GAO Finds Big Problems With Lifeline Subsidies

The FCC's Lifeline subsidy program is plagued by "massive fraud" and "waste," according to the top Democrat on the Senate Homeland Security & Governmental Affairs Committee.

Sen. Claire McCaskill (D-Mo.) released the results of a three-year Government Accountability Office (GAO) study that identified significant risks in the program, which subsidizes baseline telecom services to low-income residents—historically phone, though that is being migrated to broadband.

FCC chairman Ajit Pai has long said the program needs a reset to institute better protections against waste, fraud and abuse. McCaskill has also called for Lifeline reforms, including stronger FCC oversight. Former FCC chairman Tom Wheeler also instituted reforms to boost oversight, but there were continuing problems, said McCaskill.

For example, GAO was unable to confirm whether 36% 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:

  • "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."

GAO recommends the FCC come up with a comprehensive review and enforcement plan. The GAO made the report available to the FCC, which said it generally agreed with the assessment and was already taking steps to address some of the issue.

Another prominent Democrat, Rep. Frank Pallone (N.J.), ranking member of the House Energy & Commerce Committee, was warning against throwing out the lifeline baby with the waste, fraud and abuse bathwater.

“The Lifeline program provides millions of low-income Americans access to basic communications services,"  he said in statement on the report. "Today cell phones are a necessity, and low-income Americans rely on them more heavily than the overall population. Lifeline has been a critical springboard for struggling families across the country for decades, and it would be a mistake to use this report as an excuse to rip away this essential service from struggling families and hardworking people."

“As an Energy & Commerce Democratic Staff Report found last year, the FCC has already reined in a billion dollars in waste, fraud, and abuse that was allowed under Bush-era changes to the program. In fact, much of GAO’s investigation took place before the FCC adopted its latest reforms. GAO’s report confirms the need for the FCC to act on our recommendations as quickly as possible.”

“Last year, I led an investigation into the Lifeline program that revealed serious weaknesses in federal safeguards," said Pai of the report. "Today’s GAO report confirms what we discovered then:  Waste, fraud, and abuse are all too prevalent in the program.  Commission staff and the Office of Inspector General have already been developing recommendations to better safeguard taxpayer funds. I stand ready to work with my colleagues to crack down on the unscrupulous providers that abuse the program so that the dollars we spend support affordable, high-speed broadband Internet access for our nation’s poorest families.”

“The bottom line is the FCC must fix what little needs repair and get on with the job of making broadband accessible to those who cannot afford the high prices providers charge for something everyone must have," said Michael Copps, former FCC chairman and now special adviser to Common Cause.

(Photo via Pictures of Money's FlickrImage taken on Sept. 9, 2016 and used per Creative Commons 2.0 license. The photo was cropped to fit 3x4 aspect ratio.)

John Eggerton

Contributing editor John Eggerton has been an editor and/or writer on media regulation, legislation and policy for over four decades, including covering the FCC, FTC, Congress, the major media trade associations, and the federal courts. In addition to Multichannel News and Broadcasting + Cable, his work has appeared in Radio World, TV Technology, TV Fax, This Week in Consumer Electronics, Variety and the Encyclopedia Britannica.