Kansas City Schools Settle E-Rate Fraud Charges

The Kansas City, Missouri School District will pay the U.S. government US$66,000 and relinquish claims to $13.6 million in federal funds as part of a court settlement for fraud charges involving a program intended to help schools and libraries in poor areas connect to the Internet.

The school district was charged with making false claims and statements in connection with the U.S. Federal Communications Commission's E-Rate program, the U.S. Department of Justice said in a late Thursday release announcing the settlement.

Between 2002 and 2006, the school district pursued claims for payments for a contract that had been cancelled, did not comply with the mandatory competitive bidding process and improperly extended contracts to avoid rebidding, the DOJ said.

The E-Rate program, created by the U.S. Congress in the Telecommunications Act of 1996, is funded by taxes collected from telephone users.

The school district, as part of the agreement with the DOJ, agreed that three of its employees and the district's consultant, Dietrich Lockard Group, would no longer play a role in the program's application process for the schools. The DOJ learned of the allegations when another company, American Fiber Systems Inc., filed a whistleblower complaint in May 2006.

"False claims to this very important federal program will not be tolerated," Peter Keisler, assistant attorney general for the DOJ's Civil Division, said in a statement.

The DOJ has an ongoing investigation into fraud and anticompetitive conduct in the E-Rate program in Kansas City and elsewhere.

In February, a U.S. federal jury convicted the former owner and president of ATE Tel Solutions Inc., a telecommunications and Internet service provider, on seven of nine counts of wire fraud in a scheme to defraud the E-Rate program. Rafael G. Adame was convicted of submitting fraudulent invoices.

In June 2006, the FCC temporarily barred two companies, NEC-Business Network Solutions Inc. and Inter-Tel Technologies Inc., from receiving E-Rate funds.

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