Audits Could Carry Severe Penalties; Seek Legal Counsel if Your Company is Audited

Last week, Federal Communications Commission (FCC) Chairman Ajit Pai issued a set of instructions to the Universal Service Administrative Company (USAC) to clamp down on waste, fraud, and abuse in the universal service system.  The instructions seek to end fraudulent practices discovered by government investigators that have taken advantage of the FCC’s Lifeline program, which provides subsidies for low income consumers to use for wireless phone service.  USAC administers the Lifeline program, and Eligible Telecommunications Carriers (ETCs) offer subsidized Lifeline service to their customers.

“I believe immediate action is warranted,” Pai wrote to USAC, urging action as soon as August 8, 2017.  “We must be vigilant in stopping abuse of the Universal Service Fund.”

The FCC’s instructions may impact ETCs that have offered Lifeline service to ineligible subscribers, whether or not the ETCs knew about the subscribers’ ineligibility.  Specific actions that may trigger investigation include enrolling ineligible subscribers in Lifeline service, enrolling deceased subscribers, and enrolling duplicate subscribers.  The instructions request that USAC take steps to stop fraud, including:

• Audit ten ETCs with the highest number of potentially ineligible subscribers.
• Require ETCs with potentially ineligible subscribers, as identified by the Government Accountability Office (GAO), to verify the eligibility of the subscribers.
• Require all ETCs to de-enroll any subscribers that cannot verify their residence at a location that could reasonably accommodate them.
• Require ETCs to de-enroll any subscribers that cannot confirm they are independent economic households from other subscribers at an address.
• Require ETCs to de-enroll any deceased individuals.
• Recapture from ETCs improper payments associated with de-enrolled subscribers.

For purposes of bringing an enforcement action, the FCC specifically instructed USAC to inform the FCC’s Office of Inspector General of any ETCs with:

• Substantial enrollment of potentially ineligible subscribers;
• Substantial enrollment of individuals at oversubscribed addresses;
• ETCs with material differences between their National Lifeline Accountability Database listings and Form 497 submissions;
• Substantial enrollment of deceased individuals; and
• Substantial enrollment of exact duplicates.

Penalties for ETCs can be substantial, and any ETC that is audited is advised to contact counsel immediately to discuss how best to respond to USAC.

ETCs should also be prepared for new scrutiny relating to sales agents, designed to reduce incentives for fraud.  For example, Pai instructed USAC to require sales agents to register with USAC and to develop technical and other restrictions designed to restrict sales agents from committing fraud.  Sales agents found to be noncompliant with USAC and FCC rules relating to Lifeline could face enforcement action.

If your business has any questions regarding the recent FCC instructions and the expected audits to be conducted by USAC, please contact Michael Donahue at 703-714-1319 or mpd@commlawgroup.com.