FCC's Oversight Efforts to Control Cross-Subsidization

RCED-93-34: Published: Feb 3, 1993. Publicly Released: Feb 26, 1993.

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Pursuant to a congressional request, GAO reviewed the Federal Communications Commission's (FCC) implementation of: (1) recommendations for increased on-site audits of carriers' cost allocations; and (2) accounting safeguards established to protect ratepayers from cross-subsidization, including carriers' cost allocations audits, FCC audit reviews, and the Automated Reporting Management Information System.

GAO found that: (1) although Congress approved funding increases for additional FCC audit staff, no additional positions have been added to the FCC on-site audit function; (2) since the implementation of FCC accounting safeguards in 1987, on-site audit staffing levels have declined and audit staff workload has increased by 35 percent; (3) FCC audit coverage is inadequate because FCC ability to impose fines or penalties more than 5 years after a cost misallocation is limited; (4) current staffing levels do not ensure that ratepayers are protected from cross-subsidization; (5) increased federal expenditures for FCC on-site staffing and travel funds would be offset by FCC audit and review fees; (6) while a number of additional safeguards complement FCC on-site audits, not all cases of cross-subsidization have been detected; (7) certified public accounting (CPA) firms have increased FCC audit coverage, but many audits were not in accordance with FCC guidelines; (8) inadequate FCC staffing levels have not permitted proper CPA audit workpaper and report reviews; (9) the FCC Automated Reporting Management Information System includes inadequate data to generate comparisons of carriers' accounts, which would allow FCC to readily identify potential cross-subsidy violations; (10) FCC on-site staff discovered over $300 million in previously uncovered misallocated funds; and (11) on-site staff audits continue to be the most effective method of audit and oversight.

Matter for Congressional Consideration

  1. Status: Closed - Implemented

    Comments: Congress provided the funding to permit FCC to hire additional auditors.

    Matter: Congress may wish to consider authorizing additional permanent positions for auditors and the appropriate travel funds, recognizing that the funds expended would have little or no impact on the federal budget.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: FCC hired 10 additional auditors in July and August 1994.

    Recommendation: The Chairman, FCC, should continue to pursue the Commission's quest for additional resources to improve assurance that cross-subsidization is not taking place.

    Agency Affected: Federal Communications Commission


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