DISD Vendor’s Funding Frozen

Aug. 23–Federal authorities have frozen payments to a lead computer vendor for Dallas schools pending an inquiry into dealings between the company and district officials, including jobs, campaign donations and luxury boat rides.

In a letter received by the school district last week, the agency that runs the federal E-rate technology-in-schools program also warned it could seek to recover some of the $55 million already paid to vendors for work at the Dallas Independent School District since 1998.

The letter asks for a written explanation of practices revealed by The Dallas Morning News and warns that the district’s applications — $62 million of which are currently pending — and invoices will get extra scrutiny because of the reports. And the letter says the news reports, if substantiated, raise “serious concerns” about the school district’s future participation in the E-rate program.

DISD issued a statement saying the district is drafting its response.

“We believe in an open system and seek to maintain the integrity of the district through this re-examination of the facts,” the statement quoted DISD Superintendent Michael Hinojosa, the recipient of the letter. “There are youngsters in Dallas who will benefit for decades from the technology that has been installed in district schools because of this program.”

Houston-based Micro System Enterprises, the computer vendor in question, released a statement calling the funding freeze “an administrative action brought on by an unfair attack” by The News.

“We have received a similar letter from [the federal agency] and have responded appropriately, and fully expect funding to be restored,” the statement said. “We are so confident that we are continuing work without interruption.”

The letter was sent by Mel Blackwell, vice president of the Universal Service Administrative Co., which collects and disburses E-rate money through taxes added to telephone bills. A copy was sent to the Office of the Inspector General of the Federal Communications Commission, the parent agency of the E-rate program.

“As good stewards of the program, we will take the necessary steps to look into any matter that raises questions about the appropriate use of funds,” said Tanya Sullivan, a spokeswoman for USAC.

Among the items described as of “extreme concern” to federal officials were:

–The top DISD computer official’s acceptance of the regular, free use of a 59-foot sport fishing boat owned by executives of Houston-based Micro System Enterprises.

When confronted about the boat use, associate superintendent Ruben Bohuchot and Micro System President Frankie Wong both said that although Mr. Bohuchot helped pick out and name the boat, he did not influence the district’s computer contracts in Micro System’s favor. Mr. Bohuchot has been suspended with pay during the district’s investigation.

–DISD Trustee Ron Price’s acceptance of $25,000 in political contributions from Mr. Wong and two of his business partners — his entire campaign fund for last year. Mr. Price, who chaired the committee that reviewed Micro System contracts, said the donations did not influence that process. Mr. Price did not return a call seeking comment Monday.

–Jobs given by Micro System and related companies to Mr. Bohuchot’s son-in-law and the grandson of DISD trustee Hollis Brashear, who as board president signed Micro System’s contract on behalf of all trustees.

Mr. Bohuchot declined comment on his son-in-law’s employment. Mr. Brashear did not return calls Monday. Earlier, he and DISD lawyers said there was no violation of nepotism laws since his grandson worked for a vendor and not the district. And, they said, Mr. Brashear had no greater role than any other trustee in picking Micro System.

The letter from USAC said those jobs created “at a minimum an appearance of a conflict of interest and potential compromise of the competitive bidding process.”

Lois Parrott, the DISD board president, said she voted against the complex E-rate deal between the district and a group of companies led by Micro System.

“You never really see the money as board members,” Dr. Parrott said. “You just don’t know where it’s going.”

When a district applies for E-rate money, it designates a contractor as recipient of those funds.

Federal records show that DISD has sought more than $369 million in E-rate money for contracts for 2003 to 2005, designating Micro System as recipient of 96.6 percent of the funds. DISD requests have accounted for 95 percent of the total $356.7 million in E-rate applications on behalf of Micro System by districts nationwide.

But all that money won’t necessarily flow to Micro System. Some funding applications were denied, including $161 million worth last year. In other cases, some of the money remains unspent.

In its complaint about The News, Micro System executives have said the figures reported by the federal government overstate the company’s actual proceeds from DISD deals. The executives said the numbers don’t reflect money paid to other firms participating in a so-called technology consortium for which Micro System is the lead member.

“This attack has included misleading and totally erroneous reports that MSE will receive 96 percent of $369 million in contract funding, and that it ‘stands to make hundreds of millions of dollars,” although the total contract is only $125 million, of which we receive only a portion,” the company said.

Since 2003, Micro System has collected more than $29 million in E-rate funds from DISD contracts. However, federal authorities have authorized the district to spend an additional $81 million on agreements with Micro System. The district will lose that money unless invoices are submitted by Sept. 30.

It could not be determined Monday whether the federal freeze will affect that deadline.

The consortium led by Micro System is responsible for a wide variety of projects at DISD, many of them aimed at getting the districts’ students and teachers wired to one another and the Internet.

But, Micro System has not responded to requests seeking a breakdown of which companies got what amounts.

Since Micro System gets and disburses the E-rate money, the decision to freeze payments could squeeze all the other vendors working under the consortium deal.

“For them to freeze the funds makes absolutely no sense,” said Tom Lazo, president of Dallas-based Lazo Technologies Inc., a consortium member heavily involved in a $110 million E-rate deal that began in 2003.

He said his company has gone into more than five months of debt to complete its portion of a project he called “hellacious.”

“This poor judgment by one individual is only going to hurt the minority companies that have put in their sweat and blood to get this project done. Our reputation’s at stake,” Mr. Lazo said. “I can’t control what Frankie Wong does with his money and time.”

The freeze is not the only threat to shut the DISD E-rate tap: 97 percent of the district’s $165 million application for 2004 funding was turned down because the district did not have signed contracts with vendors in place when the application was made.

The district has said it is appealing that denial, but there was no indication that the appeal has been successful, according to the federal Web site that lists E-rate awards.

By Pete Slover and Jessica Leeder

WHAT’S NEXT:

–Frozen payments: Payments will stop to DISD computer vendor Micro System Enterprises.

–Investigation: Federal officials will review DISD’s response and decide among options that include: referring the matters to law enforcement; seeking recovery of money already paid to vendors on DISD’s behalf; re-examining DISD’s continued participation in the E-rate program.

YACHTS, MONEY, JOBS: WHAT THE NEWS HAS FOUND: A look at revelations so far in The Dallas Morning News’ investigation of relationships between Dallas school officials and companies that received federal E-rate contracts through the district:

–Fishing: Dallas schools’ chief technology boss has for years accepted the free, regular use of sport-fishing yachts owned by a top provider of computer hardware to DISD. Ruben Bohuchot, an associate superintendent earning $143,492 in the district, says he did not help Houston-based Micro System Enterprises win business even though he wrote job specifications and negotiated final terms of deals after they were awarded. He has been on paid administrative leave since after The News ‘ report appeared. The school board met privately on Mr. Bohuchot’s status last week but took no action.

–Contributions: All of the $25,000 in political contributions raised by DISD trustee Ron Price last year came from three closely associated computer contractors, including the one that gave Mr. Bohuchot use of the yachts and free fishing trips. Asked why he believed the president of Micro System, Frankie Wong, gave him $10,000 last fall, Mr. Price said: “He’s a great guy. I’m a good guy.” Until May, Mr. Price was chairman of the trustees’ business briefing panel, which considers technology and other contracts before they go to the entire school board. Mr. Price said he couldn’t recall discussing contracts for Mr. Wong’s firm.

–Relatives’ jobs: Trustee Hollis Brashear confirmed that his college-age grandson worked for Micro System in a warehouse for “a period of time” during 2004 and then again this May. Mr. Brashear said the arrangement was legal because his grandson did not work for the district. “My grandson worked for a vendor, that’s it,” he said. The News also found that Mr. Bohuchot’s son-in-law works at the offices of a company tied closely to the consortium led by Micro System.

–No paper: Dallas school officials said they have no documents to show for a $50,000 outside inquiry that Mr. Bohuchot says cleared him of taking gifts from vendors. Superintendent Michael Hinojosa, appointed since the report was made, said the report was given orally to the board. The audit, completed around March 2004, was conducted by the consulting firm KPMG. A spokesman for the firm declined to comment, citing client confidentiality.

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