‘‘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.’’

Schools' Internet Subsidies Are Called Fraud-Riddled
The program is ‘‘honeycombed with fraud and financial shenanigans,’’ said the report from the Center for Public Integrity in Washington.

The report is in large part based on investigations by the Federal Communications Commission. ‘‘They found problems everywhere they’ve looked, and they haven’t looked very hard at this point,’’ said Bob Williams, the author of the report.

E-Rate, created in 1996 by Congress, offers subsidies of 20 percent to 90 percent for buying telecommunications services like Internet connection fees and wiring classrooms.

Under the program, paid from fees on telephone bills, the highest rates go to the poorest schools. The Universal Service Administrative Company in Washington runs program for the F.C.C. The company also administers programs to develop phone service in rural areas and impoverished communities.

The Center for Public Integrity issued its report after the announcement of the first criminal case related to E-Rate. Last month, federal prosecutors in New York accused an Internet service on Staten Island and three employees with conspiring to steal millions of dollars. Prosecutors said the defendants, who worked for Connect2 Internet Networks Inc., offered free service and equipment to many poor schools by lying, saying the schools had paid their share of the costs when they had not.

In this way,’’ the complaint said, ‘‘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.’’
http://www.nytimes.com/2003/01/10/education/10FRAU.html