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[Insert month] 20[ ] INVESTIGATIVE REPORT:

AN ASSESSMENT OF CERTAIN ISSUES CONCERNING THE CLEVELAND METROPOLITAN

SCHOOL DISTRICT’S PARTICIPATION IN THE FEDERAL E-RATE PROGRAM

January 26, 2016

Date: January 26, 2016

Contents

1. INTRODUCTION .......................................................................................................... 1

2. METHODOLOGY ......................................................................................................... 2

A. Document Review ................................................................................................... 3

B. Interviews ................................................................................................................ 4

3. BACKGROUND ON E-RATE PROGRAM .......................................................... 6

A. The E-Rate Program: Historical Overview ............................................................. 6

B. E-Rate Program Features Of Particular Relevance To Our Analysis ..................... 7

1. Application Process Schedule ...................................................................................... 7

2. Description Of Products And Services For Which Support Is Sought ....................... 7

3. Support Can Be Provided Only For Products And Services Which Are Eligible

Under The Rules .................................................................................................. 8

4. An Applicant Must Be Able To Support The Calculation Of Its Claimed

Discount Rate ...................................................................................................... 8

5. There Are Deadlines ............................................................................................ 8

6. There Are Invoicing Options ................................................................................ 9

7. Obtaining Support For What Was Approved .......................................................... 9

8. here Are Document Retention Requirements .......................................................... 9

C. CMSD Participation In The E-Rate Program ........................................................ 10

1. Support Committed And Expended ..................................................................... 10

2. Internal Management And Responsibility ............................................................ 10

3. Internal Guidelines ............................................................................................. 11

4. CMSD E-Rate Program Audits ........................................................................... 11

5. Subsequent CMSD Compliance History .............................................................. 12

4. EXECUTIVE SUMMARY ....................................................................................... 13

5. FINDINGS AND ANALYSIS .................................................................................. 21

A. Segment 2 .............................................................................................................. 21

1. Introduction ....................................................................................................... 21

2. Pre-Contract ...................................................................................................... 22

3. Post-Contract, Pre-USAC Commitment ............................................................... 23

4. Post-Funding Commitment Decision, Including Invoicing And Reimbursement ..... 25

5. Segment 2 Summary Assessment ........................................................................ 27

B. Segment 3A ........................................................................................................... 28

1. Introduction ....................................................................................................... 28

2. Pre-Contract ...................................................................................................... 29



C. Segment 3B/4A ..................................................................................................... 33

1. Introduction ....................................................................................................... 33

2. Pre-Contract ...................................................................................................... 34



5. Segment 3B/4A Summary Assessment ................................................................ 38

D. Segment 4B ........................................................................................................... 39

1. Introduction ....................................................................................................... 39

2. Pre-Contract ...................................................................................................... 40



5. Segment 4B Summary Assessment...................................................................... 45

6. BRIEF REVIEW OF A FEW FRNS NOT AT ISSUE IN THE BAC

REPORT ......................................................................................................................... 46

A. FRNs Examined .................................................................................................... 46

B. Findings ................................................................................................................. 47

7. CONCLUSION ............................................................................................................. 49

8. RECOMMENDATIONS............................................................................................ 52

A. Future New School Construction Projects: Lessons To Be Learned ................... 52

B. Formulate And Implement Sound Internal E-Rate Program Procedures .............. 53

C. Attend USAC E-Rate Training And Otherwise Devote Necessary Time And

Resources To Understand The E-Rate Program.................................................... 54

9. ACKNOWLEDGEMENTS ....................................................................................... 55

10. AUTHOR BIOGRAPHIES ....................................................................................... 55

Clark Kent Ervin Partner

2550 M Street NW Washington DC 20037 T: +1 202 457 5234 E: [email protected]

Squire Patton Boggs is the trade name of Squire Patton Boggs (US) LLP, a limited liability partnership organized under the laws of the state of Ohio, USA. Squire Patton Boggs (US) LLP is part of the international legal practice Squire Patton Boggs which operates worldwide through a number of separate legal entities. Please visit squirepattonboggs.com for more information.

Paul C. Besozzi Partner

2550 M Street NW Washington DC 20037 T: +1 202 457 5292 E: [email protected]

mailto:[email protected]

mailto:[email protected]

Squire Patton Boggs 1

1. INTRODUCTION

The Bond Accountability Commission 2 Inc. (“BAC”) is an independent, non-profit, all-

volunteer organization in Cleveland, Ohio appointed by the Chair of the Board of Education in

consultation with the Mayor. To help assure the city’s taxpayers that $535 million raised

through construction and improvement bonds1 is being spent responsibly, the BAC monitors the

expenditure of those funds for new construction and renovation of K-12 schools in the

Cleveland Metropolitan School District (“CMSD” or “District”). These construction projects

were part of the State-authorized Accelerated urban school building assistance program under

the auspices of the Ohio School Facilities Commission (“OSFC”), which is now part of the Ohio

Facilities Construction Commission (“OFCC”).2

On March 21, 2015, the BAC issued a report titled, “E-rate: Missed opportunity - Millions of

dollars in federal technology reimbursements” (“BAC Report”). (Attachment 1) As the title

implies, the purpose of the BAC Report was to attempt to explain why the CMSD failed to

receive the full reimbursement for which it had been approved for the money it spent for certain

technology equipment and services in certain newly-built schools. The source of the

reimbursement funds is the Schools and Libraries Universal Service Support Mechanism, which

is commonly known as the “E-Rate Program,” and referred to hereafter as such or as “Program.”

The Universal Service Administrative Company (“USAC”), a non-profit entity established by

the Federal Communications Commission (“FCC”), administers the Program, which provides

financial support, through discounts or rebates, to eligible K-12 schools to help them pay for

certain telecommunications and Internet access services, as well as in-school technology related

to delivery of such services.3

The BAC Report focused specifically on E-Rate Program support for the technology equipment

and infrastructure costs associated with the construction of schools in Segments 2-4 of the

school construction program funded by Issue 14 bonds. According to the BAC Report, USAC

committed to provide $12.28 million in E-Rate funding for these schools, yet the CMSD

actually received only a fraction of that amount, namely, $3.71 million.

After a nearly two-year inquiry, the BAC summarized its work as follows, “When the Bond

Accountability Commission initiated its inquiry in June 2013, its goal was to establish what

happened and why, encourage whatever steps might be possible to recover missed

1 The bonds were authorized by Cleveland voters as “Issue 14” in May 2001, and renewed in November 2014 as

“Issue 4.” See http://www.bondaccountability.org/mission/

2 The OFCC merged the operations of the State Architect's Office and the OSFC on September 10, 2012,

combining the State's construction authority and resources into a single entity. The OSFC continues to exist

within the new consolidated agency and focuses on programmatic and planning issues related to K-12

construction. Hereinafter, we will refer only to the OSFC.

3 The Program rules classified eligible telecommunications and Internet access services as “Priority 1” services

because support for these services was funded first. The eligible in-school technology hardware and related (e.g.,

maintenance) services were classified as “Priority 2” services because they were funded only after eligible dollar

demand for Priority 1 was satisfied. As discussed in more detail below, in 2014 the FCC refocused the Program

on support for broadband connectivity to and within eligible schools, and began the process of phasing out

support for legacy voice services.

http://www.bondaccountability.org/mission/


reimbursements, and determine what might be done so that any mistakes, oversights, or other

problems would not happen again. The BAC hoped to present to the Board of Education and the

public a definitive account of why the District had not received reimbursements for which the E-

Rate program had committed funding. However, after several rounds of questioning CMSD

officials, the BAC cannot provide such a report. The BAC still has requests for information and

documentation outstanding, and it will provide updates when possible, but at this point it seems

prudent to present this matter to the Board of Education, which has both the authority to compel

a more complete explanation and the responsibility to do so.”4

In response to the BAC Report, Eric Gordon, the Chief Executive Officer (“CEO”) of the

CMSD, hired the law firm of Squire Patton Boggs to conduct a thorough, independent

investigation to answer the questions the BAC said that it was unable to answer in its report.

Additionally, to the extent that it was possible to do so within a reasonable time frame, we were

to undertake a comprehensive review and evaluation of the CMSD’s processes, procedures, and

practices relating to its participation in the E-Rate Program for the period, January 1, 2006

(which is roughly when the Segment 2 school construction program began) to date. Finally, as

the BAC attempted to do, we were asked to make recommendations so that the identified

mistakes, oversights, and other problems never happen again.

Throughout the course of our engagement, the District was wholly cooperative in timely and

fully responding to our extensive requests for documentation. District personnel, from the CEO

on down, readily spoke with us and shared their knowledge and experiences. The findings and

conclusions we make herein are our own and were, as intended by the CEO, independently

developed.

In the report that follows, we first explain the methodology we used to conduct our

investigation, followed by background on the E-Rate Program and the CMSD’s participation

therein. Thereafter, an Executive Summary of the key contributing factors precedes detailed

analyses of each of the four construction Segments at issue.5 After a brief analysis of a sample

of CMSD E-Rate applications not examined in the BAC Report, we provide conclusions and

recommendations.

2. METHODOLOGY

This report is based primarily on: (a) a review and assessment of numerous documents,

including emails, related to the Segments; and (b) the conduct of a series of face-to-face and

telephone interviews with key present and former CMSD personnel and others outside the

CMSD.

4 BAC Report, pp. 1-2.

5 The four Segment packages were: Segment 2, Segment 3A, Segment 3B/4A, and Segment 4B, which

corresponded with E-Rate Program Funding Years 2006, 2007, 2008 and 2010, respectively. They are

collectively referred to herein as the “Segments.”


A. Document Review

We reviewed and analyzed documents related to the specific E-Rate applications that were the

subject of the BAC Report and the CMSD’s E-Rate process in general, including periods

leading up to the time frames examined by the BAC Report. These documents originated from,

among other sources: (a) the CMSD E-Rate Program files located at the District’s East

Professional Center (“E-Rate File Room”); (b) other publicly-available databases (e.g., the

USAC and E-Rate Central E-Rate Forum online databases); and (c) for emails, the databases

retained and maintained by the CMSD.

Based on this review, we created individual “Segment histories,” meaning a compilation for

each Segment of all the pertinent documents we could find, organized chronologically from the

inception of the E-Rate process (pre-bidding) to the conclusion (reimbursement, if any).6

The specific categories of documents reviewed are the following:

The BAC Report and interim reports (October 1, 2013, January 23, 2013).

CMSD documentation provided, in four Sections, to the BAC in connection with its

preparation of the BAC Report, including reports by outside audit firms, BBP Partners and

Skoda Minotti.

Emails between the CMSD and the BAC for the period, 2008 through the release of the

BAC Report in March of 2015.

Information relating to the CMSD’s participation in the E-Rate Program since 1998,

including E-Rate support applied for, approved, and the “utilization rate” thereof, meaning

the percentage of approved funds actually disbursed.

CMSD internal manuals, guidance documents, and charts relating to the District’s E-Rate

Program procedures.

CMSD organizational charts and manuals reflecting job titles and responsibilities.

The CMSD’s E-Rate web page and materials available at: http://net2.cmsdnet.net/erate.

The results of external audits conducted by USAC, using third party accounting firms, of

the CMSD’s participation in the E-Rate Program during specified periods.

Documents reflecting the CMSD’s engagement of E-Rate Central for E-Rate consulting

services and services rendered pursuant thereto.

Bid packages, bid forms, contracts and related bidding materials (e.g., scope review meeting minutes, bid evaluation and tabulation forms, summary of findings) for each of

6 Copies of the four Segment histories, which are addressed in detail in Section V below, are in separate binders

that are attached to this report collectively as Attachment 2. Some of the documents included are excerpts from

otherwise voluminous documents. Some tabs are specially paginated because of multiple footnote references to

the particular tab. The quality of the copies was dependent upon the legibility of the documents from which they

were made. Further as the histories reflect, we were unable to find various E-Rate forms and other documents we

would expect to find within the District’s files. Attachment 2 also includes charts summarizing, by Segment, key

figures.

http://net2.cmsdnet.net/erate


the Segments, including such materials assembled and provided to the Auditor of the State

of Ohio (“AoS”).7

Sample Application and Certificate of Payment forms related to the technology work

performed by Doan/Pyramid, LLC (“Doan”) and Zenith Systems, LLC (“Zenith”).

Documents found in the District’s E-Rate File Room, where we made two in-person visits.

Over 26,000 emails to and from key current and former CMSD personnel (in certain cases

also including relevant people outside the District) during the period under examination.

Supplementary materials identified from electronic files retained by the District on shared

drives relating to the Segments.

Statutory and regulatory materials relating to the Accelerated urban school building

assistance program, including the applicable OSFC Design Manual.

Relevant meeting minutes and resolutions of the Board of Education of the CMSD.

Sample contracts for construction management and architectural services related to the

new construction projects in the Segments.

Other potentially relevant materials provided by the CMSD to the AoS in connection with

its separate inquiry.

Documentation relating to several sample E-Rate funding requests other than those at

issue in the BAC Report.

Compendia of relevant FCC rules and decisions concerning the E-Rate Program.

B. Interviews

In addition to our documentary review, we conducted in-person or telephone interviews with a

total of twenty-five people, including those who were involved in some phase of the

construction process and/or the E-Rate application process for each of the Segments.

The interviewees, their affiliations, and the date and method of the interview are as follows:8

Wayne Belock, Chief Legal Counsel, CMSD – June 3, 2015.

Michael Bowen (telephone) – Director of Accounting, CMSD – December 17, 2015.

George Dallas (telephone) – President, Total Systems Integration, Inc. (“TSI”) (the

technology design company for all the Segments) – September 4, 2015.

Marcus Dehler (telephone) - Director, Technology and Infrastructure Group, Zenith (the

company that acquired the assets of Doan, which was the technology contractor for the

other relevant Segments. Zenith was the technology contractor for Segment 4B) –

August 5, 2015.

7 On April 21, 2015, the AoS announced that his office would conduct its own examination of the CMSD’s

participation in the E-Rate Program and subsequent thereto the CMSD provided the AoS with a variety of

documents as requested. The CMSD has provided us with all materials that it provided to the AoS, some of

which we already had obtained and reviewed.

8 In addition to these people, we attempted to contact Michael Colosimo, formerly of Doan, and Fred Ahlborn,

formerly of the OSFC, but were unable to locate them.


Kenneth Demming – Enterprise Application Developer, CMSD – May 20 (telephone) and

June 4, 2015 (in person).

Bernard Eichner – Programmer/Analyst, CMSD – July 9, 2015.

Angela Foraker (telephone) – Director of Procurement, CMSD (formerly with The Riley

Law Firm, the District’s outside counsel for construction-related matters) – July 31, 2015.

Eric Gordon – CEO, CMSD – June 4, 2015.

Diana Grant – Finance Report Specialist, CMSD – July 9, 2015.

Winston Himsworth (telephone) – President, Tel/Logic Inc. d/b/a E-Rate Central (the

District’s E-Rate consultant) – May 1 and May 4, 2015.

Roderick Houpe (telephone) – Chief Information Officer (“CIO”), CMSD – July 30, 2015.

Larry Johnston – Executive Director, Internal Audit, CMSD – June 4, 2015.

Dennis Kubick – Deputy Chief Financial Officer/Controller, CMSD – July 9, 2015.

Ilze Lacis – former Director – Budget, E-Rate and Telecommunications, Department of

Management Information Systems, CMSD, and Executive Director of Procurement

Department of Technology, CMSD (and until recently with E-Rate Central) – June 3,

2015 (in person) and December 16, 2015 (telephone).9

James Mix – Manager, Public Records Requests, Student Records and Paralegal Services,

Legal Department, CMSD – May 19 and May 26, 2015 (telephone), June 3, 2015 and July

9, 2015 (in person).

Lina Paesani (telephone) – Construction Coordinator, CMSD - August 31, 2015.

Joseph Podach – former Deputy Chief, Technology and Procurement, CMSD – July 10,

2015.

Glenn Popil (telephone) – Construction Coordinator, CMSD – July 30, 2015.

David Riley – The Riley Law Firm – July 10, 2015 (in person) and December 11, 2015

(telephone).

Fred Rogers – Project Manager, Ozanne Hammond Gilbane Regency (“OHGR”) (the

construction manager for all the Segments) – July 9, 2015.

Dedra Ross – Senior Purchasing Specialist, E-Rate, CMSD – June 4, 2005.

Gary Sautter – Deputy Chief, Capital Projects, CMSD – July 9, 2015 (in person) and

January 6, 2016 (telephone).

Anita Spencer – former Specialist III, Information Services, CMSD – July 8, 2015.

Nora Svatek – former Director, Accounts Payable, CMSD – July 8, 2015.

Patrick Zohn – Chief Operating Officer, CMSD – July 9, 2015.

9 Ilze Lacis, Anita Spencer and Ms. Spencer’s replacement, Dedra Ross, worked directly on E-Rate matters. Ms.

Lacis reported on E-Rate and other matters directly to Joseph Podach.


3. BACKGROUND ON E-RATE PROGRAM

The E-Rate Program is complicated, requiring the meticulous completion of detailed forms and

filing them by prescribed deadlines at various stages in the E-Rate process.10

The BAC Report

includes an outline of the overall processes and requirements, so we do not provide one here.11

However, the brief overview that immediately follows, focused on certain Program features we

think are particularly relevant to our findings, serves to frame the later analysis and

recommendations that are the heart of this report.

A. The E-Rate Program: Historical Overview

The E-Rate Program was established pursuant to the Telecommunications Act of 1996.12

As

noted above, the Program is administered by USAC, subject to the ultimate oversight of the

FCC, which promulgates the rules governing the Program.13

Initial financial support under the Program was provided to successful applicants starting in

1998. The support has been funded through contributions initially made primarily by

telecommunications carriers into the Federal Universal Service Fund; the cost of these

contributions is generally passed on to consumers.14

During the period examined in this report,

the Program provided support to eligible K-12 schools for Telecommunications Services,

Internet Access, Internal Connections, Basic Maintenance of Internal Connections, and, starting

in Funding Year 2007, certain Miscellaneous Services.15

Originally, the FCC capped the E-Rate

Program funding at a base of $2.25 billion per year. In 2010 this annual funding cap was

indexed for inflation.16

More recently, the E-Rate Program fund size was expanded so that now

10 As observed by FCC Commissioner Rosenworcel in 2014, “the E-Rate Program is too complicated…. It has

become too difficult and expensive for schools…to navigate our process…. That is just not right.” In the Matter

of Modernizing the E-Rate Program for Schools and Libraries, Report and Order and Further Notice of Proposed

Rulemaking, 29 FCC Rcd 8870 (2014) (“Modernization R&O”) (Statement of Commissioner Jessica

Rosenworcel).

11 BAC Report, pp. 11-15.

12 See 47 U.S.C. §254(h)

13 47 C.F.R., Chapter 1, Subchapter B, Part 54, Subpart F.

14 The pass-through is generally reflected under the term, “Universal Service Charge or Fee,” on the phone bill.

Some 45 states have some form of separate universal service funds.

15 The FCC in 2014 issued two “modernization” orders which will phase out support for legacy voice services and

put greater emphasis on support for connectivity of schools and classrooms to high-speed broadband.

Modernization R&O, supra; In the Matter of Modernizing the E-Rate Program for Schools and Libraries, Second

Report and Order and Order on Reconsideration, 29 FCC Rcd 15538 (2014)(“Second R&0”).

16 In the Matter of Schools and Libraries Universal Service Support Mechanism, Sixth Report and Order, 25 FCC

Rcd 18762 (2010)


up to nearly $4.0 billion per year is available.17

The Program funding year runs from July 1 to

the following June 30.

Despite periodic efforts to simplify the E-Rate application process, it remains complicated.

Initial applications for support are subject to routine and special compliance reviews, as well as

post-funding audits. If USAC determines, after committing to provide a certain amount of

support and the disbursement of any portion of that amount, that there have been violations of

the applicable rules, it can seek to recover the funds. Applicants have the right to appeal first to

USAC and then to the FCC, or to seek a rule waiver from the latter.18

Because of the Program’s

complexity, and the potential consequences of making mistakes, many individual schools and

school districts, like the CMSD, hire consultants.19

B. E-Rate Program Features Of Particular Relevance To Our Analysis

1. Application Process Schedule

An applicant must first post with USAC an FCC Form 470 with an adequate description of

products or services for which it seeks E-Rate support.20

Prospective vendors must then be given

at least 28 days from the date of posting to submit proposals before any contract may be

executed. If the applicant also issues a Request For Proposals (“RFP”) or, as was the case with

the CMSD, a Bid Notice, the bidder response period must allow for the USAC-mandated 28-day

period. Only thereafter may the applicant enter into a contract with the selected vendor and,

during a USAC prescribed “window,” formally apply, by submitting FCC Form 471,21

for

specific E-Rate Program support for the contracted products or services.22

2. Description Of Products And Services For Which Support Is Sought

In filing for support the applicant must provide USAC with sufficient details about, for example,

the type, quantity, and cost of the equipment that the vendor is to provide and for which E-Rate

support is being requested. This requirement is generally satisfied through an attachment in

17 See Second R&O, supra. This figure does not include any unused funds that the FCC authorizes, after notice from

USAC, to be carried forward from prior Program funding years,

18 Under 47 C.F.R. §54.719, applicants or service providers “aggrieved by an action taken by” USAC have appeal

rights. Only the FCC can waive its rules.

19 In the Matter of Modernizing the E-rate Program for Schools and Libraries, Notice of Proposed Rulemaking, 28

FCC Rcd 11304, 11363, ¶224 (2013) (“Modernization NPRM”) (“Applicants for E-Rate funds are required to

complete approximately six FCC forms over the course of a funding year. Some applicants spend many hours not

only filling out FCC forms and gathering required data, but also responding to questions from USAC and

requests for additional information, including documentation. As a result, many applicants feel the need to hire

consultants to handle these tasks.”).

20 The BAC Report summary referred to in footnote 11 above explains the role of the key forms in the application

and invoicing process. BAC Report, pp. 13-15.

21 USAC assigns a Funding Request Number (“FRN”) to each selected vendor request. A single FCC Form 471

may cover multiple FRNs.

22 See 47 C.F.R. §§54.503, 54.504.


response to Item 21 on the FCC Form 471. If the description is insufficient, the applicant will be

required to provide more details until USAC is satisfied that it has enough information to

determine whether the support requested is justified under the Program’s rules.

3. Support Can Be Provided Only For Products And Services Which

Are Eligible Under The Rules

Each year, USAC and the FCC determine what products and services, including categories of

equipment, will be eligible for E-Rate support and produce a list before the application process

commences.23

After receipt of the FCC Form 471 and Item 21 attachment, USAC’s Program

Integrity Assurance (“PIA”) team reviews the application and supporting data before making a

funding commitment, usually asking a variety of questions during the course of the review. It,

therefore, behooves applicants to review their E-Rate applications carefully before submission

to ensure that they are applying only for eligible products and services.

4. An Applicant Must Be Able To Support The Calculation Of Its

Claimed Discount Rate

An applicant must pay a portion of the cost of the products and services for which E-Rate

support is sought. The applicant’s share is based on a “discount matrix” for which the minimum

applicant share is 10%.24

The share is usually based on the percentage of students in the

applicant’s schools eligible for free and reduced price lunches under the National School Lunch

Act.25

The greater the percentage of such students the greater the “discount” the applicant is

eligible to receive, or put another way, the higher the percentage of the cost USAC pays. An

applicant specifies the discount percentage for which it believes it is eligible on its FCC Form

471. Then, if questioned by USAC, it must be able to provide USAC with credible data

supporting the calculation of the percentage reflected on that form. Failing the provision of such

data, USAC can reduce the percentage to be funded by the Program, and the applicant’s share of

the eligible costs must increase.

5. There Are Deadlines

Throughout the E-Rate process there are deadlines. These include deadlines for: (a) responding

to USAC inquiries; (b) the initiation and completion of supported services, including the

installation of equipment; (c) the submission of invoices to receive support;26

and (d) appealing

USAC decisions relating to such support. Up to a point, USAC will grant extensions of certain

23 See http://www.usac.org/sl/applicants/beforeyoubegin/eligible-services-list.aspx

24 Starting in Funding Year 2015, the minimum share for Category 2 (formerly Priority 2) products and services

was increased to 15%.

25 See 47 C.F.R. §54.505. There are also sanctioned alternative discount mechanisms. See

http://usac.org/sl/applicants/step03/alternatives-discounts.aspx

26 47 C.F.R. §54.514 (relating to invoicing deadlines).

http://www.usac.org/sl/applicants/beforeyoubegin/eligible-services-list.aspx


deadlines, and the FCC has the authority to waive them for “good cause.”27

But failure to track

and meet deadlines can result in the denial or reduction of E-Rate funding.

6. There Are Invoicing Options

An applicant has a choice as to how USAC will be invoiced for approved E-Rate support. It can

pay the vendor 100% of the approved cost, and then seek reimbursement from USAC for the

discounted share using FCC Form 472, the Billed Entity Reimbursement (“BEAR”) form.

Alternatively, the applicant can pay the vendor its non-discounted share and leave it to the

vendor to seek reimbursement from USAC for the balance, using FCC Form 474, the Service

Provider Invoice (“SPI”) form. The choice is the applicant’s. In most cases, the SPI would be

preferable for the applicant since it does not need to pay 100% of the cost up front and then wait

for reimbursement.28

7. Obtaining Support For What Was Approved

Subject to allowable and approved “service substitutions,” applicants can ultimately obtain E-

Rate support for products and services only as originally approved and then actually obtained or

installed. For example, support approved for an item of equipment constituting Internal

Connections cannot be obtained if the equipment was never acquired or was never installed and

paid for. Invoices submitted to USAC must provide the requisite detail to allow verification that

what was originally approved was in fact installed and paid for. If there are substitutions for the

equipment originally approved, that equipment must also be “E-Rate eligible” and USAC

generally must sign off before the equipment is acquired, installed, and paid for. If an invoice is

submitted for different equipment which was not approved, USAC may refuse to pay the

invoice even if the equipment is “E-rate eligible.”29

8. There Are Document Retention Requirements

The E-Rate rules specifically require retention of documents relating to the E-Rate application

process. In 2004, the Program rules were amended to require both the applicants and service

providers to “retain all records related to the application for, receipt, and delivery of discounted

services for a period of five years after the last day of service delivered for a particular Funding

Year.”30

Recently, the retention period was increased to ten years.31

Failure to retain required

documentation can lead to denial of funding or reduction of the funding amount to reflect only

that information which the applicant can provide. The inability of an applicant to produce

required documents in an audit can lead USAC to seek recovery of previously disbursed funds.

27 47 C.F.R. §1.3. Again, only the FCC may waive requirements of the applicable E-Rate Program rules. USAC has

no authority to do so.

28 See http://usac.org/sl/service-providers/step05/default.aspx

29 See http://www.sl.universalservice.org/reference/ServiceSub.asp

30 In the Matter of Schools and Libraries Support Mechanism, Fifth Report and Order and Order, 19 FCC Rcd

15808, 15823, ¶47 (2004) (“Fifth R&O”).

31 See Modernization R&O, supra.

http://usac.org/sl/service-providers/step05/default.aspx

http://www.sl.universalservice.org/reference/ServiceSub.asp


C. CMSD Participation In The E-Rate Program

In examining the CMSD’s participation in the Program, we reviewed: (a) overall E-Rate support

committed and expended; (b) internal management; (c) internal guidelines to ensure compliance;

and (d) external assessments of such compliance.

1. Support Committed And Expended

The CMSD has participated in the E-Rate Program since its inception, receiving significant

support in the process. During that period (from Funding Year 1998 through Funding Year

2015), based on available records, the CMSD has requested E-Rate Program funding totaling

$438,862,581.90; received Program Funding commitments totaling $295,417,822.10; and

benefited from disbursements totaling $194,186,913.80.32

These figures reflect an overall “utilization rate” of 65.7%, with the highest utilization rate being

in Funding Year 1998 (95.9%) and the lowest being in Funding Year 2008 (39%).33

Based on

figures that we reviewed, during Funding Years 2005 through 2013, the CMSD’s utilization rate

trailed the nationwide average percentage by varying amounts. A determination of the specific

reasons for this overall disparity was not within the scope of our engagement. We would note,

however, that low utilization rates can reflect overly ambitious plans for projects that are not

completed at all or are subsequently reduced in scope; projects that are postponed; or the failure

to timely invoice.

2. Internal Management And Responsibility

During the period related to the Segments, day-to-day management of the E-Rate Program was

the responsibility of the Director – Budget, E-Rate and Telecommunications in the CMSD’s

Department of Management Information Systems.34

At some point in the fall of 2010 or early

2011, management responsibility for the E-Rate Program was given to the Executive Director of

Procurement in the Department of Technology.35

The Director and Executive Director reported

directly to the Deputy Chief, Technology and Procurement.36

32 These data are based on compilations obtained from E-Rate Central’s online database as of December 20, 2015.

33 According to figures provided by E-Rate Central, the nationwide utilization rate during Funding Years 2005

through 2013 averaged 79.3% based on figures through April 3, 2015. The utilization rate can change over time

as additional funds are disbursed.

34 Cleveland Metropolitan School District, Department of Management Information Systems, Organizational Chart

and Job Descriptions, August 13, 2009. Attachment 3.

35 Cleveland Metropolitan School District, Draft Department of Technology Service Catalogue, October 2010.

Attachment 4. Ilze Lacis served in one or the other of these two positions until November of 2011. Previously,

upon being hired full-time by the District in 2001, she served as Manager of E-Rate matters. In her initial

interview, she could not recall precisely when she became the Director as reflected on the 2009 organizational

chart, but it was before that chart was prepared. She was reclassified as Executive Director in February 2011. Ms.

Lacis was assisted in E-Rate matters by Anita Spencer, Specialist III, Information Services, and starting in March

of 2011, by Dedra Ross, Senior Purchasing Specialist, E-Rate. Ms. Ross remains with the District.

36 During the relevant period this was Joseph Podach.


3. Internal Guidelines

The CMSD had written internal guidance and procedures for handling “typical” E-Rate Program

applications and invoicing (meaning, those related to schools that, unlike those at issue in the

BAC Report, were not part of the OSFC construction program). Our document review included

a February 25, 2002 manual (“Manual”) titled, “PROCESS FOR ERATE PROGRAM,” which

addressed “Funding Request Objectives,” “Request For Proposal Process,” “RFP Proposal

Evaluation and Selection Process,” “Separation of Eligible and Ineligible Services,” and the

“Billing Process.” The Manual required, among other things, “separate invoices” for “eligible

and ineligible costs” and sought to deter the use of the BEAR billing process explained above

that required the CMSD to budget (and expend) 100% of the costs of E-Rate-eligible products

and services and then seek reimbursement.37

An additional December 2003 document titled, “E-

Rate Submission RFP Evaluation Process,” addressed a series of specific services and included

rating forms for vendors to be considered by an Evaluation Committee.38

We believe, based on our interviews and the documents that we reviewed, that the District

received significant E-Rate funding for various eligible products and services as a result of

following these procedures with respect to other schools that, unlike those in Segments 2-4,

were not part of the OSFC construction program. It appears that, to the extent that there were

other major school construction projects over the years, the District did not apply for E-Rate

funding.39

4. CMSD E-Rate Program Audits

We also reviewed documentation relating to audits conducted on behalf of USAC by third party

auditors for E-Rate Funding Year 2000 and Funding Years 2002-2006.40

These audits assessed

the applicant’s compliance with a variety of Program requirements, based primarily on a review

of documentation related to the applications in the Funding Years examined. Findings of non-

compliance can lead USAC to seek recovery of support previously disbursed.41

37 According to Ilze Lacis, she drafted the Manual. Attachment 5.

38 Kenneth Demming, who was periodically involved in evaluating proposals for products and services for which

the CMSD sought E-Rate support, confirmed that these procedures were followed in the cases in which he was

involved. Ilze Lacis also said they were followed.

39 George Dallas of TSI stated that, in his experience, in the past this was the case. We know that no E-Rate support

was sought in connection with Segment 1 schools. David Riley confirmed this. To our knowledge, no E-Rate

support has been sought for subsequent segments to date.

40 The E-Rate Program rules specifically provide for such audits. 47 C.F.R. §54.516. It is not unusual, and can be

expected, that an E-Rate Program of the dollar size of the District’s would be periodically audited by USAC.

41 See Fifth R&O, supra.


In the earlier audit, the ultimate overall conclusion by USAC was that the CMSD was compliant

with E-Rate Program requirements for the Funding Year in question. While there were minor

findings, none of them warranted any recovery of E-Rate funds previously disbursed.42

The latter audit (referred to internally as the “mega-audit”) found no “Matters Related to

Material Non-Compliance.” The audit did contain minor findings regarding compliance with

rules relating to discount calculations and paying a service provider for service that was not

delivered (i.e., $363).43

5. Subsequent CMSD Compliance History

We found no documentation concerning subsequent audits or other evidence of rule non-

compliance findings against the CMSD E-Rate Program.44

And, we found no evidence that

USAC had sought to recover funds previously disbursed to the CMSD as a result of rule

violations.45

The foregoing comments are not meant to minimize the deficiencies noted in the BAC Report

and that led the District to commission us to conduct a more in-depth examination. They are

made simply to contrast the District’s largely successful use of the E-Rate Program to subsidize

the costs of eligible products and services for other schools with its largely unsuccessful use of

the E-Rate Program to subsidize the technology package costs of the newly-constructed schools

in the Segments. So the fundamental question, one posed by the BAC Report, is what made the

outcome so different. As we explain below, we believe there was no single cause, but a

combination of them.

42 We were unable to find the actual final audit report in this case. These conclusions were communicated in an

email, dated July 8, 2004, from Ilze Lacis to Peter Robertson, former CIO for the CMSD, “In summary, USAC’s

Internal Audit Division ‘…has concluded that the Cleveland Municipal School District is compliant with the

Schools and Libraries Support Mechanism requirements for the funding year reviewed.’ Regarding the four items

that were detailed in the auditors’ debrief to us, i.e. the ‘Management Response Detail,’ all four items state ‘No

Recovery Required.’”

43 The auditors did report that they were “unable to assess compliance with” E-Rate Program competitive bidding

requirements “as they related to $5,834,015 in disbursements” made during Funding Year 2007 (relating to

support approved for Funding Year 2002) because the CMSD was unable to provide “sufficient detailed

information.” However, this was “not considered an FCC rule violation since the CSMD was not required, by

FCC rules or its own document retention policy, to retain such information” in Funding Year 2002 when the

competition took place.

44 We did see evidence that USAC conducted selective Payment Quality Assurance reviews of certain invoices (i.e.,

to verify proper documentation to support invoices already paid). In addition, we understand that for Funding

Year 2014 USAC conducted a Selective Review, a separate component of USAC’s PIA review process that

follows up on certifications that applicants make on their FCC Form 471 about the competitive bidding process

and the necessary resources to make effective use of requested services. We note that for Funding Year 2014 the

CMSD has (as of December 20, 2015) received $3,097,110 in disbursed E-Rate support out of $5,014,478

committed.

45 This was confirmed in our initial interview with Winston Himsworth of E-Rate Central, which has provided E-

rate consulting services to the CMSD on an hourly or annual contract basis since 2003.


4. EXECUTIVE SUMMARY

We here provide a summary of our assessment and conclusions about the E-Rate support for

Internal Connections in the Segment 2, 3A, 3B/4A and 4B schools that were the subject of the

BAC Report. Separate analyses of the processes and circumstances in each of the individual

Segments then follow.

First, contrary to a local press report46

which focused solely on the explicit terms of our

engagement letter with the District, we did examine whether, as the BAC Report suggested,

fraud and/or other illegal conduct played a role in the CSMD’s obtaining significantly less E-

Rate Program reimbursement than it could have obtained had the Program rules been fully

followed. The facts that: (1) Doan was the technology contractor for three of the four Segments,

and that there were close ties between it and Zenith, the technology contractor for the fourth; (2)

Doan was the subject of a federal corruption investigation during part of the period under

review, and its President and owner, Michael Forlani, was convicted and sent to prison as a

result; (3) the District’s Chief Operating Officer during part of the period under review, Dan

Burns, was convicted of racketeering, theft and tampering with records; (4) there was the same

technology design contractor, TSI, for all of the Segments and, likewise, the same construction

manager, OHGR; and, finally, (5) the CSMD had the option, at least under the Program rules, to

pay out of its pocket only its relatively small percentage share of the total technology costs to

the contractor, but instead chose to pay the full amount and later seek reimbursement from

USAC for the remainder (i.e., use the BEAR invoicing method), especially when it chose to pay

only its share of the costs for most other schools over the course of its years-long participation

in the E-Rate Program (i.e., use the SPI invoicing method), all piqued our interest and “raised

our eyebrows.”

However, after spending nine months reviewing thousands of pages of hard copy documents and

emails, and talking at length with relevant people, we found no evidence of fraud or any other

kind of illegality.

As for the technology contractor selection process, per applicable State law, bids were publicly

solicited and the lowest “responsive” and "responsible" bidder was selected in each case. In one

of the Segments, Doan was the only bidder. In two of the others, Doan (or Zenith, as the case

may be) was the lowest bidder. In the fourth case, the other bidder's bid was deemed "non-

responsive" because, according to the District's and OSFC's responses to questions posed by the

BBP auditors, it was only a partial bid and the rules required a bid on the full package.47

The

District went to some lengths to encourage multiple bidders, but some prospective ones

(notably, AT&T and IBM) were deterred by certain provisions (relating to liability limitations,

indemnities, and warranties) that the State refused to modify. And, Doan/Zenith was not just the

lowest responsive bidder; it also was a "responsible" one. "Responsibility" essentially meant a

46 Patrick O’Donnell, “Cleveland schools will spend $550 per hour to sort out $8.5 million rebate failure,” Cleveland

Plain Dealer, April 18, 2015 See

http://www.cleveland.com/metro/index.ssf/2015/04/cleveland_schools_will_spend_5.html

47 According to David Riley, the District’s outside construction counsel, “responsive” in general meant that the

required bid and a bond had been timely provided.

http://www.cleveland.com/metro/index.ssf/2015/04/cleveland_schools_will_spend_5.html


track record of successful contract performance, and Doan had a track record of high-quality

projects, completely in a timely fashion, and within budget.

The federal corruption investigation of Doan, and the subsequent conviction of its President and

owner, were wholly unrelated to the matters at issue in the BAC Report. Likewise, the

conviction of the District's former Chief Operating Officer was wholly unrelated to the matters

at issue in the BAC Report. The timing of these investigations and convictions was merely

coincidental with part of the period under review in the BAC Report.

According to David Riley, TSI had been the technology design consultant for Segment 1

schools. Eventually, the differing architects (which, per Gary Sautter, the District's Deputy Chief

of Capital Projects, were selected by a Request For Quotations (“RFQ”) process under the

auspices of OSFC) selected TSI to do the design work for the Segment 2-4 schools. According

to Sautter, OHGR was likewise hired pursuant to an RFQ process under the auspices of OSFC.

And, as we explain elsewhere, we learned that there were financial advantages to the District

from choosing the BEAR invoicing method for the Segment schools.

In short, then, every circumstance that raised in our minds the specter of potential illegality or

impropriety when we began our work turned out, upon careful review, to have an "innocent"

explanation.

We conclude that no single factor led to the outcome detailed in the BAC Report. Instead, a

series of factors, some applicable to all Segments, some only to one or two, and none nefarious

or intentional, explain why the District ultimately received only a fraction of the E-Rate

Program funding that USAC had approved. And, while the key players did not act malevolently

or deliberately, they bear full responsibility for badly mismanaging the District’s participation in

a Program (as to the schools at issue in the BAC Report) that could and should have been used

to minimize the costs to Cleveland’s taxpayers of certain kinds of technology support for the

city’s neediest schools during the period in question.

We find these factors to be the following:

Generally, The District Had Sound Procedures In Place To Maximize E-Rate

Funding, Which Procedures It Largely Followed, But No Such Procedures For The

New Construction Schools At Issue In The BAC Report – The District’s E-Rate Office

created detailed procedures for every phase of the E-Rate Program funding process, from

bidding to invoicing, and, from what we could tell, those procedures were largely

followed for other eligible products and services and they were generally successful in

maximizing Program funding. But, the new school construction process, including the

technology packages associated with the Segments, was governed by procedures

established by the OSFC and the statute governing it.48

Those procedures were not

developed with the E-Rate Program in mind, and, accordingly, E-Rate Program

requirements were largely regarded as a secondary priority or an afterthought. Even when

48 Ohio Rev. Code §3318.38 (“Accelerated urban school building assistance program”); see, e.g., Ohio Rev. Code

§3318.10 (Advertising and awarding of construction bids); §3318.12 (Transfer and disbursement of funds); see

generally Ohio School Design Manual, available at,

http://ofcc.ohio.gov/Resources/DesignManual(OSDM)/2008OSDM.aspx

http://ofcc.ohio.gov/Resources/DesignManual(OSDM)/2008OSDM.aspx


it should have become apparent to the District that OSFC procedures were out of sync

with E-Rate Program requirements, there appears to have been no effort on the District’s

part to try to modify those procedures or to impose additional ones more in line with the

established E-Rate procedures that had generally worked well. This factor affected all

Segments.

The Economics Of The OSFC Process Encouraged The CMSD To Front E-Rate

Eligible Costs And Then Seek Reimbursement From USAC Later – The economics of

the OSFC funding process in effect encouraged the CMSD’s use of FCC Form 472 BEAR

submissions to obtain the E-Rate funding for which it was eligible. Under the OSFC’s

rules, the State would provide 68% of the funding for newly-constructed schools like

those in the Segments. In addition to that funding, the District could then apply for E-Rate

funding to pay the applicable discount rate for E-Rate eligible technology products and

services. So, for example, if the cost of the technology package for a new school were, for

simplicity’s sake, $1 million, and the District’s E-rate discount percentage was 86%, the

District would receive $680,000 in funding from the State and could receive as much as an

additional $860,000 from USAC to subsidize the cost of that package. The E-Rate

Program rules would not permit the State to share in the District’s E-Rate funding. The

excess over the $1 million actual cost of the technology package, thanks to the availability

of E-Rate support, went right back into the District’s coffers. In the end, the use of BEARs

was both a blessing and a curse. It was a blessing for the foregoing reason. It was a curse

for two reasons. First, not only did the use of BEARs mean that the District had to pay all

of the invoiced technology package costs up front and then seek a refund from USAC for

the excess over its relatively small portion of those costs when it could have paid only its

percentage and let the technology contractor fend for itself, the use of BEARs put an even

greater responsibility on the District to ensure that the contractor’s invoices were

available, accurate, and satisfied USAC requirements. Had the alternate SPI form of

billing been used, as it was for a vast number of other E-Rate applications by the CMSD,

the onus would have been on the contractor to meet these requirements in order for it to

get paid the discounted share to which it was entitled. Second, given the already generous

State support for newly-constructed schools, when problems arose as to E-Rate deadlines

or other requirements there ultimately was a relatively lackadaisical attitude about the

need to “go all out” to secure additional funding through the E-Rate Program. This factor

affected all Segments.

E-Rate Breakout Was Required At The Front Of The Process But Not At The Back

To Support Invoices – The technology bid packages that we reviewed generally required

the winning contractor to provide a detailed breakout, separating equipment eligible for E-

Rate funding from ineligible equipment, shortly after (in some cases by a specific date)

being awarded the contract.49

These breakouts were to be used to complete the Item 21

attachment to the FCC Form 471 application for E-Rate funding. However, upon

invoicing the CMSD for payment at the “back end of the process,” there was no

requirement that the contractor provide such a breakout of the equipment actually installed

and invoiced and to match that equipment list with the equipment list approved by USAC

49 For example, the bid packages for Segment 4B schools required the E-Rate breakout to be provided by January

27, 2010.


for funding.50

This time-consuming exercise ultimately was left for the District’s E-Rate

personnel to perform once they received the relevant contractor invoice data.51

Putting the

onus on these personnel made the payment process much more time consuming and

complicated than it needed to be.52

This factor affected all Segments.

Proper Invoices Difficult To Obtain – Even though it was left to the District’s E-Rate

Office to ensure that the BEAR forms were timely submitted to USAC with invoices that

accurately reflected what E-Rate eligible equipment was installed and whether the list of

installed equipment matched the list of equipment approved by USAC in granting the

funding commitment, the E-Rate Office personnel had to pull teeth to get the invoices.

Incredibly, the District did not require that the E-Rate Office sign off on the invoices

before the Finance Department paid them, or even that the E-Rate Office receive a copy of

them. For example, the documents we reviewed for Segment 2 reflected the E-Rate

personnel searching for invoices over a period of many months.53

Likewise, in Segment

4B, the CMSD personnel were “turning over every rock to find this information.”54

This

factor affected all Segments.

Revision To The Invoicing Process Was Never Requested – When it became apparent

after the first Segment (Segment 2) that, absent a change in procedures, this burdensome

matching task was going to be required for the other Segments, we found no indication

50 For example, OHGR’s form of Pay Application Checklist made no reference to E-Rate funding. Among others,

Marcus Dehler of Zenith noted that the invoices submitted to the District in accordance with State requirements

were in a “different format” from that required by USAC, which required “installation details.” (Only one

interviewee, George Dallas of TSI, said that the District had invoices with these details, but we found no

evidence of that. We believe that he confused the upfront post-bid E-Rate breakouts with what should have been

required at the invoicing stage.)

51 Joseph Podach confirmed in his interview that the matching task fell to the E-Rate Office.

52 For example, email correspondence from Ilze Lacis indicated that this matching process for Segment 2 took

several months between at least June 2009 and December 2009. Email from Ilze Lacis to Michael Colosimo,

dated June 15, 2009, “Mike, We also need the line item costs for the equipment, with the attendant invoices for

which you billed the District, i.e., the line item costs for the installed tech equipment, matched up with the

invoice. Then, we will match up the equipment with the list that E-Rate approved. Thanks, Ilze;” Email from Ilze

Lacis to Gary Sautter, dated December 2, 2009, “Gary, I believe that we can expect the funds at the end of

January. I am meeting w/Doan for a final review and reconciliation of installed to invoiced to E-Rate approved

next week Wednesday. Following that, we will do a random verification of installed equipment before submitting

the invoices to E-Rate. Usually, invoice turnaround is between two to six weeks. I expect a self-report audit on

the invoices due to the high dollar figure. We have reconciled (roughly) two thirds of the dollars that E-Rate

approved.”

53 Email from Anita Spencer to Nora Svatek, dated October 17, 2008, “Good morning Nora, I wasn’t sure who I

should ask…. So I decided to start with the ‘All Knowing.’ Can you please tell me how I can get copies of

complete invoices for the following Doan Pyramid invoices [invoice numbers omitted]. They all should note

‘Segment 2.’ Thanks;” Email from Anita Spencer to Nora Svatek and Diana Grant, dated September 16, 2009,

“Good morning Nora and Diana, I am in need of your help once again. I am making a final attempt to retrieve the

invoices noted below (with the exception of [invoice numbers omitted]). I am in dire need of these invoices to

seek reimbursement from the government funded E-rate program. In the past, the nine invoices were not

recovered; I am hoping one final search may produce them. I have attached information regarding the invoices.”

54 Email from Joseph Podach to Ilze Lacis, dated February 18, 2015, “I trust everyone is still turning over every

rock to find this information.” On the other hand, it appears that with respect to invoices under other E-Rate-

supported contracts, the District’s E-Rate Office personnel did have a role in pre-payment review.


that there was ever any demand by or request from the CMSD to the construction manager

or the contractor to prepare E-Rate segregated invoices matched to the original E-Rate-

approved list of equipment expected to be installed. When we interviewed David Riley,

the District’s outside counsel for construction projects, he said that if this request had been

made the contractor would have been required to comply. This factor affected all the

Segments.

The CMSD Was Unable To Justify Discounts Sought – When called upon by USAC to

justify “discount levels” (i.e., the percentage discount that an applicant is entitled to

receive based usually on the percentage of students eligible to receive free or reduced

price lunches through the National School Lunch Program) used to calculate overall E-

Rate funding requests, the CMSD was apparently unable to produce the data to satisfy

USAC. As a result, in making final E-Rate Funding Commitment Decisions, USAC

reduced discount percentages to levels that matched the documentation that the CMSD

could provide. Ultimate E-Rate commitments for Segments 2 (where the discount was

reduced from 90% to 86%) and 4B (where the discount was reduced from the originally

requested 87% to 85%) were affected, resulting in reduced amounts approved for E-Rate

funding.55

CMSD Had No System For Tracking Key Deadlines – There was no system for

tracking key E-Rate deadlines.56

The result was that filings repeatedly “slipped through

the cracks.”57

The CMSD was fortunate that some missed deadlines had no monetary

impact (e.g., the failure to file FCC Form 486 for Segment 4B until months after it was

due when FCC granted a waiver; filing the BEAR reimbursement form for Segment 3A

one day late). The Segment 3B/4A filing omission, which came even after there was a

written commitment by Ilze Lacis – in November of 2009 and again in March of 2010,

long before the ultimate invoicing deadline of January 2011 – to begin the process of

compiling invoices,58

was the most costly, with more than $5 million at stake. However,

this factor affected all Segments.

55 Email from Ilze Lacis to Joseph Podach, dated July 19, 2011, “The District’s discount has been an issue for many

years.” We note below that for Segment 4B the District sought to raise the discount percentage to 88% after

USAC received its application but did not seek a commensurate higher funding commitment.

56 Ilze Lacis conceded this to be the case in her interview, adding that tracking deadlines was Anita Spencer’s

responsibility. When asked in her interview whether there was a calendar or schedule put together to track E-rate

deadlines, Anita Spencer said that she did not recall anything like this, although she did say that she had a

“tickler” system. In any case, we found no evidence of any such system.

57 Email from Ilze Lacis to Joseph Podach and Dedra Ross, dated July 13, 2012, “NOTE! There is a problem with

this Form 486 submittal: it was not submitted in time. The Commitment Letter is dated March 1, 2011. This was

Anita Spencer’s last week, the height of RFP evaluations, taking on the Procurement area, Dedra’s arrival, other

hiring/interview activities, etc. Submitting the 486 slipped through the cracks.” (emphasis in original).

58 Email from Ilze Lacis to Joseph Podach, dated November 30, 2009, “This was the ‘in limbo’ discount level for

the FY 2008-09 which was connected to the funding cap beginning with the 86% discount. Invoice submittal

should flow better for this round, as I submitted these funding requests by site; thus we can submit invoices by

site and receive reimbursement by site. I will contact Doan to start the process for the sites where implementation

is complete.;” Email from Ilze Lacis to Joseph Podach, dated March 8, 2010, “GOOD NEWS: the Segment 3

technology equipment in FY 2008-2009 has been approved. This was the District’s funding that was in ‘limbo’

when the funding cap was put at 86%; funding for 87% was unknown at that time. We’ve received the approval


The Technology Packages Were Bid Before Construction Designs Were Completed –

According to various change orders we reviewed, to take advantage of prospective E-Rate

funding, the technology packages were bid before construction designs of the related

schools were completed. Changes in the design between the bid package stage and the

installation of the technology equipment once the schools were actually built contributed

to differences between the amount of E-Rate funding initially approved and that ultimately

disbursed.59

Key parties were aware of the likelihood of this problem from the start.60

As

George Dallas of TSI, the technology design contractor, observed at one point: “We have

done an almost complete re-design on these e-rate schools already because we were so far

out in front of the architect so we could get the e-rate dollars….”61

This factor affected all

Segments.

No Coordination Of Construction And E-Rate Schedules – The school construction

schedules, including the installation of E-Rate-approved equipment, were not coordinated

with E-Rate schedules so that E-Rate-approved equipment was installed within the

prescribed E-Rate period. For example, the CMSD was unable to obtain reimbursement

for $238,766.93 in equipment in Segment 2 because it was installed outside the required

E-Rate performance period. In Segment 4B the pre-discount amount for George

Washington Carver school was recently reduced by $249,838.40 although the CMSD62

was warned that technology installation and invoicing for Segment 4B “can be no earlier

than July 1, 2010.”63

We acknowledge that the District may have had little choice, given

letter. The service provision is through September 30, 2010. We will work with Doan Pyramid/Zenith Systems re

the invoicing.”

59 In his interview Fred Rogers of OHGR said that as much as two years could pass between the technology

package bid and equipment installation. Gary Sautter said that technology was usually the last thing to go into the

building.

60 In his initial interview, David Riley said that those involved in the process knew that this was going to happen

and there was no way around it given the construction rules that they were dealing with.

61 Email from George Dallas to Daniel Burns, dated November 21, 2008.

62 This date was apparently later adjusted to August 1, 2010. Email from Andrew Eisley to Tammy Carnevale,

dated August 21, 2015, “For Carver there was $249,838.40 in work that may have been completed prior to

August 1, 2010 (the service start date on the 471). At this point in time it is unclear how much of the $249,838.40

was completed prior to August 1, 2010. Therefore, out of an abundance of caution we will assume that all of the

$249,838.40 was completed prior to August 1, 2010. We will further assume that all of the work was E-rate

eligible. This reduction will decrease the undiscounted amount on line 7392363 from $255,627 to $5,788.60. We

authorize you to make this adjustment. We do not know the specific installation dates for the various pieces of

equipment, but we do know that at least $5,788.60 of E-rate eligible equipment was installed between August 1,

2010 and April 30, 2012.”

63 Email from Ilze Lacis to Dennis Kubick, dated May 28, 2010, “Please remember that the technology

implementations and invoicing dates for Carver, Mound and Hale can be no earlier than July 1, 2010. This is a

hard and fast rule with no appeal recourse.” Under E-Rate rules, equipment installed or invoiced before that start

date would not be reimbursed. (This email, titled “E-rate reimbursement for Segment 2 sites,” was addressed to

Mr. Kubick, the District’s Deputy Chief Financial Officer/Controller, because the primary purpose of it was to

apprise him of the status of Segment 2 invoice review in anticipation of eventual reimbursement. Messrs. Podach

and Sautter were copied.)


the push to complete the projects64

, but the point remains that another contributing factor

was the disconnect between the District’s construction schedule and E-Rate Program

authorized installation timelines.

Equipment Changes Not Communicated In Advance To E-Rate Personnel – Where

there were to be changes in the equipment installed from that submitted to USAC with the

initial application for E-Rate funding, we found no indication that these changes were

communicated to CMSD E-Rate personnel in advance by the technology contractor or the

construction manager. Had those changes been communicated, the District might have

been able to get USAC’s approval for “service substitutions,” depending on whether the

kind of equipment substituted was likewise eligible for E-Rate reimbursement and

whether applicable deadlines were met.65

For example, the construction manager was

warned in one case that any service substitutions had to be approved before differing

equipment was purchased.66

This factor affected all Segments in which there were

technology equipment change orders.67

Submissions Seeking Funding For Ineligible Equipment - The internal CMSD E-Rate

process developed and used in E-Rate applications other than those at issue in the BAC

Report provided for a review by the E-Rate Office of funding requests prior to submission

to USAC to ensure that E-Rate ineligible products and services were not included.68

However, there was no such requirement for the Segment schools. Instead, it appears,

either because of the length of time it took to get the raw data, the volume of it, the

complexity, or otherwise, that the CMSD simply left the task to USAC as part of its PIA

review. As a result, for example, some $653,872.40 was stripped from the Segment 3B/4A

original funding request. This led to the misperception on the BAC’s part that USAC was

denying the District funding to which it was entitled. This factor affected all the Segments.

64 In the agenda for the November 5, 2008 MIS Executive Team meeting it was noted that “OHGR is pushing to

have tech equipment installed….” In his interview Joseph Podach observed that the District was moving forward

on projects very fast. Fred Rogers said his job was to get the building up and running.

65 George Dallas stated that any changes to the equipment which was the basis for the winning bid had to be

approved via a change order. We found documentation for a variety of change orders in the various Segments.

66 Email from Ilze Lacis to Joseph Dougherty, dated February 17, 2009, “Joe—one more thing re an E-Rate

equipment substitution. We should submit the equipment substitutions before September 1, 2009 – at the latest;

earlier would be better. It takes anywhere from two to eight weeks to get approved, i.e., to be certain that the

substitution request is approved before you buy the equipment.;” Email from Ilze Lacis to Joseph Podach, dated

November 5, 2009, “There are minor discrepancies between the original equipment list and the items installed,

e.g., quantities, exclusions, different model. When we complete the initial invoicing, I will see if we can

legitimately recoup some of the remaining funds via equipment substitution. This may be problematic as it is

after the fact.” There is no indication that any additional funds were recovered by equipment substitution for

Segment 2.

67 We noted this March 4, 2009 “MIS Executive Team Meeting Agenda” item, under “Project Management,”

“Information from the construction manager is non-existent. Stresses that MIS needs to be invited to the

construction meetings – will go[,] needs a schedule of the meetings.”

68 The Manual stated that “particular attention must be given to the selected service provider SOWs clear separation

of eligible and ineligible services” and the fact that the “eRate Division will serve as the primary monitoring

organ for eligibility….” Manual, Part 4/Separation of Eligible and Ineligible Services and Products, p. 6.


Attention To Detail Affected By Personnel Transformation That Added

Responsibilities And Caused Internal Dissention – While we cannot gauge the impact

with precision, we believe that the wholesale personnel “transformation” in late 2010 and

early 2011 had some impact on the E-Rate Office’s attention to deadlines and other E-

Rate Program details.69

As part of that process, certain CMSD employees (including those

in the E-Rate Office) were required by then CMSD CEO Eugene Sanders to tender their

resignations and re-compete for their jobs, creating a distraction and causing a lack of

focus.70

Similarly, the expansion of job responsibilities for Ilze Lacis when she became

Executive Director – Procurement, without providing her with additional E-Rate Office

staff and denying her request to co-locate with other Procurement staff, contributed to the

breakdown. Finally, our interviews in particular included comments about strained

working relationships among key people in the E-Rate management chain that had to have

affected focus.71

These factors seemed to have affected Segment 3B/4A.

E-Rate Funding Was Not A Priority For New Construction Projects – As noted

earlier, E-Rate was not a prerequisite or priority under the OSFC process or rules.72

When

we interviewed Joseph Podach, the former District official in charge of Technology and

Procurement and the person to whom the E-Rate Office reported, he said that the E-Rate

process created “heartaches” and added that he did not think that the District should have

gone to the trouble of seeking E-Rate funding for the new school projects. We believe this

ambivalence about the merits of E-rate funding and the conviction that completing the

projects was the highest priority contributed to the lack of follow-through on preparing a

BEAR form for Segments 3B/4A in 2013 when it was “discovered” that none had yet been

filed. Not only was no BEAR form prepared and filed, not even a request for extension of

the invoicing deadline was prepared and filed. This issue affected Segment 3B/4A in

particular.

Document Retention Practices – Based on the documents we reviewed, the District did

not comply with the E-Rate Program document retention requirements. The histories we

prepared reflect missing documents, including communications to and from USAC, that

clearly fall within the broad document retention requirements.73

We believe that the lack

69 This was mentioned in email messages that we reviewed where deadline extensions were requested or deadlines

were missed. See, e.g. Email from Ilze Lacis to Joseph Podach and Dedra Ross, dated July 13, 2012, “This was

Anita Spencer’s last week, the height of the RFP evaluations, taking on the Procurement area, Dedra’s arrival,

other hiring/interview activities, etc.”

70 Joseph Podach called it a “really dark period” in the District and said that people were asked to do the same work

but take a $20,000 pay cut. He said that this added stress in every Department throughout the District. Some

employees, including Anita Spencer, ultimately were not rehired.

71 Anita Spencer felt that Ilze Lacis had not fulfilled commitments made concerning her professional development.

Ilze Lacis felt that she was performing functions that should have been handled by Joseph Podach. Others

commented negatively about Mr. Podach’s follow through.

72 David Riley in his interview confirmed that there was nothing in the District’s agreement with the OSFC that

required the District to seek E-Rate funds. Joseph Podach said E-Rate was not an OSFC requirement. Fred

Rogers said OHGR did not track the District’s E-Rate efforts. It was a rebate that was outside of OSFC’s Project

Agreement.

73 In particular, as noted in the Segment histories, other than Segment 2, we did not find the post-application, pre-

commitment communications between the CMSD and USAC’s PIA that we would normally see in files

maintained as a result of a comprehensive document retention program. This constrained our ability to


of a comprehensive centralized E-Rate document retention system contributed to the

inability to readily lay hands on information when needed to respond to USAC queries

and justify support requested.

Realistic Prospects For Recovery Of Additional Reimbursements Are Limited To

Segment 4B - There are two Segments - 3B/4A and 4B - where the CMSD has a

possibility of obtaining additional E-Rate reimbursements. For Segment 3B/4A, the

District, through E-Rate Central, finally (on December 17, 2015) filed a request with

USAC to extend the invoicing deadline, which was originally January 28, 2011. Given an

FCC ruling that we explain later, we expect USAC to deny the request and any appeal of

that denial to the FCC also to be denied. Therefore, we expect no reimbursement of any

portion of the $5.82 million originally approved for Segment 3B/4A. For Segment 4B,

because of equipment installed before August 1, 2010 in the amount of $249,838.40

related to George Washington Carver school, the maximum potential reimbursement is

now $427,979.96. USAC initially denied any reimbursement because the District

submitted one day late certain additional documentation requested. But the District's

appeal to USAC to reverse the denial and consider the additional information was

approved on December 18, 2015. A revised BEAR form was submitted to USAC on

January 14, 2016. Still the fact that the District cannot verify installation dates for this

equipment jeopardizes even this recovery.

5. FINDINGS AND ANALYSIS

In this section, we detail, as best we can, the steps, and missteps, that led to the difference in

each Segment between the amount of E-Rate funding USAC approved, and the amount the

District ultimately received, as well as the document trail that led to the particular results.

A. Segment 2

1. Introduction

The “Segment 2 schools” were: (1) Mary B. Martin; (2) Mary M. Bethune; (3) Hannah Gibbons;

(4) Franklin D. Roosevelt; (5) Daniel E. Morgan; (6) Miles Park; (7) Warner; and (8) James A.

Rhodes. The one FRN for this segment was 148739, and the relevant E-Rate Funding Year was

2006-2007. According to the Certifications of Contract Completion,74

Doan completed work on

the technology packages for these schools between November 2007 and August 2009.

understand and explain some of the decisions that were made, such as the decision not to appeal the dramatic

reimbursement reductions in Segment 3A. We found no documentation supporting the District’s response to the

BAC that those reductions by USAC were justified because the District had included ineligible equipment in its

reimbursement requests for these schools.

74 According to Fred Rogers of OHGR, the Certification of Contract Completion indicates that all contract work,

change order work, training, and all outstanding cost issues have been reconciled with the prime contractor for

the particular project.


2. Pre-Contract

The original funding commitment request was for $4,671,628.20. USAC ultimately committed

to fund $3,109,751.07. The amount actually disbursed to CMSD was $2,870.984.14, reflecting a

“utilization rate” of 92%, by far the highest utilization rate of the Segments.

The bid packages date was December 5, 2005. There were packages of the same date for each

of the eight schools.75

Two of the bid books, 6 and 8, required the winning bidder to separate out

the technology equipment to be installed into that which was eligible for discount/rebate under

the E-Rate Program and that which was not. No deadline for such a breakout was specified,

however.76

The bid form itself did not include the E-Rate breakout requirement.77

The FCC Form 470 requesting services and establishing eligibility was posted on the USAC

website on December 19, 2005.78

The pre-bid meeting date for prospective bidders was January 4, 2006. Both Ilze Lacis’ and

Anita Spencer’s signatures appeared on the sign-in sheet79

, and the meeting agenda listed them

under CMSD introductions.80

However, there were no specific references to E-Rate on the

agenda.

The bid submission and opening date was January 24, 2006.81

There were two bidders, Doan

and Midwest Concepts.82

A scope review meeting was held on February 1, 2006, after the bid opening and before the

award of the contract to ensure that there was a mutual understanding of the required work.

While there was no reference to Ms. Lacis or Ms. Spencer on the agenda, the meeting minutes

did note that the “technology contract must be signed no later than February 16th

[2006] to meet

E-Rate eligibility.”83

Doan completed a bid evaluation form, which is a questionnaire in the nature of a background

check, on February 1, 2006.84

75 Attachment 2, Segment 2, Vol. I, Tab 2.

76 Attachment 2, Segment 2, Vol. I, Tab 2, pp. 14-18.



79 Attachment 2, Segment 2, Vol. I, Tab 5, p. 6.







The construction manager, OHGR, submitted a summary of findings to the District on February

8, 2006 evaluating the two bidders, and concluding that Doan was the “apparent low bidder.”

Doan’s bid came in at $7,059,103, while Midwest Concepts’ was $7,145,648.88.85

Doan signed a contract with the District on February 10, 2006.86

3. Post-Contract, Pre-USAC Commitment

The FCC Form 471 to apply for discounts was filed by the District with USAC on February 16,

200687

, listing Ilze Lacis as the point of contact. The pre-discount funding commitment request

was for $5,190,698; with a 90% discount, the initial funding commitment request was

$4,671,628.20.

USAC’s Form 471 Receipt Acknowledgement Letter (“RAL”) was dated February 27, 2006.88

The FCC Form 471 Item 21 attachment listing the equipment to be installed was sent separately

to USAC on March 15, 2006 by email from Ilze Lacis. The submission included an “E-Rate

breakdown report for each school, reflecting EQ Code, P[ART]N[UMBER], MFGR,

DESC[RIPTION], U[NIT] o[f]M[EASURE], QTY, U[NIT]. [PR[I]C[E]. [and] EXTEND.” 89

Unlike the case with other Segments, the files did contain numerous communications between

USAC’s PIA team (principally, Dave Cosgrove) and the District (Ilze Lacis) in furtherance of

PIA’s attempts to determine exactly what equipment the District proposed to install and which

of those items was eligible for a discount or rebate. The initial set of such communications

covered the period, April 13, 2006-May 26, 2006.

For example, an April 13, 2006 PIA letter to the District stated: “[T]he documentation provided

in the Item 21 attachments is not sufficient to determine the eligibility of your request. The

documentation does not clearly identify the products/services being requested in this FRN.

Please provide more detailed documentation that identifies actual products and services being

requested. If your documentation does not identify the specific products and services such as

make, model, description of product/service being delivered, you will need to contact your

vendor and request such documentation. The vendor should be able to provide you with detailed

documentation. Any documentation provided should clearly identify any ineligible charges that

were cost allocated out of your request. If you are unable to justify the eligibility of charges

requested on your Form 471, the request may be reduced or denied.”90








Ms. Lacis responded in part as follows in an email on April 21, 2006, “ …[T]he response is

incomplete for item #2 (James Ford Rhodes and Warner schools) regarding their discount

percentage. The executive director for food services has not been available this week… I will

supply the information to you, as quickly as I can get the it (sic) in front of him. …The list of

equipment for each of the five technology component packages for FRN 1489739 do (sic) not

include the list of equipment. I asked the service provider to forward such a list. They are

preparing the list of equipment they plan to implement. It is taking much, much longer than

originally indicated. I am to have some response early next week. …I regret the many requests

for extensions. I am now back on track and hopefully you have not put a black mark by my

name. I know how time-sensitive this is for you – and for our students to receive the services

more quickly.”91

Ms. Lacis sent a follow-up response on May 5, 2006, “I have requested the service provider to

forward as quickly as possible a list of the equipment comprising the technology packages noted

below. I hope to receive the list the week of May 8th

and will forward the list forthwith.”

Attached was a revised Form 471 Item 21 attachment with a summary chart, still showing the

pre-discount request amount of $5,190,698.92

Such communications continued after the above-noted period. For example, Ms. Lacis wrote on

May 26, “I have spoken several times with the vendor, Doan Pyramid, who informed me…that I

should have some information mid-week next week. It is my understanding that Doan will have

only a partial list of equipment for one, possibly two, of the technology packages at that time.

Can PIA give the District an extended deadline? The district should not be penalized, if the

potential service provider is not presenting the detail requested in the most timely manner

possible.”93

On June 9, Ms. Lacis begs “to have another extension and [for] your understanding,” citing

other duties related to the “District’s end-of-year budget closings….”94

A summary of the total amounts requested in each of five categories (cabling, PBX, wireless,

network electric, and video MPEG) ) and equipment list was finally submitted on June 1595

, at

which time Ms. Lacis reduced the pre-discount amount requested from $5,190,698 to

$3,391,265 to remove the cost ($1,799,433) of a video package. Ms. Lacis added that she had

asked Doan to advise her of the cost of the PBX package because “clearly there are E-Rate

ineligible items in the list,” as per an attached chart.96

She pledged to,“…pursue the service

provider to provide a timely response. Upon receipt of their response, I will timely forward it to

you.” Therein she refers to a RAL response of the same date97

reflecting the removal of the









video package. She does not explain in that response whether the video package of the video

package was removed because the equipment was not eligible for reimbursement or because it

was not installed. The revised pre-discount funding commitment request, then, was, at that

point, $3,391,265, still at the 90% discount level.

There were additional communications between PIA and the District between June 19, 2006 and

October 26, 2006. For example, a June 19, 2006 letter from PIA again found the documentation

submitted on June 15 to be inadequate and required a “complete list of every line item cost for

each technology package – Cabling, PBX, Wireless and Networks.”98

The same request was

made by PIA on June 28, 2006.99

On June 27, 2006, Doan’s Michael Colosimo emailed Ms. Lacis asserting that, “[t]he bid forms

were not clear as to the term, ‘component pricing defined.’ Needless to say our bid did not

breakout (sic) erate eligible product. I have gone back and revised our actual numbers based on

what is and what isn’t eligible. Please see the attached spreadsheet for line item pricing per

school. I believe this is accurate and should meet ERate approval.”100

On July 5, 2006, Ms. Lacis submitted a 76-page spreadsheet101

to PIA, citing Doan’s June 27

explanation for the delay. She then had a phone conversation on July 12 with PIA, and, as result,

sent yet another revised equipment list to PIA on July 25. On October 9, 2006, PIA asked

whether the revised July 25 list was final. Ms. Lacis responded on October 17 by sending a third

set of lists and re-revising the pre-discount funding commitment request upward from

$3,391,265 to $3,813,267.22, adding back in certain video equipment and making further

modifications.102

4. Post-Funding Commitment Decision, Including Invoicing And

Reimbursement

On November 14, 2006, USAC issued a Funding Commitment Decision Letter stating that a

commitment of $3,109,751.07 was “as yet unfunded” because, at that point, it was unsure of the

availability of Priority 2 funds.103

USAC issued its final Funding Commitment Decision Letter on April 3, 2007, committing to

fund $3,109,751.07 based on a further adjusted pre-discount request of $3, 615,989.62.104

This






103 Attachment 2, Segment 2, Vol. II, Tab 18.



reduced amount was “to remove costs for Cisco WLAN Location Tracking and Access Control

Server/Software.” Further, the discount rate was reduced from 90% to 86% to reflect “what

could be validated by third party data.” The letter lists the “Last Allowable Date for Delivery

and Installation of Non-Recurring Services” as September 30, 2008.

The Form 486 Receipt of Service Confirmation Form was filed on April 16, 2007.105

USAC

acknowledged it by issuing a Form 486 Notification Letter on April 25, 2007.106

The initial invoicing deadline, based on a September 30, 2008 delivery date, was January 28,

2009. During the period, January 5, 2009-April 13, 2010, the CMSD submitted a series of

invoicing extension requests.107

The last of these was granted on April 13, 2010, which reset the

invoicing deadline to August 11, 2010.

We found a number of emails pointing to a frantic search for detailed invoices so that the BEAR

form could be submitted to USAC as soon as possible. Examples include the following:

October 17, 2008 email from Anita Spencer to Nora Svatek, “I wasn’t sure who I should

ask…so I decided to ask the ‘All Knowing.’ Can you please tell me how I can get complete

invoices for the following Doan Pyramid invoices…”

June 12, 2009 email from Ilze Lacis to Dennis Kubick, “Dennis, I wish to update you regarding

the status of the E-Rate program’s reimbursement for the Segment 2 new construction schools. I

have requested, and hope to receive approval, for a time extension submitting invoices to E-

Rate. I have been waylaid time-wise with completing the District’s technology plan, which must

be submitted and approved by the eTech/State by June 30th

. E-Rate and Title I (possible other

programs) are dependent on the Tech Plan’s timely submission… The invoicing extension does

not mean other priorities have changed; I know how critical the funds are. The invoices require

detailed, careful review, so all is in the best order possible, so they pass the invoice reviewer and

any future audits. The timeframe I had previously provided to you will, most likely be extended

at least 3-4 weeks.”

June 15, 2009 email from Joseph Podach to Ilze Lacis, “Ilze, I would really prefer the invoices

to be submitted ahead of the deadline without extension. The last thing we need is that the

extension is not granted and we would be sitting here saying ‘we’ll appeal!’ That answer won’t

fly. If there is anything I can help with let me know.”

June 15, 2009 email from Joseph Podach to Michael Colosimo at Doan, “For final submission

of invoices to the SLD we need the supporting documentation from Doan that lists the exact

equipment installed, location, and all serial numbers. This is a requirement of the E-rate

program and should have been submitted with the invoice. The district cannot complete the

BEAR form without this information in hand…Your prompt attention is needed.”

105 Attachment 2, Segment 2, Vol. II, Tab 20, pp. 1-3.

106 Attachment 2, Segment 2, Vol. II, Tab 20, pp. 4-9.



June 15, 2009 email from Ilze Lacis to Michael Colosimo, “Mike, we also need the line item

costs for the equipment, with the attendant invoices for which you billed the District, i.e., the

line item costs for the installed tech equipment, matched up with the invoice. Then, we will

match up the equipment with the list that E-Rate approved.”

September 16, 2009 email from Anita Spencer to Nora Svatek, “I am in need of your help once

again. I am making one final attempt to retrieve the invoices noted below… I am in dire need of

these invoices to seek reimbursement from the government funded E-Rate program. In the past,

the nine invoices were not recovered; I am hoping one final search may produce them.”

On March 16, 2010, the District submitted a BEAR form seeking reimbursement of

$3,109,761.07.108

We found no accompanying invoices.

USAC issued its Form 472 BEAR Notification Letter on March 24, 2010109

, refusing to

reimburse any money at all because the BEAR had been received one day after the then current

extension deadline (March 15, 2010).

As noted above, an additional extension was granted to USAC. USAC issued a second Form

472 BEAR Notification letter on June 4, 2010110

, presumably because the BEAR was

resubmitted and reconsidered by virtue of the April 13, 2010 grant of an invoice extension to

August 11, 2010. We were unable to find a copy of a second BEAR form. USAC authorized

reimbursement of only $2,870,984.14 because there had been “Service Delivery/Install Outside

FY” (i.e., equipment had been installed too early or too late). The failure to install the equipment

within the prescribed timeframe cost the District $238,766.93 in reimbursement.

5. Segment 2 Summary Assessment

So, with regard to the Segment 2 schools, there were multiple problems. The District revised its

pre-discount request amount twice (downward and upward). There was confusion on its part as

to what equipment was eligible for reimbursement, and an inability to justify the initial 90%

discount rate. There were multiple requests for extensions, and missed deadlines even after

extensions were granted. And, this was the “best segment,” meaning the District obtained

nearly all of the money (a 92% utilization rate) USAC ultimately committed to disburse.

The removal of the ineligible Cisco equipment reduced the final pre-discount requested amount

by $197,277.60. The District could justify only an 86% discount, and this cost it $144,639.58

(i.e., 4% of $3,615,989.62). Finally, the District lost another $238,766.93 because of installation

of eligible equipment outside the allowed time period.

It should not have taken three tries for the District to submit a list containing only equipment

eligible for a discount. It appears that the District ultimately relied on USAC to separate out

what was ineligible. Further, it is surprising that the District was unable to justify the discount

rate it had initially sought. And, installing equipment “out of time” is attributable to the fact that





there was no coordination between the construction schedule and the E-Rate funding schedule.

The construction team proceeded at its own pace, installing items, including substituted items,

when they were ready to be installed, without coordination with the District’s E-Rate office and

the E-Rate Program funding schedule.

B. Segment 3A

1. Introduction

The “Segment 3A schools,” and corresponding FRNs, were Artemus Ward (1602186); Buhrer

(1620280); Garfield (1620307); Patrick Henry (1620343); and R.G. Jones (1620373). The

relevant E-Rate Funding Year was 2007-2008. According to the Certifications of Contract

Completion, Doan completed work on the technology packages for these schools in the April-

May 2010 period.

The USAC funding commitment originally requested for Artemus Ward was $684,113.76. After

excluding the costs of ineligible equipment, USAC’s funding commitment was $663,894.18. Of

that amount, only $124,588.55 was actually disbursed, constituting a utilization rate of 19%.

The USAC funding commitment originally requested for Buhrer was $610,106.64. After

excluding the costs of ineligible equipment, USAC’s funding commitment was $590,311.22.

The amount actually disbursed was $108,792.33, a utilization rate of 18%.

The USAC funding commitment originally requested for Garfield was $660,191.84. After



The USAC funding commitment originally requested for Patrick Henry was $646,660.08. After



The USAC funding commitment originally requested for R.G. Jones was $675,882.24. After



In total, then, USAC committed to fund $3,180,206.50 for this Segment, but actually disbursed

only $839,533.94, an overall utilization rate of 26%.

The key passage in the BAC Report relating to Segment 3A is as follows: “To date, the District

has not provided a clear, firm explanation for its failure to obtain the remaining $2.34 million.

District responses to BAC inquiries suggest, however, that the primary reason is that technology

equipment installed by Doan Pyramid did not match the equipment list included in CMSD’s

initial application to USAC. According to the District, that original equipment list was supplied

to the CMSD E-Rate Office by Doan Pyramid, which, the BAC was told, based the list on plans

and specifications compiled by the technology design engineer, TSI. The E-Rate Office has

provided the BAC with copies of the Doan-supplied equipment lists on which the application

was based, but the Office has not provided the BAC with any documentation of equipment

actually installed.”111

The District told the BAC that, “The E-rate Office, at the time, was

111 BAC Report, p. 5.


surprised that the installations – compared to the proposal against which the E-rate funds were

requested – was [sic] so low… The E-rate Office had no knowledge there would be such a

change and such a wide difference.”112

2. Pre-Contract

The Form 470 requesting services and establishing eligibility was duly posted on USAC’s

website on November 27, 2006.113

A bid package, of the same date (with one addendum dated

December 21, 2006), for prospective bidders was prepared, consisting of two books.114

Only the

first bid book referenced E-Rate, and it required the winning bidder to provide a “detailed, E-

Rate, Unit Price breakout” within two weeks of the contract award date. The minimum breakout

required was by “line number, part number, part manufacturer, part description, part quantity,

part unit price, and extended part price.”115

CSMD held a pre-bid meeting on December 13, 2006. The attendee sign-up sheet included Ilze

Lacis’ signature.116

Though E-Rate was not listed as an agenda item, Ms. Lacis’ name is listed

on the agenda under introductions for CMSD.117

The bid submission and opening date was December 28, 2006.118

Two technology contractors

bid, Doan and Sarcom. In its later response to an E-Rate-focused pre-BAC Report by the audit

firm, BBP Partners, the District and the OSFC explained that Sarcom’s bid was determined to

be non-responsive because the bid package requested a bid for technology work at all of the

schools in the Segment and Sarcom’s bid covered only some of the schools.

A scope review meeting was held on January 10, 2007. E-Rate is not noted on the agenda as a

discussion item, and Ilze Lacis was not listed, either, but Joseph Podach was listed under CMSD

introductions.119

The January 29, 2007, summary of findings designated Doan as the low bidder. No reference to

E-Rate was included.120


113 Attachment 2, Segment 3A, Tab 1.

114 Attachment 2, Segment 3A, Tab 2, pp. 1-16.

115 Attachment 2, Segment 3A, Tab 2, p. 14.







There are subsequent emails expressing determination that the technology equipment Doan

proposed to install be separated into E-Rate eligible and ineligible before the submission of the

FCC Form 471 Item 21 attachment.

For example, Ms. Lacis wrote to Mr. Podach on February 1, 2007, “To date, I have no

information regarding the Doan bid contract for Segment 3 tech packages. I need to know the

dollars, and would like to review the package so I don’t run into the hurdles I did last time –

separate out the eligible from ineligible dollars. I was fortunate to have a ‘simpatico’ reviewer

for the previous submittal; this may not be the case for this year’s submittals.”

To the same effect is a January 29, 2007 email from Mr. Podach to George Dallas at TSI, “The

biggest concern at this point is getting the contract signed. Second is knowing the eligible v.

ineligible pricing. The detail (part numbers/quantities) can follow for the Item 21 attachment,

although if it is available it would be appreciated.” Mr. Dallas’ response, “Ya (sic), I knew that

but I want to make sure that Fred [Rogers at OHGR] keeps heat on Doan to get it to us.

Basically, we got the Doan stuff the last time and made sure it matched our parts list and e-rate

breakout and then processed it so Ilze had clean sheets.”121

Mr. Dallas had just written to Mr.

Rogers, “The District will need the E-Rate breakouts (detailed sheets) for e-rate filing purposes

within the next few weeks. We should review these since they need to be ‘purified’ (remove any

non-erateable items.) In the past, we received a spreadsheet from Doan, we reviewed it,

commented on it, we forwarded to District. Once we get the lists, we’ll review and then consult

with Joe Podach if any changes are required. I believe that it is important to get these from the

Contractor [Doan] quickly. I believe for e-rate purposes, the breakouts need to be listed on the

contracts even though they are NOT the basis for award.”

The District’s contract with Doan was signed on February 1, 2007.122


We found no post-contract E-Rate breakout documents, as required by the bid package terms

and as desired by the parties referenced in the emails above.

With the contract signed, the District filed the FCC Form 471 to apply for discounts on February

8, 2007.123

The original total funding amount requested, pre-discount, for all five schools was

$3,723,812. With an 88% discount, the funding commitment request was $3,276,954.56. These

amounts were later adjusted to a final pre-discount request of $3,613,871. With an 88% discount

rate, the final funding commitment request for this Segment was $3,180,206.50. The original

undated Item 21 attachments, with breakouts per school, reflect the original pre-discount amount

121 Assuming the “last time” refers to Segment 2, there were repeated indications that the lists provided for that

Segment were not sufficiently detailed to satisfy USAC’s PIA reviewers. See, e.g., April 13, 2006 PIA letter to

District quoted on p. 23, supra.


123 Attachment 2, Segment 3A, Tab 11, pp. 1-4. We did not find the complete original FCC Form 471 in the

District’s files, only the certification portion.


on the Form 471. However, the original Item 21 attachments did not break out the E-Rate

eligible equipment from E-Rate ineligible equipment.124

We reviewed a Form 471 RAL from USAC dated February 14, 2007, reflecting the pre-

adjustment amounts for the pre-discount and funding commitment request contained in the

original Form 471.125

We did not find documents reflecting the typical back and forth between PIA and CSMD.

However, we did find an undated spreadsheet titled, “Ineligible Product Spreadsheet with

Modifications Based upon Applicant Item 21.”126

For each school, it reflects the “Original FRN

Requested Amount;” the “Ineligible/Reduced Amount;” (a total of $109,940.20 in “ineligible

products” for the five schools); and the “New Modified FRN Amount.” We also found an

undated Summary Sheet and detailed per school lists that each totaled the New Modified FRN

Amount for that school.127

It appears, then, at, some point, a detailed list was provided by the

District to USAC, and the changes on the summary sheet apparently reflect PIA’s

determinations as to what equipment was, in fact, E-Rate eligible.


Reimbursement

The Funding Commitment Decision Letter was dated October 2, 2007, approving the modified

funding commitment of $3,180,206.50 and noting that this amount reflected the removal of

$109,941 in ineligible products.128

The letter lists the “Last Allowable Date for Delivery and

Installation of Non-Recurring Services” as September 30, 2008.

We were unable to locate the Form 486 Receipt of Service Confirmation Form or USAC’s Form

486 Notification Letter.

On September 2, 2008, USAC granted the CMSD’s August 13, 2008 request to extend the

service implementation date by a year to September 30, 2009.129

We found Ms. Lacis’ email to

Mr. Podach notifying him of same, but we did not find the District’s request itself.

Based on the September 2, 2008 service implementation extension, the last allowable invoicing

date was changed to January 29, 2010. While we did not find a copy, the District must have

requested a further invoicing extension because, by letter dated March 25, 2010,130

USAC

extended the invoicing deadline to July 24, 2010, four months after the date of the letter.









We found no copies of the BEAR forms the District submitted to USAC. Indeed, we learned

from the CSMD’s responses to BAC inquiries that Ms Lacis, in April, 2014, then at E-Rate

Central, was herself seeking copies from USAC and was told that there were no hard copies

because they had all been filed online.131

The USAC BEAR Notification Letters, dated July 23, 2010, all made drastic reductions in the

amount approved for disbursement from the amount USAC had originally committed, and

without explanation.132

No appeal was ever filed, with the CMSD claiming in response to BAC

queries, “there was no basis for an appeal” because “the disbursement decision was per the

program’s rules and regulations.”133

(As the BAC Report noted, the rules allow any USAC

decision to be appealed, in the first instance to USAC, and, then, if unsuccessful, to the FCC).

The CMSD explained to the BAC that the $2.34 million reduction “…reflected items under

which we sought reimbursement and USAC determined were ineligible for reimbursement.”134

The District’s other explanation was that the difference was attributable to “technology that was

not installed.”135

After a diligent search of the available records, we found no documentation definitively

corroborating either of these explanations. While there was the Item 21 attachment that listed the

equipment to be installed in the Segment 3A schools, we were unable to locate a list of the

equipment that actually was installed. For all we know, depending on exactly what was installed

and how much of it was E-Rate eligible, the CSMD may well have gotten all of the

reimbursement monies for this Segment to which it was entitled. It is equally possible, again

depending on exactly what was installed and how much of it was E-Rate eligible, that the

District, had it appealed, would have gotten a higher reimbursement. Without the list of

equipment installed, it is simply impossible to say.

As with other Segments, we did, however, find a variety of change orders136

which were

necessitated by the fact that the technology packages were issued for bid prior to the finalization

of the construction designs so as to try to meet the E-Rate funding cycle. This would certainly

contribute to there being differences between the equipment listed in the Item 21 attachment and

that actually installed, and those differences could have implicated reimbursement eligibility and

USAC service substitution requirements. (See, for example, an email dated December 10, 2008,

from Chris Smith at the architectural firm, ThenDesign Architecture, to Gary Sautter, giving his

131 Email from Ilze Lacis to USAC, dated April 17, 2014, “Could you please include the BEAR form itself….”

Email response from USAC to Ms. Lacis of same date, “Ilze, Here is a list of the BEAR forms filed for these

listed FRN’s and it appears that they were all filed online, so like we discussed, there is not a ‘copy’ we can

send.”



134 CMSD’s Answers to BAC Queries Regarding Segment 3A, Attachment 6, p. 19.

135 CMSD’s Answers to BAC Queries Regarding Segment 3A, Attachment 6, p. 1.



blessing to a change order, ”Yes. This was due to the e-rate funding. We knew we would

encounter some changes, but the e-rate savings far outweighed the potential change.”).

We found no discussion of appealing USAC’s ultimate funding determination in either the hard

copy documents we reviewed or the emails. Likewise, our interviews shed no light on why no

appeal was filed. Again, though it might have been unsuccessful, appealing was an option.

C. Segment 3B/4A

1. Introduction

The “Segment 3B” schools were Wade Park, Harvey Rice, East Clark, and Willson; the

“Segment 4A” schools were Euclid Park, Thomas Jefferson, Charles Dickens, Adlai Stevenson,

Robert H. Jamison, Anton Grdina, and Charles Lake. There was a single FRN for this segment,

namely, 1756906, and the relevant E-Rate Funding Year was 2008-2009. According to the

Certifications of Contract Completion, the technology packages for these schools were

completed between April 2010 and March 2012.

As explained in the BAC Report, USAC initially committed to fund $5.83 million for this

Segment (after stripping out $653,872.40 in ineligible equipment to set the pre-discount amount

at $6,703,949.60 with an 87% discount factor).137

The BAC concluded that the prospect of

recovering any money at this point was “remote” because the District had missed the deadline

for seeking reimbursement by submitting the BEAR form with the required documentation

showing the technology equipment Doan installed and the Doan invoices the District paid.

To say that the District had “missed the deadline” is a gross understatement. The deadline was

January 2011. The BAC started inquiring about this Segment in June 2013, and, soon after that

point, nearly three years after the deadline, the CMSD told the BAC that the District had only

begun “compiling the required paperwork,” with plans to submit it nine months later, June

2014.138

Understandably, the District assumed that USAC would refuse to grant such a lengthy

invoicing extension, but it planned to appeal, if necessary, to the FCC.

As of the date of the BAC Report, nine months later, March 2015, the District still had not

submitted the paperwork to USAC. Finally, on December 17, 2015, yet another nine months

later, the District’s consultant, E-Rate Central, submitted a request for USAC to extend the

District’s invoicing deadline for this FRN.139

The District gave several reasons for the failure to timely seek reimbursement: (1) delays in the

government’s decision as to whether E-Rate funds were available for the applicable E-Rate

Funding Year, 2008 at the 87% discount level; (2) the passage of time (nearly two years) from

the time the applications were submitted to USAC and USAC approval; (3) the fact that it took

over a year for the technology equipment to be installed in the schools; and (4) the complexity

137 In actuality, the District would have been able to recover in reimbursement only approximately $5.23 million

because one of the schools, Charles Lake, was not built.


139 Attachment 2, Segment 3B/4A, Tab 17.


of the “progress of the technology implementations and building close out.”140

We found

evidence in the record to substantiate the claim that all of these problems were factors

contributing to the District’s failure to obtain the monies USAC committed to provide, but they

do not explain why, so long after these problems were past, the District is only now starting the

process of attempting to obtain reimbursement. Indeed, to this date, more than two years after

the BAC started inquiring, and nearly five years after the deadline, a request for extension has

only very recently been filed.

2. Pre-Contract

The FCC Form 470 for this Segment was posted on USAC’s website on November 8, 2007.141

The bid packages, of the same date, included three addenda filed on November 21, December

10, and December 13, all of that year.142

There were separate bid packages of the same date for:

(1) Anton Grdina and “Segment 4 All Schools Combination” (two books);143

(2) Euclid Park,

Charles Dickens, Thomas Jefferson, and “Segment 4 All Schools Combination” (two

books);144

(3) Harvey Rice, East Clark, Wade Park, and Willson (two books); and (4) Robert

Jamison, Adlai Stevenson and “Segment 4 All Schools Combination” (two books).145

The bid

forms themselves provided that “within ten days after award of the contract, the successful

bidder shall be required to prepare and submit a detailed item by item, unit price breakout of the

items contained in the E-Rate unit prices contained on the bid form....”146

A pre-bid meeting was held, for all books, on November 20, 2007. Ms. Lacis’ signature appears

on the meeting sign-in sheet,147

and the agenda shows that E-Rate was discussed.148

The

minutes show that Ms. Lacis referred attendees to this E-Rate website,

http://web04.cmsd.net/erate/,149

and noted that adhering to the requirements noted therein was

important.

The bid submission and opening date was December 20, 2007. Doan was the sole bidder.

140 CMSD’s Answers to BAC Queries Regarding Segment 3/B/4A, Attachment 7, p. 5.


142 Attachment 2, Segment 3B/4A, Tab 1, pp. 2-7.



145 Attachment 2, Segment 3B/4A, Tab 1, pp. 1-38 (Harvey Rice et al.), 74-91 (Robert Jamison et al.).

146 Attachment 2, Segment 3B/4A, Tab 1, p. 24.



149 We were not able to access this web page. The District’s current E-Rate web page is

http://net2.cmsdnet.net/erate/default.htm.

http://web04.cmsd.net/erate/

http://net2.cmsdnet.net/erate/default.htm


Scope review meetings, one for Segment 3B schools and the other for Segment 4A schools,

were both held on January 4, 2008, with separate agendas and minutes.150

Both sets show Mr.

Podach and Ms. Lacis as attendees, but no discussion of E-Rate appears on either agenda.

The District’s James Mix provided us by email on May 26, 2015 with an electronic copy of the

contents of a disk containing a summary sheet and E-Rate breakout for both Segment

components, reportedly dated January 4, 2008.151

We reviewed bid evaluation forms for Doan, a January 7, 2008 one for Segment 4A152

, and a

January 9, 2008 one for Segment 3B.153

There was no reference to E-Rate in either.

A January 14, 2008 summary of findings154

noted that Doan was the sole bidder.

There were signed contracts with Doan for each Segment dated January 21, 2008.155


We found no post-contract E-Rate breakout documents, as required by the bid package terms.

The FCC Form 471156

was submitted just before midnight on February 7, 2008, the last day of

the filing window, and it listed Ms. Lacis as the point of contact. The pre-discount funding

amount requested was $7,357,822; with an 87% discount rate, the funding commitment request

was for $6,401,305.14. These amounts were later adjusted so that the final pre-discount request

was for $6,703,949.60157

; with an 87% discount, the funding commitment request amount was

$5,832,436.15.158

While we located the January 4, 2008 list mentioned above, we were not able

to find the required Item 21 attachment submitted to USAC.








157 This pre-discount amount included $759 (at $63.25 per month) for maintenance services that the District had

originally erroneously categorized as equipment rather than recurring services. The change in classification had

no dollar impact on the total amount approved by USAC.

158 This included $660.33 for the maintenance services.


USAC’s Form 471 RAL is dated February 13, 2008159

, providing that any corrections the

District had to make were due by March 4, 2008. The RAL was missing pages 2 and 4, we

should note, and we found no RAL submission indicating that any correction was needed.

As with Segment 3A, we did not find the typical back and forth correspondence between PIA

and the District regarding this FRN in the files. But, we know that there were such

communications. For example, in September 2013 when the BAC started inquiring about this

and the other FRNs at issue in its report, Ms. Lacis, by then at E-Rate Central, emailed Dedra

Ross at the District “the list of equipment that was sent to USAC and PIA for review…[with]

notations in red font of the changes that were made during the PIA.”


Reimbursement

There is a January 22, 2009 Funding Commitment Decision Letter (missing page 2) indicating

that the FRN at $5,832,436.15 was “as yet unfunded.”160

At that point, E-Rate Priority 2 funds

were not available to be awarded at the 87% discount level (and lower).

On December 3, 2009 USAC issued a Funding Commitment Decision Letter approving the

commitment of $5,832,431.15.161

The letter notes some $654,631.40 in “ineligible

product(s)/services.” And, it notes that the pre-discount request was modified from $7,357,822

to $6,703,949.60 “to agree with applicant documentation.” Presumably, this comment referred

to the Item 21 attachment that PIA reviewed to determine what was eligible and ineligible. The

letter designates “Last Allowable Date for Delivery and Installation of Non-Recurring Services”

as September 30, 2010, which meant that the invoicing deadline was January 28, 2011.

We were unable to locate the FCC Form 486 Receipt of Service Confirmation Form, but USAC

acknowledged receipt of that form by its Form 486 Notification Letter to the District of

December 23, 2009.162

We have found no indication that any invoice extension request was ever made. The District’s

responses to the BAC suggest that none was ever made. And, as noted above, no BEAR was

ever prepared or submitted.

We did find a number of change orders,163

for Segment 4A in particular, that were necessitated

by the fact that the technology packages were issued for bid prior to the completion of the

construction designs to meet the deadline for applying for E-Rate funding. These change orders

would help to explain why equipment actually installed differed from the equipment that was to

be installed, and those differences could have implicated E-Rate eligibility and USAC service







substitution requirements. A good example is found in a change order dated April 10, 2010

relating to the Charles Dickens school, “This change order is a result of the technology design

being completed ahead of the architectural/electrical/building design. This was an arrangement

that was negotiated with OSFC early on in an effort to maximize an e-rate savings of about $9

million. As a result, there were coordination issues that needed addressing post-bid – in this

instance, there were rooms that required technology and electrical swapping as well as

additional cabling and outlets. Going forward, this will no longer be the practice.”164

We found a number of emails demonstrating an awareness that efforts needed to be made to

obtain the necessary invoices so as to submit the BEAR form, either in a timely fashion, or

based on an invoicing extension. Examples of such messages, organized chronologically,

follow.

Ilze Lacis to Joseph Podach on November 30, 2009, 13 months before the invoicing deadline.

“While I do not have the formal letter in hand, the E-Rate [website] shows this morning that we

have received the funding for the Segment 3B/Segment 4 technology implementations for

Harvey Rice, East Clark, Wade Park, Willson, Jamison, Adlai Stevenson, Charles Dickens,

Euclid Park, Thomas Jefferson, Anton Grdina, and Charles Lake. This was the ‘in limbo’

discount level for the FY 2008-09 which was connected to the funding cap beginning with the

86% discount. Invoice submittal should flow better this time round, as I submitted these funding

requests by site; thus we can submit invoices by site and receive reimbursement by site. I will

contact Doan to start the process for the sites where the implementation is complete.”

Ilze Lacis to Joseph Podach on March 28, 2010, 10 months before the invoicing deadline.

“Good news: The Segment 3 technology equipment in FY 2008-2009 has been approved. This

was the District’s funding request that was in ‘limbo’ when the funding cap was put at 86%;

funding for 87% was unknown at that time. We’ve received the approval letter. The service

provision is through September 30, 2010. We will work with Doan Pyramid/Zenith Systems re

the invoicing.”

Ilze Lacis to Joseph Podach on September 10, 2013, 32 months after the invoicing deadline.

“The Segment 3/Segment 4 sites were part of the 2008-2009 funding cap debacle. They were in

the 87% discount band…, with the decision letter dated December 3, 2009. However, no BEAR

was timely filed. I have no explanation for you, other than I do remember saying to Anita that

we must file the form; the last date to invoice was January 28, 2011. Bottom line: we need to

file the BEAR form immediately. It will be denied. We will appeal the denial. The ultimate

result or decision is unknown. I have to scour the time period to see what was going on so there

is a firm and clear rationale why this did not get done.”

Ilze Lacis to Dedra Ross on September 11, 2013, again 32 months after the invoicing deadline.

“We need to prepare a BEAR form ASAP for the FRN, which includes all of the schools. A/P

(or Nora Svatek or Bernie Eichner) can provide you copies with full and complete invoice,

which has the full list of equipment installed in each school, including Serial Numbers for each

piece of equipment…. It is very important that we begin immediately. The initial BEAR

submittal will be denied, after which I will prepare and submit an appeal/waiver request.”

(emphasis in original).



“…Have we submitted the paper work to the erate program by which we’ll get a denial?”

Joseph Podach to Ilze Lacis on November 19, 2013, five months after the initial BAC inquiry

(namely, June 2013) and 34 months after the invoicing deadline. Ms. Lacis replied the same day

as follows, “…No on the BEAR. I’ve not yet completed the review of the invoices as of yet.

Any chance that Dedra [Ross] could pitch in?”

“…Nancy flat out asked in our meeting ‘did you just miss it?’ and the answer is yes. We did

miss this one filing…” Joseph Podach to Patrick Zohn on November 22, 2013, five months after

the initiation of the BAC inquiry and 34 months after the invoicing deadline.

“I won’t disagree that we missed a filing date but we have not been denied the reimbursement

from the erate program. We will file the BEAR form and expect the denial, at which time we’ll

submit an appeal to the FCC for the funding.” Joseph Podach to Patrick Zohn on January 16,

2014, seven months after the initiation of the BAC inquiry and 36 months after the invoicing

deadline.

Responding to a query from Joseph Podach about the BEAR filing, Ms. Lacis wrote, “I have

started this and want (actually need) to get it off my desk by the end of this weekend. Dedra was

great in reminding me…” Ilze Lacis to Joseph Podach on September 30, 2014, 15 months after

the initiation of the BAC inquiry and 44 months after the invoicing deadline.

“Submittal of the BEAR form we missed filing? This too needs to move. The BAC Commission

was told this would be complete last June…” Joseph Podach to Ilze Lacis on January 5, 2015,

19 months after the initiation of the BAC inquiry and 48 months after the invoicing deadline.

5. Segment 3B/4A Summary Assessment

In short, the problems with this FRN are the same as with the others – abdicating the

responsibility to separate E-Rate eligible equipment from ineligible equipment to PIA; poor

record keeping; and missing deadlines and failing to file for extensions. With so much money at

stake, and so much attention having been called to the issue by the BAC and the press, it is

absolutely inexplicable why the District allowed so much time to pass without preparing the

BEAR form and requesting an invoicing extension.

Although the District has now asked USAC for an invoicing extension, we believe that at this

point, the prospect of recovering any money as to this Segment is virtually nil. The FCC in In

the Matter of Requests for Waiver or Review of Decisions of the Universal Service

Administrator by Hancock County Library System Bay Saint Louis, Mississippi et al. Schools

and Libraries Universal Service Support Mechanism, 30 FCC Rcd 4723, 2015 FCC Lexis 1222,

May 11, 2015 (“Bay St. Louis Order”), denied requests from multiple school districts for

invoice deadline extensions “because the petitioners waited an unreasonable amount of time

after the last date to invoice to seek an invoicing deadline extension and have failed to present

extraordinary circumstances that would justify the failure to timely submit the invoices.” All of

the invoices at issue were more than a year late at the time extensions were sought, and some

would have been more than a decade late. And, among the proffered explanations for delay that

were rejected in this FCC decision were “employee confusion, lack of understanding of the

program rules, or staff turnover…,” – some of the very problems that the District suffered from.

That said, we nonetheless urged the District to file the invoicing extension request – which was

finally filed on December 17, 2015 - so as to demonstrate to Cleveland taxpayers that it is doing


everything possible to obtain at least some reimbursement for such a large expenditure, even

though it is extremely unlikely that the FCC will approve it.

D. Segment 4B

1. Introduction

The three “Segment 4B” schools and corresponding FRNs were George Washington Carver

(FRN 2076995); Nathan Hale (FRN 2122420); and Mound (FRN 2112428). The relevant E-

Rate Funding Year was 2010. According to the Certifications of Contract Completion, Zenith

completed work on the technology packages for these schools in the September 2011 through

March 2012 time period.

As noted earlier, after the government’s corruption investigation became public in 2008, certain

employees of Doan bought the assets of the company and formed a new entity, Zenith Systems,

LLC. Concern about contracting with Zenith was allayed in this February 2, 2010 email from

the District’s outside construction counsel, David Riley, to its then inside general counsel,

Stephen DeVita, “I have met with Zenith, Doan and legal counsel….Zenith has purchased the

assets of Doan. All of the management of Doan (excepting Michael Forlani)165

and the

workforce of Doan make up the management and workforce of Zenith. Zenith has a multi-

million dollar line of credit and appears to be a strong contractor….”

The original total pre-discount amount requested was $899,443, for a funding commitment at

87% of $782,515.41. Ultimately, USAC approved a total commitment of $644, 245.98 at 85%,

instead of the 87% originally requested. The original pre-discount amount requested for Carver

was $302,867.94; the amount USAC ultimately committed to fund was $217,282.95; but,

nothing has been disbursed to date. The original pre-discount amount requested for Hale was

$294,733.78; the amount USAC committed to fund was $211,180.51, but, again nothing has

been disbursed to date. The original pre-discount amount requested for Mound was

$301,841.28; the amount USAC committed to fund was $215,782.42; but, likewise, nothing has

been disbursed.

The BAC asked for an explanation as to why the requested and committed funding amounts for

this Segment were 40-50% of the comparable per school amounts for Segments 3 and 4A and

was told by the CMSD, “Based on construction timelines all eligible items did not get submitted

to e-rated (sic) for construction scheduling purposes.”166

The BAC Report noted that the District had persuaded USAC to extend the BEAR submission

deadline by three years, from January 28, 2012 to January 28, 2015. Though the District met

that deadline, nonetheless USAC initially denied reimbursement because the District did not

respond to its notification. The District’s explanation for not responding was that the contact

165 As previously noted, Mr. Forlani was indicted, convicted and imprisoned for criminal activities unrelated to

Doan’s participation in the E-Rate Program.

166 BAC Report, p. 3. Though we followed up on this matter in interviews, we still do not understand exactly what

was meant by this statement.


person never received the notification because an out-of-date email had been used.167

The

District was granted yet another extension, however, to June 15, 2015.

2. Pre-Contract

The District’s FCC Form 470 was posted on November 20, 2009.168

There was a bid package of

the same date, with one addendum dated December 2, 2009.169

We also found separate bid

packages dated November 21, 2008 for Carver170

and Hale171

, and dated August 28, 2009 for

Mound.172

However, those bids were combined into a single bid package dated November 20,

2009. The “Summary of Work – Technology” for each school included the requirement that “the

apparent successful bidder, as notified by the Construction Manager, shall furnish the

appropriate E-Rate breakout of applicable devices to the Construction Manager by January 27,

2010.”

A pre-bid meeting date of December 1, 2009 was set by the bid packages, but we found no

documentation relating to this meeting.

The bid submission and opening date was December 22, 2009. The sign-in sheet for the

meeting173

does not indicate that Joseph Podach, Ilze Lacis, or Anita Spencer were present.

Two technology contractors bid for work on this segment, Zenith, and LOGOS

Communications. Zenith submitted its bid evaluation form on January 5, 2010, and there was no

reference to E-Rate.174

The scope review meeting was held on January 22, 2010. Ilze Lacis signed the meeting sign-in

sheet.175

Attached to the scope review documents were the “Summary of Work-Technology”

requirements for E-Rate breakouts, initialed by Zenith, and referencing January 27, the date by

which the bid package terms required the bidder to send such E-Rate breakout documents.


168 Attachment 2, Segment 4B, Tab 2.

169 Attachment 2, Segment 4B, Tab 1, pp. 1-15. We did not find a copy of the Addendum, but Zenith referred to the

date in its completed bid form.

170 Attachment 2, Segment 4B, Tab 1, pp. 25-33.







The summary of findings,176

regarding the two bidders for the combined package, was dated

January 25, 2010. Zenith was the lower bidder, $899,443.00 vs. $1,100,000.00. There was no

reference to E-Rate therein.

We found no E-Rate breakout documents reflecting submission by the January 27 date, as

required by the bid package terms (though we did find such a breakout attached to an April 12,

2010 email from Michael Colosimo to Ilze Lacis and Anita Spencer).177

The District signed the contract with Zenith on February 3, 2010.178


CMSD submitted its Form 471179

on February 19, 2010, listing Ilze Lacis as the contact person.

The pre-discount funding amount requested was $899,443; with an 87% discount rate the

funding commitment request was $782,515.41. These amounts were later adjusted so that the

final request was $757,936.45 pre-discount, and $644,245.98 with an 85% discount.

We did not find an Item 21 attachment.

USAC’s Form 471 RAL is dated February 25, 2010.

The CMSD then submitted a Form 471 RAL Response dated March 17, 2010 that changed the

discount rate from 87% to 88%, without changing the Funding Commitment Request from the

$782,515.41 originally requested (88% of $899,443 is $791,509.84).180

As with the other Segments other than Segment 2, we did not find for this Segment the typical

back and forth correspondence between PIA and the District. This dialogue likely would have

occurred during the year between the submission of the Form 471 and the Funding Commitment

Decision Letter.


Reimbursement

USAC’s Funding Commitment Decision Letter is dated March 1, 2011181

, and it approved

$644,245.98 in funding, based on a pre-discount amount of $757,936.45. The total approved

funding commitment was at that point based on a shared discount of 85% instead of the 88%

discount applied for in the RAL response referred to above. The letter noted that “the dollars

requested were reduced to remove” a total of $141,477.02 (pre-discount) in equipment. While








the letter itself does not indicate that the equipment was removed because it was ineligible for

reimbursement under the E-Rate Program, the CMSD’s response to the BAC’s questions does

so indicate.182

The “Last Allowable Date for Delivery and Installation of Non-Recurring

Services” was September 30, 2012.

USAC denied the District’s service implementation extension request by letter dated December

28, 2011, deeming it unnecessary “because you have more than 120 days to implement the

services before September 30, 2012.”183

As confirmed by numerous emails, the District failed to timely file an FCC Form 486, informing

USAC that services approved for discounts had started and invoicing could begin. Among those

emails were these:

October 7, 2011 email from Joseph Podach to Dedra Ross, copying Ilze Lacis, “Dedra, I

received a phone call this morning from USAC wanting to let us know that we did not respond

to their urgent request to submit the Form 486 for: FRN 2112420 (Hale) and 2112428 (Mound).

Each was worth [approximately] $200,000. July 6, 2011. Urgent reminder, we sent no response.

Can still file and can go back 120 days but only a portion of the funding will be allocated and

very well might be denied…”

July 13, 2012 email from Ilze Lacis to Joseph Podach and Dedra Ross, “…NOTE! There is a

problem with this Form 486 submittal: it was not submitted in time. The Commitment Letter is

dated March 1, 2011. This was Anita Spencer’s last week, the height of RFP evaluations, taking

on the Procurement area, Dedra’s arrival, other hiring/interview activities, etc. Submitting the

486 slipped through the cracks. The plan: We submit the 486 as quickly as possible. It will be

denied because it is outside the window to submit it. I will prepare a waiver request to the FCC

(i.e. to wave (sic) the rule) while we wait for the denial letter; then submit the waiver request

laying out the situation that caused this unfortunate oversight. While neither I cannot guarantee

anything (sic), I can guarantee that I will do everything in my power, so that the District can get

its funds. This is the first such instance. I always checked, checked, checked again to make

certain of things being done. It was just a difficult time when the FCDL came. Most important is

to get this 486 in immediately, so the process can begin.”(emphasis in original).184

August 2, 2012 email from Ilze Lacis to Dennis Kubick, “The answer [to the question of

whether the district would receive additional E-Rate money for the new construction schools] is

‘maybe yes.’ The refund would be for the technology implementations at Carver, Hale, and

Mound schools. The maximum would be as noted below ($0.644 M). However, past instances

point out that not all of the equipment eligible for installations was installed, thus the

reimbursement amounts were lower. The ‘maybe yes’ is due to an FCC form I did not send in

last year in March when there was so much upheaval with staffing in my and other departments

182 CMSD’s Answers to BAC Queries Regarding Segment 4B, Attachment 8, p. 4.


184 For some reason, when the District was asked by the BAC, Ilze Lacis at E-Rate Central drafted a response for

the District that said that this Form 486 had been filed by the deadline. CMSD’s Answers to BAC Queries

Regarding Segment 4B, Attachment 8, p. 8; Memorandum, dated November 18, 2013, from Ilze Lacis to Joseph

Podach, p. 8.


at CMSD. The form’s filing slipped through the cracks and came to my attention only a couple

of weeks ago. I am preparing a waiver for the FCC to waive the time frame rule within which

the form should be submitted. There is ample precedent for such oversight.”

September 18, 2012 email from Ilze Lacis to Joseph Podach and others, “ Joe, Attached for your

review, approval and signature is a letter petitioning the FCC to waive the filing deadline for the

Form 486. You’ll remember that I had not timely filed the 486 for the Carver-Hale-Mound

technology implementations. When I discovered the error late this summer, the District

submitted the Form 486, which was denied. Thus, we can now submit the petition to waive the

rule. There is ample precedent for this, as you will note in the document, and I could say that

there is a high degree of probability it will be granted. However, nothing is a done deed (sic)

until the USAC letter arrives via US snail mail…”

The District’s letter requesting a waiver was dated September 20, 2012 and signed by Joseph

Podach. In explaining why the waiver was sought, Podach wrote in pertinent part, “On March 4,

2011, the one staff member handling E-Rate tasks was dismissed. The new employee for that

position joined the District approximately one week later, albeit without any experience or

knowledge about the E-Rate program. Concurrently and even prior to March, the executive

director who directed the E-Rate program was given expanded responsibilities in addition to

those already in the director’s purview. An unexpected medical diagnosis required the executive

director to take a month’s leave in late March and April. Furthermore, the E-rate filing for

funding year 2011 was on March 17, 2011, days before the medical leave. The changes and

actions required by the transformative plans increased operational workload for the director.

Subsequently, the executive director, who had handled the District’s E-Rate funding requests

almost from the inception of the program, resigned from the District….”185

The waiver was

granted by order of the FCC dated October 17, 2002.

USAC’s Form 486 Notification Letter was dated July 25, 2012, apparently retroactively,

adjusting the service start date to March 15, 2012.186

The explanation for the change in the

service start date was “120-day 486 deadline,” suggesting that the date was changed to within

120 days of the new service start date based on the FCC waiver that was sought and granted.

The District filed a request on July 4, 2013187

to extend service implementation through

September 30, 2014 because the “service provider [was] unable to complete delivery for reasons

beyond [the] service provider’s control.” The request does not indicate what current deadline

was sought to be extended, but there had been an earlier request to extend the deadline past

September 30, 2012.





On August 21, 2013, USAC granted an extension for service implementation to September 30,

2014, with the last date for invoicing being January 28, 2015.188

The District filed a Form 500 to reflect the change in the contract expiration date to September

30, 2014.189

USAC then sent a November 12, 2013 letter to acknowledge receipt of the form and

its processing.190

We found numerous emails indicating a frantic search over a period of years for the necessary

invoices so that the BEAR form could be timely filed. For example:

September 18, 2012 from Ilze Lacis to Joseph Podach and Dedra Ross, “Is the inventory of the

technology equipment that was installed at Carter-Hale-Mound sites in process? You will

remember when we met at the very end of July that the game plan was to inventory the

equipment at the three sites. This is so that the BEAR form can be submitted to USAC,

assuming that the FCC will approve the Form 486 deadline waiver petition. I remember I resent

the equipment lists for both the Carter-Hale-Mound sites… We discussed putting on numbered,

color-coded stickers for the E-Rate purchases. The equipment that was approved by USAC, and

the equipment that was actually installed may have some differences if it follows other such new

school implementations in the past. The District must know each and every piece of equipment

that was installed and for which equipment the district paid and how much. Frequently, the

quantity will vary (up or down) from what was proposed and from what was approved and from

what was installed and paid. An audit will do a random pick from the list approved. Thus, the

inventory needs to be thorough and precise. The invoices will list the serial numbers, which

need to be added to the list…”

December 16, 2014 email from Dedra Ross to Debbie Woods at Zenith, “Thanks Debbie for any

support you can provide in locating the equipment detail associated with the following invoices.

I am looking for an itemized list with associated cost the (sic) was given to the school district for

payment.”

January 20, 2015 email from Ilze Lacis to Al Bristo at Zenith et al., “ …I am seeking invoices

that show the equipment model numbers, quantities, and cost for each piece that were (sic)

installed in each of the three schools. Have you found the invoices for the technology

installations for Carter, Hale, and Mound new schools? I need the connection of the equipment

that was approved by E-Rate, the equipment that was installed and then subsequent payment by

the District. There is a list of equipment that was installed at each school, but this does not show

that it was invoiced, nor does it have price by item.”

January 20, 2015 email from Ilze Lacis to Marcus Dehler at Zenith, Joseph Podach and Dedra

Ross, “…We need an invoice that lists the equipment that was installed with the model number,

cost per item, and the quantity installed at X location. This, then, needs to be matched up with

the payments that the District made to show that the district had paid the full amount. E-Rate

will reimburse the district the discounted portion.”





The District submitted a BEAR to USAC on January 26, 2015, seeking a total reimbursement

amount of $291,133.79. In an email of that same date from Ilze Lacis to Joseph Podach, who

was required to sign the BEAR, she reported that USAC had agreed to extend the invoicing

deadline to June 15, 2015.

On February 19, 2015, USAC approved no reimbursement, citing “no response from

applicant.”191

The District explained to the BAC that the inquiry(ies) had been sent to an “old”

email address.192

A new BEAR was submitted on June 10, 2015, requesting $640,342.60.193

E-Rate Central conveyed the following to USAC in connection with the District’s

reimbursement request for Carver by email on August 21, 2015, “There was $249,838.40 in

work that may have been completed prior to August 1, 2010 (the service start date on the 471).

At this point in time it is unclear how much of the $249,838.40 was completed prior to August

1, 2010. Therefore, out of an abundance of caution we will assume that all of the $249,838.40

was completed prior to August 1, 2010. We will further assume that all of the work was E-Rate

eligible. This reduction will decrease the undiscounted amount on line 7392363 from

$255,627.00 to $5,788.60. We authorize you to make this adjustment. We do not know the

specific installation dates for the various pieces of equipment, but we do know that at least

$5,788.60 of E-Rate eligible equipment was installed between August 1, 2010 and April 30,

2012.” 194

On August 28, 2015 USAC denied the BEAR based on “incomplete documents provided for

review.”195

The information requested by USAC as a follow up to the BEAR form was filed

one day late according to an explanatory email from E-Rate Central on October 19, 2015.196

The

District appealed the BEAR denial on October 19, 2015; USAC granted the appeal on

December 18, 2015.197

At this point the most that the District can receive in reimbursement

would be $427,979.96 and a revised BEAR Form was submitted to USAC on January 14, 2016.

However, the fact that the District cannot verify installation dates for this equipment jeopardizes

even that recovery.

5. Segment 4B Summary Assessment

In sum, the problems with this FRN mirrored those of the others – requesting reimbursement for

equipment the District should have known was ineligible under the E-Rate rules; missing









documentation; repeated missed deadlines; and installation of equipment outside the relevant

Funding Year.

6. BRIEF REVIEW OF A FEW FRNS NOT AT ISSUE IN THE BAC REPORT

While the main focus of this report is the FRNs at issue in the BAC Report, our engagement

with the CMSD also required us to undertake “a comprehensive review and evaluation of the

CSMD processes, procedures and practices otherwise related to the CSMD’s participation in the

Program for the Covered Period.” The “Covered Period” is January 1, 2006 to date.

Given the fact the Covered Period spans many FRNs over nearly a decade and that we could

not, as a practical matter, continue our work indefinitely, we chose to fulfill this part of our

mandate by selecting three additional FRNs to review. The purpose was in part to identify what

might have “worked” with respect to those requests for E-Rate support as a way of confirming

our conclusions as to the cause of the problems identified by the BAC Report. In addition, we

hoped that this additional review would contribute to an overall assessment of the CMSD’s E-

Rate Program and the recommendations that we would make as part of this report.

A. FRNs Examined

We selected the following three supplemental FRNs:

FY 2007 - FRN 1620674/FCC Form 471 No. 584474, which was also a Doan contract for

Internal Connections (purchase and installation of core telephone equipment), in which a post-

discount funding commitment of $731,039.73 was approved and 100% of this committed

amount was disbursed to Doan by use of the SPI invoicing method, instead of a BEAR.198

In

other words, the CMSD paid its discounted portion and Doan invoiced USAC for the non-

discounted portion.

FY 2009 - FRN 1903524/FCC Form 471 693697, which was also a Doan contract for Internal

Connections Maintenance (maintenance, repair and upkeep of E-rate eligible technology at 13

locations, including some of the newly-constructed schools), in which a post-discount funding

commitment of $1,130,310.59 was approved, yet none of the approved amount was

disbursed.199

FY 2010 - FRN 2076817/FCC Form 471 No 768021, which was a contract with

SchoolOne.com LLC for Internal Connections (upgrade of older, legacy school core switching

equipment at designated District schools), in which a post-discount funding commitment of

198 The ultimate pre-discount amount was $830,726.97 with a discount rate of 88%. The original pre-discount

request was for $1,149,799.75. At an 88% discount rate, the original funding commitment request was for

$1,011,823.78. However, the FRN was subsequently split, with $92,302.99 pre-discount under contract with

Zenith, yielding a post-discount amount under that separate FRN of $81,226.63, which was approved, but never

disbursed.

199 The ultimate pre-discount amount was $1,314,314.64 with a discount rate of 86%. The original pre-discount

request was for $1,433, 098.92 with a discount rate of 87%. At 87% discount rate the original funding

commitment request was for $1,246,796.06.


$2,708,734.29 was approved, but only $1,495,284.24 was disbursed, again using a SPI instead

of a BEAR.200

The CMSD provided documentation for these FRNs from the same sources as we reviewed

otherwise. We were also able to segregate from the email database that we had established for

the key personnel some 700 messages of potential relevance.201

B. Findings

In general, we had equal if not more difficulty tracking the E-Rate Program histories of these

FRNs than those at issue in the BAC Report FRNs because the E-Rate-related documentation

that we were able to find was incomplete.202

We likewise did not find the typical type of back

and forth correspondence between the USAC PIA team and the District for these FRNs. Finally,

we were unable to find any materials which explained the utilization rates, in particular why

there were no disbursements under the Funding Year 2009 contract with Doan for Basic

Maintenance of Internal Connections. As a result, our findings, based on these FRNs, are not

conclusive. However, we do note the following:

Example Of Application Of Internal E-Rate Process Not Applied To BAC Report FRNs

The internal E-Rate process drafted by Ilze Lacis was used to award the contract for FRN

2076817. An Evaluation Committee reviewed six respondents to the RFPs that was the basis for

the SchoolOne contract.203

The committee reportedly heard in-person presentations from each

proposer and then met to review the presentations and complete evaluation forms. An RFP was

apparently also used in awarding the Doan Funding Year 2007 FRN contract for telephone

equipment in a number of the new schools.

Installation Restricted To The E-Rate Funding Year

We noted that the Funding Years 2007 and 2009 Internal Connections contracts with Doan and

SchoolOne appropriately limited installation of the E-Rate equipment to the relevant E-Rate

Funding Year, subject to any extensions that USAC might authorize. This avoided USAC’s

denial of funding for installation outside the Funding Year, which prompted partial

reimbursement denials in Segments 2 and 4B.

200 The ultimate pre-discount amount was $3,043,521.67 with a discount rate of 89%. The original pre-discount

request was for $2,440,130.50 with a discount rate of 90%, which yielded a funding commitment request of

$2,196,117.45. The Funding Commitment Decision Letter notes that this increase was to “agree with applicant

documentation.”

201 Furthermore, we did not re-interview with respect to these FRNs any of the people previously interviewed

regarding the FRNs related to the Segments.

202 For example, we found no Funding Commitment Decision Letter for the Funding Year 2007 FRN. We found no

copies of bids, reflecting presumably that they were stored elsewhere as in the case of the bids on the Segments.

203 Memorandum, dated January 27, 2010, from Ilze Lacis, Director MIS to Joseph Podach, Deputy Chief

Operations & Improvement, RE: Evaluation Results for RFP#20836-E-Rate RFPs#12-1011 (School Core

Switch).


Service Substitutions Timely Employed

The District timely made and received USAC approvals for service substitutions in connection

with the Funding Year 2007 and FY 2010 contracts.204

Unlike the situation with the Segments,

there was presumably greater coordination between Doan and the District in the case of the

Funding Year 2007 FRN so that if differing equipment was desired and installed the

substitutions were approved in advance by USAC.205

Access To Invoices

Invoices for at least one of these FRNs were included in the E-Rate File Room materials.

Specifically, for the Funding Year 2007 FRN, we reviewed the invoices from Doan to the

District totaling $731,039.73, reflecting the District’s 12% share of the costs, with a specific

breakout of the E-Rate eligible portion.

Tracking Installed Equipment

It is unclear whether the District had a regular program for tracking and managing the location

of E-Rate funded equipment that had been installed in schools, in case of any audits. It was

noted in an email from Ilze Lacis to Kent Stanko, a CMSD Data Center Engineer, that “[a]sset

management under E-rate is serious business. The funding is given for a specific location in a

specific year for a specific piece of equipment.” 206

Yet an email from Mr. Stanko to Glenn

Popil the next day reflects that CMSD Network and Asset Management personnel could not

obtain information about what equipment had been purchased through E-Rate so it could in fact

be tracked.207

Inability To Justify Discount Rate

As with the FRNs at issue in the BAC Report, the District likewise had difficulty justifying the

discount rate with regard to these FRNs. The discount rate for the Funding Year 2007 FRN was

reduced, albeit by only 1%. The same 1% reduction was imposed in connection with the

Funding Year 2009 FRN. In that case, USAC provided a lengthy list of schools, including a

204 Administrator’s Decisions On Service Substitution Request, January 21, 2009 and June 19, 2012.

205 Interestingly, the E-Rate invoices on this contract for Internal Connections were through SPI forms because the

telephone equipment involved was procured outside of the technology packages subject to the OSFC bidding

process.

206 Email, dated July 17, 2014, from Ilze Lacis to Kent Stanko.

207 Email, dated July, 18, 2014, from Kent Stanko to Glenn Popil, “Glenn, Just so you know, I have asked for this

information from Dedra before and she never responded. Also, Dan and I are thinking it would be a very good

idea for Network and CMSD Asset Management to know what equipment has been purchased through eRate.

There seems to be a disconnect with this information and I just want to make sure that both areas are aware, so

we don’t break any rules.”


number of the Segment schools, noting that the supporting third party documentation did not

justify the 90% sought.208

Inclusion Of Ineligible Equipment Or Services

Even for schools other than those in the Segments, USAC reduced funding because of the

inclusion of ineligible equipment or services. For example, the Funding Commitment Decision

Letter for the FY 2009 FRN reduced the “dollars requested…to remove the ineligible

product(s)/service(s): $9,794.17/month and LCD Monitor mounting plate for

$104.52/month.”209

Document Retention

As noted above, we did not find all of the categories of documents required to be retained under

the FCC’s E-Rate document retention rules.210

For these FRNs, the relevant documents would

have been required to be retained for five years after the last date on which E-Rate supported

service was rendered.211

We were given no indication that documents had been purged based on

the expiration of the five-year period.

7. CONCLUSION

Having listed in the Executive Summary the overall factors that led to the District’s failure to

obtain reimbursement for all of its E-Rate eligible expenditures, and having then given a

detailed, step-by-step explanation of “what went wrong” with each of the Segments, we here

attempt to assign responsibility.

The fact of the matter is that the District had a dedicated E-Rate team – initially Ilze Lacis and

her assistant, Anita Spencer, under the supervision of Joseph Podach – who ultimately were

responsible for ensuring that all E-Rate Program requirements were met, and met in a timely

fashion. Moreover, unlike the case with some districts, the CMSD also had access to the

208 For example, USAC reduced the discount percentages claimed at George Washington Carver from 90% to 80%,

at Harvey Rice from 90% to 60%, and at Wade Park from 90% to 50% because the “documentation provided

does not support the requested discounts” for those entities. Email, dated April 19, 2011, from Son Luu, PIA

Reviewer, Schools and Libraries Division, Program Integrity Assurance, to Ilze Lacis. Note, we did not have

underlying materials submitted by the CMSD or the District’s response to this message. As noted, USAC made

an overall 1% reduction.

209 Funding Commitment Decision Letter, dated March 9, 2010, from USAC Schools and Libraries Division to Ilze

Lacis, RE: Form 471 Application Number: 693697.

210 Some of the information apparently retained under these FRNs in the CMSD E-Rate File Room included

invoices related to FRNs from prior funding years, which we presume were misfiled.

211 See, Fifth R&O, supra.


services of an expert outside consultant – E-Rate Central – that the District had used in varying

degrees going back to FY 2003.212

In our view, primary responsibility for the most costly failure – the failure to timely file even a

request to extend the deadline by which to invoice USAC for the $5.82 million CMSD paid to

install technology equipment in the Segment 3B/4A schools - lies squarely with Ms. Lacis.213

As

noted earlier in this report, even before USAC had formally approved this funding commitment

she assured Mr. Podach that “invoice submittal should flow better for this round” because the

District could submit the “invoices by site and received reimbursement by site.”214

Three

months later, Ms. Lacis again committed “to work with Doan Pyramid/Zenith Systems re the

invoicing.”215

It was not until 42 months later, after Ms. Lacis had left the District and 30

months after the January 2011 invoicing deadline, that she discovered, now as the District’s E-

Rate consultant, that no invoice extension request or other filing was ever made.216

It is simply inexplicable why Ms. Lacis, over the course of the many months before this

discovery was made, would not have asked Ms. Spencer (or someone else in the know at the

CSMD) about the status of the matter. Moreover, prior to her departure for E-Rate Central, we

would expect that someone of her professed diligence217

would have either seen to it that the

invoices were compiled so that reimbursement could be sought or filed for an extension, given

the large amount of money at stake. Yet we found no indication that she ever did so.218

While it

is true that she was burdened with additional responsibilities as Executive Director –

Procurement around the time of the January 2011 invoice deadline, and she was no doubt

distracted by the upheaval caused by the staffing shakeup, these circumstances provide no

212 Ms. Lacis resigned in November 2011 to join E-Rate Central, which she has recently left. Ms. Spencer was

succeeded by Dedra Ross in March of 2011.

213 Ms. Lacis was responsible for other missed deadlines (e.g., failure to file Form 486 for Segment 4B) which did

not ultimately have a monetary impact. Although she said that she relied on Anita Spencer to keep her alerted

regarding deadlines Ms. Lacis, should have put in place a formal system for tracking E-Rate deadlines. She

admitted there was none. Ms. Spencer said that she had her own “tickler” system. We found no such system.

214 Email, dated November 11, 2009, from Ilze Lacis to Joseph Podach.

215 Email, dated March 8, 2010, from Ilze Lacis to Joseph Podach

216 Email, dated September 10, 2013 from Ilze Lacis to Joseph Podach, “…[N]o BEAR was timely filed. I have no

explanation for you, other than I do remember saying to Anita [Spencer] that we must file that form….”

217 See Email, dated July 13, 2012, from Ilze Lacis to Joseph Podach and Dedra Ross and others, “I always checked,

checked, checked again to make certain of things being done.”

218 Indeed, we reviewed a report that she prepared in July of 2012 for Mr. Podach on “’live’ past years’ funding,

which did not include any mention of the Funding Year 2008 FRN, although it included the as yet outstanding

Funding Year 2010 FRNs for Mound, Carter and Hale. Email, dated July 10, 2012, from Ilze Lacis to Joseph

Podach. At that point she had either concluded it was no longer “live” because the invoicing date was long past

or, more likely, it still was off her radar screen.


excuse or justification for her failure to follow up on the status of this very sizable potential

reimbursement.219

In our view, Mr. Podach, to whom she reported, also bears some responsibility, in his case for

not being aggressive enough in ensuring that all necessary steps were taken by those he

supervised. The BAC was told that the process of compiling the necessary invoices for the

Segment 3B/4A reimbursement would be started by June of 2014 (which, of course, was already

three and a half years after the deadline). When Mr. Podach left CMSD in April of 2015, the

task had yet to be started.

To the extent that, in Segments 2 and 4B, eligible equipment was installed outside the E-Rate

specified time frame, Mr. Podach, either directly or through CMSD Capital Projects’ head Gary

Sautter220

, was in a position to address this issue with the construction manager, OHGR.

Specifically, he could have pressed OHGR to coordinate, to the extent possible, the installation

schedule with the E-Rate timeline, and he could have worked in tandem with the E-Rate Office,

OHGR, and Doan/Zenith to ensure that any technology equipment installed that was different

from that on the USAC-approved list was likewise eligible for E-Rate funding.

Another problem that affected all the Segments is that Ms. Lacis largely left it to USAC to

determine what technology equipment was reimbursable under E-Rate rules, even though in

some cases the ineligibility of the equipment ought to have been obvious. By way of contrast,

the guidelines that she herself created for schools outside the Segments specifically required the

E-Rate office to separate out E-Rate ineligible equipment before submitting funding

applications to USAC. Not only was leaving the task of separating out E-Rate ineligible

equipment largely to USAC an abdication of the CMSD’s (and, specifically, Ms. Lacis’)

responsibility, it also confused and misled the BAC, leading it to wonder why the CMSD was

not getting all of the funding it initially had requested. In the case of Segment 3A, at least in part

on account of equipment deemed to be ineligible for reimbursement, USAC agreed to fund less

than a third ($839,000) of the amount originally approved ($3.18 million).

Additionally, it should have been apparent to both Mr. Podach and Ms. Lacis from the months it

took to try to obtain detailed invoices from Doan and others for the equipment actually installed

in the Segment 2 schools and to match that equipment list with the equipment list that was the

219 We note that the FCC has said that employee confusion, lack of understanding of the program rules, and staff

turnover do not constitute “extraordinary circumstances” justifying an invoicing extension request at this late

date. See Bay St. Louis Order, supra, ¶9.

220 We found emails indicating that Mr. Sautter was at least “put on notice” that, to ensure reimbursement, approved

equipment had to be installed within the E-Rate specified time frame. See the email cited in footnote 63 in

which Mr. Sautter was copied, relating to Segment 4B installation. He was also put on notice that equipment

substitutions had to be approved by USAC before installation to ensure E-Rate reimbursement. Email, dated

November 5, 2009, from Ilze Lacis to Gary Sautter, “…we are at the tail end of reconciling the E-Rate approved

list of equipment with the invoiced/paid list of equipment. There are minor discrepancies between the original

equipment list and the items installed, e.g., quantities, exclusions, different model. When we complete the initial

invoicing, I will see if we can legitimately recoup some of the remaining funds via equipment substitution. This

may be problematic as it is after the fact;” Email, dated February 17, 2009, from Ilze Lacis to Joseph Podach (on

which Mr. Sautter was copied), “Equipment substitutions: an absolute must, if we want to erate the equipment

you plan to substitute. Please keep me closely in the loop on this one. E-Rate will not pay on any equipment

unless it’s on their approved list. I would need the ‘from’ this equipment ‘to’ this equipment list….”


basis for USAC’s funding commitment that a requirement should have been imposed on Doan

to provide such invoices and to match the two lists (allowing for any E-Rate eligible equipment

substitutions) as a condition to payment for Doan’s work in Segments 3 and 4. But, as near as

we can tell, neither took any action to see to it that such a requirement was imposed.

As noted in the Executive Summary and Segment chapters, there were other problems that

resulted in Cleveland’s taxpayers ultimately getting reimbursed for only a fraction of the amount

they spent for technology equipment in the schools at issue in the BAC Report– among them,

missing documentation, and ignorance of or confusion about the discount rate that the District

was entitled to. All of the problems were attributable, in whole or in large part, to the failure of

the District’s E-Rate staff to carry out its responsibility, namely, timely complying with the E-

Rate Program rules so as to maximize receipt of reimbursements from USAC.

Additionally, some blame should fall on E-Rate Central, the District’s outside consultant. For

one thing, when Ms. Lacis resigned from the District, the District specifically chose to contract

with E-Rate Central because of its widely recognized expertise and its intimate familiarity with

the District from previous engagements. And, for more than three years, Ms. Lacis appears to

have been the primary point person at E-Rate Central for CMSD matters. Yet, in spite of this,

with more than $5 million at stake and several inquiries of Ms. Lacis by Mr. Podach, no BEAR

form was prepared or filed, nor extension requested, for Segment 3B/4A. As for Segment 4B,

even after the District was under the proverbial microscope for, among other things, a series of

missed deadlines over the course of the Segment 2-4 school construction program, E-Rate

Central missed by one day the deadline for providing additional documentation USAC requested

in connection with its consideration of the District’s BEAR form. Although E-Rate Central

successfully appealed this rejection, still, the point of engaging a consultant, an unaffordable

luxury for many school districts, is, among other things, to ensure timely compliance with

USAC deadlines, not to rely upon the prospect of successful appeals when failing to do so.

8. RECOMMENDATIONS

The District asked us to make recommendations as to how, going forward, it might avoid the

mistakes of the past in its efforts to obtain E-Rate funding. We believe that there are a number

of steps the District should take, as outlined below.

A. Future New School Construction Projects: Lessons To Be Learned

We were told by the CMSD’s current CIO that the District might seek E-Rate Program funding

for certain technology components in connection with Segment 7 new school construction. If so,

the CMSD should avoid the problems that lay at the heart of the funding outcomes detailed

above in the analyses of the various Segments. For one thing, there should be regular

interaction between the E-Rate Office (and any outside E-Rate consultants) and the technology

contractor, at the front end of and throughout the process and not just the back end. This

interaction could include: (a) reviewing the technology contractor’s E-Rate breakout lists in

detail for ineligible equipment before submitting those lists to USAC to apply for E-Rate

funding; (b) requiring pre-payment review by the District’s E-Rate Office of technology

contractor invoices to ensure that they include the level of detail required for E-Rate

reimbursement by USAC and that the invoiced equipment, subject to permissible service

substitutions, matches the original equipment lists as approved by USAC in making its the

funding commitment; and (c) coordination of schedules to ensure that equipment approved for


E-Rate reimbursement is installed within E-Rate timelines and the District can verify those

dates.

B. Formulate And Implement Sound Internal E-Rate Program Procedures

As noted elsewhere, we have seen a draft manual and flow chart provided by the CIO on

internal E-Rate processes, and the CIO tells us that it is being followed. The manual should be

reviewed by the CMSD’s current E-Rate consultant and then should be formally approved by

the CEO, with copies provided to all involved in any aspect of the E-Rate Program process.

Follow up training sessions would be advisable as well. To the extent feasible, these

requirements should be incorporated into contracts with vendors, including those involved in

school construction projects. The procedures should address at least the following:

REQUIRE REGULAR COMMUNICATION AMONG ALL PARTICIPANTS IN THE E-

RATE PROCESS – Part of the reason the District received only a fraction of the E-Rate

funding it was initially approved for was the lack of regularized communications between and

among the construction manager, the technology designer, the technology contractor, and those

at the District responsible for obtaining E-rate funding. Such communications should be

incorporated into the E-Rate process across all E-Rate Program-supported products and services.

DEVELOP AND IMPLEMENTING A RIGOROUS PROCESS FOR TRACKING E-

RATE DEADLINES – We noted in our analysis a number of incidences of missed deadlines.

We were told about, but found no evidence of, a “tickler system” that was to ensure timely

filings with USAC. Such a system should be established, adhered to, and when deadlines are

missed that result in the District’s losing money, there should be some kind of individual

accountability (e.g., a factor to be considered in performance evaluations, for example).

E-RATE DOCUMENT RETENTION SYSTEM – In 2012, the CMSD was advised with

respect to retaining E-Rate Program documents that the “[b]ottom line is keep everything”

(emphasis in original).221

As previously noted, the FCC’s rules require retention of “all

documents related to the application for, receipt, and delivery of supported services….”222

This

includes emails with USAC and service providers concerning E-Rate applications and services.

Under current rules, the documentation must be retained for at least ten years after the latter of

the last day of the applicable funding year or the service delivery deadline for the request

(including any extensions). Based on our review of the documentation supporting the Segments,

the CMSD should establish a system whereby such documentation is compiled, organized, and

then retained in one place, so that in the event of a request for it by USAC or a third-party

auditor it can be readily accessed. Failure to produce required documentation can result in

USAC’s seeking recovery of funds. Whatever the District’s own document retention period may

be, at least for documents related to E-Rate, USAC’s documentation retention rules should

control.

221 Email from Ilze Lacis to Joseph Podach, dated July 11, 2012.

222 47 C.F.R. §54.516(a); see http://www.usac.org/sl/tools/document-retention.aspx (“All applicants and service

providers are required to retain receipt and delivery records relating to pre-bidding, bidding, contracts,

application process, invoices, provision of services, and other matters relating to the administration of universal

service….”).

http://www.usac.org/sl/tools/document-retention.aspx


USE BILLED ENTITY REIMBURSEMENT FORMS ONLY WHEN THE

ADVANTAGES OUTWEIGH THE DISADVANTAGES, AND THEN, WITH CAUTION – We explain above that the District reaped an additional financial benefit from using BEARs as

the invoicing method for the schools at issue in the BAC Report. But, the use of BEARs

required the District to put an even bigger premium on ensuring that technology vendor invoices

were in compliance with E-Rate Program rules because the District had to pay all such vendor

costs up front and seek USAC reimbursement later. And, because BEARs allowed the District to

pocket the E-Rate funding on top of what the OSFC program provided in State funding, when

problems arose with BEAR invoicing there was ultimately a more relaxed attitude about going

all out to comply with E-Rate Program rules. So, the pros and cons of using BEARs should be

weighed carefully, and, when BEARs are chosen as the invoicing method, this should be done

with due caution.

ADDRESS DISCOUNT CALCULATION/VALIDATION PROCESS – We came across a

number of instances where USAC was “not able to validate [the] requested discount percentage”

for various schools. Internal procedures should specify who is responsible for timely gathering

data and ensuring its completeness, accuracy, and compliance with USAC requirements, so as to

be able to avoid USAC inquiries altogether or promptly provide responses that will justify the

maximum discount rates to which the District may be entitled.

ASSESS HOW TO MAXIMIZE UTILIZATION RATE – As we noted above the CMSD’s

percentage utilization of the E-Rate funds ultimately committed by USAC has trailed the

nationwide average during the period for which we had information. Utilization rates of less

than 100% can be explained by a number of factors such has high estimates, projects that do not

go forward for a number of reasons or, even in some cases, because the requisite invoices are

not submitted. While it was not within the scope of our engagement to analyze this matter, the

CMSD should take all reasonable steps to maximize receipt of the funds committed by USAC.

C. Attend USAC E-Rate Training And Otherwise Devote Necessary Time And

Resources To Understand The E-Rate Program

Each year USAC holds multiple, one-day E-Rate training sessions for applicants around the

country.223

The leadership of the USAC’s Schools and Libraries Division discuss various

aspects of E-Rate program requirements and compliance, including any updates. The CMSD E-

Rate personnel should attend one of these sessions annually. If this is not possible for some

reason, the District should at least ensure that such personnel review the online materials that are

made available. There are also periodic webinars where there are opportunities to pose questions

to USAC personnel involved in invoicing, eligible services determinations, and other matters.

The fact that the CMSD is employing an expert consultant does not mean that the District’s

internal personnel should forego such educational opportunities, if only to be able to fully

understand and evaluate the consultant’s guidance and recommendations. Furthermore, reliance

on a consultant’s guidance is generally not a defense to findings of non-compliance with the E-

Rate rules.

223 In 2015 there were eight applicant training sessions. Videos of the sessions and related training materials are

available online. See http://www.usac.org/sl/about/outreach/

http://www.usac.org/sl/about/outreach/


9. ACKNOWLEDGEMENTS

We are grateful to each of the interviewees for making time to speak to us, even though we

made it clear to them that they were under no legal obligation to do so. Their cooperation was

essential to our understanding and determination of key facts and circumstances. We also

express special thanks to the District's James Mix, the District’s Manager of Public Records

Requests, Student Records and Paralegal Services in the Legal Department, for going above and

beyond the proverbial call of duty by spending many hours in assisting us in obtaining access to

key documents, files, and certain interviewees.

10. AUTHOR BIOGRAPHIES

Clark K. Ervin is a partner in the Government Investigations/White Collar Practice Group of

Squire Patton Boggs (US) LLP based in the Washington, D.C. office. He served as the

Inspector General of the United States Department of State; the very first Inspector General of

the United States Department of Homeland Security; and a Deputy Attorney General of Texas.

His principal area of practice is representing companies and individuals being investigated by

Inspectors General; the Justice Department and other Executive Branch agencies; the Congress;

and/or State Attorneys General, as well as conducting internal investigations for public and

private sector bodies. He is a cum laude graduate of Harvard College (A.B. 1980) and Harvard

Law School (J.D. 1985), and was a Rhodes Scholar at Oxford University (M.A. 1982).

Paul C. Besozzi is a partner in the Communications Practice Group of Squire Patton Boggs (US)

LLP based in the Washington D.C. office. Among his areas of expertise, since 2003 he has

advised and represented participants in the E-Rate Program, including beneficiaries, service

providers, as well as consultants, on Program rules and procedures, audits, investigations,

compliance reviews, commitment adjustments, rulemakings and appeals before USAC and the

FCC. He is a graduate of Georgetown University (B.S. cum laude 1969), the Georgetown

University Law Center (J.D. 1972), and the George Washington University (M.B.A. 1977), both

in Washington D.C.

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