Fraud Investigation Targets Discounted Cell Phone Program - KTVN Channel 2 - Reno Tahoe News Weather, Video -

Fraud Investigation Targets Discounted Cell Phone Program

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It's called "lifeline" - anyone who earns below the poverty line -- about $11,000 or less a year -- or is on federal assistance can get free or cheap cell phone service thanks to the federal government.

But it's a $1.7 billion program clouded in controversy. "The execution of this program has been embarrassing, wasteful, and in many instances downright fraudulent," says Sen. Claire McCaskill (D-MO.)

Here's how it works: On all phone bills there's an automatic charge -- like a tax -- we all pay called a "universal service fee."

The Federal Communications Commission uses that fee to pay phone carriers -- mostly small and not well known ones -- to sign up low-income Americans for lifeline.

Civil rights and community groups argue it's vital. "I really do believe that all of society benefits when we have universal service, when everyone is connected," says Mark Toney, Utility Reform Network Consumer Advocate.

But the more subscribers, the more money each carrier gets. That Sen. McCaskill has told lawmakers has invited fraud. "When you pay people per person, you're creating an incentive for them to manufacture applications."

Several phone carriers nationwide have been accused of signing people up multiple times, signing up those who don't qualify and in some cases even creating bogus customers.

The FCC says it implemented new reforms last year - it eliminated 2.2 million duplicate subscriptions saving $260 million and fined 13 carriers $90 million for failing to prevent fraud and abuse.

FCC Chairman Tom Wheeler recently addressed the issue at an event in California. "One, the fraud is bad but two the effect of the fraud on the people who deserve the program is outrageous."

CBS News has learned the U.S. Government Accountability Office is now investigating the program.

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