BARTON PLEDGES LEGISLATION TO REFORM E-RATE PROGRAM
House Commerce Committee Chmn. Barton (R-Tex.) pledged legislation next year to improve the administration of the federal E-rate program, beset by scandal at the local level. Speaking at a subcommittee hearing Thurs. that delved into fraud in E-rate funding in San Francisco, Barton told the audience “we're going to make structural changes in this program statutorily, probably in the next Congress… to make sure this doesn’t happen again.” The hearing before the Subcommittee on Oversight & Investigations was run by Rep. Walden (R-Ore.) because Subcommittee Chmn. Greenwood (R-Pa.) announced his retirement Thurs.
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The San Francisco case involved bid rigging, filing fraudulent forms with the Universal Service Administrative Co. (USAC), and other improper actions 4 or 5 years ago by a school system employee and a group of industry representatives. The scandal resulted in more than $50 million in fraud, an investigation by the FBI and a suit by the San Francisco City Attorney that led to one accused company, NEC Business Network Solutions, pleading guilty. Other companies involved in the case are Video Network Communications Inc. (VNCI), a videoconferencing equipment manufacturer; Inter-Tel Technologies, a telecom firm; US Machinery, a computer reseller in San Francisco and Spring Electric, a San Francisco electrical contractor.
“The E-rate administrator, USAC, approved more than $58 million in funding… based on fraudulent applications,” said Walden. “Each procedural safeguard then set up by USAC failed -- competitive bidding, application certification, application review, and selective review.” Walden said “questionable activity” by the same vendors implicated in San Francisco “has been identified in Ark., Mich. and S.C.”
The case was discovered when a new school superintendent arrived and questioned the paperwork involved with the school district’s E-rate grants. Barton and subcommittee members praised Arlene Ackerman, San Francisco Unified School District superintendent, for blowing the whistle on the scheme and bucking initial criticism for turning down a $50 million E-rate grant. Ackerman, formerly with the D.C. school district, said the district has instituted a number of “checks and balances” and urged the federal govt. to do the same. However, she urged policy-makers not to censure the entire E-rate program because of problems such as those experienced by her school district: “The program has brought technology to unprecedented numbers of public school students.”
“What’s so distasteful about this [scheme] is it preys on the desperation of poor, underfunded school districts,” said George Cothran, an investigator in the San Francisco City Attorney’s office who handled the case. Officials from NEC and VNCI testified under subpoenas, but one VNCI official, a salesperson named Judy Green, “has successfully ducked” being served the subpoena. Barton said he planned to issue a “recess subpoena” to Green. “Never has a subpoena not been successfully served by this committee,” Barton said.
FCC Wireline Bureau Chief William Maher said the bureau has recommended rule changes for Commission action at the Aug. 4 agenda meeting to target bad actors better. “There are multiple lessons to be learned from [this] case,” he said. He said the bureau will recommend: (1) Expanding the document retention requirements for applicants “to maintain a comprehensive paper trail.” (2) Modifying E-rate forms “to expand the required certifications” which “help deter bad actors because their falsification is a federal criminal offense.” (3) “Heightened scrutiny of applications from E- rate beneficiaries that have violated the statute or the Commission’s rules in the past.” (4) “Improvements to the certifications that beneficiaries make regarding their compliance with substantive program rules.”