Study dissects how, where tribe went wrong on OnSat contract
By Jason Begay
WINDOW ROCK, Oct. 29, 2009
OnSat, the Utah-based telecommunications company whose name was once inseparable from that of President Joe Shirley Jr., sought and held a monopoly on the Navajo Nation's broadband service, according to a 2008 report cited by the tribal council in its decision Monday to put Shirley on investigatory leave.
The report, a copy of which was obtained by the Navajo Times, does not mention Shirley, whose administration inherited an OnSat contract when he took office in early 2003.
OnSat's contracts with the tribe greatly expanded under Shirley and the company assisted him in becoming an international advocate of Internet connectivity for underdeveloped areas.
But it is his key staffers and appointees that the report's authors place behind a tribal funding and accounting system gone awry, allowing contracts to spiral almost uncontrollably.
The report was commissioned by the Navajo Nation attorney general following an unfavorable tribal audit of OnSat in 2007, and was conducted by the Washington, D.C., law firm of Garvey Schubert Barer.
Included in the report's allegations is the claim that Ernest Franklin, then-executive director of the Navajo Nation Telecommunications Regulatory Commission, forged documents to increase one funding request by more than tenfold.
The report, dated Dec. 8, 2008, is addressed to the Universal Service Administrative Co., a private entity that doles out federal E-Rate funds. E-Rate funds are used to develop telecommunications, such as Internet service, in underserved and low-income communities.
OnSat came to the Navajo Nation during the administration of former President Kelsey Begaye and obtained a contract to connect all 110 chapter houses to the Internet. USAC agreed to provide E-Rate funds to pay 90 percent of the tribe's bill for Internet service from OnSat.
USAC pulled the funding after it caught wind of the 2007 tribal audit alleging the tribe overpaid OnSat by more than $600,000, and raising questions about how the company's contracts with the tribe had ballooned to many times their original size.
The attorney general's office commissioned the E-Rate report to address USAC concerns.
Attorney General Louis Denetsosie did not respond to repeated calls for comment from the Navajo Times.
Not only did the tribe overpay OnSat, at least one tribal program - Navajo Nation Head Start - was used to bilk millions out of the USAC agreement, according to the report.
"Our review reveals what appears to be one forged document," the report states.
One amended section that extended OnSat duties by a year was apparently faked by changing key numbers on a previously approved form to make it appear as it were a new, approved amendment, according to the report.
The falsified document "lacks any documentation indicating that it was processed, approved, and/or forwarded to OnSat for implementation," the report states. "We therefore conclude that (the document) was never signed by a qualified representative of the nation nor approved through the (required) process."
In addition, the cost of providing Internet service to Head Start classrooms was stated as $3.7 million, while the real figure was a little over $300,000.
Both the forged and original documents are identical in detailing the scope of work that OnSat would provide, but what cost $318,240 one year increased to more than $3.7 million the next, the report said.
"There is no explanation as to the source of the ($3.7 million) figure," the report states.
During the investigation, Franklin told interviewers that the lower figure reflected the discounted rate and the larger number represented the full cost of the Internet service.
"The problem with this explanation is that it deviates completely from the Navajo Nation's prior practice," the report states, "which was to reflect the total contract costs on its books."
'Nightmare' to manage
Overall the report states that the contract between OnSat and the Navajo Nation eventually became a "nightmare" to manage because of all the addendums that were added through the years.
Normally, substantial amendments are not allowed to contracts between the tribe and an outside vendor. Instead, the tribe has a set of procurement rules that must be followed, such as advertising publicly to find the lowest price for a service or product.
However, the OnSat contract was continuously amended to add millions of dollars worth of services involving several tribal programs and departments, the report states.
"The large number of 'modifications,' 'addendums' ... that modify both the master agreement and the Head Start agreement make tracking the services provided, and payments for such service, almost impossible," the report states.
For instance, the master agreement between OnSat and the tribe was signed in 2001. Within five years, that contract had been modified 22 times. The modifications included supplying additional equipment, increasing bandwidth at the chapter houses and adding tribal departments to be served, including the Office of the President, which started receiving Internet service from OnSat in 2005.
In total, the modifications added $5.3 million to the original contract. And many times, the tribe ended up paying OnSat more than the 10 percent it should have under the E-Rate program.
For all of the services provided by OnSat, the tribe was obligated to pay $1.9 million to cover services provided from 2003-07. However, the nation actually ended up paying $2.8 million, the report states.
"The longer the master agreement remained in force, and the more it was modified, the more difficult it became for the nation to exercise oversight and comply with Navajo law," the report states.
Tribal law requires several tribal offices to approve contracts and modifications therein. And although the tribe did follow this system initially, the contract became so mired in modifications that the review process collapsed.
"As more modifications and addenda were layered onto the master agreement, the chain of review appears to break down," the report states. "The nation apparently became confused as to what modifications had been approved or even needed approval."
This confusion led to the elements that allowed the Head Start forgery to take place, according to the report.
Rush to payment
The contract had a very strict 10-day deadline in which the tribe could seek a refund or contest the services provided by OnSat, the report states.
This was a problem because when service was not up to scratch, the tribe had little time to file a dispute.
The report goes on to question why OnSat charged the Navajo Nation higher rates that it did in its other commercial ventures, which were conducted under its OnSat Native American Services Inc. brand.
It also expresses concern about Internet blackouts, sometimes lasting a day or longer. Inscription House Chapter reported being without Internet service for two months. At other times, the service was described as extremely slow.
OnSat also continued to charge Head Start for services even after federal Head Start officials shut down the Navajo program for unrelated reasons in 2006, the report states.
Eric Iversen, director of external relations with the Universal Service Administrative Co., said the company has no comment on the report's findings until the tribe resolves the matter. However, USAC won't process the Navajo Nation's application for E-Rate funds until the tribe works through its internal issues.
"We will keep working with the nation to figure out what we need to do to get (the tribe) back in full standing with the program," Iversen said.