ALBUQUERQUE — A Utah-based company that provides public Internet access to the Navajo Nation plans to shut off the tribe's service Monday, leaving thousands of Navajos without online access to do school work, post community announcements or communicate with others across the 27,000 square-mile reservation.

"It's going to be a sad day," said Ernest Franklin, director of the tribe's Telecommunications Regulatory Commission.

The shutdown stems from a decision by Universal Service Administration Co. — which administers the E-rate program under the Federal Communications Commission — to withhold $2.1 million in reimbursement funds to OnSat Network Communications Inc. over concerns about a federal audit of the Utah-based company.

The E-rate program reimburses between 85 percent and 90 percent of the costs for Internet services to the tribe's chapter houses, which operate like city governments. The Navajo Nation covers the rest.

Because of the delay in payment, an attorney for OnSat said it can't pay a subcontractor — SES Americom — for satellite time.

"With USAC taking this particular position, it doesn't look like we're going to get paid in the foreseeable future," said Jim Fitting. "We're already $4 million in the hole, so why should we continue doing it."

In a letter dated March 28 to Navajo President Joe Shirley Jr., USAC said it is withholding money for OnSat from funding year 2006-07 because of concerns over a tribal audit that found OnSat has overbilled for services and the tribe didn't comply with procurement rules or a competitive bidding process in selecting OnSat.

FCC rules require applicants to select the most cost-effective service or equipment and a fair and open competitive bidding process.

The USAC is asking the tribe to prove OnSat has provided the services for which payment is sought, and it has taken steps to ensure USAC is billed only for the services provided at each eligible site. It also is asking the tribe to document any processes it in place to make sure Internet service is uninterrupted.

The audit also is at the center of a lawsuit OnSat filed against the tribe last July in Window Rock District Court — which the USAC also raised concern over. A preliminary injunction issued July 20 essentially freezes the report from further use, Fitting said.

OnSat president Dave Stephens and Fitting have maintained the audit findings were based on faulty assumptions and a lack of understanding of the contract. "We don't believe this audit is valid," Fitting said.

The Navajo Nation has 45 days from March 28 to respond to the USAC's letter. Based on the tribe's answers, USAC can either release full funding, partial funding or deny the funding, said USAC spokeswoman Laura Betancourt.

"They're just in a holding bin until we get satisfactory answers," she said.