Don't ask, and definitely don't tell

Wow.  Just wow.

As I reported back in 2009, the FCC got an appeal from a district which had discovered that one of its employees and the president of a service provider had defrauded the E-Rate program of $5 million and alerted the police and USAC.  The actors were imprisoned and ordered to pay back $2.1 million.  Then USAC let the district and the service provider company know that they were liable for the other $2.9 million.  The district pointed out that they never got any of the equipment or the money, so USAC should just go after the service provider and the two individuals who ran the scheme.  Seems like a reasonable request, especially since it was the district that told USAC about the fraud.

Last week, the FCC reached a decision on the appeal, and it's a doozy.

They affirmed the USAC decision, and said that recovery should come from both parties.  Is it just me, or does that seem kind of unjust?  My favorite line: "Not recovering ... because other officials were unaware of his criminal conduct would discourage E-rate applicants from creating internal review systems necessary to prevent waste, fraud, and abuse."  Think that over: this district is going to lose $2 million because it reported fraud to USAC.  To the extent that other E-Rate applicants are even aware of this decision, it provides a strong incentive not to report fraud.

And what does it mean that USAC will recover "jointly" from the district and the service provider?  It sounds like they'll go after them both until one of them pays up.  What do you think the odds are that the service provider company is still in existence?  It seems like the district is going to end up paying the whole $2.9 million.

But it gets worse.  The FCC took it one step further.  They noted that the perpetrators had not paid back most of the $2.1 million they were fined, and decided that the district should be on the hook for that, too.  Since the malefactors only coughed up $784,338 of the $5,050,431 that was stolen, if the service provider is no longer in business, it looks like the district is going to have to pay $4,266,093.  Over $4 million lost because they caught and reported an employee stealing.  That will certainly "discourage E-rate applicants from creating internal review systems necessary to prevent waste, fraud, and abuse."

And the perpetrators?  The guys who pocketed $5 million and only had to pay back $784,338?  Their debarment from the E-Rate program expired back in September 2008.