E-rate Program Dogged By Concerns About Oversight

Nine years ago, Thomas Cline traveled from Washington, D.C., to Brooklyn to tour seven buildings occupied by the United Talmudical Academy.

As the assistant inspector general for audit at the Federal Communications Commission’s Office of Inspector General, Cline — whose Southern drawl must have stood out amid the Yiddish accents of Williamsburg — was there to look at the large Satmar school system’s more than $1 million in technology purchases, in 1999, subsidized by the FCC’s E-rate program.

His team found a number of major violations and ultimately recommended that the FCC make UTA return over $900,000. But in the end, the school — which did not return calls from The Jewish Week seeking an interview — paid nothing. In the years that have followed, it and the numerous institutions within its sprawling system of boys and girls’ schools in Brooklyn and Rockland County, each of which now files separately for E-rate, have been awarded tens of millions of E-rate dollars. In 2012, one of UTA’s service providers billed the program $81,600, just on Internet access for the Williamsburg boys’ divisions.

That is despite the fact that UTA students are not allowed access to the Internet.

E-rate has long been criticized for inadequate safeguards against fraud and waste, and there have been several high-profile cases over the years involving service providers, E-rate consultants and schools filing millions of dollars in claims for services and equipment that were never provided.

Just a few years after E-rate began, Puerto Rico’s secretary of education was caught mismanaging over $100 million in E-rate funds. High-profile fraud cases, some involving big-name companies like IBM and NEC and entailing tens of millions of dollars, have been exposed in Texas and California, with the FCC maintaining a list of people and companies that have been “debarred” from participating in the program. Two General Accounting Office reports (most recently in 2010) have cited problems with USAC’s “internal controls,” and in 2005, the program was the subject of a congressional investigation.

Despite some red flags raised in audits, like the one in 2004 of UTA, no Jewish schools or their service providers appear to have been barred from E-rate or deemed guilty of anything more serious than “noncompliance.”

Nonetheless, the program’s reputation for being susceptible to fraud is the reason why staff at the Jewish Education Project, formerly the Board of Jewish Education of Greater New York, say they have steered clear of E-rate in recent years, even as they help Jewish schools access a wide array of other government funds and services.

And, while few people are willing to accuse the Jewish schools of outright deception, their large E-rate awards are raising some eyebrows.

One E-rate expert who asked not to be identified said the large sums for schools that use minimal technology do look suspicious.

The question, he said, is, “Are you dealing with unsophisticated consumers being taken advantage of, or are they in on it?”

Asked if it is currently investigating any potential improprieties in E-rate use among haredi institutions, Cline, the FCC auditor involved in the 2004 visit to UTA, declined to share specifics but said, “It’s come to our attention, and we are looking into it.”

In response to a follow-up e-mail asking whether the FCC is investigating some of the institutions addressed in The Jewish Week’s series of articles, Cline said, via e-mail: “I can’t confirm, deny or discuss any investigative activity currently in progress by our staff.”

A statement submitted later by FCC spokesman Neil Grace said, “Fraud and abuse in E-rate are unacceptable, and we take allegations of misconduct in this vital program very seriously. We are actively investigating these issues.”

Steve White, a Rockland County community activist who in 2011 successfully appealed to New York State to block the East Ramapo Central School District’s below-market-price sale of a school building to Yeshiva Avir Yakov, told The Jewish Week that it looks like that school, which is one of the largest Jewish institutional E-rate beneficiaries, has been deceptive in its dealings with E-rate.

“To me, it seems obvious that they’re trying to game the system,” he said. “If they expressly forbid their students from using the Internet, then what do they need Internet connections for?”

Interviewed in December, Sara Seligson, associate director of the Jewish Education Project’s day schools and yeshivot department, told The Jewish Week that while her department was initially involved with E-rate, “there were some challenges in terms of what the schools were using it for and what they were allowed to use it for. Not just our schools, but schools all over the country were cited for using it inappropriately, and we kind of just pulled back.”

In particular, Seligson said she had heard of vendors illegally permitting schools to skip paying their 10 percent share.

Rabbi Marty Schloss, the department’s director of government relations and general studies, commented: “[E-rate] had a lot of problems in past, and the last thing we need to do is get stuck in the middle of that. That would destroy our own credibility and ability to work with schools. We in general try to steer clear of questionable practices or practices that could lead us all into trouble.”

Despite its problems in the past, Eric Iversen, USAC’s director of external relations, insisted to The Jewish Week that USAC has “zero tolerance” for fraud and has “a pretty robust audit program.”

In a follow-up e-mail, he wrote that USAC has conducted over 800 audits of E-rate beneficiaries since 2006. “None of these audits has revealed fraud in the program,” he wrote.

The Department of Justice and the FCC’s Office of Inspector General (OIG) also audit E-rate. Thomas Cline, who audited UTA in 2004 and is now deputy inspector general in the OIG, told The Jewish Week that his department has closed about 30 investigations of E-rate recipients and service providers since 2002, and has a number of ongoing ones.

In his 2004 audit of UTA, Cline’s team discovered a number of problems:

n UTA had not paid its required 10 percent portion of the bill;

n Communications Data and Security, Inc. (still an approved E-rate service provider) had billed and received payment for services it had not provided;

n There was no evidence of a competitive bidding process;

n When auditors attempted to visit various UTA locations to determine the physical existence of the E-rate equipment, they found the school had, without obtaining approval, made numerous equipment substitutions, did not maintain asset records and lacked proof that all E-rate funded services had been received and installed.

Cline’s team recommended that USAC recover $934,300 from the school. UTA appealed the audit decision and in 2008, Jennifer K. McKee, the acting chief of Wireline Competition Bureau’s Telecommunications Access Policy Division, the FCC division responsible for E-rate, granted the appeal.

“Based on the record before us, it appears that this matter can be resolved through USAC’s review of additional documentation UTA provided to the Commission in its appeal, which it had not previously provided to USAC,” she wrote. In other words, the bureau determined that it was acceptable for UTA and its service provider, who had been unable to provide appropriate documentation when they were audited, to submit receipts years after the fact.

Interviewed last week about the overruling of his audit recommendations concerning UTA, Cline said the UTA audit, like many audits of that time, revealed that “in the early years of the program there were significant problems with weaknesses in the rules designed to protect the program. As a result, FCC has issued orders doing away with the loopholes and tightening the rules.”

Asked if was not suspicious for a company to produce a receipt after the audit was complete, and for the FCC to accept it, Cline noted that “the issue was there was no requirement of time in which you had to pay. That was the problem. So if you pay years later, there was nothing in the rules saying that was a problem.”

As for the UTA’s other findings, Cline said he no longer recalls the details. “We do the audits and make recommendations, but we’re not the administrators,” he said. “We have things we can do if we’re not satisfied, but how far you elevate things like that depends on the circumstance.”