Video: The fleecing of America

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updated 6/18/2004 8:13:01 PM ET 2004-06-19T00:13:01

Beset by poor design and oversight, the federal program that connects schools and libraries to the Internet is a target for fraud and abuse, an independent review shows.

Financed through phone charges, the $2.25 billion-a-year program, known as E-rate, provides discounted Internet access and internal connection gear such as wiring and adaptors.

But it's also proving messy, as cases of wasted equipment, improper or falsified purchases, insufficient payments and poor oversight have been found or alleged nationwide.

Completed audits and investigations underway show E-rate has an unacceptably high risk of fraud, waste and abuse, said H. Walker Feaster III, inspector general of the Federal Communications Commission, in testimony Thursday to a subcommittee investigating the program.

He called for more auditors so the vast technology project would get adequate oversight, and for program changes to ensure competitive bidding, clear rules and solid record-keeping.

Of 122 audits done over the past year, about a third revealed substantial violations, Feaster told the House Energy and Commerce Subcommittee on Oversight and Investigations.

Lawmakers are considering, through administrative or legislative changes, how to ensure that the money goes where it is intended. The subcommittee plans a series of hearings.

"Whether it's bid-rigging, poor planning, a lack of meaningful competition or loopholes in the program's rules, a common and tragic theme recurs -- many children, perhaps hundreds of thousands, are deprived of the educational benefits," said the subcommittee's chairman, Rep. Jim Greenwood, R-Pa.

The program, run by the FCC and administered by a not-for-profit corporation, is widely credited for helping poor and rural schools get wired, giving students better learning tools.

The share of public classrooms with Internet access rose from 27 percent in 1997 to 92 percent in 2002, according to the Education Department. E-rate began operating in late 1997.

The first hearing centered on a glaring case of wasted money in Puerto Rico.

An investigative team found in February that about 74,000 wireless computer cards purchased for schools were sitting unwrapped on a loading dock in a warehouse. The cards were purchased in 1999 for about $24 million, including supposed installation charges.

Manuel Diaz Saldana, the comptroller for Puerto Rico, said the proper use of education dollars is a "matter of serious and vital concern." His office's audit of E-rate has given direction to education leaders there, who are taking steps to fix the problems and prevent them from happening again, he told lawmakers.

Problems have also surfaced in San Francisco, Atlanta and Chicago, among other places.

A coalition of education and library associations on Thursday supported the need for more monitoring but also touted the benefits of the program, aiming to ensure it will continue.

Copyright 2004 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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