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McCaskill Moves to Stop Government Waste in Free Phone Program

Senator received solicitation for free cell phone with no documentation required, is seeking review of the program

December 19, 2011

WASHINGTON, D.C. -  A government run cell phone program, ripe for fraud, has caught the attention of oversight advocate U.S. Senator Claire McCaskill who is seeking answers to questions about rampant abuse and waste in the program-and in a letter to the Federal Communications Commission (FCC), McCaskill outlines steps she is taking to stop the fraud in its tracks.

The LifeLine program was created to provide phone service to low-income individuals.  McCaskill's letter comes after she received a solicitation at her home for a free cell phone from the Lifeline program.  The mailer did not require documentation for proof of eligibility.  McCaskill is, in fact, not eligible for the program.

The Lifeline program is funded by the Universal Service Fund (USF), which receives its resources from a fee telephone users pay on their phone bills.  The FCC oversees the USF and, accordingly, the Lifeline program.

Now, U.S. Senator Claire McCaskill is stepping in to stop waste, fraud, and abuse in the little-scrutinized federal program 

"I remain troubled by the expansive potential for the program to be abused, especially since Americans contribute to the program through their monthly phone bills," McCaskill wrote in a letter to the FCC.  "The current requirements to determine eligibility often do not require customer documentation for participation in Lifeline, which may result in individuals receiving phones who should not be."

In a recent investigative report by KMOV, St. Louis' CBS affiliate, individuals were caught on camera enrolling people for multiple phones, not requiring proof of eligibility, and distributing phones to people who were talking on a phone at the time of application.

McCaskill is telling the FCC to bolster oversight and implement new controls, and is signaling that she may pursue a Congressional investigation or seek a review by the Government Accountability Office into the program.

McCaskill's letter to the FCC is available on her website, HERE and pasted below:

 

The Honorable Julius Genachowski

Chairman

Federal Communications Commission

445 12th Street, S.W., Room 8-B201

Washington, D.C., 20554

 Dear Chairman Genachowski,

I write to bring to your attention to serious concerns I have with the Lifeline program, which the Federal Communications Commission (FCC) oversees.  I am aware that the FCC has begun to scrutinize the Lifeline program closely and will soon be issuing a rule to increase controls on the program.  However, I remain troubled by the expansive potential for the program to be abused, especially since Americans contribute to the program through their monthly phone bills.  

I urge you to give the Lifeline program your personal attention to ensure all possible actions are being undertaken by the FCC to prevent it from becoming a prominent source of fraud, waste and abuse.  In the days ahead, I will also be exploring a range of options to increase oversight of the program, including launching a new Congressional investigation, seeking a Government Accountability Office review and pursuing expanded reviews by the FCC Inspector General.  I would like to work with you on these options so that we can address the problems that Lifeline faces.

As you know, Lifeline is a program under the Universal Service Fund that has traditionally provided discounts for wireline phones to qualified, low-income customers.  In 2008, Lifeline was expanded to provide prepaid wireless phones and discounts for wireless phone services.  Since the expansion of Lifeline to the provision of wireless services in 2008, there has been a substantial increase in disbursements from the Universal Service Fund (USF).  Startlingly, the annual level of disbursements on the program has increased from $800 million in 2008 to approximately $1.3 billion in 2010 and is expected to exceed $1.5 billion in 2011.  In my home state of Missouri, the disbursements have more than doubled from $8.05 million in 2008 to $17.1 million in 2011.  I recognize that the poor economy has likely resulted in more people using the program, resulting in some of the increase in disbursements.  However, these two factors may not alone account for a near doubling of the expenditures in the program in just three years.

The FCC and individual states designate private telephone carrier companies to administer and enroll individuals in Lifeline.  The private carriers are responsible for verifying the eligibility of any individual seeking to participate in Lifeline.  However, the current requirements to determine eligibility often do not require customer documentation for participation in Lifeline, which may result in individuals receiving phones who should not be.  In particular, once users receive cell phones, there is little ability to control what is done with the phones.  A user can potentially sell or trade the phone in a barter transaction, putting the Lifeline phones into the hands of those for whom they are not intended.  This leaves the intended recipient in the same scenario they were before they received a phone, thereby completely undercutting the intent of the Lifeline program.  This scenario is troubling.  It is among the key reasons why the Lifeline program demands scrutiny, along with intense controls, in order to prevent fraud, waste and abuse. 

As you likely know, on October 28, 2010, the Government Accountability Office (GAO) issued a report on the status of the low-income phone provision programs overseen by the FCC and funded by the USF.  The report stated that the FCC has limited insight on the intent of the programs, does not have proper goals and performance measures and has not taken steps to address the eligibility problems that are occurring.  This report underscores the concerns I am raising with Lifeline and the state of the FCC's controls on it.

I know that the FCC issued a Notice of Proposed Rulemaking (NPRM) in February, 2011, regarding the Lifeline program in an effort to prevent abuse and improve the program's performance measures.  The proposed rule would require better documentation for eligibility in the program, increased controls to ensure households receive only one phone, and the establishment of a national database to better track customers.  A final order is due in the near future.

I am pleased that the FCC is moving forward with the proposed rule.  However, I fear that the pending Order does not fully address the scope of fraud, waste and abuse that may be occurring in Lifeline.  I request that the FCC provide the following information to me so that I can further explore the nature of the challenges facing Lifeline:

  • The growth in the number of carriers participating in Lifeline since the wireless expansion;
  • The amount of duplication and the number of ineligible customers the FCC has discovered in the last three years;
  • The number and scope of audits that have been conducted by the FCC since the wireless expansion and details of the audit findings;
  • The internal processes that the FCC has implemented to administer Lifeline and prevent fraud, waste and abuse in the program.

 As I consider options to expand oversight of the Lifeline program and to determine if changes to the program are required, I look forward to working with you to ensure this program is not subject to expansive fraud, waste and abuse. 

Sincerely,

(s)

Claire McCaskill

United States Senator

 

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