FCC combats fraud as inspector general finds more than $300 million in improper payments in Lifeline program

Johnny Kampis

January 3, 2019

This article originally appeared on Watchdog.org on December 21, 2018.

A recent audit found that waste, fraud and abuse in the Lifeline subsidy program has increased exponentially as the Federal Communications Commission (FCC) transitions the program from focusing primarily on landline telephones to wireless and broadband internet.

The examination from the FCC’s Inspector General (IG) discovered that improper payments in the Lifeline program rose from $40.65 million in Fiscal 2016 to $336.39 million in 2017, a more than eight-fold increase. Auditors also found the improper payment percentage in the program was nearly 22 percent, more than double the statutory limit established by the Office of Management and Budget. The IG examined all four programs under the umbrella of the Universal Service Fund and none of them saw close to the amount of waste as Lifeline, with the Schools & Libraries program (also commonly known as eRate) the next highest with an improper payment percentage of 4.34 percent.

The IG audit follows a 2017 report by the Government Accountability Office (GAO) that first uncovered the massive increase in waste in the program.

The GAO examined the program for the period between June 2014 and May 2017, and said it couldn’t confirm that 36 percent of Lifeline recipients were eligible to receive the $9.25-per-month subsidy provided by the program. Auditors went undercover, pretending to be applicants, and said that providers approved their false applications 63 percent of the time. The GAO audit also found that false identities or dead people receive at least $1.2 million annually from the program.

Recipients of Lifeline must have an income level at or below 135 percent of the federal poverty level, or already participate in programs such as food stamps or Medicaid. They must also be living.

The eye-opening report led Sen. Clair McCaskill to declare that “we’re currently letting phone companies cash a government check every month with little more than the honor system to hold them accountable, and that simply can’t continue.”

But the government is fighting back. In October, for example, the FCC proposed a fine of more than $63 million for Ohio-based American Broadband, a company alleged to have bilked ratepayers out of millions by filing fraudulent claims for the subsidies, which are passed on to customers. But in this case, there were no real customers – American Broadband allegedly filed more than 42,000 false claims in just one month in 2016 by using the names of the deceased or changing Social Security numbers or birth dates for the living.

The FCC said the company’s CEO, Jeffrey Ansted, funded his $8 million private jet, $1.3 million condo in Florida and a $250,000 Ferrari with the money gained by the malfeasance.

“It would be hard to describe a more brazen or textbook example of fraud, particularly when the entire purpose of the Lifeline program is to benefit low-income individuals,” Carr said.

Tom Struble, technology policy manager for R Street Institute, told Taxpayers Protection Alliance such cases are all too common. He points out that since the carriers get the vouchers, “they have a perverse incentive to enroll as many people as possible.”

“We have to learn from past mistakes and set the program on the right course,” he told Congress last year of plans to modernize and tighten up the program.

The FCC has taken steps to combat the fraud. For one, it is eliminating the ability of resellers like American Broadband to get the funds, as much of the waste was coming from those third parties who buy wireless from companies like AT&T, Sprint and Verizon. For another, it now prevents more than one person in each household from qualifying.

A measure that’s being debated is the national Lifeline verification program. Under previous Chairman Tom Wheeler, the FCC created the verifier for providers wanting to join the program. The measure passed 3-2 along party lines, with Pai arguing in his dissent that states had done the best job of combating fraud. Given the meteoric rise in fraud the past year he may be right, although Struble points out that a national system could increase efficiency and streamline the application process.

“I understand why we’re moving to a national system,” he said.

The Lifeline National Verifier website just became operational this year so Struble expects that the data provided in 2019 will allow stakeholders to better judge the effectiveness of the new system in combating waste in Lifeline.

“People are waiting to see how things change with this new database in effect,” he said.

Given the money that is at stake, it’s important that the FCC curtail as much of the waste as possible, especially given that one of the missions of the modernized Lifeline is to close the digital divide. Massive fraud will hamper that effort.

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