Oklahoma Is Ground Zero For Government Cell Phone Fraud

It's a government program designed to help low-income Americans afford phone service, but even after it was reformed for lack of oversight, we found it's still rampant with fraud.

The Tip

Dee Anderson lives in Bartlesville and considers herself well-informed when it comes to government spending.

"I'm sick of all the freebies and the government waste," said Anderson.

Anderson said she couldn't believe the waste that was happening in her town as it was inundated with tents advertising free cell phones. She said she was furious to find out people she knew were given free government subsidized cell phones from those tents even though they didn't need them and didn't qualify for them.

"It's just not right," said Anderson. "It just infuriates me. I just get so mad about it."

Cell phone companies typically set up the tents in low-income areas, some even have lines of people waiting into the night to get free phones. Sometimes vendors do business out of their cars, topped with free cell phone signs or banners. At least one vendor operates out of a house in Oklahoma City. Vendors at those "free cell phone" tents are giving away free cell phones as they sign people up for a federal program called Lifeline.

The Lifeline Program

Under the Lifeline program, qualifying consumers could pay as little as 99 cents a month for cell phone service. The government pays the rest through the Lifeline program. In Oklahoma, companies could get as much as $35 per month per phone, plus the cost of the actual phone.

According to the Federal Communications Commission, Lifeline began in 1985 to ensure all Americans have the opportunities and security that phone service brings, connecting them to jobs, family and emergency services. It was expanded to include cell phones in 2003.

According to the FCC, the number of low-income households with phones increased from 80 percent in 1985 to 95 percent in 2011.

If you pay a phone bill, you're likely paying for the Lifeline program through universal service charges. According to the FCC, the average universal service charge is $2.50-$2.75 per household. That means the average household pays $30 to $33 a year for all of the programs under the Universal Service Administrative Company, or USAC. In 2011, the Lifeline program spent $1.75 billion of the money USAC collected.

Click here to see where your money goes

The problems

Anderson contacted the Oklahoma Impact Team after conducting an experiment in Bartlesville. She said she wanted to see how easy it would be to rip off the government. Anderson said she waited in line at a tent, wearing her personal smart phone on her hip, to see if the vendor would give her a free phone even though she doesn't qualify. He did.

"Anybody can get them. They say it's a lifeline... they're for needy people. I'm not needy and I went up and I got one with no ID no proof of income, nothing," said Anderson.

The FCC has admitted it's lost hundreds of millions of Lifeline dollars to fraud, waste and abuse. It acknowledges that companies have broken several Lifeline rules, giving cell phones to unqualified people and giving multiple phones to people who create duplicate Lifeline accounts.

The Reforms

According to the FCC the agency reviewed 7 million Lifeline subscribers last year and discovered 700,000 duplicate accounts. The agency also reviewed nearly 177,000 Oklahoma subscribers and eliminated nearly 8,000 of them for various violations. The agency says those revisions will save $3 million annually.

To cut down on fraud, waste and abuse in the future the FCC drastically reformed the Lifeline program this summer, writing more stringent rules for companies to follow.

Click here to read the FCC's reform order

To legally qualify people must now show a valid ID and some sort of proof that their income is below the poverty line or that they already receive one of the following government benefits:

• Medicaid
• Food Stamps
• SSI
• Section 8 Housing
• Headstart
• TANF
• Free Lunch Program
• BIA General Assistance
• TTANF
• FDPIR
• LIHEAP

All of the tent workers we talked to said the reforms are working. They said they never give phones to unqualified people and always check to ensure customers don't create duplicate accounts.

"The way I try to do it is try to make sure that every customer, when they sign up they have to show me valid ID and their food stamp card or Medicaid card or whatever," said one tent worker.

The Hidden Camera Investigation

We wanted to see if tent workers really were following the rules, so we went undercover, wired with hidden cameras. Out of nine free cell phone stands, three were willing to break the rules.

• Workers in one Tulsa tent told our producers they could have a phone without proof they qualified--just an ID.

• A worker at an Oklahoma City cell phone stand said he'd meet me at the flea market and give me a phone, no questions asked. He said, "Like the only way I could give you a phone is if you go on Saturday to the flea market… I have phones there and I don't ask for anything."

• At a tent in Oklahoma City, a worker on a smoke break said he would "make it happen" and gave me a phone even though I didn't show my ID and didn't have proof I qualified for a phone.

The man who gave me the phone identified himself as an employee of Easy Wireless. He gave me a flip phone, a charger and a post card with a toll-free customer service number for Easy Wireless. The card also says, "We believe having reliable cell phone service is a right, not a privilege."

Click here to read the Easy Wireless card

Easy Telephone Services Company broke many of the rules they pledged to abide by in an FCC compliance plan.

We've only used the phone a few times to call Easy Wireless, which is actually called Easy Telephone Services Company, based out of Florida. Our calls were never returned.

The Oklahoma Connection

It turns out dozens of wireless companies are flocking to Oklahoma, setting up tents, seeking to profit from a special tribal provision in the Lifeline law. In most states, cell phone companies are only eligible to receive $10 per month per phone, but companies that give away phones on former tribal lands receive up to an extra $25 per month per phone from the government. That means companies doing business here are eligible to receive up to $35 per phone per month. Unlike other states, that tribal provision covers almost all of Oklahoma.

One former tent worker told us each employee was required, by the company, to give away 50 phones a day. She said, at the beginning of last summer, the company gave her no rules to follow and she was giving out cell phones as fast as she could. Once the Lifeline reforms went into place, she said it was more difficult to meet her quota each month, but that customers found ways to get around the new rules.

Our calculations show, if all of that company's employees meet those quotas, it has the potential to gross $50-80 million a year off the Lifeline program, in just one city.

There are currently 45 companies certified to enroll people in Lifeline in Oklahoma. Between January and August 2012, those companies received $121,199,249 in Lifeline reimbursements.

The "Regulators"

The Oklahoma Corporation Commission approves licenses for phone companies to work in Oklahoma. A spokesperson says the OCC has been inundated with applications since cell phones became part of the Lifeline program. Currently there are close to fifty companies offering Lifeline service in Oklahoma. But an OCC spokesman says when it comes to enforcing Lifeline rules the state's hands are tied. He says only the feds can reprimand companies for fraud, they're just not doing it.

"I can't see where the FCC or the federal government's really taking any action to corral the abuse or fraud," said Jim Jones of the Oklahoma Corporation Commission.

The FCC is the enforcement arm of the program and it has threatened companies with fines, jail time and the loss of their license if they're caught breaking the rules. However, when we pressed the agency to show us how they've enforced the Lifeline rules a spokesman could only point us to one case where a company was actually punished. He says they're still refining that part of the Lifeline program.

To Report Lifeline Fraud

Contact the Federal Communications Commission's Office of the Inspector General Hotline at 1-888-863-2244 or 202-418-0473. You can also email your complaint to hotline@fcc.gov.