BREAKING: McCaskill-Requested Report Shows Massive Fraud, Waste in ‘Lifeline’ Phone Program

Senator’s report shows one-third of beneficiaries of subsidized phone program might be ineligible, no oversight of phone companies, $9 billion in universal service funds in private bank account

WASHINGTON - U.S. Senator Claire McCaskill, the top-ranking Democrat on the Senate Homeland Security and Governmental Affairs Committee, today released the results of nearly three years of investigation by the top federal government watchdog, in a report detailing systemic problems plaguing a federally-subsidized phone program that McCaskill has long targeted in her effort to protect taxpayer dollars.

Click HERE to read the report.

The investigation requested by McCaskill was conducted by the Government Accountability Office (GAO) into the Federal Communications Commission’s (FCC) Lifeline program. The report details numerous problems and vulnerabilities ranging from an inability to verify the eligibility of over one-third of participants, to providing Lifeline benefits to fictitious or deceased individuals, to auditing less than one-half of one percent of the telecommunication providers responsible for providing service.

The Lifeline program provides low-income households with discounts on telephone and broadband service. The program is one of four FCC programs funded through the Universal Service Fund (USF) and administered by the Universal Service Administrative Company (USAC), a private, non-profit corporation.

The McCaskill-requested investigation found that over $9 billion in USF funding—which pays for the Lifeline program as well as three other USF programs—is kept in a private bank account, rather than the U.S. Treasury. GAO also determined that in the more than 30 years in which the Lifeline program has been in existence the FCC has never evaluated whether Lifeline is meeting program goals, and raised questions about the program’s effectiveness.

“A complete lack of oversight is causing this program to fail the American taxpayer—everything that could go wrong is going wrong,” said McCaskill, former Missouri State Auditor. “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.”

Among the report’s findings:

  • Eligibility could not be verified for 36% of Lifeline customers. Auditors reviewed 3.5 million Lifeline accounts by comparing subscribers’ stated eligibility information with multiple federal and state databases. Of the 3.5 million accounts examined, the eligibility of 1.2 million subscribers could not be confirmed—who collectively represent $137 million per year in Lifeline subsidies.
  • $1.2 million per year in subsidies is going to fictitious or deceased individuals. Auditors found over 5,500 active Lifeline subscriber accounts with matching names, dates of birth and Social Security Numbers, collectively representing $612,000 per year in Lifeline subsidies. Over 5,400 deceased individuals were enrolled in Lifeline more than a year after they died, totaling $600,288 in improper subsidies.
  • Undercover testing found that phone companies approved Lifeline applicants with fictitious eligibility information 63 percent of the time. GAO investigators contacted 19 Lifeline providers and applied for service using false eligibility information. They were approved in 12 cases.
  • Many providers rely on contractors or subcontractors—in some cases using overseas call centers—to enroll Lifeline subscribers and review government benefit documentation to verify eligibility. However, the FCC was unaware that providers were using third-party call centers. When undercover investigators applied to work for a company that contracts with Lifeline providers to perform eligibility verification, they were hired without an interview or background check and subsequently were paid for enrolling fictitious Lifeline subscribers.
  • USAC is supposed to audit telecommunication providers to ensure they pay required USF contributions, but GAO investigators found USAC only audited one-half of one percent of providers; in the most recent year GAO reviewed, they audited less than one-tenth of one percent of all carriers.
  • The FCC keeps funding for the Lifeline program and other USF programs in a private bank account with a current balance of over $9 billion, but does not have direct control over these funds. Only USAC is a party to the contract with the bank that governs the USF account. Since 2005, GAO has recommended that the FCC move these federal funds to the U.S. Treasury, but so far no change has been made.

McCaskill has previously pushed the Senate to reform the Lifeline program. She first urged the FCC to provide stronger oversight of the program in 2011, resulting in the FCC issuing new orders to crack down on waste, fraud, and abuse. Following continued problems with the program, McCaskill used a Senate Commerce Committee hearing to urge the FCC to take action to prevent fraud. She also requested that the FCC refer possible criminal violators in the program to the Justice Department for criminal investigation, and subsequently the Justice Department indicted three men charged with defrauding the program of approximately $32 million.

A copy of the report is available online HERE.

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