Several unrelated news reports have highlighted an apparently widespread problem afflicting federal means-tested public benefit program: a potentially large fraction of program beneficiaries are ineligible. But as regulatory problems go, this one has an easy, cost-effective solution.
Wall Street Journal reporter Spencer E. Ante summarizes (subscription; free FoxBusiness) a recent report by the Federal Communications Commission:
A review of five top recipients of Lifeline support conducted by the FCC for the Journal showed that 41% of their more than six million subscribers either couldn’t demonstrate their eligibility or didn’t respond to requests for certification.
The program is open to people who meet federal poverty guidelines or are on food stamps, Medicaid or other assistance programs, and only one Lifeline subscriber is allowed per household.
The five carriers investigated account for 34% of total Lifeline subscribers. In 2008, Lifeline program outlays were $819 million, and have risen to $2.2 billion in 2012.
Ante describes the reason why cell phone carriers are enthusiastic about the program even though they receive from the federal government only $9.25 per month per customer:
For the carriers, the program is a chance for them to sign up more subscribers and make a small profit, plus more money if customers go over their small initial allotment and need to buy more minutes or text messages. Carriers can set prices for their Lifeline subscribers as the companies wish.
Problems arose because carriers were allowed to accept self-certification, which practice the FCC terminated last year:
Carriers said many of the disqualified subscribers simply didn’t reply when asked to prove their eligibility. They also said the FCC rules on self-certification, and the absence of a national database of participants, made it hard to keep ineligible people from signing up.
One of the difficulties carriers have is limiting Lifeline participation to one account per household. Another is more generous state eligibility rules.
A different sort of program eligibility problem made the news when the Los Angeles Unified School District and at least seven other California school districts were caught spending federal school lunch funds on things besides school lunches. The Los Angeles Times’ Stephen Ceaser reports:
The California Department of Education has ordered districts to repay more than $170 million in misused funds to their student meal programs, the California Senate Office of Oversight and Outcomes said in a report issued Wednesday. L.A. Unified has been forced to pay back more than $158 million in misappropriations and unrelated charges that the district made over six years ending in 2011.
State officials suspect the alleged misuse of funds could be more widespread across California school districts.
In most cases, school systems attempted to use cafeteria funds to pay for personnel, utilities and other expenses. Other school districts named in the report are Oxnard, San Diego, Santa Ana, San Francisco, Baldwin Park, Centinela Valley and Compton.
Ceasar’s reporting indicates that these misappropriations were not accidental; “L.A. Unified redirected funding for years –- ignoring reports from administrators and its own inspector general.” The schools were able to sustain this practice, however, because “the regulations governing spending are too complex.” The school districts responded by disregarding the rules.
Ceasar’s story does not drill into the underlying question of program eligibility, which is key to understanding the stakes involved. As long as federal funds cover the cost of school lunches, school districts have an incentive to permit ineligible students to enroll. The ability to spend these funds on unrelated personnel and services only increases this incentive, turning the federal school lunch program into a small cash cow.
The US Department of Agriculture has regulations governing the administration of this program, including a 93-page manual just for determining and verifying eligibility. The first barrier school district personnel have is that evidence of eligibility, once submitted, must be kept private. That means there are only limited circumstances in which school personnel may be allowed to know whether specific students are participating, and this is further constrained by “need to know rules:”
Although a program or person may be authorized under the NSLA to receive free and reduced price eligibility information, there must be a legitimate need to know to provide a service or carry out an authorized activity.
These provisions assure participant privacy at the expense of accountability unless school district personnel who are required to know actually verify eligibility. However, the regulations encourage these officials not to investigate very carefully. They do not even have a verification requirement for participants who qualify through their participation in another relevant benefit program.
Verification of the remainder generally consists of examining records for a “standard sample,” which consists of either (a) the lesser of 3,000 or a 3% random sample or (b) 1,000 or a 1% random sample plus the lesser of 500 or a 0.5% random sample of applicants providing a case number in lieu of income information. School districts are forbidden from verifying more:
With the exception of verification for cause, [school districts] must not verify more than or less than the standard sample size or the alternate sample size (when used) and must not verify all (100% of) applications.
What happens to participants who fail to pass the validation test? They are dropped from the program, but only after legal notice is given and their appeals are exhausted. What happens to the ineligibles among the approximately 97% of participants whose eligibility is never verified? Nothing.
This verification scheme is designed to provide the appearance of program integrity without actually ensuring that program establishes or maintains integrity. USDA can say it has a verification component to the program; school districts can say that they complied with USDA’s program; and USDA can report to Congress that they have in fact complied.
Actual verification, if Congress wanted it, would be much easier and less costly. All that is required is for applicants to submit IRS Form 4506-T, with the school district’s point of contact listed in Box 5. Within a couple weeks, proof of income would be delivered by the IRS to the school district or cell phone carrier. Verification would take mere minutes, and there would be virtually no error.
The [school district] has an obligation to verify all questionable applications (verification “for cause”). Such verification efforts cannot delay the approval of applications. If an application is complete and indicates that the child is eligible for free or reduced price benefits, the application must be approved. Only after the determination of eligibility has been made can the [school district] begin the verification process.