FCC Chairman Ajit Pai has directed the Universal Service Administrative Company (“USAC”) to institute a number of safeguards intended to reduce fraud, waste, and abuse in the universal service Lifeline program. USAC is tasked with addressing problems related to ineligible subscribers, oversubscribed addresses, phantom subscribers, deceased subscribers, exact duplicates, and accountability of sales agents. Chairman Pai has asked USAC to report on its progress in implementing the safeguards by August 8, 2017.

Chairman Pai’s command to clean up the program was triggered in large part by a recent GAO report that found the existence of extensive Lifeline fraud. The GAO report is the product of a multi-year performance audit in which the GAO examined various Lifeline documents, interviewed officials from the FCC and USAC, analyzed subscriber data, scrutinized other electronic data, and performed undercover tests to identify potential improper payment vulnerabilities.

Ineligible Subscribers

As part of its investigation to compile the report, the GAO reviewed the eligibility of 3.5 million Lifeline subscriber applications. Based on its matching of subscribers to benefit data, the GAO was unable to confirm whether roughly 1.2 million individuals of the 3.5 million reviewed, or 36 percent, participated in a qualifying benefit program as stated on their Lifeline enrollment applications. To address these findings, Chairman Pai has directed that USAC take the following actions:

• USAC must identify the “top ten” Lifeline providers with the highest number of potentially ineligible subscribers according to the GAO’s report, and audit each one to determine whether they are properly verifying the eligibility of their subscribers.
• Every month over the course of the next year, USAC must review a statistically valid sample of subscribers enrolled or recertified by each of the top ten providers in the prior month to determine whether those subscribers are in fact eligible to receive Lifeline benefits. USAC must require providers to de-enroll any subscribers whose eligibility cannot be verified.
• USAC must require all providers with GAO-identified potentially ineligible subscribers to verify the eligibility of such Lifeline subscribers and to de-enroll any subscribers whose eligibility the provider cannot properly verify.
• USAC must refer the substantial enrollment or recertification of ineligible subscribers by any Lifeline provider to the FCC’s Office of Inspector General for evaluation as to whether civil or criminal action is appropriate and to the FCC’s Enforcement Bureau for Administrative action and remedies.

Oversubscribed Addresses

In its report, GAO states that it “identified 48 unique addresses that were each associated with more than 500 [Lifeline] subscribers.” Also, GAO identified one instance where “a single address was associated with 10,000 separate subscribers, all receiving Lifeline benefits through the same Lifeline provider.” GAO was unable to verify the address using the U.S. Postal Service address verification system. Under the FCC’s Lifeline rules, certain addresses, such as that for a homeless shelter may be associated with multiple Lifeline accounts. Nevertheless, Chairman Pai has directed USAC to investigate this issue by taking the following actions:

• USAC must identify and review every address associated with 500 or more subscribers, and based on its findings, USAC must require Lifeline providers to de-enroll subscribers if necessary.
• For every quarter beginning with the third quarter of 2017, USAC must review a statistically valid sample of addresses associated with 25 or more subscribers. USAC must require all relevant Lifeline providers to de-enroll any subscribers that cannot verify their residence, as well as any subscribers that cannot confirm they are independent economic households from other subscribers at that address.
• USAC must recapture any improper payments associated with de-enrolled subscribers from the relevant Lifeline providers.
• USAC must explore automating the process of detecting oversubscribed addresses in the National Lifeline Accountability Database (“NLAD”).
• USAC must refer the substantial enrollment or recertification of individuals at oversubscribed addresses to the FCC’s Office of Inspector General for evaluation as to whether civil or criminal action is appropriate and to the FCC’s Enforcement Bureau for Administrative action and remedies.

Phantom Lifeline Subscribers

In his letter to USAC, Chairman Pai explains that a 2016 investigation revealed that a Lifeline provider had claimed universal service support for an average of 22,325 more subscribers than it had enrolled in the NLAD each month for more than a year. This lack of correlation between the NLAD and support claims raises serious concern that Lifeline providers may be receiving support for ineligible subscribers and fictitious subscribers. Chairman Pain has directed USAC to take the following actions:

• USAC must develop a process to identify Lifeline providers with material discrepancies that cannot be adequately explained between NLAD data and claimed support on their FCC Form 497 submissions.
• Every quarter, USAC must direct Lifeline providers with discrepancies to correct their NLAD listings and Form 497 submissions as appropriate.
• As part of USAC’s audits, USAC must check any discrepancies between the NLAD and the claimed support of audited Lifeline providers, and require corrections.
• USAC must recapture any improper payments associated with subscribers that were de-enrolled due to discrepancies between the NLAD and Form 497 submissions.
• USAC must explore automating the process of comparing NLAD listings and FCC Form 497 submissions.
• USAC must refer Lifeline providers with material differences between their NLAD listings and their Form 497 submissions to the FCC’s Office of Inspector General for evaluation as to whether civil or criminal action is appropriate and to the FCC’s Enforcement Bureau for Administrative action and remedies.

Deceased Lifeline Subscribers

The GAO identified 6,378 individuals who enrolled in Lifeline, recertified eligibility, or both after they were reported as deceased. In light of this finding, USAC has been directed to perform the following:

• USAC must require the relevant Lifeline providers to immediately de-enroll the deceased subscribers identified by GAO and recover improper Lifeline payments associated with these subscribers.
• Every quarter, USAC must check a statistically valid sample of subscribers enrolled or recertified during the previous quarter against the Social Security Master Death Index, and require Lifeline providers to de-enroll any deceased individuals. USAC must recover improper Lifeline payments associated with deceased subscribers.
• As part of its audit process, USAC must check a sample of subscribers against the Social Security Master Death Index, and require de-enrollments and recover improper payments.
• USAC must explore automating the process of comparing subscriber records against the Social Security Master Death Index at the time of subscriber enrollment or recertification.
• USAC must refer Lifeline providers with substantial enrollment or recertification of deceased individuals to the FCC’s Office of Inspector General for evaluation as to whether civil or criminal action is appropriate and to the FCC’s Enforcement Bureau for Administrative action and remedies.

Exact Duplicates

To produce its report, the GAO conducted an extensive analysis of NLAD data. This revealed that 5,510 potential cases involving internal duplicate subscribers. That is, instances in which the name, address, date of birth, last four digits of social security number, and other data of one subscriber exactly matched that of another Lifeline subscriber. The NLAD was created to prevent “duplicates” (exact duplicates and less than exact duplicates). Chairman Pai has directed USAC to take the following corrections:

• USAC must continue to require Lifeline providers to verify the identities of the providers’ potentially duplicate subscribers.
• As part of audits, USAC must review a statistically valid sample of transferred subscribers to verify their old subscriptions have been removed in the NLAD from the subscriber’s prior carrier.
• For any new subscriber who can provide proof of address and identity but cannot enroll in the Lifeline program because someone else has already enrolled using his or her information, USAC must request that the existing service using that personal information be discontinued.
• USAC must recapture any improper payments associated with such de-enrolled subscribers from the relevant Lifeline providers.
• USAC must explore automating the process of detecting exact duplicates in the NLAD.
• USAC must refer Lifeline providers with substantial enrollment or recertification of exact duplicates to the FCC’s Office of Inspector General for evaluation as to whether civil or criminal action is appropriate and to the FCC’s Enforcement Bureau for Administrative action and remedies.

Sales Agent Accountability (Rogue Agent Problem)

Many Lifeline providers utilize third-party agents to implement their Lifeline service, and perform related administrative duties. Most often these agents are compensated based upon the number of people they enroll in Lifeline service. The Inspector General has determined that this system creates substantial incentives for fraud. This performance-based compensation regime is commonly referred to as the “rogue agent” problem. Undercover investigations have shown that third-party agents have enrolled individuals in Lifeline without first performing an eligibility check, with some even manipulating data to make individuals appear eligible for Lifeline discounts. USAC has been directed to take the following actions to further address the rogue agent problem:

• USAC must require sales agents to register with USAC and provide enough information that allows USAC to verify an agent’s identity and determine the Lifeline providers that employ the agent. Each registered sales agent must receive a unique identifier that must be used for all of the agent’s interactions with the NLAD.
• USAC must adjust the NLAD to lock sales agents out of the system for a set period of time after too many invalid subscriber entry attempts.
• USAC must determine how best to incorporate the inclusion of sales agent registration data and unique identifiers into its existing audit programs or whether special audits of sales agents would further reduce fraud, waste, and abuse in the Lifeline program.
• USAC must refer any substantial enrollment or recertification of ineligible subscribers by particular sales agents, as well as any program violations by sales agents, to the FCC’s Office of Inspector General for evaluation as to whether civil or criminal action is appropriate and to the FCC’s Enforcement Bureau for Administrative action and remedies.