An Indiana state agency violated federal eRate rules by not seeking competitive bids on internet services and then fixing prices at high rates, a recent report claims.

The Intelenet Commission, a public-private agency that administered the Indiana project, already has set aside $5 million in anticipation of federal penalties, although it was unclear how much the government would demand, the Indianapolis Star has reported.

The U.S. Attorney’s Office is investigating Indiana’s compliance with the eRate, which has provided about $23 million in federal grants to Indiana since 1998 for telecommunications services and internet access in the state’s schools and libraries.

The report, written by attorneys from Bose McKinney & Evans, said Intelenet repeatedly did not meet the eRate’s competitive-bidding rules when it arranged for technology services through one company, ATT-TSCO.

Because prices were not set by competitive bids, the result was outdated prices that were considerably higher than retail, the report said. Instead, prices were set by officials from Intelenet and the Indiana Higher Education Telecommunication System, a state group that serves as the equipment and systems manager, according to the report.

Indiana also could be at risk of losing future technology money from the federal government, which would mean the state or its schools and libraries would have to pay more, the Star reported.

“The government appears to have some pretty legitimate claims,” said the state’s new chief information officer, Karl Browning, who started overseeing state technology in January. “I haven’t found anything good about it yet.”

Neither the U.S. Attorney’s Office, nor the Federal Communications Commission, which oversees the eRate, would comment about an ongoing investigation.

Former Gov. Joe Kernan said in January that Intelenet might have broken federal law by accepting too much money from the program. The federal investigation began in July with the Indiana Web Academy, a state-run internet program for schools, whose former director is under investigation.

The investigation then was expanded to include Intelenet and the Indiana Higher Education Telecommunication System.

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