In all, the House Energy and Commerce Committee’s Subcommittee on Oversight and Investigations questioned 16 witnesses in its third hearing to investigate problems of eRate waste, fraud, and abuse.

Four people were subpoenaed: Emma Epps, superintendent of the Ecorse Public School District in Ecorse, Mich.; Douglas Benit, former facilities director for the Ecorse schools; Judy Green, former eRate consultant and salesperson for Video Network Communications Inc. (VNCI); and Quentin R. Lawson of the National Alliance of Black School Educators (NABSE).

Green, Lawson, and Carl Muscari, former president and CEO of VNCI, exercised their Fifth Amendment right not to incriminate themselves.

Members of Congress continued their investigation of an alleged fraud scheme concocted by NEC Business Network Solutions (BNS), a subsidiary of NEC Corp., along with VNCI and others that was examined in the last Congressional hearing. (See “Lawmakers call for more eRate scrutiny,”

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    Employees of VNCI, acting as eRate experts, teamed up with BNS and others in exchange for a “marketing fee.” Then, they allegedly infiltrated the competitive-bidding process in San Francisco and as many as 10 other school districts to beef up the applications and make sure BNS would win the bid.

    At the Sept. 22 hearing, the subcommittee aired a promotional video that showed NABSE positioning itself as an eRate consultant that had partnered with NEC, VCNI, and International Business Machines (IBM) Corp.

    The video was used to solicit NABSE school superintendents. It featured interviews with Epps and William Singleton, superintendent of the Jasper County Schools in Ridgeland, S.C., both of whom testified at the Sept. 22 hearing.

    With the help of NABSE and its partners, the video said, Ecorse Public School District raised its eRate funding from $800,000 to $9.845 million. “They came in so quickly, they almost scared me,” Epps said in the video.

    In addition to the video, which suggests numerous program violations, subcommittee members collected documents showing that Ecorse used eRate funds to pay for a $750,000 television studio, technology that is ineligible for eRate support.

    Epps and Douglas Benit, Ecorse’s former facilities director, maintain the studio was a gift from NEC. “I understand it was a donated item to the school district,” Epps said.

    Robert McCain, program manager at NEC BNS, testified via videoconference that NEC had never donated a television studio to the district. “I’m not aware of any donation at the expense of NEC,” McCain said.

    “The documentation we have shows that it was paid for by eRate funding,” said Rep. Joe Barton, R-Texas, chairman of the House Energy and Commerce Committee.

    Jasper County Schools allegedly received a $3.5 million bonus package of ineligible items from its partnership with NEC, VNCI, and NABSE.

    For its participation, NABSE allegedly received 1.6 percent of the value of each eRate contract. The subcommittee had collected multiple checks cashed by NABSE from VNCI in amounts of $37,000, $45,000, and more.

    In another potential case of eRate abuse, an anonymous letter, signed from “a concerned taxpayer,” tipped the FCC to an alleged scheme between IBM and the El Paso Independent School District in Texas.

    IBM, acting as the district’s technical systems integrator, helped El Paso increase its eRate discounts from roughly $2 million in previous years to $64 million in 2001. Of that money, about $27 million was earmarked for the installation and one year’s maintenance of a technology help desk to service the district’s 55 schools.

    When news of El Paso’s eRate success got out, IBM repeated its work with eight other school districts, including the Ysletta, Texas, Independent School District and the Dallas Independent School District.

    With IBM’s assistance, the districts reportedly submitted generic Form 470s that requested virtually every item on the eligible services list. Besides IBM’s questionable involvement in the competitive-bidding process, the districts requested “gold-plated equipment” without considering their actual needs and the most cost-effective solutions to their needs, eRate officials now contend.

    Because of the anonymous letter, eRate officials caught the problem before they issued more funds. The Schools and Libraries Division (SLD) of the Universal Service Administrative Co., the agency that administers the eRate, posted a message on its web site warning applicants not to involve themselves in this practice. (See “IBM in crosshairs as SLD targets eRate infractions,”

    But El Paso’s application was funded in 2001 even though its two-step bidding process was inconsistent with the program’s rules. Because El Paso’s request for eRate funding might have included several ineligible items, SLD President George McDonald said, the SLD could ask IBM to return a large part of the $64 million given to El Paso in 2001 and spent on the computer giant’s services.

    Barton asked why it didn’t raise any red flags among SLD officials when a school system’s application jumped from about $2 million one year to $64 million the next.

    McDonald said the Congressional hearings have helped officials realize they should look at such situations more closely.