Government regulators see ‘non-compliance’ among some Jewish schools but no fraud charges.
Nine years ago, Thomas Cline traveled from Washington, D.C., to Brooklyn to tour seven buildings occupied by the United Talmudical Academy.
As the assistant inspector general for audit at the Federal Communications Commission’s Office of Inspector General, Cline — whose Southern drawl must have stood out amid the Yiddish accents of Williamsburg — was there to look at the large Satmar school system’s more than $1 million in technology purchases, in 1999, subsidized by the FCC’s E-rate program.
His team found a number of major violations and ultimately recommended that the FCC make UTA return over $900,000. But in the end, the school — which did not return calls from The Jewish Week seeking an interview — paid nothing. In the years that have followed, it and the numerous institutions within its sprawling system of boys and girls’ schools in Brooklyn and Rockland County, each of which now files separately for E-rate, have been awarded tens of millions of E-rate dollars. In 2012, one of UTA’s service providers billed the program $81,600, just on Internet access for the Williamsburg boys’ divisions.
That is despite the fact that UTA students are not allowed access to the Internet.
E-rate, created as part of the sweeping Telecommunications Act of 1996, enables schools and libraries to get telecommunications and other tech infrastructure at a discount — as much as 90 percent for schools, like UTA, in which at least 75 percent of the students are eligible for reduced or free lunches.
Drawing from funds collected through a fee on long-distance phone service, the E-rate program, administered by the nonprofit Universal Service Administration Company (USAC), disburses $2.25 billion a year to more than 4,000 service providers working in over 100,000 schools.
But the money is not distributed evenly, as The Jewish Week learned in a four-month investigation. In 2011, 285 Jewish schools in New York State, which enroll approximately 4 percent of the state’s K-12 students, were approved for over $30 million, more than 20 percent of the state’s total E-rate allocations. The largest of these Jewish institutional recipients are, like UTA and Avir Yakov, a yeshiva in Rockland County, haredi (or, fervently Orthodox and/or chasidic) — the same community that, last May, filled Citi Field and Arthur Ashe Stadium for a rally denouncing the evils of the Internet. Meanwhile, the program, citing a scarcity of funds, has in recent years annually denied over $2 billion in requests from other schools nationwide.
Haredi schools are not the only Jewish ones participating in the E-rate program. A number of Modern Orthodox and liberal schools, including Ramaz, Solomon Schechter of Westchester and the Abraham Joshua Heschel School also benefit from E-rate, but, in part because their student bodies are more affluent, the amounts they have received pale in comparison to the money lavished on the haredi schools. In addition, the Modern Orthodox and liberal day schools routinely make computers and the Internet accessible to their students.
History Of Problems
E-rate has long been criticized for inadequate safeguards against fraud and waste, and there have been several high-profile cases over the years involving service providers, E-rate consultants and schools filing millions of dollars in claims for services and equipment that were never provided.
Just a few years after E-rate began, Puerto Rico’s secretary of education was caught mismanaging over $100 million in E-rate funds. High-profile fraud cases, some involving big-name companies like IBM and NEC and entailing tens of millions of dollars, have been exposed in Texas and California, with the FCC maintaining a list of people and companies that have been “debarred” from participating in the program. Two General Accounting Office reports (most recently in 2010) have cited problems with USAC’s “internal controls,” and in 2005, the program was the subject of a congressional investigation.
Yet, despite some red flags raised in audits, like the one in 2004 of UTA, no Jewish schools or their service providers appear to have been barred from E-rate or deemed guilty of anything more serious than “noncompliance.”
Nonetheless, the program’s reputation for being susceptible to fraud is the reason why staff at the Jewish Education Project, formerly the Board of Jewish Education of Greater New York, say they have steered clear of E-rate in recent years, even as they help Jewish schools access a wide array of other government funds and services.
And, while few people are willing to accuse the Jewish schools of outright deception, their large E-rate awards are raising some eyebrows.
One E-rate expert who asked not to be identified said the large sums for schools that use minimal technology do look suspicious.
The question, he said, is, “Are you dealing with unsophisticated consumers being taken advantage of or are they in on it. … Who knows if this is legitimate of if it’s illegitimate and who’s at fault?”
Asked if it is currently investigating any potential improprieties in E-rate use among haredi institutions, Cline, the FCC auditor involved in the 2004 visit to UTA, declined to share specifics but said, “It’s come to our attention, and we are looking into it.”
In response to a follow-up e-mail from The Jewish Week, sent after the first two installments of an investigative series were published and seeking comment on some of the institutions the articles addressed, Cline said, via e-mail: “I can’t confirm, deny or discuss any investigative activity currently in progress by our staff.”
However, he added, his staff has “found the articles very interesting.”
Steve White, a Rockland County community activist who in 2011 successfully appealed to New York State to block the East Ramapo Central School District’s below-market-price sale of a school building to Avir Yakov, told The Jewish Week that it looks like Avir Yakov, if not others, has been deceptive in its dealings with E-rate.
“To me, it seems obvious that they’re trying to game the system,” he said. “If they expressly forbid their students from using the Internet, then what do they need Internet connections for?”
He noted that the blocked real estate deal between Avir Yakov and the school district, whose board is composed mostly of fervently Orthodox Jews and is currently being sued, involved “appraisal fraud. The exact same place that’s in trouble over real estate fraud is also listed as strangely getting all these monies. There is a pattern.”
`We Pulled Back’
Interviewed in December, Sara Seligson, associate director of the Jewish Education Project’s day schools and yeshivot department, told The Jewish Week that while her department was initially involved with E-rate, “it is a very complex application, and there were some challenges in terms of what the schools were using it for and what they were allowed to use it for. Not just our schools, but schools all over the country were cited for using it inappropriately, and we kind of just pulled back.
She said her department has not had any involvement with the program “for many years.”
In particular, Seligson said she had heard of vendors cutting deals with schools, permitting them to skip paying their 10 percent share.
While acknowledging that E-rate Central and the New York State Department of Education occasionally contact her office when there is a problem processing an E-rate application, she said: “We’re relatively hands-off.”
Rabbi Marty Schloss, the department’s director of government relations and general studies, commented: “[E-rate] had a lot of problems in past, and the last thing we need to do is get stuck in the middle of that. That would destroy our own credibility and ability to work with schools. We in general try to steer clear of questionable practices or practices that could lead us all into trouble.”
Despite its problems in the past, Eric Iversen, USAC’s director of external relations, insisted to The Jewish Week that USAC has “zero tolerance” for fraud and has “a pretty robust audit program.”
In a follow-up e-mail, he wrote that USAC has conducted over 800 audits of E-rate beneficiaries since 2006. “None of these audits has revealed fraud in the program,” he wrote.
The Department of Justice and the FCC’s Office of Inspector General (OIG) also audit E-rate. Thomas Cline, who audited UTA in 2004 and is now deputy inspector general in the OIG, told The Jewish Week that his department has closed about 30 investigations of E-rate recipients and service providers since 2002, and has a number of ongoing ones.
Asked during last week’s interview if he agrees with Iversen’s assessment that E-rate audits rarely find evidence of fraud, Cline said audits more commonly uncover “inconsistencies and noncompliance with certain requirements.
“Overpayments are many times the result of an honest error, rather than an attempt to defraud the federal government,” he said. “The end result of audits is more frequently to catch noncompliance and tell participants how to clean up procedures.”
He emphasized that “the need to recover funds is not in itself necessarily evidence of fraud.”
No Deadline For Payment
In his 2004 audit of UTA, Cline’s team discovered a number of problems:
UTA had not paid its required 10 percent portion of the bill;
Communications Data and Security, Inc. (still an approved E-rate service provider) had billed and received payment for services it had not provided;
There was no evidence of a competitive bidding process;
When auditors attempted to visit various UTA locations to determine the physical existence of the E-rate equipment, they found the school had, without obtaining approval, made numerous equipment substitutions, did not maintain asset records and lacked proof that all E-rate funded services had been received and installed.
Cline’s team recommended that USAC recover $934,300 from the school. UTA appealed the audit decision and in 2008, Jennifer K. McKee, the acting chief of Wireline Competition Bureau’s Telecommunications Access Policy Division, the FCC division responsible for E-rate, granted the appeal.
“Based on the record before us, it appears that this matter can be resolved through USAC’s review of additional documentation UTA provided to the Commission in its appeal, which it had not previously provided to USAC,” she wrote. In other words, the bureau determined that it was acceptable for UTA and its service provider, who had been unable to provide appropriate documentation when they were audited, to submit receipts years after the fact.
Interviewed last week about the overruling of his audit recommendations concerning UTA, Cline said the UTA audit, like many audits of that time, revealed that “in the early years of the program there were significant problems with weaknesses in the rules designed to protect the program. As a result, FCC has issued orders doing away with the loopholes and tightening the rules.”
Asked if was not suspicious for a company to produce a receipt after the audit was complete, and for the FCC to accept it, Cline noted that “the issue was there was no requirement of time in which you had to pay. That was the problem. So if you pay years later, there was nothing in the rules saying that was a problem.”
Rules specifying deadlines for payment have been implemented.
As for the UTA’s other findings, Cline said he no longer recalls the details. “We do the audits and make recommendations, but we’re not the administrators,” he said. “We have things we can do if we’re not satisfied, but how far you elevate things like that depends on the circumstance.”
Various Jewish schools have been cited for noncompliance in USAC-commissioned audits, yet, like UTA, they seem not to have been penalized.
In 2009, KPMG carried out an audit of Bais Ruchel D’Satmar, which in the early years of the program filed for E-rate together with UTA, and found “material noncompliance with technology plan certification and service substitution requirements” during the fiscal year 2008. Notably, the functionality of the requested services on the original application was for T-1 services, while the functionality of the substituted services was for wireless phone services. While USAC decided to seek recovery for the monetary effect of this finding, nowhere in the audit, however, were the reasons for this substitution questioned or made clear.
Meanwhile other FCC rulings of Jewish schools — and other schools’ — appeals seem to have been similarly lenient. In May 2006, FCC Secretary Marlene Dortch granted 30 appeals on behalf of 96 participants, many of them haredi Jewish schools, accused of violating competitive bidding rules. USAC had flagged the schools because the language on their technology plans was very similar; however Dortch argued that considerably more evidence was needed before making the schools and their service providers return their funding.
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