On November 28, 2011, the FCC upheld USAC’s decision to rescind millions of dollars from a service provider involved in E-rate transactions which were found to violate competitive bidding regulations. In 2007, Lakehills Consulting purchased Analytical Computer Services (ACS), a company which had been awarded E-rate contracts with the Houston Independent School District (HISD) for Funding Years 2002-2004. In 2011, USAC “rescinded numerous funding requests for Houston ISD from funding years 2002-2004 because of competitive bidding violations.”

In a joint U.S. Department of Justice and USAC investigation, USAC found that HISD had:

     “…pre-selected Lakehills's predecessor Analytical Computer Services (ACS) for its contracts. USAC further found that Houston ISD had met with ACS during the bidding period and accepted gifts from ACS. Upon review of the record, we find that Houston ISD and ACS violated the Commission's competitive bidding rules, and that E-rate funds should not have been committed or disbursed to ACS or its successors, including Lakehills…”

Lakehills Consulting filed an FCC appeal on May 31, 2011, arguing that they should not be held responsible for the actions of HISD or ACS. The company also stated that “…USAC is withholding payment of at least $20.1 million invoiced by Lakehills for the successful completion of the work…and is seeking return of approximately $62 million previously paid.”

In its appeal decision, the FCC agreed with USAC that the funding commitments should never have been approved, and that invoices submitted by Lakehills should not be paid. The FCC further stated that they are:

    “…deeply concerned about practices such as these that undermine the framework of the competitive bidding process. Service provider actions of the type addressed here suppress fair and open competitive bidding and ultimately damage the integrity of the E-rate program.' The Universal Service Fund is a limited resource, and applicants and service providers who acquire funds by violating our rules reduce the amount  available for compliant applicants…”