HP's settlement with the Justice Department provides for audits of the company's e-Rate business.

The U.S. Department of Justice (DOJ) has reached a civil settlement with Hewlett-Packard Co. (HP) for alleged e-Rate fraud, following an extensive investigation by the DOJ and the Federal Communications Commission (FCC), the two agencies said Nov. 10.

Acting on tips from whistleblowers, the FCC and the DOJ investigated allegations that contractors working with HP and other companies lavished gifts on Dallas Independent School District and Houston Independent School District personnel in order to get e-Rate contracts that included some $17 million in HP equipment.

According to the allegations, contractors working with HP provided meals and entertainment—including trips on a yacht and tickets to the 2004 Super Bowl—to school district officials to get inside information and win e-Rate contracts that were supposed to be awarded through a competitive-bidding process.

“Broadband is key to our children’s 21st-century education,” said FCC Chairman Julius Genachowski. “That’s why one of the FCC’s top priorities is making sure [the] e-Rate works to benefit students and libraries. Today’s settlement shows the extensive efforts of the FCC and DOJ to protect the e-Rate program from waste, fraud, and abuse and to deter misconduct in the future.”

As part of the settlement, HP has agreed to pay the government $16.25 million, most of which will be returned to the e-Rate program, which provides discounts of up to 90 percent of the cost of telecommunications service and internet access to eligible schools and libraries. (Some of the money also will go to the whistleblowers in the case.) In addition, the FCC has negotiated and will oversee a compliance agreement with HP that will ensure the company plays by the e-Rate program’s rules in the future.

“The FCC’s compliance agreement with HP ensures that HP will train its employees thoroughly on the FCC’s gift [guidelines] and other e-Rate rules, and [the agreement] provides for audits of HP’s e-Rate business,” said Austin Schlick, general counsel of the FCC. “If HP fails to monitor its e-Rate activities closely and abide by e-Rate program requirements, it will face substantial penalties.”

The FCC has taken steps to guard against this kind of misconduct in the future. In September, the agency adopted an order that bolsters and clarifies its prohibition against e-Rate applicants soliciting or receiving gifts and against service providers offering or providing gifts. The FCC also articulated new rules to ensure a fair and competitive bidding process.

The investigations into alleged e-Rate fraud in the Dallas and Houston school systems go back at least five years, when the Dallas Independent School District placed Ruben Bohuchot, then its top technology administrator, on administrative leave for his frequent use of a luxury fishing vessel owned by a Houston-based contractor holding hundreds of millions of dollars in e-Rate contracts with the district.