Fraud charges cloud plan for 'wired' classrooms
How remote is the little Arizona town of Whiteriver? As locals like to say, it's "35 miles from a Circle K." Smack in the middle of the White Mountain Apache Indian Reservation, more than four hours from any major city, Whiteriver is pretty isolated. But the local schools are as wired as they come, thanks to generous federal grants that knocked 90 percent off the price of hardware.
"It's allowed us to do things we've never done," like bring the Internet to every classroom and let students take classes online, says school district official Tracy Carrington. He estimates that fewer than 1 in 20 local students has a computer at home, so the exposure to technology is priceless.
Whiteriver's bonanza is a success story. But Thursday, Congress will begin holding hearings on the dark side of E-rate, the $2.25 billion program that provides technology funding to Whiteriver and thousands of schools and libraries in poor communities across the US each year. Critics complain of massive fraud and waste, and even some supporters acknowledge that E-rate isn't always an e-bargain for taxpayers.
At stake is nothing less than the fate of the entire program, which is funded by a telephone fee and designed to help poor communities. "It's just a scammy thing from the beginning that we shouldn't have done and should stop doing," says US Rep. Tom Tancredo (R) of Colorado, a leading critic.
It's not clear if Congress will actually dump E-rate and risk the wrath of principals and librarians who have relied on the funding since it was created in 1998. Some changes, however, seem inevitable amid a steady stream of bad publicity.
In several cases, school districts ordered millions of dollars in equipment they didn't need or weren't equipped to handle. School officials in Puerto Rico reportedly spent $101 million and managed to wire only nine schools. In Atlanta, the school district is in hot water over spending a whopping $73 million on a computer network without routinely seeking competitive bids. The Atlanta Journal-Constitution reported that all the money was "misspent or mismanaged."
There has been a cascade of fraud allegations against manufacturers, too. Just last month, the computer company NEC resolved charges of fraud and price-rigging by agreeing to pay more than $21 million in fines and free services. Investigators are looking into other potential prosecutions.
The nonprofit Universal Services Administrative Co., which runs the E-rate program, has responded by creating a whistle-blower hotline and hiring auditors to keep a closer eye on the grants. The company investigates about 100 whistle-blower calls each year and has a staff of lawyers to oversee 35,000 applications for about $5 billion a year, says E-rate spokesman Mel Blackwell.
For the most part, applicants "follow the rules and they get funded," Mr. Blackwell says. "Everybody is not looking to defraud the program or get things they shouldn't."
The money comes from part of a fee of 8.7 percent - expected to rise to 8.9 percent next month - levied on every interstate or international long-distance call. Depending on the income level of their communities, schools or libraries can get discounts of up to 90 percent off fees for wiring, servers, cellular phone service, and Internet access fees. The grants don't cover most computers and software.
Some of the most enthusiastic supporters of E-rate blame the 90 percent discount for some of the program's problems. Because they pay so little, the poorest facilities may spend less time looking for good deals. They may have an incentive to buy equipment they don't need, says Jeannene Hurley, E-rate coordinator of Michigan schools. "If you bumped their portion to 25 or 30 percent, they would have a bigger stake," she says. "If they had more invested, they might think more about getting that multimillion-dollar server."
Ms. Hurley and others would also like to see less red tape. "The number of hoops you have to go through is just stunning," says Brett Himsworth, a consultant to districts that need help figuring out E-rate's myriad rules and regulations. "It is more complicated than most school business officials have time to deal with. The majority of [questionable] cases are not because of fraud. They're because the program is too complicated. Applicants are having trouble following the rules."
To critics like Representative Tancredo, the best solution is simple: halt the E-rate program and replace it with other funding - that is, if it's necessary. "The idea of wiring schools has long since faded away as a need. Almost all schools are wired," Tancredo says. "Now we're just providing support."
But E-rate supporters say the upkeep isn't cheap. Equipment still needs maintenance, upgrading, and eventual replacement, and schools must pay for Internet access, which can be expensive in rural areas.
In Las Cruces, N.M., Patricia Miller, technology director of the town's public schools, shudders at the idea of losing E-rate funding, which amounted to $3.6 million over the past year. The money brought inexpensive Internet-based telephones to classrooms and Internet access to a mobile school. Without E-rate, "we would offer substantially fewer services to children and not be able to compete on a national level," Ms. Miller says. "Children will learn. But it won't be the same."
