Special Report: Government phone give-away

A cellular phone company that mistakenly shipped an untold number of free cell phones in a government welfare program is insisting consumers either return them at their own expense, keep them or destroy them.

"(A customer service agent) said, 'Yes, you're welcome to return it, but it will be at your cost, not ours,'" said Nancy Steichen of Berclair/East Memphis.

Steichen's mother received the phone as part of the Lifeline Assistance program, a 25-year-old federal program to provide free or discounted phone service to Americans on public assistance.

Except Steichen's mother isn't enrolled in the program.

Neither are more than a dozen viewers who received the phones from Virgin Mobile/Assurance Wireless.

[Information from Assurance Wireless]

Aug. 8, our Raycom News television station WMC-TV 5 in Memphis, Tenn. reported a rogue agent representing a community outreach partner of Virgin Mobile/Assurance Wireless faked applications for the program, according to a company spokesperson.

As a result, Virgin Mobile/Assurance Wireless shipped an untold number of Tennesseans and Mississippians free, unsolicited cell phones.

Jack Pflanz, corporate communications manager for the cellular company, confirmed that an unnamed agent with a Tennessee outreach group "...was fraudulently filling out applications" with the names of Tennesseans and Mississippians, pulled from public records. The agent was apparently padding his submissions of "certified" applicants.

"We were able to stop some of the phones from shipping, but a few got through," said Pflanz, who could not say how many phones were improperly shipped.

"The agent who engaged in the misconduct was immediately terminated by the community outreach organization, and that organization has taken responsibility for the incident," he added, without releasing the name or location of the community outreach organization.

Pflanz provided what he described as a dedicated phone line for citizens who mistakenly received the phones to return them.

The number is the same customer service number published in the phone's owner's manual. More than a half-dozen citizens have reported 15 to 30-minute wait times, only to be told they can't return the phones without paying for the shipping.

It led Midtown's Ralph Williams, who received one of the unsolicited phones, to believe Virgin Mobile/Assurance Wireless has already collected its federal subsidies for the phones, despite their fraudulent delivery.

"I think that Assurance Wireless has somebody who is just filling in applications because they get paid for providing this service," said Williams.

Reporters for WMC-TV 5 attempted to return one of the phones. It was erroneously shipped to an East Memphis auto body shop.

The customer service agent gave us the same options: ship it back at our own cost, throw it away or activate the phone.

The program is funded by the Universal Service Fee that appears on most Americans' phone bills. The Universal Service Administrative Company (www.usac.org), a not-for-profit designated by the Federal Communications Commission (FCC) to manage the fund, collects the fee and pays subsidies to telecommunications companies participating in Lifeline Assistance, according to Eric Iversen, USAC's director of external relations.

Iversen said the Reagan administration created the program in 1986 to provide Americans on public assistance -- those receiving Medicaid, welfare checks (now TANF payments), food stamps and supplemental Social Security -- free or discounted phone service.

Iversen said in 2008, the Bush administration expanded the program to include telecommunications companies that did not own the networks over which they transmit data, including cellular service providers.

"There is no contract," Iversen said. "This is a program that is based on companies filing data with us, and the data consists of, more or less, the number of (phones) attached to eligible consumers for which Assurance Wireless has charged less than the average consumers.

"Assurance Wireless is supposed to get certifications from customers that, yes, I am eligible to receive this service, and it's supposed to verify the eligibility of those people...then we provide a unit subsidy per customer:  $30 per person to help the company start the service, then $10 per month per certified customer."

Pflanz insisted the company would not receive any federal subsidy for any of the phones erroneously shipped because of the fraud, despite his customer service agents recommending citizens go ahead and activate the phones.

"Virgin Mobile/Assurance Wireless does not, and will not, receive any compensation for those folks from the Universal Service Fund," he said.

However, this incident revealed a loophole in the program's certification process.

Both Pflanz and Iversen confirmed that under the federal guidelines, some applicants for the government-subsidized cell phones don't have to provide documentation proving their participation in Medicaid, TANF, food stamps, Social Security supplemental income or other requirements.

Instead, they sign a sworn affidavit, under penalty of perjury, that they receive some sort of public assistance.

"There are circumstances where customers are able to 'self-certify' their eligibility," admitted Pflanz.

"It is a self-certifying program," agreed Iversen. "It is Assurance Wireless's responsibility to verify the accuracy of these customers' eligibility.

"USAC also conducts audits where we look at the rolls of subscribers to determine the accuracy of their eligibility, and we also use outside auditors to support the program."

Iversen would not reveal how often USAC conducts those audits.

"When it comes to spending government money, and when it comes to spending a fee or a tax that the American taxpayers are putting on, there needs to be great scrutiny on it," said Alabama Congressman Robert Aderholt.

Aderholt said he's going back to Congress to make sure these programs have better safeguards to make sure your tax dollars aren't being wasted on free cell phones for people who don't qualify.

"I think it is a real disservice, not only to the people that they are sending it to, but also to the American people that have to pay this fee," he said. "Because quite honestly, I've seen some of those fees that's on some of our cell phone charges and I wonder where that money ever goes. And so those things need to be looked at."

CONSUMER ACTION:  If you received one of these phones -- and did not apply nor qualify for it -- and are having trouble sending them back to Assurance Wireless, the U.S. Postal Inspection Service recommends you send them back marked "return to sender" IF the box is NOT opened.

Copyright 2011 WAFF. All rights reserved. WMC-TV contributed to this story.