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Lifeline — a federal program to subsidize telephone and internet service for poor Americans often dubbed the “Obama phone” program — is highly susceptible to fraud, abuse, and negligence, the director of a federal watchdog agency told Congress Wednesday.

Safeguards designed to vet enrollees’ eligibility for the $9.25 monthly subsidy and oversee how phone and internet providers administer Lifeline can be easily circumvented by both enrollees and providers according to the Government Accountability Office (GAO)’s Seto Badoyan, director of forensic audits and investigative service.

Badoyan told the Senate Commerce, Science and Transportation Committee — charged with overseeing the Federal Communications Commission, the agency that administers Lifeline — that a June GAO report on Lifeline found it was common to sign up for Lifeline without verifying participation in another federal aid program like Medicaid, SNAP, and Supplemental Security Income (SSI).

Of a 3.4 million sample of Lifeline enrollees, GAO couldn’t confirm whether 1.2 million subscribers — or about 36 percent — “participated in the qualifying benefit programs they stated on their Lifeline enrollment applications or were recorded as such by Lifeline providers,” Badoyan told senators in his prepared testimony.

“If providers claimed and received reimbursement for each of the 1.2 million subscribers, then the subsidy amount associated with these individuals equals $11.4 million per month, or $137 million annually, at the current subsidy rate of $9.25 per subscriber,” he said.

Since GAO only looked at a sample of Medicaid, SNAP and SSI claimants, “data results are likely understated compared to the entire population of Lifeline subscribers” and “indicate that potential improper payments have occurred and have gone undetected.”

Medicaid, SNAP and SSI are the most common programs the government and providers look at when determining whether an applicant is eligible. Phone and internet providers, who verify enrollees independently (a system former FCC Chairman Tom Wheeler likened to “the fox guarding the henhouse”) are supposed to verify participation in another federal aid program by submitting applicants’ names to the National Lifeline Accountability Database (NLAD).

But according to Badoyan “not all states have databases that Lifeline providers can use to confirm eligibility” while others GAO spoke with during its investigation “were unaware of databases that were potentially available to them.”

The GAO also went undercover as both enrollees and enrollers, applying for Lifeline 21 times through 19 different providers using “documentation fictitiously stating that we were enrolled in an eligible public-assistance program or met the Lifeline income requirements.”

“We were approved to receive Lifeline services by 12 of the 19 Lifeline providers using fictitious eligibility documentation,” Badoyan said. On the other side, an undercover GAO investigator sought employment “with a company that enrolls individuals to Lifeline.”

The investigator was hired without an interview, background check, or even meeting with a company representative.

“After we were hired, we completed two fictitious Lifeline applications as an employee of the company, successfully
enrolled both of these fictitious subscribers into Lifeline using fabricated eligibility documentation, and received compensation for these enrollments,” he added.

The three-year GAO audit also found subsidies went to more than 6,000 people who were already deceased for more than a year (amounting to to $58,997 monthly and $707,958 annually) and over 5,500 duplicate subscribers, costing $51,000 per month, or $612,000 annually. The taxpayer-funded program shelled out $1.5 billion total in 2016.

The report has been a rare point of bipartisanship on Capitol Hill, where Missouri Democrat Sen. Claire McCaskill, Republican Sens. John Thune of South Dakota (the Commerce Committee chairman) and Ron Johnson of Wisconsin agree on the need for reforms.

But not all witnesses at Wednesday’s hearing agree. Jessica Gonzalez, deputy director and senior counsel at the consumer advocacy and digital rights group Free Press, said the GAO report relies primarily on outdated data collected between 2012 and 2014, before the FCC implemented reforms in 2014 — including the NLAD database — and 2016.

“While the GAO was unable to confirm the eligibility of 30 percent of Lifeline users it examined, it did not determine that these individuals were in fact ineligible,” Gonzalez told senators. “GAO only examined three of the programs people can use to prove their eligibility (SNAP, Supplemental Security Income, and Medicaid) from what the GAO describes as a ‘nongeneralizable selection of states,’ but in fact there are many other ways to qualify for Lifeline besides participation in those three programs.”

When looking at programs like Medicaid to determine eligibility, she pointed out states that maintain their own Medicaid enrollment records can take up to three years to update those records, likely accounting for some of the failed verifications.

With regard to GAO’s undercover investigations conducted between 2014 and 2017, Gonzalez said the FCC’s plan for an independent National Lifeline Eligibility Verifier — a system will take the responsibility for verifying subscriber eligibility out of the hands of the provider and transfer it to a third party — will solve that problem when it goes live in 2019. The verifier was part of the 2016 Lifeline reforms.

Badoyan agrees the verifier could alleviate several forms of fraud highlighted in the report.

“[T]hese challenges might be overcome if FCC establishes a National Verifier, as it plans to do nationwide by the end of 2019, to remove responsibility for verifying eligibility from the providers,” his testimony reads.

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A federal watchdog agency has found a high risk of fraud and abuse in the so-called “Obama phone” program meant to help low-income Americans get phone and internet service.

The Federal Communications Commission’s Lifeline program provides subsidies for low-income Americans to pay for cellphone and broadband service. But according to the Government Accountability Office (GAO), the taxpayer-funded program that shelled out $1.5 billion in 2016 is also paying hundreds of thousands to deceased and unverified subscribers.

A new GAO report has found the program, which in large part is administered by wireless and broadband companies themselves, “is susceptible to risk of fraud, waste, and abuse as companies may have financial incentives to enroll as many customers as possible.”

From June 2014 to May 2017 Lifeline subsidies — collected directly by private telephone and internet companies who participate in the program — went to more than 6,000 people who were already deceased for more than a year, according to data matched between a Lifeline database of subscribers and the Social Security Administration’s Death Master File. Those subsidies amounted to $58,997 monthly and $707,958 annually.

The three-year GAO audit found over 5,500 duplicate subscribers, costing $51,000 per month, or $612,000 annually. At least $1.2 million was claimed annually by Lifeline providers for “ineligible or fictitious individuals,” none of whom have been derolled by the companies providing the services or the Universal Service Administrative Company (USAC), the federal entity charged with overseeing Lifeline and maintaining the eligibility database.

Overall the GAO couldn’t confirm the eligibility of about 1.2 million individuals out of 3.5 million, or 36 percent of the subscribers it reviewed.

Companies participating in Lifeline are largely responsible verifying the eligibility of subscribers themselves. The only direct oversight comes from a federal database they ping for a “yes” or “no” to determine an applicant’s eligibility, based on income level or participation in another federal welfare program like Medicaid. But companies can also override a “no” for reasons that go largely unchecked by the government. Former FCC Chairman Tom Wheeler likened the arrangement in 2016 to “the fox guarding the hen house.”

Wheeler and fellow Democrat FCC commissioners expanded Lifeline in 2016 to include broadband, giving subscribers the choice to use their $9.25 monthly subsidy for wireless or internet service. At the same time, he uncapped the program’s budget. That move prompted Republican commissioners to vote against the plan, citing its history of waste, fraud, and abuse.

Shortly after Republican Commissioner Ajit Pai, now chairman of the FCC, conducted his own investigation into Lifeline. His office uncovered several forms of widespread fraud that lacked agency safeguards, including millions of duplicates and potentially hundreds of thousands of “phantom” subscribers enrolled since October 2014 without being verified in a national database.

Last year the FCC took action against several Lifeline providers for fraud, including one of the wireless providers investigated by Pai. Another marked the agency’s largest fine of a Lifeline provider ever. Shortly after taking the top office in January, he suspended all new applications by companies seeking to participate in Lifeline and later announced a plan to transfer the power to approve new providers to states.

“Last year, I led an investigation into the Lifeline program that revealed serious weaknesses in federal safeguards,” Pai said after the report’s release Thursday. “Today’s GAO report confirms what we discovered then: Waste, fraud, and abuse are all too prevalent in the program.”

Democrats in Congress, many of whom panned Pai’s investigation last year as a partisan attack, agreed the GAO findings were troubling.

“A complete lack of oversight is causing this program to fail the American taxpayer—everything that could go wrong is going wrong,” Missouri Democrat Sen. Claire McCaskill said Thursday. “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.”

Pai said his office is working on more fixes to the program.

“Commission staff and the Office of Inspector General have already been developing recommendations to better safeguard taxpayer funds,” he said. “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.”

Public Knowledge, a consumer advocacy group that backed the Obama administration’s expansion of the plan, supports a provision Wheeler included in the plan for an independent National Lifeline Eligibility Verifier. The system will take the responsibility for verifying subscriber eligibility out of the hands of the provider and transfer it to a third party, but won’t go live until 2019.

“Today’s GAO’s report reflects the need for the FCC and USAC to fully build out the National Lifeline Eligibility Verifier established by the 2016 Lifeline Modernization Order,” policy counsel Phillip Berenbroick said. “The National Lifeline Eligibility Verifier will help ensure that subscribers are eligible to participate in the Lifeline program.”

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The new Republican chairman of the Federal Communications Commission plans to let states decide which telecom providers can divvy out phone and internet subsidies to poor Americans. At the same time he’s rejecting Lifeline providers — including one serving school children — recently approved by the Obama administration.

FCC Chairman Ajit Pai announced plans Wednesday to transfer approval of applications to participate in the agency’s Lifeline program to states, where that power resided before the Obama administration’s FCC overhauled the program in 2016 and gave itself approval power.

“As we implement the Lifeline program – as with any program we administer – we must follow the law,” Pai said. “And the law here is clear: Congress gave state governments, not the FCC, the primary responsibility for approving which companies can participate in the Lifeline program under Section 214 of the Communications Act. This is how the program worked over two decades, over three Administrations, and over eight Chairmanships.”

Pai said the previous administration was guilty of “snatching this legal responsibility away from states and deciding to create its own federal ‘Lifeline Broadband Provider’ designation process.”

“At the time,” he continued, “I explained why the commission lacked the authority to do this.”

Pai voted against the Lifeline expansion plan after a bipartisan proposal with one of the FCC’s Democratic commissioners fell through, but he reiterated he supports adding broadband to the program that formerly only provided subsidies for phone service for as long as he’s chairman.

At the same time, he said the FCC will withdraw its defense against lawsuits from 12 states challenging the FCC’s Lifeline approval power in the D.C. Circuit Court of Appeals, and ask the court to send the case back to the agency.

“And the FCC will soon begin a proceeding to eliminate the new federal designation process,” Pai said.

Hanging in limbo are the applications of nine companies that received approval under then-Chairman Tom Wheeler weeks before Pai took the top office. The new Republican chairman suspended those applications shortly after taking office, pointing out all but one had yet to even take on Lifeline customers.

The exception was Kajeet, which partners with school districts in 41 states and Washington, D.C. to provide off-campus wireless broadband and phones for poor children to do homework. Now Pai is directing the FCC’s Wireline Competition Bureau to reject those applications.

“Hundreds of companies have been approved to participate in the Lifeline program through a lawful process,” Pai said. “Indeed, over 99.6 percent of Americans currently participating in the broadband portion of the program receive service from one of those companies.”

Pai encouraged new companies to “enter the program using this process.”

“Given this context, it would be irresponsible for the bureau to allow companies to sign up customers for subsidized broadband service through an unlawful federal authorization process that will soon be withdrawn,” he added. “This would force many consumers to switch broadband providers in a relatively short period of time, which wouldn’t be fair to them.”

Overall, nine suspensions out of Lifeline’s 900-plus providers affect less than 1 percent of companies participating in Lifeline. But that hasn’t stopped critics of Pai from slamming the chairman for taking actions that seemingly run counter to his pledge “to close the digital divide.”

“Chairman Pai committed that his leadership of the FCC would focus on closing the digital divide,” senior counsel Phillip Berenbroick of the consumer public policy group Public Knowledge said after Pai’s suspensions in February. “He has reneged on that commitment and signaled that the FCC might now be actively hostile toward small, competitive broadband providers and affordable access, which would exacerbate the digital divide.”

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The head of the Federal Communications Commission is defending a decision to suspend nine companies from participating in a program to subsidize phone and internet service for poor Americans.

Last Friday newly minted Republican FCC chief Ajit Pai announced he was revoking the approval of nine applicants to participate in the program, which provides a $9.25 monthly subsidy to poor households to offset the cost of telephone or broadband service.

The applications were approved weeks ago during the final days of the previous administration led by Democratic Chairman Tom Wheeler, despite the protest of the FCC’s two Republicans. Pai described their approval as a form of “midnight regulation” that ran counter to a request from Congress that the agency halt consideration of any controversial items during the election transition.

Pai’s move invited a flurry of criticism from consumer groups, a fellow commissioner, and media, prompting a blogged reply from the chairman to “set the record straight.”

“First, our action only impacted 9 of the over 900 providers participating in the Lifeline program,” he said. “In other words, 99 percent of the companies participating in the program are not affected at all.”

Those applications remain pending at the commission, though several were filed without coordinating with representatives from the tribal lands where they’re seeking to provide service, a violation of FCC rules. Those living on tribal lands can be eligible for an increased subsidy of $34.25.

“These Tribal representatives thus requested that the designations be reversed,” Pai wrote. “Moreover, two of the designated providers were approved in the middle of the 30-day period for public comment  —  that is, before the public even had a chance to weigh in on the designation. Whatever one thinks of the merits of these applications, that was plainly improper.”

All but one of the applicants don’t have any customers yet with the exception of Kajeet, which partners with school districts in 41 states and Washington, D.C. to provide off-campus wireless broadband and phones for poor children to do homework.

The FCC’s only remaining Democratic commissioner, Mignon Clyburn, slammed the move to include the pulled approvals in the “Friday News Dump” instead of letting the full commission consider it.

“By eliminating the designations of nine entities to provide Lifeline broadband service, the Bureau has substantially undermined businesses who had begun relying on those designations,” Clyburn said. “These providers include a minority-owned business, a provider enabling students to complete their homework online, and others serving Tribal lands.”

“Rather than working to close the digital divide, this action widens the gap,” she said referencing the number one goal of Pai’s chairmanship to “close the digital divide.”

Rooting out waste, fraud and abuse in Lifeline has been a significant focus of Pai’s office since joining the commission. During an investigation last year he highlighted several forms of widespread fraud that lacked agency safeguards. The agency doled out enforcement action on several Lifeline providers last year for fraud, including one of the wireless providers investigated by Pai. Another marked the agency’s largest fine of a Lifeline provider ever.

“Every dollar that is spent on subsidizing somebody who doesn’t need the help by definition does not go to someone who does,” Pai said Tuesday. “That means that the commission needs to make sure that there are strong safeguards against waste, fraud, and abuse before expanding the program to new providers.”

Reforms tackling abuse have since been implemented. However, the National Verifier system, a database that will independently determine eligibility created under Wheeler, won’t go online until later this year, and won’t expand to all states until 2019. The verifier was included in a Lifeline reform package that expanded subsidies to cover internet service and uncapped its total budget. Pai and fellow Republican Commissioner Michael O’Rielly voted against those reforms.

Lastly, Pai said a pending court challenge could take the authority to designate Lifeline providers away from the FCC and give it to states.

“Putting the designations on hold gives the FCC the chance to make sure the process is legally defensible and to avoid potentially stranding customers if the courts ultimately deem the process unlawful,” he said.

Organizations including the pro-net neutrality group Public Knowledge said Pai’s move will harm his chief priority.

“Less than two weeks ago, Chairman Pai committed that his leadership of the FCC would focus on closing the digital divide,” senior counsel Phillip Berenbroick said. “Today, he has reneged on that commitment and signaled that the FCC might now be actively hostile toward small, competitive broadband providers and affordable access, which would exacerbate the digital divide.”

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The Federal Communications Commission fined and permanently banned a wireless carrier from its Lifeline phone subsidy program for low income Americans this week, while touting major recent Democratic reforms to Lifeline that may not survive the agency’s Republican takeover.

In a follow up to its historic fine of $51 million leveled against Total Call Mobile this year, the FCC announced Thursday the carrier will settle the case for $30 million. As part of the deal, Total Call Mobile will be banned from participating in Lifeline, which pays carriers $9.25 per subscriber monthly for those falling below certain income thresholds.

The $30 million includes a $10 million repayment to the Universal Service Fund and admission of wrongdoing for fraudulently and knowingly enrolling tens of thousands of duplicate, ineligible and “phantom” subscribers.

“We have no toleration for fraud,” FCC Enforcement Bureau Chief Travis LeBlanc said Thursday. “This unprecedented $30 million settlement along with a permanent ban from the Lifeline program affirms our commitment to pursue the strongest sanctions for those who defraud or abuse the Universal Service program.”

As part of the announcement the agency stumped for Lifeline reforms passed by outgoing Democratic Chairman Tom Wheeler aimed at tackling fraud. Those include a national eligibility verifier system that will charge a third party with verifying the eligibility of enrollees, however that system won’t be in place until 2019. The current system allows carriers to self-certify applications and even override a “no” response from an FCC verification database.

Republican FCC Commissioner Ajit Pai, expected to take over as acting chairman when Wheeler departs in January, is skeptical of the verifier system. The agency has a deadline to release an outline of the system by December.

“There is a database that currently carriers can override, and that’s part of the reason why we’re seeing some carriers now simply bypassing it, rejecting the no answer that they get from it, in order to sign up customers,” Pai told Congress in April. “I’m afraid that this time around I wouldn’t be all that much more optimistic.”

The Lifeline program has faced tough scrutiny from Pai’s office. The commissioner has been conducting his own investigation of high duplicate, ineligible and phantom enrollment among more than a dozen providers across the country this year. The FCC’s enforcement bureau has already taken action against one.

Pai and fellow Republican Commissioner Michael O’Reilly voted against Wheeler’s Lifeline reform after Democratic Commissioner Mignon Clyburn backed out of a last-minute compromise. Now they’re ready to claim the majority at the agency after Wheeler and Democratic Commissioner Jessica Rosenworcel leave with the Obama administration in January.

Members of President-elect Donald Trump’s FCC transition team have expressed similar doubts about Wheeler’s reforms, which included an uncapped budget and broadband subsidies.

“[P]ouring new wine (cellular) into old wineskins (Lifeline) caused the program to burst at the seams with significant fraud and waste, all to apply a demonstrably ineffective subsidy scheme to a service that the poor had already found to be affordable,” AEI fellow and transition team member Mark Jamison wrote for InsideSources last June. “[T]he FCC has decided to ‘modernize’ the program by expanding it. How much it will be expanded is yet to be seen, but if history is any teacher the subsidy will be large and the benefits will accrue to someone besides the poor who want advanced telecommunications and cannot afford it.”

“As Commissioners Pai and O’Reilly point out in their dissenting statements, there is much to be done,” he added.

In a July op-ed for Tech Policy Daily Jamison cited a Georgetown study that found “even if the FCC perfectly enforced its Lifeline policies … 19 out of 20 low-income households subsidized would buy service even without the subsidy,” and suggested reforms like Wheeler’s would “create waste rather than solutions.”

Fellow AEI scholar and transition team member Jeff Eisenach has made similar comments about the program’s history of fraud and abuse.

“The commission’s history in running the Universal Service Program is not spotless,” Eisenach said at an AEI event in November 2014. “There certainly have been examples of waste, fraud and abuse. Every dollar has not been spent more wisely than one might expect it would be, and so the need for continuing oversight and reform, I don’t think is a subject like so many things at the FCC these days, of very much controversy.”

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A Federal Communications Commissioner is investigating how wireless carriers administering the government’s ‘Obama phone’ Lifeline program are fraudulently claiming money meant for low-income Americans living on tribal lands.

The latest probe in FCC Commissioner Ajit Pai’s ongoing investigation into Lifeline abuse and fraud by wireless carriers follows two recent enforcement actions against carriers for improperly claiming an enhanced subsidy meant to help low-income residents on depressed and rural tribal lands help pay for cellphone service.

Wireless subscribers can receive up to $25 over the standard $9.25 monthly subsidy for a total of $34.25 if they live on tribal lands — areas that often have lower employment and income compared to other rural areas in the U.S. The Lifeline program is funded by the FCC’s Universal Service Fund, paid for via a monthly fee on the average American consumer’s phone bill, and overseen by the Universal Services Administrative Company (USAC), which distributes the subsidies to wireless carriers.

In a Wednesday letter to USAC CEO Chris Henderson, Pai highlighted the potential for carriers to fraudulently claim the enhanced subsidy.

“The enhanced subsidy offers a tremendous incentive for unscrupulous carriers to try to exploit our rules, and we know that some have,” Pai wrote. “Icon Telecom, for example, claimed tens of thousands of phantom customers in Oklahoma to profit from the enhanced subsidies on tribal lands before its scheme was ultimately uncovered and Icon’s owner plead guilty to money laundering. More recently, the FCC settled an investigation into Blue Jay Wireless’s practices in Hawaii.”

Icon’s fraudulent activity, jointly investigated by the FCC, FBI and IRS, ended with Icon’s suspension in 2015 and criminal charges for its CEO in 2014. Texas-based Blue Jay Wireless was forced to pay a $2 million settlement fee levied by the FCC Enforcement Bureau in July for “improperly claiming” extra subsidies for several thousand Hawaiian customers supposedly living on Hawaiian Home Lands.

“Even though Blue Jay collected every subscriber’s address, it did not verify whether those addresses were on tribal lands,” Pai said. “In fact, it sought enhanced subsidies even when a subscriber’s address made him/her clearly ineligible. By 2014, the Hawaii Public Utilities Commission staff had discovered that Blue Jay was claiming more subscribers than the total number of households in the Hawaiian Home Lands!”

Though a slap on the wrist by comparison, Pai earlier this summer revealed Blue Jay to be one of the 16 carriers his office is investigating for various forms of Lifeline fraud, and added he “flagged further suspicious conduct for the Enforcement Bureau’s investigation earlier this year.”

In the Wednesday letter, Pai asked USAC if it designates specific tribal lands eligible for the enhanced subsidy and who it provides such maps to, what safeguards exist to compel subscribers to certify “under penalty of perjury” they live on tribal lands, if recipients are recorded in the National Lifeline Accountability Database (NLAD), how the federal government certifies before distributing the subsidy, details of any audits or investigations into carriers claiming the enhanced subsidy, and if USAC and wireless carriers in Oklahoma are complying with an updated map of eligible tribal lands the FCC changed in 2015.

Pai previously singled out Oklahoma as one of the costliest states for Lifeline as a result of the enhanced subsidy. In Oklahoma tribal lands, Lifeline subscribers are eligible for the max $34.25 monthly subsidy whether they are Native Americans or not. In 2014, Oklahoma cost the Lifeline program the second highest total — $128 million — despite the state ranking 28th in population. The vast majority of Oklahoma’s claimants — 99.5 percent — received the maximum subsidy.

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A Federal Communications Commissioner is investigating why wireless providers have failed to enroll hundreds of thousands of subscribers to the government’s low-income phone subsidy program in a database meant to ensure they actually exist.

As part of his ongoing investigation into the FCC’s Lifeline program, Republican FCC Commissioner Ajit Pai sent a letter to the program’s administrator Monday asking how more than 400,000 subscribers were enrolled since October 2014 without being verified in a national database.

Before wireless providers sign-up customers they’re supposed to submit customer applications to the National Lifeline Accountability Database (NLAD), confirming their identify and eligibility to receive the $9.25 monthly subsidy.

However, wireless providers aren’t compensated based on the number of subscribers they submit to NLAD — they’re paid instead based on the number of subscribers they list on a separate form, known as a Form 497, to the Universal Service Administrative Company (USAC), the government entity charged with overseeing Lifeline.

The database itself does not automatically verify the number of subscribers claimed by a wireless provider, something USAC only does on a “case-by-case basis” according to USAC CEO Chris Henderson.

“In other words, a wireless reseller may seek federal funds for subscribers who aren’t subject to federal safeguards at all,” Pai wrote to Henderson Monday. “These ‘subscribers’ might be actual customers whose Lifeline eligibility has not been verified through the NLAD. Or they might be phantom customers who do not even exist.”

“In either case, the reseller can get away with receiving federal funds unless they’re caught after the fact,” he said.

One wireless provider, the name of which was redacted in the letter to avoid compromising an ongoing investigation, used the loophole to sign up 31,525 unverified subscribers in May 2016 alone. The same carrier claimed on average 22,325 more subscribers than it reported to NLAD every month since October 2014 for a total of 446,513 unverified subscribers.

A second carrier used the loophole 5,918 times and another six providers combined enrolled a total of 7,601 phantom subscribers. All eight are among the 16 carriers Pai’s office is investigating, one of which has already been fined by the FCC’s enforcement bureau for exploiting a loophole in Lifeline to enroll thousands of subscribers illegitimately.

The letter also highlighted a number of subscribers enrolled in NLAD that carriers were no longer claiming on their monthly enrollment lists to USAC. These subscribers presumably are no longer customers receiving the subsidy. Pai said the discrepancies — as high as 15,931 for one provider — make it easier to mask fraud.

“That is because an unscrupulous reseller could increase its reimbursements substantially without subjecting new subscribers’ to the NLAD’s safeguards,” he continued, “the extra subscribers in the NLAD would mask the fact that the new subscribers claimed on a Form 497 may not in fact be eligible (or may not even exist) and give unscrupulous conduct the aura of legitimacy.”

Pai asked USAC to provide his office with the monthly records from the two carriers with the highest phantom enrollments, the majority of which reside in two redacted states. The commissioner additionally asked USAC to explain why subscribers couldn’t be verified more accurately, how they could be in the future and if USAC is investigating or taking action to recover misappropriated funds to wireless carriers with unverified Lifeline subscribers.

The commissioner asked for a response by Aug. 15.

Phantom subscribers are one of five loopholes Pai’s office has been investigating since the FCC leveled its largest-ever fine in history earlier this year against Total Call Mobile. The provider exploited multiple loopholes to fraudulently enroll tens of thousands of duplicate and ineligible customers in Lifeline.

Republicans in the FCC and on Capitol Hill have blasted the program as a cash cow for unscrupulous wireless carriers since spending and fraud hit an all-time high in 2012. The FCC has since introduced reforms — including NLAD — and plans to implement a National Eligibility Verifier system by 2019 as part of its recent move to add broadband subsidies to the program.

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A report by congressional Democrats aimed at discrediting a Republican investigation into potential fraud in the Federal Communications Commission’s low income phone subsidy program overlooked several areas of concern highlighted by an FCC commissioner before drawing its conclusions.

Democrats on the House Energy and Commerce Committee released the report following an FCC oversight hearing in July, when lawmakers put Republican FCC Commissioner Ajit Pai in the hot seat over his ongoing investigation of high duplicate enrollments in Lifeline — the program that distributes a $9.25 monthly subsidy to help low-income Americans pay for phone service.

The program only allows one subsidy per household. Before a telephone service provider can enroll a subscriber, they must submit their application to the the National Lifeline Accountability Database (NLAD). The database flags applicants with the same information as a current subscriber, including address.

In June Pai released the latest results of his investigation finding one-third of all enrollees between October 2014 and April 2016 — 4,291,647 subscribers — were enrolled despite sharing an address with another subscriber. Wireless carriers can approve multiple subscribers with the same address by submitting an Independent Economic Household (IEH) Worksheet to the Universal Service Administrative Company (USAC), the company that administers Lifeline.

USAC will then give carriers permission to override the flag from NLAD. One and a half years of such duplicate enrollments costs $476 million — an amount Pai said is worthy of further scrutiny to ensure carriers aren’t abusing the program for profit, especially after the FCC leveled its largest-ever fine against Lifeline provider Total Call Mobile earlier this year for fraudulently enrolling tens of thousands of subscribers with overrides.

Democrats in their report said Pai’s investigation “relies on incorrect assumptions” by implying every IEH override is fraudulent, discounting the number of subscribers living in multi-household addresses like homeless shelters, veteran group homes, multi-generational residences, and nursing homes. As such, they dismissed Pai’s $476 million in duplicate enrollment costs as “bad data.”

“The recent allegations of fraud in the Lifeline program rely on the broad assumption that every IEH worksheet was fraudulent,” the report reads. “Democratic staff has uncovered no evidence to support this assumption. Indeed, USAC reports that 43 percent of IEH Worksheets filed were submitted in an abundance of caution for subscribers whose information had already been verified.”

During the July hearing, FCC Chairman Tom Wheeler supported Democrats’ findings, saying 2.2 million Lifeline subscribers live in 890,000 multiple resident addresses. He added that U.S. Census Bureau data shows 20 to 50 percent of American households are “doubled-up” households, putting the 16 percent of Lifeline subscribers on the low end.

Pai shot back at those allegations during a press conference following the FCC’s July open meeting, where he pointed out the report only examines one of five loopholes his office is investigating across 16 carriers nationwide.

USAC reported at least 16 other wireless providers have used similar tactics to Total Call Mobile between October 2014 and May 2015, resulting in 213,283 actual duplicates.

NLAD also doesn’t prevent wireless carriers from requesting subsidies for so-called “phantom subscribers,” or subscribers not enrolled in NLAD, which accounted for 460,032 enrollments.

Carriers can also use Third-Party Independent Verification (TPIV) to approve subscribers, despite the fact that USAC does not have to verify the documents used to authorize the enrollment.

The address override process works the same way — though carriers are supposed to collect documentation to verify subscribers with rural or tribal residencies, for example, carriers know overrides are granted without any oversight. Wireless providers have enrolled almost half a million subscribers through the address override process since October 2015.

“That means that unscrupulous wireless resellers can still override that safeguard even for non-qualifying subscribers,” Pai said. “There are no doubt legitimate uses of these override processes. But when nearly half of Lifeline subscribers are enrolled through an override, it’s a sign that something is up.”

Despite finding “specific allegations of waste, fraud, and abuse using the IEH worksheet are not valid,” Democrats in their own report agreed more should be done to combat potential IEH override fraud.

“[S]ome level of abuse of the IEH Worksheets may still be taking place,” the report reads. “Staff encourages the development of any new processes that could assist in monitoring current use of the IEH Worksheet to identify any trends that may need to be addressed and prosecute violators.”

Just days after the report’s release, the FCC fined Texas-based Blue Jay Wireless for falsely claiming thousands of Lifeline subscribers lived on tribal lands in Hawaii — a designation that allows carriers like Blue Jay to enroll subscribers without address verification, in some cases for an even higher monthly subsidy.

After the announcement, Pai confirmed Blue Jay was one of the subjects of his investigation.

“I will continue to work with my colleagues, the Enforcement Bureau, the Inspector General, and the Universal Service Administrative Company to end the abuse of taxpayer money by unscrupulous wireless resellers,” he said.

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Update: Story updated to clarify definition of payment and enforcement action.

The Federal Communications Commission’s Enforcement Bureau finalized a $2 million settlement with a wireless provider of the agency’s Lifeline phone subsidy program Friday for falsely claiming an additional $25 meant for low-income subscribers living on tribal lands.

The agency’s Enforcement Bureau said it reached a settlement with Texas-based Blue Jay Wireless for $2,002,000 the provider must return to the Universal Service Fund for subscribers who claimed to live on tribal lands in Hawaii. Blue Jay claimed the extra subsidies without first verifying subscribers actually lived there.

Subscribers living on those lands can receive up to $25 over the standard $9.25 monthly subsidy if they live in tribal areas, which typically have lower employment and income than other rural areas in the U.S. The Lifeline program is funded by the FCC’s Universal Service Fund, paid for via a monthly fee on the average American consumer’s phone bill.

“The Lifeline program is vital to millions of consumers in cities, rural areas, and tribal lands who rely upon it every day to connect with loved ones, interview for jobs, and contact emergency services,” Enforcement Bureau Chief Travis LeBlanc said in an agency statement Friday. “This settlement makes clear that no Lifeline provider should turn a blind eye to potential fraud on the program.”

According to the FCC, Blue Jay claimed extra subsidies for several thousand Hawaiian customers supposedly living on Hawaiian Home Lands — considered tribal lands under the agency’s rules — until 2014, when the Hawaii Public Utilities Commission told Blue Jay they appeared to be claiming more enrollees than actual households residing on Hawaiian Home Lands.

Despite finding it could be “improperly claiming” the enhanced compensation, Blue Jay continued to collect the additional subsidy “while it sought to gather more accurate information.”

The $2 million settlement includes Blue Jay’s forfeiture of $918,010 in Lifeline disbursements that the FCC has already frozen. As part of the settlement Blue Jay will implement software to verify consumers self-certification that they live on tribal lands. Blue Jay is eligible to offer Lifeline subsidies in 17 other states including Puerto Rico.

Friday’s enforcement action is the second levied against a Lifeline provider this year — the first in April being the largest fine the agency has ever issued against a provider for enrollment fraud.

It also comes amid an ongoing investigation into Lifeline fraud by Republican FCC Commissioner Ajit Pai, who recently found a pattern among multiple Lifeline providers across the U.S. enrolling subscribers after they’re flagged as a possible duplicate by a database providers ping before subscribing a customer.

Providers can override the duplicate enrollments without submitting any explanatory documentation to the FCC, and in the case of rural or tribal addresses, simply by pressing a button.

Such enrollments accounted for one-third of all enrollments — 4,291,647 people — between October 2014 and April 2016, or 35.3 percent.

Pai confirmed Friday Blue Jay is one of the providers his office is investigating.

“Today’s consent decree with Blue Jay Wireless for improperly receiving Lifeline subsidies confirms that the FCC’s Lifeline program still contains waste, fraud, and abuse,” Pai said in a statement Friday. “I can confirm that Blue Jay Wireless is one target of my ongoing investigation and that I flagged further suspicious conduct for the Enforcement Bureau’s investigation earlier this year.”

Pai previously singled out Oklahoma as one of the costliest states to Lifeline as a result of the enhanced tribal subsidy provision. In Oklahoma’s tribal lands, Lifeline subscribers are eligible for the max $34.25 monthly subsidy whether they are Native Americans or not. In 2014, Oklahoma cost the Lifeline program the second highest total — $128 million — despite the state ranking 28th in population. The vast majority of Oklahoma’s claimants — 99.5 percent — received the higher $34.25 subsidy.

“I will continue to work with my colleagues, the Enforcement Bureau, the Inspector General, and the Universal Service Administrative Company to end the abuse of taxpayer money by unscrupulous wireless resellers,” Pai said Friday.

The subject of Pai’s investigation came up during an FCC oversight hearing on Capitol Hill Tuesday, where Democrats pressed the Republican Commissioner on whether he’d uncovered any hard evidence of fraud in the program yet.

While he conceded he hadn’t, Pai said the high number of Lifeline subscribers enrolled via overrides —  roughly 48 percent of the total number of enrollments — represented potential fraud the commission should investigate.

Democrats, who recently compiled their own report on duplicate enrollments, helped along by FCC Chairman Tom Wheeler, said the numbers were accurate based on U.S. Census Bureau data on the number of doubled-up households in the U.S., such as homeless shelters.

Following the FCC’s open meeting Thursday, Pai said House Democrats’ report only examined one of the five forms of potential fraud his office is investigating with data provided by the Universal Service Administrative Company (USAC), charged with administering Lifeline.

Pai said he was expecting more data from USAC requested as part of the investigation as early as this week.

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