Free phone program riddled with fraud, audit says - KMOV.com

Free phone program riddled with fraud, audit says

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WASHINGTON, D.C. (KMOV.com) -

The program called the “Free Government Cell Phone” program is plagued by "massive fraud" and "waste," according an audit ordered by Sen. Claire McCaskill (D-Mo.), the top Democrat on the Senate Homeland Security & Governmental Affairs Committee.

McCaskill released the results of a three-year Government Accountability Office (GAO) study today. It highlighted the program’s risks and the massive amount of money wasted over the years. The Lifeline program, which is administered by the Federal Communication Commission (FCC), subsidizes baseline telecom services to low-income residents—historically phone, though that is being migrated to broadband.

For years, News 4 Investigates Chris Nagus has investigated fraud in the Lifeline program. News 4 cameras have captured people talking on phones as they sign up for another free phone.  The program is all funded by the Federal Universal Service Charge, a charge on the bill of everyone with a cell phone.

For years, McCaskill has also called for Lifeline reforms, including stronger FCC oversight.

The new audit found the GAO was unable to confirm whether 36 percent of the 3.5 million individuals it reviewed (or some 1.2 million) individuals actually participated in any of the qualifying programs, like Medicaid, that they stated on their applications for the subsidy.

McCaskill requested the GAO investigation and didn't like what she saw.

“A complete lack of oversight is causing this program to fail the American taxpayer—everything that could go wrong is going wrong,” said McCaskill, who is the 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 key takeaways, according to McCaskill, are:

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.

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