(Adds details, background, reaction from FCC commissioners)
By David Shepardson
WASHINGTON, Oct 17 (Reuters) - Verizon Communications Inc said on Tuesday it will pay $17.7 million to resolve a probe by U.S. regulators and the Justice Department into potential payment violations related to a federal school broadband program.
The program, called E-rate, is a federal government-backed scheme that provides subsidized broadband and internet service for schools and libraries in the United States and is funded through monthly fees on phone service.
The Federal Communications Commission, the U.S. telecoms regulator, and the Department of Justice said Verizon had invoiced the FCC for consultant charges that were not allowed under an E-rate contract it had to supply the New York City Department of Education with its services.
Verizon said on Tuesday that "today's settlements fairly resolve years of work by Verizon and the government to return funding to the program."
The company said that it was a victim of fraud, citing the conviction of a former New York City Department of Education consultant, Willard Lanham.
Lanham was sentenced to 37 months in prison in 2012.
"Like the New York school system, Verizon was a victim of that fraud and five years ago helped to convict Lanham," the company said.
Government documents said the fraud may have lasted from as long as 2002 through 2008, but Verizon was only charged in a federal civil complaint with filing a fraudulent bill in 2006.
The government cited a New York City Department of Education investigative report that said Lanham was responsible for significant fraud, creating a subcontracting scheme through which he billed millions of dollars to the city school department for consultants he employed without the city or Verizon's knowledge.
Lanham "manipulated bills Verizon sent" to the department, the FCC said.
In December 2015, the department agreed to pay $3 million to resolve the FCC investigation. The department, which has approximately 1.1 million students in over 1,800 schools, has received approximately $1.3 billion in E-rate program payments since 1998.
As part of the FCC settlement, Verizon will operate under a compliance plan for three years. It also agreed to surrender any appeal rights to more than $100 million in E-rate subsidy payments.
FCC chairman Ajit Pai said in a statement that the settlement was an "important measure that both enforces our rules and restores critical taxpayer dollars" to the Universal Service Fund, a government fund that provides subsidies for telecommunications services.
Democratic FCC Commissioner Mignon Clyburn said in a statement the incident caused "over $50 million of harm to the Universal Service Fund" and said the FCC settled "for a fraction of that harm." (Reporting by David Shepardson; Editing by Sandra Maler and Rosalba O'Brien)