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Witness Testimony
Ms. Louise H. Renne
Problems with the E-rate Program: Waste, Fraud, and Abuse Concerns in the Wiring of Our Nation's Schools to the Internet Mr. Chairman and Members: The nationwide scheme to defraud the E-Rate program came to our attention in San Francisco soon after Arlene Ackerman, the former chief of the Washington, D.C. schools, took over as superintendent of the San Francisco Unified School District. At the time I was the San Francisco City Attorney. Ms. Ackerman had grown suspicious of a number of situations at the school district. I still remember very well the day when she called me and said, "I think there's some funny business going on over here." I ordered an investigation, assembling a team of attorneys and investigators, including George Cothran, who will also testify today. As our investigation progressed, the national scope of the E-Rate problem soon became clear. In the process, we alerted the FBI and U.S. Attorney Kevin Ryan. In addition, we prepared a whistleblower lawsuit, unprecedented for a school district, which was filed in federal court by my successor in office, Dennis Herrera. That suit resulted in a guilty plea last May by one of the companies that perpetrated the San Francisco fraud, NEC Business Network Solutions. But the matter does not end there. We learned that some of the San Francisco co-conspirators were likely committing the same or similar fraud across the country. The misappropriation of E-Rate money from disadvantaged schools and the children they serve was a well orchestrated effort by several corporate players working in concert with one another. In San Francisco, the school district's initial contact with the corporate con game came when a representative of Inter-Tel Technologies approached the district with a proposal for the purchase of telecommunications equipment. The Inter-Tel representative introduced district officials to Judy Green and George Marchellos, employees of Video Network Communications Inc., or VNCI, both experts in the E-Rate program. As our chief E-Rate investigator, George Cothran, will testify in detail, Ms. Green and Mr. Marchellos infiltrated the district's competitive bidding process to win inflated E-Rate funding for district projects directly benefiting VNCI, Inter-Tel, and NEC. Specifically, they wrote the district's request for proposals so that it would be prejudiced toward goods and services sold by VNCI. Then they bundled VNCI equipment inside a bid submitted by Inter-Tel. As part of the conspiracy, the RFP was not advertised as required by law. The investigation suggested that the three companies used the same or similar schemes elsewhere, with VNCI typically managing the bidding process and hiding its equipment inside bids submitted either by Inter-Tel, as in San Francisco, or by NEC. As a result of their conspiracy, these companies ensured that they would be the primary recipients of E-Rate funding provided to the San Francisco Unified School District. But their fraud didn't stop with a phony bidding process. They also submitted a falsified application for E-Rate funding on behalf of the district that inflated their bid prices by more than $60 million, well above the artificially high rates already enabled by the rigged bids. In short, they thoroughly soaked the E-Rate process for millions of dollars with lies, overcharges, and fraud. San Francisco's lawsuit marks the first time to our knowledge that a school district has filed a whistleblower claim. It is my hope that our unprecedented action, along with other enforcement efforts around the country, will put government agencies and businesses alike on their guard against these practices, and will help to root out the problems that have beset the E-Rate program. The goals of the program are important for the future. Our children cannot compete in the modern world without knowledge of computers and technology, which is why a well-run program is so necessary. Thank you. |
