Telecommunications: Additional Action Needed to Address Significant Risks in FCC's Lifeline Program

GAO-17-538 Published: May 30, 2017. Publicly Released: Jun 29, 2017.
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What GAO Found

The Federal Communications Commission (FCC) has not evaluated the Lifeline program's (Lifeline) performance in meeting its goals of increasing telephone and broadband subscribership among low-income households, but has recently taken steps to do so. Lifeline participation rates are low compared to the percentage of low-income households that pay for telephone service, and broadband adoption rates have increased for the low-income population even without a Lifeline subsidy. Without an evaluation, which GAO recommended in March 2015, FCC is limited in its ability to demonstrate whether Lifeline is efficiently and effectively meeting its program goals. In a July 2016 Order, FCC announced plans for an independent third party to evaluate Lifeline design, function, and administration by December 2020.

FCC and the Universal Service Administrative Company (USAC)—the not-for-profit organization that administers Lifeline—have taken some steps to enhance controls over finances and subscriber enrollment. For example, FCC and USAC established some financial and management controls regarding billing, collection, and disbursement of funds for Lifeline and related programs. To enhance the program's ability to detect and prevent ineligible subscribers from enrolling, FCC oversaw completion in 2014 of a database with a real-time list of subscribers to assist carriers in identifying and preventing duplicate subscribers. Additionally, in June 2015, FCC adopted a rule requiring Lifeline providers to retain eligibility documentation used to qualify consumers for Lifeline support to improve the auditability and enforcement of FCC rules.

Nevertheless, GAO found weaknesses in several areas. For example, Lifeline's structure relies on over 2,000 Eligible Telecommunication Carriers that are Lifeline providers to implement key program functions, such as verifying subscriber eligibility. This complex internal control environment is susceptible to risk of fraud, waste, and abuse as companies may have financial incentives to enroll as many customers as possible. Based on its matching of subscriber to benefit data, GAO was unable to confirm whether about 1.2 million individuals of the 3.5 million it reviewed, or 36 percent, participated in a qualifying benefit program, such as Medicaid, as stated on their Lifeline enrollment application. FCC's 2016 Order calls for the creation of a third-party national eligibility verifier by 2019 to determine subscriber eligibility. Further, FCC maintains the Universal Service Fund (USF)—with net assets exceeding $9 billion, as of September 2016—outside the Department of the Treasury in a private bank account. In 2005, GAO reported that FCC should reconsider this arrangement given the USF consists of federal funds. In addition to addressing any risks associated with having the funds outside the Treasury, where they do not enjoy the same rigorous management practices and regulatory safeguards as other federal programs, FCC identified potential benefits of moving the funds. For example, by having the funds in the Treasury, USF payments could be used to offset other federal debts, and would provide USAC with better tools for fiscal management of the funds. In March 2017, FCC developed a preliminary plan to move the USF to the Treasury. Until FCC finalizes and implements its plan and actually moves the USF funds, the risks that FCC identified will persist and the benefits of having the funds in the Treasury will not be realized.

Created in the mid-1980s, FCC's Lifeline provides discounts to eligible low-income households for home or wireless telephone and, as of December 2016, broadband service. Lifeline reimburses telephone companies that offer discounts through the USF, which in turn is generally supported by consumers by means of a fee charged on their telephone bills. In 2016, Lifeline disbursed about $1.5 billion in subsidies to 12.3 million households.

In 2010, GAO found Lifeline had limited abilities to detect and prevent ineligible subscribers from enrolling. FCC adopted a reform order in 2012 to enhance Lifeline's internal controls. GAO was asked to examine FCC's reforms. This report discusses, among other objectives, (1) the extent to which Lifeline demonstrates effective performance towards program goals, and (2) steps FCC and USAC have taken to enhance controls over finances, subscribers, and providers, and any weaknesses that might remain.

GAO analyzed documents and interviewed officials from FCC and USAC. GAO analyzed subscriber data from 2014 and performed undercover tests to identify potential improper payment vulnerabilities. The results of GAO's analysis and testing are illustrative, not generalizable.

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GAO makes seven recommendations, which FCC generally agreed with, including that FCC take action to ensure the preliminary plans to transfer the USF from a private bank to the U.S. Treasury are finalized and implemented expeditiously.

Recommendations for Executive Action

Agency Affected Recommendation Status
Federal Communications Commission To address control weaknesses and related program-integrity risks we identified in Lifeline, the Chairman of FCC should require Commissioners to review and approve, as appropriate, spending above the budget in a timely manner.
On November 16, 2017, FCC adopted a Notice of Proposed Rulemaking that proposed to adopt a self-enforcing budget mechanism for the Lifeline program. However, as of August 2021, FCC has not yet adopted a decision on this proposal.
Federal Communications Commission To address control weaknesses and related program-integrity risks we identified in Lifeline, the Chairman of FCC should maintain and disseminate an updated list of state eligibility databases available to Lifeline providers that includes the qualifying programs those databases access to confirm eligibility; this step would help ensure Lifeline providers are aware of state eligibility databases and could also help ensure USAC audits of Lifeline providers can verify that available state databases are being utilized to verify subscriber eligibility.
Closed – Implemented
FCC directed USAC to post state eligibility database information to USAC's website at The information was posted on September 27, 2017. A bulletin was issued on October 10, 2017 notifying service providers that the information was available. USAC updates the information as new information is available. The website was last updated on May 30, 2018.
Federal Communications Commission To address control weaknesses and related program-integrity risks we identified in Lifeline, the Chairman of FCC should establish time frames to evaluate compliance plans and develop instructions with criteria for FCC reviewers how to evaluate these plans to meet Lifeline's program goals.
According to the FCC as of August, 2021, the agency does not currently have a schedule to implement this recommendation.
Federal Communications Commission To address control weaknesses and related program-integrity risks we identified in Lifeline, the Chairman of FCC should develop an enforcement strategy that details what violations lead to penalties and apply this as consistently as possible to all Lifeline providers to ensure consistent enforcement of program violations; the strategy should include a rationale and method for resource prioritization to help maximize the effectiveness of enforcement activities.
Closed – Implemented
In April, 2020 FCC documented their rationale for whether they commence with an enforcement action as a function of the availability of the enforcement resources, competing demands for those resources, and the facts and circumstances of the individual matter. Regarding Lifeline, FCC explained enforcement action is more likely in cases in which there are clear violations of established Lifeline rules involving a significant number of subscribers, a significant overpayment of Lifeline funds, or a repeat violator of the Lifeline rules. In December 2020, FCC provided GAO with a memorandum further detailing 19 factors the agency uses to determine whether to initiate an enforcement action originating from a referral or complaint involving a potential violation of the Commission's Lifeline rules. By establishing a documented enforcement strategy, FCC can more consistently enforce program violations and help maximize enforcement activities.
Federal Communications Commission To address our findings regarding the USF, the Chairman of FCC should take action to ensure that the preliminary plans to transfer the USF funds from the private bank to the U.S. Treasury are finalized and implemented as expeditiously as possible.
Closed – Implemented
Prior to 2018, Universal Service Fund monies were held in both cash and Treasury Securities in a private bank. In April 2018, the FCC initiated its plan to transfer approximately $6.5 billion in USF funds from the private bank where they were held to the United States Treasury. As of July 31, 2018, all USF funds that were held in cash (over $4 billion) were transferred. As of August 2018, all USF contributions are being made to and all disbursements are being made from the U.S. Treasury. Treasury Securities held in the private bank that were acquired prior to the decision to move the USF funds to the U.S. Treasury are scheduled to mature by August 15, 2019. A decision was made in consultation with the U.S. Treasury to continue to hold these securities with the private bank and transfer the cash to Treasury as the securities mature. The USF Administrator (Universal Service Administrative Company) entered into a custody agreement with the private bank for the limited purpose of holding these securities until they mature. Once the funds have been fully transferred, the FCC will no longer pay fees for the management of the funds. On August 15, 2019, the final transfer of USF funds to Treasury-- $363,000,000 in cash from maturities and $1,361,250 from interest earned on investments was made. The balance in the USF Treasury account as of that date was $6.8 billion.
Federal Communications Commission To address our findings regarding the USF, the Chairman of FCC should take action to require a review of customer bills as part of the contribution audit to include an assessment of whether the charges, including USF fees, meet FCC Truth-in-Billing rules with regard to labeling, so customer bills are transparent, and appropriately labeled and described, to help consumers detect and prevent unauthorized charges.
Closed – Implemented
In accordance with GAO's recommendation, the FCC evaluated and approved in June 2017 the USF administrator's (Universal Service Administrative Corporation/USAC) amended procedures. The procedures are used by USAC's auditors for contributor audits to assess whether the USF assessments on telecommunication carriers' bills are transparent and appropriately labeled in accordance with the FCC's truth in billing rules. USAC's Contributor Revenue Audit Program contains specific testing steps that address the recommendation.
Federal Communications Commission To address our findings regarding the USF, the Chairman of FCC should take action to respond to USAC requests for guidance and address pending requests concerning USF contribution requirements to ensure the contribution factor is based on complete information and that USF pass-through charges are equitable.
According to the FCC, the FCC is scheduled to complete implementing this recommendation in December 2022.

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