E-rate program stresses accountability

1/28/03 -- A few recent incidents involving errors and abuses in the e-rate program "do not mean the whole program is rife with fraud," says Mel Blackwell, a spokesperson with the Universal Service Administration Co. (USAC).

Blackwell says "it isn't surprising" that a recent audit by the Federal Communications Commission's (FCC) inspector general found 50 e-rate applications with significant problems. "That's 50 out of 175,000 applications since the program was created." A larger study to begin this spring is expected to provide a broader picture of the e-rate program.

NSBA Executive Director Anne L. Bryant, a member of the board of USAC's Schools and Libraries Division, notes that the auditors "targeted larger schools and library systems where we suspected there might be errors."

"As a result of that audit," Bryant says, "we have recovered more than $1 million that was dispersed in error and adjusted procedures to help prevent future problems."

Since the e-rate was created by Congress in 1996, the $2.25 billion-a-year program has helped thousands of schools and libraries purchase telecommunications services and wire classrooms for Internet service.

The e-rate subsidizes the cost of these services by 20 to 90 percent, with the neediest schools eligible for the deepest discounts. The program is supported by fees added to consumers' telephone bills.

The non-profit USAC, which administers the program for the FCC, has committed more than $9.8 billion to schools and libraries and distributed more than $6.2 billion.

The inspector general's report, released in October, concludes that more money is needed for auditing and oversight. It warns that the program is "subject to unacceptably high risk of malfeasance through noncompliance and program weakness."

The Center for Public Integrity released a statement Jan. 9 based on the federal audit and recent news reports and concludes the e-rate program is "honeycombed with fraud and financial shenanigans."

Last month, federal prosecutors in New York accused Connect2 Internet Networks Inc. of bilking the federal government of more than $9 million since 1998. That was the first time criminal charges were filed against anyone connected with the e-rate program.

Connect2 offered free service and equipment to poor schools by claiming the schools had paid their share of the costs when they had not. As a result, the company was able to sell more expensive e-rate-eligible goods and services to schools across the metropolitan New York City area while imposing the entire cost on the government.

In some cases, Connect2 asked school officials to write a check for their 10 percent share, prosecutors charge, then either did not cash the check or wrote a check back to the school for the same amount. According to the complaint, the company asked officials at the Islamic Elementary School of South Ozone Park, N.Y., to lie to help cover up the scheme.

In December, the Schools and Libraries Division issued a warning about a pattern it found in 2002 applications that failed to follow correct competitive bidding procedures. A number of problems had surfaced with applications involving the IBM Corp. As a result, several school district e-rate applications have been denied.

Blackwell says USAC has systems in place -- involving attorneys, certified fraud examiners, "integrity assurance procedures," and a whistleblower hotline -- to deter waste, fraud, and abuse. "In a program this big, there are going to be some instances of people trying to defraud the program," Blackwell says. "We do have mechanisms in place to deal with it."

"The vast majority of recipients are following the rules," says USAC Chair Frank Gumper. "But I would also have to say we are not really in a position to give anyone an airtight assurance there are no problems in these programs."

The forthcoming study of the program will "more closely reflect the population of e-rate recipients as a whole, not just high-risk recipients," Bryant says. "That will show a much more reliable picture of the entire program."

"Meanwhile," she says, "it is important to focus on the impact of the e-rate program. In 1997, only 14 percent of classrooms in the poorer schools had access to the Internet. By 2001, that figure had risen to 79 percent. Our goal was to bring service to poor students, and we have."