Article on Possible Fraudulent E-rate Vendor
Message Posted December 19, 2002
Friends...
As you know, the SLD is really trying to crack down on waste, fraud and abuse of the E-rate program. Recently, two articles have been published about 2 possible cases of fraud and abuse dealing with two separate companies -- both of which have applications pending with Pennsylvania schools. I am going to forward to you these articles for your information. The first one is below.
"Internet Company Accused of Fraud in School Program"
By BENJAMIN WEISER
New York Times
12/19/2002
Federal prosecutors in Manhattan charged the owner of a Staten Island Internet services company and three of its workers yesterday with conspiring to steal millions of dollars from a government program that helps pay for Internet technology for schools and libraries.
Prosecutors said that in some cases, the men tried to enlist school officials. They said one administrator, who worked at the Al Noor School in Brooklyn, was involved in fraud and was cooperating with the continuing investigation. A school spokesman would not comment.
The fraud involved the so-called E-rate program, which offers subsidies of 20 percent to 90 percent to schools on the cost of telecommunications services like Internet connection fees and the wiring of classrooms. Under the program, which is paid for through fees on phone bills, the higher reimbursement rates go to the poorer schools.
Under the rules, schools must still pay a share of the costs, so that even the poorest schools pay 10 percent. That rule was intended to prevent wasteful spending, and to ensure that schools bought only what is needed.
Prosecutors said the defendants, who worked for Connect2 Internet Networks Inc., preyed on the poorest schools, which were eligible for the 90 percent reimbursement rate, and offered them a way to obtain hundreds of thousands of dollars worth of Internet technology and services at no cost.
Prosecutors said one such school was the Children's Store Front School in Harlem. Connect2 obtained $491,447 in E-rate money for the school after telling the school that a foundation would pay its share. No such contribution was made, prosecutors said. A school official did not return a call seeking comment.
An official with the company in Washington that administers the E-rate program said that the case was the first involving the program in which fraud accusations had led to criminal charges.
Between 1998, when the program made its first financial commitments, and 2001, Connect2 received more than $9 million in E-rate money for services it provided to about 36 schools, the government said. A message seeking comment from the firm was not returned yesterday.
According to a criminal complaint filed in Federal District Court, the defendants bought the schools much more expensive technology than the schools could otherwise have afforded and billed the government for the entire amount, prosecutors said. They then tried to cover up the fact that the schools had not paid their share, prosecutors said.
The firm's owner, John Angelides, 65, of Staten Island, one of the four defendants arrested yesterday, instructed his sales force to tell schools Connect2 would find "outside funding" to cover the school's cost, according to the complaint. No such financing existed, the complaint said. It says that in some cases, the defendants created back-dated invoices and other fake billing documents to make it appear that Connect2 had billed the schools.
In other cases, the defendants asked school officials to write a check for their share and either did not cash it, or wrote back a check for the same amount, a scheme called dummy checks, prosecutors said. In still other cases, the complaint said, the defendants asked school officials to lie to help cover up the scheme.
"In this way, the defendants were able to sell almost limitless quantities of E-rate eligible goods and services to schools across the New York City area, with little or no control on the price they charged, and impose the entire cost on the government," the complaint said. The complaint said that in one case, the inspector general's office of the Federal Communications Commission told the Islamic Elementary School in Queens, which had been approved for $645,047 in reimbursements, that it was checking the school's compliance.
The complaint says that in a conversation that was recorded by federal agents with the assistance of the school, Mr. Angelides asked a school official to tell the auditors that the school had received bills from Connect2 for its share of the cost, but "because of the `events of Sept. 11,' " the school did not have the money.
"Angelides stated that they should `use 9/11 as a wedge, ' " and that the auditors would understand, because the school "is Islamic," Mr. Angelides was quoted as saying.
The school did not return a call seeking comment. Mr. Angelides and the three other defendants, Gary Blum, John Dotson, and Oscar Alvarez, were released on bond. Lawyers for the first three had no comment. Mr. Alvarez's lawyer did not return a call seeking comment.
Julie Tritt Schell
jtschell@comcast.net
(717) 730.7133 (voice)
(717) 730.9060 (fax)
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