RealTime IT News

E-Rate Probe Focuses on Chicago

A Congressional committee's investigation into fraud claims surrounding the fund that subsidizes Internet services for schools and libraries is focusing on the Chicago public school system.

With a public hearing looming in February, the probe is centering on approximately $5 million of equipment supplied by telecom carrier SBC to the Chicago school system that is still sitting in a warehouse.

The E-rate subsidy was added to telephone bills in 1997 and has grown to $2.25 billion. The Federal Communications Commission (FCC) oversees the program, but outsources administration to the Universal Service Administrative Company (USAC), a private, nonprofit. Nearly 90 percent of U.S. schools and libraries receive subsidies from the fund.

Under the program, telecom companies or contractors provide eligible equipment and services to schools and libraries at a discount, and the federal government covers the difference through the E-rate fund. SBC is the project manager for the City of Chicago Public Schools (CPS), which is deploying Internet-related equipment and Local Area Networks (LAN) for schools throughout the system.

One E-Rate funding requirement is that equipment must be purchased, delivered and installed in the same E-Rate year that it is funded by the program to prevent schools and libraries from stockpiling equipment.

A Jan. 15 letter from U.S. Rep. Billy Tauzin (R.-La.), chairman of the House Energy and Commerce Committee, and Rep. James Greenwood (R.-Pa.), chairman of Tauzin's Oversight and Investigations Subcommittee, asks CPS CEO Arne Duncan to "describe in detail the circumstances surrounding the warehousing of approximately $5 million worth of E-rate equipment that was purchased by SBC for CPS and reimbursed with E-rate Year 2 or Year 3 funds."

The letter also requests copies of all audits on the E-rate program conducted by KPMG for the Chicago school system and "all records relating to circumstances surrounding the failure to install E-rate equipment."

SBC said in a statement that the company "voluntarily brought this matter to the attention of the FCC" and to the staff of the Oversight and Investigations Committee.

"SBC determined that a portion of the telecommunications equipment it purchased for the city of Chicago Public Schools LAN project was not installed by the deadline in two funding years," the SBC statement reads. "In addition, one of SBC's distributors who supplied equipment purchased with E-rate funds over-billed SBC and gave us a credit."

"During these E-rate funding years, CPS received a discounted funding commitment from SLD (SBC's Schools and Libraries Division) of approximately $114 million dollars. The value of the equipment and credit at issue is $8.8 million, of which $3 million in equipment was installed in subsequent funding years."

A CPS statement pledged to cooperate with the investigation.

A favorite target of Republicans, Billy Tauzin began investigating the E-rate fund in March of last year following a January 2003 report by the Center for Public Integrity, a nonprofit "public service journalism" organization that said the fund was "honeycombed" with fraud.

The center's study is based on two FCC audits as well as independent interviews. The audits alleged abuses ranging from simple paperwork and reporting errors to false billing.

"We're not trying to kill the program, but clean it up," Ken Johnson, a spokesperson for the House Energy and Commerce Committee told internetnews.com. "In the past it has been riddled with fraud, waste and abuse and we can already prove consumers have been ripped off for millions and millions of dollars. We want to put safeguards in place to avoid this in the future."