A federal investigator looking into allegations of conflict of interest and mismanagement in a $1 billion-a-year Education Department reading program said Friday he has made criminal referrals to the Justice Department.

John Higgins, the Education Department's inspector general, refused to specify for reporters what he has asked government prosecutors to look at, but investigators have been highly critical of the department's management of the Reading First program.

Criminal referrals are made by investigators when they encounter evidence of possible federal crimes, which only the Justice Department has authority to prosecute.

Reading First, created by President Bush's signature No Child Left Behind law, offers intensive reading help for low-income children in the early grades. But investigators say that federal officials intervened to influence state and local decisions about what programs to use, a potential violation of the law. Some of the people who were influencing those decisions had a financial interest in the programs that were being pushed, officials said.

"I think we're very close to a criminal enterprise here," House Education and Labor Committee chairman George Miller, D-Calif., said at an investigative hearing Friday. "Have you made any criminal referrals, Mr. Higgins?"

"We have made referrals to the Department of Justice," Higgins said.

Miller said his committee may also make criminal referrals. "I think when we put the evidence together we may join you in those criminal referrals," Miller told Higgins.

But Reading First's former director told lawmakers Friday he did nothing wrong, despite investigators' findings that the Education Department skirted the law and ethical standards.

In scathing exchanges with Miller, former Reading First program director Chris Doherty defended his and his colleagues' work implementing the program.

Despite several attempts by Miller to elicit admissions of wrongdoing, Doherty refused, offering explanations for several of the complaints brought by the Education Department's inspector general and the Government Accountability Office.

"You've suggested because of logistics, because of the time frame, because you might get 50 applications all at the same time, you have a whole litany of reasons why you didn't have to abide by the law," Miller said.

"We thought then and we think now we did abide by the law," replied Doherty, who stepped down last year.

An inspector general report late last year stated that the reading program was beset by conflicts of interest and mismanagement. It found that people who had clear conflicts of interest due to their industry connections were able to serve as grant reviewers.

The inspector general stated that the review panels were stacked with people who shared Doherty's views and that Doherty repeatedly used his influence to push states toward programs he favored.

"Our work showed that the department did not comply with the Reading First statute regarding the composition of the application review panel and criteria for acceptable programs," said John Higgins, the Education Department's inspector general. "Further, the department's actions created an appearance that it may have violated statutory provisions that prohibit it from influencing the curriculum of schools."

More recently, The Associated Press reported that the program may have yet another conflict-of-interest problem. The Education Department contractor hired to help set up the Reading First program beginning in 2002 also has been brought in to help evaluate how well the program is doing.

The Education Department has pledged to make changes to ensure there will not be future problems in the Reading First program.

Doherty suggested in prepared testimony that "a distorted story" based on "the worst possible interpretation of events" has been told about the Reading First program.

"We were never told on any occasion we were violating the law," Doherty said at the hearing.

Hours before the hearing began, the Education Department released statistics showing Reading First schools saw improvement in reading fluency and comprehension for first and third graders between 2004 and 2006. But from the start, the program has been dogged by accusations of impropriety.

"The Reading First program is too important and too successful to allow it to fall prey to management questions," said California Rep. Buck McKeon, the committee's ranking Republican.