West Virginia On the Hook for Misused Federal Broadband Funds

According to the U.S. Department of Commerce, the state must repay nearly $5 million in misused grant money. A 2017 report alleges that Frontier Communications padded costs related to overhead.

by Jake Zuckerman, The Charleston Gazette / May 22, 2019
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(TNS) — The Legislature set in motion a $4.7 million repayment to the federal government Monday after the state, through Frontier Communications, misused grant money provided to expand broadband in West Virginia.

The appropriation came after the U.S. Department of Commerce denied the state’s administrative appeal in April to reduce the repayment demand.

“Accordingly, the $4,705,000 debt established by the Bill for Collection dated November 17, 2017, remains in full force and effect, with no adjustments being made as a result of [West Virginia’s] appeal,” the rejection letter states.

Frontier padded scores of invoices associated with a Broadband Technology Opportunities Program Grant with $4.24 million in “loading charges” — indirect costs related to overhead — and $465,000 in “invoice processing fees,” according to a 2017 report from the department’s inspector general.

The federal government deemed these costs “unallowable” and demanded repayment in 2017.

Internal communications contained within the report show Frontier officials referring to the invoice processing fees as a 35 percent “markup,” and “revenue opportunities.”

Additionally, the report found that Frontier misrepresented to the state and the public the amount of “maintenance coil” — extra cable stored at public facilities used to repair damaged fiber — it provided.

Frontier told the state and public it had placed only 12 miles of coil. Once the investigation began, however, Frontier “ultimately acknowledged that it installed approximately 49 miles of maintenance coil, or nearly four times the amount that it had previously asserted was installed in accordance with industry standards.”

The report contains an email exchange from a company consultant to an employee.

“OMG! … it looks like not only do we not know how much fiber we actually placed, but we don’t know how much of what we placed is coiled up on poles. Looks like our previous estimate of 12 miles of coil for the entire project is way off the mark,” read the first email.

“If indeed the average coil footage per mile of fiber placed is 400 feet, then the total miles in coils is 47.5 miles. This is 4 times greater than we told [a state employee] earlier ... I don’t think we need to tell [that employee] unless she asks again,” the response says.

The loading charges amounted to extra fees attributed to administrative costs, which the state was made aware of. State officials claimed a federal broadband official gave the go-ahead, but the federal official denied having done so, according to the report. The inspectors general deemed this to be a “substantive miscommunication.”

Despite the legislation’s unanimous passage in both chambers, several lawmakers voiced frustration over paying for Frontier’s actions. Some also floated the possibility of urging the state to file legal action against Frontier.

Sen. Randy Smith, R-Tucker, offered the idea of passing a resolution calling on Attorney General Patrick Morrisey to seek reimbursement and damages from Frontier.

“Here we are, going to pay $4.7 million, and Frontier is getting off the hook — free,” he said. “They’re not accountable for any of it, because they were our subcontractors. This isn’t fair to the citizens of West Virginia. They’ve been raked over the coals again.”

Likewise, Sen. Greg Boso, R-Nicholas, also floated the idea of asking Morrisey to pursue legal action.

On Tuesday, Delegate Daniel Linville, R-Cabell, said in an interview that the state needs to pay the federal debt, for now, but Frontier should have to pay for its “egregious” conduct detailed in the inspector general’s report.

“It plainly shows that their motive behind that was to milk us for every last dollar that they possibly could,” he said.

In a statement, Robert Elek, public relations director for Frontier, said the company is “monitoring these developments” in the Legislature.

“As Frontier has maintained since it became involved in the [Broadband Technology Opportunities Grant] project, all of its costs on the project were entirely proper,” he said.

Brian Abraham, general counsel to the governor, said Tuesday the state is considering legal action but that things are purely deliberative at the moment. A Morrisey spokesman deferred comment to the Governor’s Office.

In 2017, Frontier told state officials it would not give back any of the $4.7 million, saying it agreed to the deal under the condition that the state would reimburse it for direct and indirect costs.

The state appealed the federal government’s claim in November 2017.

“The agency decision to disallow and demand $465,000 paid for improper fees against the state rather than proceeding under the false claims act against Frontier to obtain the funds and treble damages is unwise, arbitrary and capricious,” it wrote.

However, the feds rejected this argument, finding that it was the state’s job to manage the grant and any subgranting to assure compliance with federal rules and regulations.

Regarding the $4.24 million in loading charges, the state argued that the terms and conditions associated with the grant allowed it to handle its own indirect costs with subgrantees. This argument was rejected, as well.

The funds the Legislature appropriated come from the state treasurer’s unclaimed property fund. They first go to to the Governor’s Office and are destined for the federal government’s coffers.

The money in question is a piece of a $126.3 million federal grant to West Virginia to expand high speed internet, including $42 million for a fiber-cable network. West Virginia paid Frontier $42 million for 675 miles of broadband fiber to public facilities around the state.

©2019 The Charleston Gazette (Charleston, W.Va.). Distributed by Tribune Content Agency, LLC.

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