RealTime IT News

Bid-Rigging Costs Firm in E-Rate Fraud

The federal government's ongoing probe into E-Rate fraud nabbed another conviction Wednesday with the guilty plea of California-based Premio, which agreed to $400,000 in criminal fines and $1.3 million in restitution as part of the civil settlement.

Premio, which makes and sells computers, servers, software and other computer equipment, admitted to collusion, bid-rigging and mail fraud.

Under the $2.25 billion E-Rate program, telecom companies or contractors provide eligible equipment and Internet services to schools and libraries at a discount.

The federal government covers the difference through the E-Rate fund, which is a part of the Universal Service Fund (USF).

Premio was charged with willfully entering into a scheme to defraud the E-Rate program at a school district in Highland Park, Mich.

According to the Department of Justice (DoJ), Premio substituted ineligible equipment for approved equipment, submitted false and fraudulent documents to hide the fact that it installed ineligible equipment and submitted false invoices to the E-Rate program to receive payment for the ineligible equipment.

"This fraudulent conduct caused the E-Rate program to pay for unnecessary and inappropriate items and, as a result, prevented the program from funding projects at needy schools that should have received funding," Thomas O. Barnett, acting assistant attorney general in charge of the DoJ's Antitrust Division, said in a statement.

Ten individuals and eight companies have already been charged as part of the Antitrust Division's ongoing investigation into fraud and anti-competitive conduct in the E-rate program.

Two companies and three individuals have pleaded guilty and agreed to pay criminal fines and restitution totaling $30.69 million. Two of the individuals have each been sentenced to serve six years in prison.

The E-Rate subsidy was added to telephone bills in 1997 under the Clinton administration and has often been dubbed the "Gore tax" for former Vice President Al Gore's enthusiastic support.

Since 2004, the U.S. House of Representatives has held numerous hearings examining E-Rate waste, fraud and abuse. In addition, the Federal Communications Commission (FCC), which administers the program, is conducting its own investigation.

Last March, the General Accountability Office (GAO) concluded in a report that the E-Rate program is plagued by mismanagement, waste, fraud and abuse.

Several months later, a report by the House Oversight and Investigations Subcommittee, said the E-Rate program, though having good intentions, is poorly managed by the FCC.

The report said that weak competition requirements and poor oversight by the FCC opened the door for unscrupulous vendors to "completely manipulate" the competitive process for the E-Rate program and goods.

In one of the cited stories of E-Rate abuse, the government disbursed more than $100 million from 1998 to 2001 to equip Puerto Rico's 1,540 schools with high-speed Internet services and equipment.

A later review found very few computers actually connected to the Internet and $23 million in equipment sitting in opened boxes.