Schools risking funds

City system might have to return $2.5 million to U.S.

November 26, 2006|By Sara Neufeld | Sara Neufeld,Sun reporter

The Baltimore school system is potentially missing out on millions of dollars from a federal school technology program because it has not resolved problems from an audit of the money it received in 2002.

The audit, conducted last year, found that the system could not prove that computer equipment funded by the federal Schools and Libraries Program had been delivered or installed. As a result of that and other findings, the program is seeking to take back $2.5 million of the $4.1 million it gave the city system during the 2002-2003 school year.

The Baltimore system also has not received any money from the program, commonly known as "E-rate," since 2002, though it is eligible for millions of dollars because it serves a high-poverty population. It applied for nearly $20 million this school year.

"Until we know there are procedures in place so the findings we noted will not happen again, we're not going to make any disbursements," said James Mardis, a spokesman for the Universal Service Administrative Company, which administers the E-rate program for the Federal Communications Commission.

When the city school board meets Dec. 12, it is scheduled to vote on a three-year, $267,000 consulting contract with a firm to help the system resolve the problems noted in the audit and comply with the program's regulations in the future.

To demonstrate that it has corrected the problems, the system is taking a series of remedial actions. Howard Steptoe, the system's information technology officer, said he is "very confident" that the problems were resolved.

If the federal program accepts the remedies, the system will not have to give back the $2.5 million and could continue to receive funding.

E-rate provides $2.25 billion a year to schools and libraries in poor and rural areas for discounted Internet access and telecommunications equipment. It is underwritten with fees assessed by the government on customers' telephone bills.

Schools may receive discounts of up to 90 percent on technological services and equipment, based on the percentage of their students who receive free and reduced-price lunches, a widely used indicator of poverty. Because many Baltimore schools have a high percentage of students receiving subsidized lunches, the city school system is eligible for millions of dollars in discounts.

Around the country, E-rate has been beset by frequent cases of fraud, waste and abuse. Last year, congressional auditors took the FCC to task for poor oversight. The Justice Department has pushed for more stringent monitoring, leading to increased auditing at schools that have received E-rate funds.

Some fraud allegations have been local. Andre J. Hornsby, former chief executive officer of Prince George's County's schools, was indicted this summer on charges that he steered a school contract to a nonexistent company called "E-Rate Manager" that was supposed to help his system secure E-rate money. Prosecutors said he stood to receive more than $100,000 in kickbacks.

For Baltimore, in an Aug. 22 letter to Steptoe, an official from Universal Service outlined the problems that auditors discovered in city schools.

They include:

The system couldn't provide adequate documentation to support the size of the discount it received.

It could not prove that equipment was "installed and operational."

It billed for equipment that was not delivered or installed.

It received reimbursement in excess of the services and equipment provided.

It failed to make effective use of those services and equipment.

The audit was conducted for Universal Service by the firm KPMG, which issued its report in December 2005. Universal Service reviewed KPMG's findings and upheld nearly all of them in August. Its Aug. 22 letter required that the city system develop a plan to strengthen internal controls.

Steptoe said that when he started as the system's head of information technology two years ago, he canceled an E-rate application that was pending at the time because "I did observe that there was noncompliance."

Since then, Steptoe said, the system has implemented a process to keep track of assets, including equipment provided by E-rate.

The school board was supposed to approve a contract this month with the E-rate consultant, Funds for Learning. Steptoe said the contract was put on hold for a month because a company that had submitted a bid was protesting the award.

Funds for Learning is based in Oklahoma but has an office in Northern Virginia. One of its executives served on a 2003 task force convened by Universal Service to study E-rate waste, fraud and abuse.

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