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The Cleveland school district collected only $3.7 million of more than $12 million in federal E-Rate rebates it had coming after installing internet and communications equipment in schools.

(JOSHUA GUNTER)

CLEVELAND, Ohio - Cleveland taxpayers were stuck with an multi-million dollar bill for technology upgrades in schools that they didn't have to pay - if only the city school district had followed the right procedure to receive federal "E-Rate" rebates on the costs.

A new report by the Bond Accountability Commission, the district's construction watchdog panel, found that district officials failed on multiple occasions to collect federal rebates on internet connectivity and communications equipment installed in new schools between 2006 and 2011.

Though the district had pre-approval from the so-called "E-Rate" program for $12.28 million in rebates on the work, it received only $3.71 million, the report states.

That left a gap of $8.5 million that the district never collected.

About $6.6 million of the $8.5 million was never even claimed - all despite the district and the state paying for the work and sometimes receiving two-year extensions on rebate deadlines.

That "missed opportunity," as the report calls it, amounts to:

- The school district's share of building one and a half new elementary schools.

- More than the $4.8 million received for selling its longtime headquarters on E. 6th Street.

- Or enough to build at least one of the new football stadiums residents are seeking at John Adams and John Marshall high schools, or both, depending on what the projects include.

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District CEO Eric Gordon told the school board that the BAC report has identified real issues with how the district handled E-Rate rebates.

Gordon said that in some cases, the district followed the right procedure and was reimbursed, essentially receiving communications infrastructure for free.

But other times, he admitted, it did not.

"There are also cases where the district did not turn in the appropriate receipts and did not get reimbursed," he told the board, comparing it to taking a business trip and never turning in an expense report.

He added: "That they (the expenses) did not get reimbursed is a problem and it must be addressed."

How the issue will be addressed is still to be determined. The BAC called on the district to find out exactly why the rebates were not claimed, so that it can either re-apply for them or seek restitution from contractors or consultants.

But though the BAC has been asking what happened since 2013, the report states, the district has not provided all the requested documentation or offered a detailed explanation - only a series of possible reasons for the failure.

Those include employee departures and, as the BAC called it, "CMSD bureaucratic dysfunction." The district also told the BAC that there is a possibility that the district or contractors didn't follow plans that E-Rate had pre-approved, instead installing different equipment that had not been pre-approved and might not qualify for the rebate.

"The BAC cannot rule out the possibilities of fraud and contractual non-compliance," the report states.

A real concern: Almost all of of the work in question was done by a company called Doan Pyramid, an electrical contractor that was a major part of the Cuyahoga County corruption scandal that sent several county officials to prison. Doan owner Michael Forlani was sentenced to eight years in prison in 2013 on racketeering, bribery and other corruption-related charges after admitting he landed contracts through bribery.

Those contracts included illegal contracts for the Maple Heights and the Parma school districts.

And the district's chief operating officer at the time the contacts were awarded was Dan Burns, who was convicted in 2010 of one count each of racketeering and theft in office and four counts of tampering with records. A jury found that Burns, who joined the district in 2006, faked the purchase of six duplicating machines that never existed and paid for consulting services that were never performed.

The theft totaled nearly $155,000.

Burns was also sentenced in 2011 to 10 years in prison for a separate scheme to steal $650,000 from the Toledo school district before coming to Cleveland.

Most of the work in question started under Burns and former district CEO Eugene Sanders, but issues with rebates not being claimed continued under Gordon and Burns' replacement, Patrick Zohn.

The BAC report asks: "If equipment substitutions occurred, who authorized them and why? Was substituted equipment of the same quality and capability as the originally specified equipment? How could this have occurred on an apparently large scale... without anyone at CMSD or the Construction Manager knowing about it?"

Gordon told the school board that the district is "still problem-solving" but wants to find out what happened.

"The district is owning responsibility for correcting that problem," he said.

School Board member Lisa Thomas asked him when the board would have answers going back to the start of the issue in 2006.

"What we need to do is go back through all of the records to find what receipts should have been submitted," Gordon said. Then, the district will find out which rebates E-Rate will still accept applications for.

But the district isn't offering to aggressively investigate potential fraud, even even though its former CFO and the owner of the company that did most of the work have already been convicted of other crimes. The district instead left that to the BAC.

"While the district clearly acknowledges serious flaws in past practice, we are concerned about the suggestion of fraud raised in the report," the district said in an official statement. "However, if the BAC truly believes fraudulent activity did occur during those years, they have a responsibility to provide the evidence they have substantiating that claim to the proper authorities, and the district will fully cooperate with that effort."

BAC administrator James Darr said that he and the BAC are not accusing anyone of fraud because it does not have all the answers. Darr also noted that the BAC is not a criminal investigations unit and has not received enough of the documents it has requested to answer all the questions.

Darr said he hopes the report will prompt the district to investigate so that it can recover any money it can.

As the report states: 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.

The BAC report was released just before last week's school board meeting in which the future of the watchdog panel was up for vote by the board. The district had pledged to continue funding the panel if voters passed the $200 million Issue 4 bonds in the fall to continue the district's long-running school construction program.

After the election, board members decided to make some changes with board membership and funding, even requiring an audit of BAC expenses over the last few years.

While board members sorted out those changes and sought to appoint new members of the all-volunteer panel (with Darr as the only paid employee) the BAC operated on temporary funding and only had its long-term funding approved last week - at the same meeting where Gordon addressed the latest report.

To follow education news from Cleveland and affecting all of Ohio, follow this reporter on Facebook as @PatrickODonnellReporter