A federal agency is demanding the state of West Virginia return $4.7 million in misspent funds paid to Frontier Communications as part of a much-criticized project designed to expand high-speed internet across the state.
The U.S. Commerce Department’s payment demand follows an inspector general’s report that found Frontier padded hundreds of invoices with extra charges, and the state improperly reimbursed Frontier for those “unreasonable and unallowable” fees. Federal grant rules barred the state from using stimulus funds to pay such project costs.
The state is expected to file an appeal.
“We do not comment on pending litigation or administrative action,” said Diane Holley-Brown, a spokeswoman for the state Department of Administration.
In 2010, the federal government awarded West Virginia $126.3 million in stimulus funds to expand high-speed internet to schools, libraries, health clinics and government buildings. The grant money included $42 million for a fiber cable network.
The state asked Frontier to install 915 miles of fiber to hundreds of public facilities across the state, but it scaled back the project to 675 miles. Nonetheless, the state paid Frontier the entire $42 million initially set aside for the project. Frontier finished the project two years ago.
The company improperly tacked on $4.24 million in extra charges to pay for administrative costs, according to the federal report. Frontier labeled those charges as “loadings.”
State officials told investigators a federal broadband administrator gave the state the go-ahead to pay the extra fees. But the federal administrator denied he had done so, according to the report.
Another $465,000 in improper payments went to Frontier to process invoices, the report says.
A Frontier spokesman declined to comment last week.
The federal government’s $4.7 million payment demand could grow even higher.
The Commerce Department letter cites findings that Frontier misled the public about the amount of unused fiber cable — called “maintenance coil” — the company installed across the state. The extra fiber, which is stored at public buildings and used for repairs, drove up the broadband expansion project’s cost.
Frontier placed 49 miles of spooled-up, unused fiber in West Virginia, four times the amount the company had disclosed to state officials.
The feds have ordered state officials to disclose whether the extra coil was included in the total miles of fiber the state claimed Frontier built with stimulus funds. The state also must get an “explanation from Frontier for the reason it misrepresented the maintenance coil mileage to the public,” according to the Commerce Department’s Aug. 21 letter.
State officials released the letter Friday afternoon after the Gazette-Mail requested a copy.
Last year, Citynet sued Frontier for allegedly stifling competition in West Virginia and using the federal stimulus funds to build a broadband network that solely benefits Frontier. The lawsuit also named three state officials — Homeland Security Director Jimmy Gianato, former Commerce Secretary Kelley Goes and former Chief Technology Officer Gale Given — who oversaw the project.
Frontier has disputed the allegations, characterizing Citynet as a disgruntled competitor with a six-year vendetta against Frontier, which is headquartered in Connecticut.
Last week, Citynet filed a motion to dismiss Goes from the lawsuit. Goes submitted an affidavit that supports some of Citynet’s allegations.
Goes’ affidavit says the state’s application for stimulus funds “did not contemplate using” the grant money to reimburse Frontier for indirect costs. The filing also states the project was supposed be an “open-access” network that internet providers could connect to and serve customers. Citynet alleged Frontier constructed the network in such a way that shuts out competitors.
Goes departed her state job in December 2010, before Frontier started installing fiber for the federally funded broadband project.