioner of the Federal
Communications Commission, Michael J. Copps, said: ‘‘If
there is fraud and abuse, root it out. But let’s not ignore
the benefits that this program has brought to our children,
our communities and our nation.’’



http://www.nytimes.com/2003/01/10/education/10FRAU.html?ex=1043221367&ei=1&e
n=12c98362723c7e67


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