Federal investigators are examining a multimillion-dollar scholarship program that U.S. Rep. Chaka Fattah founded four years ago and abruptly announced last month that he was shutting down.

The inquiry appears to be in its early stages, with investigators asking about the use of federal grant money that has flowed into the program, named CORE Philly.

Two people familiar with CORE Philly said last week that the FBI had contacted them. One, a public-relations consultant, said she had been served a grand-jury subpoena requesting copies of videos she made for the program.

Fattah (D., Pa.), elected last month to an eighth term, said Friday that he had learned of the inquiry in July from the program's former executive director.

"This is an audit of a past grant," Fattah said, "and that's that."

He said he believed it concerned a $700,000 Justice Department grant made in 2005 to help CORE Philly cover staffing, computers and more. He said he believed the inquiry had taken on greater urgency because of what he felt were unfair complaints by a "disgruntled" employee.

Though he holds no official position with the program, Fattah, as a member of the powerful House Appropriations Committee, has secured at least $3 million in congressional earmarks for it.

CORE Philly, which has awarded $24 million in scholarships to college-bound high school students in Philadelphia, receives most of its funding from the city and the Philadelphia School District.

Officials from both were surprised last month to learn Fattah was ending the program because, he said, a $1 million cut in the city's annual subsidy made its continuation impossible.

The federal scrutiny began with an audit at least six months ago by the Justice Department - one of many agencies that has helped fund CORE Philly - and is continuing with questions from the department's Office of Inspector General and the FBI, according to people familiar with the investigation.

Based on interviews with vendors who have worked for the program and others with knowledge of the inquiry, investigators are interested as well in a nonprofit named the Educational Advancement Alliance (EAA). It was also founded by Fattah and, in an unusual arrangement, provides some of CORE Philly's funding.

Thera Martin-Connelly, a public-relations consultant who did work for CORE Philly, said FBI agents in August had delivered a grand-jury subpoena to her home for videotapes she made of CORE Philly events. Martin-Connelly, who also hosts a talk-radio show on WURD-AM (900), said she had given them four tapes.

"They only wanted to know what my role was, what I did, and to show proof of it," she said Friday, noting that the EAA had paid her about $5,000 for her work.

A former city official who asked not to be identified said law enforcement officials had approached him a month ago with questions about CORE Philly and the role of the EAA.

Asked in a brief phone interview about the Justice Department audit, Thomas Butler, CORE Philly's former executive director, said: "I can't talk about that. I can't talk about what's going on with CORE Philly." Butler left the program in September and now leads another education-related program, Project GRAD.

Butler's attorney, Richard Harris, said yesterday that there was no indication that Butler or CORE Philly was a target of the inquiry.

"We're cooperating with the federal authorities, and we're providing as much information as they need to assist them in their investigation," Harris said.

Fattah said he had not been questioned by federal officials and had no knowledge of subpoenas being delivered.

"I don't know whether this falls on the side of an FBI investigation or the inspector general. . . . My impression is it falls on the side of the inspector general and that it's an audit," he said.

Whatever its source, Fattah said, he believes the review is a routine monitoring of federal money. He added that it might be generating high-level attention because of complaints from an unhappy worker. He declined to identify the worker or specific complaints.

"In any operation from time to time, you can have a disgruntled staffer, and people can weave all kinds of tales," he said.

Of CORE Philly, he said: "The program has run remarkably well. . . . Before people's good names are run in the mud here, we should wait and see what happens."

J.J. Klaver, spokesman for the FBI office in Philadelphia, declined to discuss the matter. "We don't confirm or deny the existence of any ongoing investigation," he said.

To date, CORE Philly - the acronym stands for College Opportunity Resources for Education - has awarded $24 million in scholarships, all of them to public and private city high school students for "last-dollar" financial aid to help cover first-year college costs.

The scholarships are for up to $3,000 each and are reserved for students attending Community College of Philadelphia or a state-related university.

Fattah created the program through a partnership with then-Mayor John F. Street, who agreed to support CORE Philly with an annual $4 million for four years, and Paul Vallas, then chief executive of the Philadelphia School District, who guaranteed $6 million a year for the same period.

Under the deal, the city and school district dollars would be used only to fund the student scholarships, while Fattah was responsible for providing administrative support.

To do so, he turned to the EAA. Founded by Fattah in 1990 to encourage low-income students to pursue college, its president is Karen Nicholas, a former aide in Fattah's Philadelphia congressional office, and its chairman is Raymond Jones, a longtime political aide to Fattah.

Neither Nicholas nor Jones returned calls last week.

Also on EAA's payroll were Butler, CORE Philly's $80,000-a-year executive director, and James Mitchell, who was paid $95,000 annually as CORE Philly's director of campus outreach, according to a review of public tax records filed for 2004, 2005 and 2006.

With a $6 million budget in 2006, the latest year for which information was publicly available, the EAA depends on federal funding pulled in by Fattah for most of its revenue.

In all, Fattah has used his leverage on the Appropriations Committee to secure nearly $15 million in federal grants for CORE Philly and EAA since 2005. The money came from agencies including NASA and the Departments of Justice and Education.

Fattah announced in a Nov. 26 letter that he was closing the program.

"Regretfully, the budget realities of the City of Philadelphia make it impossible to continue this effort," he wrote to Mayor Nutter and City Council President Anna C. Verna. "I have made the difficult but necessary decision to close down the CORE Philly scholarship program at the conclusion of the spring 2009 term."

Until then, CORE Philly will continue to cover college bills for about 3,000 scholarship recipients.

Fattah has also attributed his decision to his inability to raise money for an endowment that he wanted to use to support the program in the long term, instead of relying on city and school district dollars.

Just $5 million has been collected, far short of a $200 million goal Fattah announced in June.

Contact staff writer Marcia Gelbart at 215-854-2338 or mgelbart@phillynews.com.