Highlighting Waste, Fraud and Abuse: the FCC’s Lifeline Program

The Lifeline Program provides subsidies to eligible low-income households for land or wireless telecommunication services. When launched in the mid-1980s, Lifeline covered only telephones. More recently, it has expanded to include broadband and wireless, and during former President Obama’s tenure, many carriers also began offering free or low-cost cell phones – which came to be called “Obamaphones.” In 2016, Lifeline disbursed roughly $1.5 billion in subsidies to carriers servicing 12.3 million low-income households, but loose oversight makes the program highly susceptible to waste, fraud, and abuse, as explained recently by the Government Accountability Office [GAO].

Perverse Financial Incentives

To be eligible for Lifeline service, a household must have an income at or below the Federal poverty line, or must be enrolled in a qualifying Federal program such as Medicaid or Supplemental Security Income [SSI]. Although overseen by the Federal Communications Commission [FCC], Lifeline relies on more than 2,000 telecommunication carriers to verify subscribers’ eligibility. These carriers have an incentive to sign up as many subscribers as possible. Not surprisingly, when GAO sampled 3.5 million Lifeline subscribers, it could not verify the eligibility of more than a third of them – some 1.2 million households. In an undercover test using fictitious names and documentation, GAO gained approval for Lifeline service from 12 of 19 providers contacted.

lifeline eligibility bar chart orange and grey

Service to the Dearly Departed

GAO also discovered that a portion of current subsidies consisted of duplicative payments, and found 6,378 recipients who were deceased, according to the Social Security Administration’s Death Master File. While the audit highlighted only a snapshot of Lifeline’s waste, fraud, and abuse, GAO found millions of dollars in annual subsidies paid for either potentially ineligible or fictitious people.

Tip of the Iceberg

On top of all of this, Lifeline’s funding source – the Universal Service Fund [USF] – operates outside government safeguards. The USF has more than $9 billion in net assets that are held not in the U.S. Treasury, but in a private bank account. Given that USF consists of Federal funds, these accounts should be relocated into the Treasury to mitigate risk and ensure additional regulatory safeguards – yet the FCC will not act on this longstanding GAO recommendation until next year at the earliest.

Behind the Curve

The FCC has taken steps to rectify some of the program’s lax internal controls, implementing reforms that, by agency accounts, have currently trimmed $200 million annually in fraudulent spending. Still, the FCC’s most significant reform plans – creation of a third-party national eligibility verifier, and an independent third party tasked with evaluating the Lifeline program’s design, function, and administration – will not materialize until 2019 and 2020, respectively. Failure to address these foundational challenges in the small Lifeline Program does not bode well for the government’s ability to address the same systematic problems in larger public assistance programs such as Medicaid, SSI, and numerous others.

 

Prepared by:

Robert Yeakel, Policy Advisor

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