TELECOMMUNICATIONS

Additional Action Needed 

to Address Significant 

Risks in FCC’s Lifeline 

Program

Statement of Seto Bagdoyan, Director, Forensic Audits 

and Investigative Service

Testimony 

Before the Committee on Commerce, 

Science, and Transportation, 

U.S. Senate

For Release on Delivery 

Expected at 10:00 a.m. ET

Wednesday, September 6, 2017

GAO-17-802T

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-17-802T, a testimony 

before the Committee on Commerce, Science, 

and Transportation, U.S. Senate

September 6, 2017

TELECOMMUNICATIONS

Additional Action Needed to Address Significant 

Risks in FCC’s Lifeline Program

What GAO Found

In its May 2017 report, 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 lowincome households by providing financial support, but it has recently taken steps 

to begin to do so. FCC does not know how many of the 12.3 million households 

receiving Lifeline as of December 2016 also have non-Lifeline phone service, or 

whether participants are using Lifeline as a secondary phone service. FCC 

revamped Lifeline in March 2016 to focus on broadband adoption; however, 

broadband adoption rates have steadily increased for the low-income population 

absent a Lifeline subsidy for broadband. 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 March 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-forprofit organization that administers the Lifeline program—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. To enhance the 

program’s ability to detect and prevent ineligible subscribers from enrolling, FCC 

oversaw completion in 2014 of an enrollment database and, 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, in its May 2017 report, 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. On the basis of 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 the end of 2019 to determine subscriber eligibility.

Further, FCC maintains the Universal Service Fund (USF)—with net assets of $9 

billion, as of September 2016—outside the Department of the Treasury in a 

private bank account. In 2005, GAO recommended that FCC reconsider this 

arrangement given that the USF consists of federal funds. In addition to 

addressing any risks associated with having the funds outside the Treasury, FCC 

identified potential benefits of moving the funds. For example, by having the 

funds in the Treasury, USAC would have 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. 

View GAO-17-802T. For more information, 

contact Seto Bagdoyan at (202) 512-6722 or 

bagdoyans@gao.gov.

Why GAO Did This Study

Created in the mid-1980s, FCC’s 

Lifeline program 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. 

This testimony is based on GAO’s May 

2017 report and discusses steps FCC 

has taken to measure Lifeline’s 

performance in meeting goals; steps 

FCC and USAC have taken to 

enhance controls over finances, 

subscribers, and providers; and any 

weaknesses that might remain.

For the May 2017 report, GAO 

analyzed documents and interviewed 

officials from FCC and USAC. GAO 

also analyzed subscriber data from 

2014 and performed undercover tests 

to identify potential improper payment 

vulnerabilities. The results of this

analysis and testing are illustrative, not 

generalizable.

What GAO Recommends

In its May 2017 report, GAO made

seven recommendations, including that

FCC ensure plans to transfer the USF

from the private bank to the Treasury 

are finalized and implemented 

expeditiously. FCC generally agreed 

with all the recommendations.
Letter

Page 1 GAO-17-802T 

Chairman Thune, Ranking Member Nelson, and Members of the 

Committee,

I am pleased to be here today to discuss the Federal Communications 

Commission’s (FCC) oversight of the Lifeline program (Lifeline). Over the 

past two decades, telecommunications carriers and their customers have 

paid over $100 billion to support the federal policy of “universal service.”

Universal service is the principle that all Americans should have access to 

communications services. FCC carries out this policy through four 

programs, including Lifeline.1 Lifeline was created in the mid-1980s to 

promote telephone subscribership among low-income households. In the 

mid-2000s, such service came to include wireless communications, and, 

in December 2016, FCC also began including broadband service. 

Average Lifeline enrollment as of the fourth quarter of calendar year 2016 

was approximately 12.3 million subscribers.

To participate in Lifeline, households must either have an income that is 

at or below 135 percent of the Federal Poverty Guidelines or participate in 

one of several qualifying assistance programs, such as Medicaid or the 

Supplemental Nutrition Assistance Program (SNAP).2 After subscribers 

are enrolled in Lifeline, they receive a monthly benefit on home or 

wireless phone and broadband service. The Lifeline benefit can lower or 

eliminate the cost of a subscriber’s monthly phone or Internet bill.

By statute, every telecommunications carrier providing interstate 

telecommunications services—including Lifeline providers—must 

contribute to federal universal service unless exempted by FCC.3

Contributions are deposited into the Universal Service Fund (USF). 

Although not required to do so, carriers typically pass on the cost of USF 

fees as a separate line item to their customers’ phone bills. A not-for-

 1

The other three programs are (1) the High-Cost Program, which assists

telecommunications carriers serving high-cost, rural, or insular areas; (2) the Schools and

Libraries Program, which assists eligible schools and libraries in procuring

telecommunications services, Internet access services, internal connections, and basic

maintenance of internal connections; and (3) the Rural Health Care Program, which

provides support to eligible health-care providers through discounts for broadband and

telecommunications services.

2

Medicaid is a joint federal–state health-coverage program for certain low-income and 

medically needy individuals. SNAP, previously known as the Food Stamp Program, offers 

nutrition assistance to eligible, low-income individuals and families.

3

47 U.S.C. § 254(d).

Letter
Page 2 GAO-17-802T 

profit, private corporation designated by FCC as the administrator of 

universal service programs, the Universal Service Administrative 

Company (USAC) pays Lifeline providers a subsidy from the USF for 

each subscriber to offset forgone revenues.4 From calendar year 1998 

through 2016, USAC had disbursed approximately $20.2 billion to Lifeline 

providers.

In May 2017, we published a report on FCC’s oversight of Lifeline that 

identified steps FCC has taken in the last few years to enhance the 

integrity of the program and stated the weaknesses that remained.5 We 

also made seven recommendations to improve FCC’s oversight of the 

program, which the agency agreed to implement.

My statement today discusses key findings from our May 2017 report, as 

well as steps FCC has taken and the related recommendations we made.

Specifically, this testimony discusses (1) the extent to which Lifeline 

demonstrates effective performance towards program goals; (2) steps 

FCC and USAC have taken to improve financial controls in place for 

Lifeline and the USF, and any remaining weaknesses that might exist; (3) 

steps FCC and USAC have taken to improve subscriber eligibility 

verification, and any remaining weaknesses that might exist; and (4) 

steps FCC and USAC have taken to improve oversight of Lifeline 

providers, and any remaining weaknesses that might exist.

For our May 2017 report, we reviewed documents and interviewed 

multiple stakeholders associated with Lifeline, including FCC, FCC’s 

Office of Inspector General (OIG), and USAC, among others. We also 

examined USAC financial data, including USF bank account statements 

and payment data, and interviewed USF account managers at the bank 

that holds USF funding. Further, we reviewed internal financial controls 

established by FCC and USAC and performed data matching and 

analysis to identify potential improper payments using Lifeline’s 

enrollment data from the National Lifeline Accountability Database 

(NLAD) and relevant beneficiary databases. The results of the data 

 4

According to USAC documents, USAC is not a federal agency, government corporation, 

government-controlled corporation, or other establishment in the executive branch of the 

U.S. government. USAC is also not a contractor to the federal government, but is an 

independent, Delaware, not-for-profit, private corporation, subject to all applicable federal, 

state, and local taxes.

5

GAO, Telecommunications: Additional Action Needed to Address Significant Risks in 

FCC’s Lifeline Program, GAO-17-538 (Washington, D.C.: May 30, 2017).
Page 3 GAO-17-802T 

analysis are illustrative rather than generalizable. We also performed 

undercover work to test the vulnerability for improper payments of funds 

disbursed to both subscribers and Lifeline providers. For example, we 

submitted 21 Lifeline applications using false information and fabricated 

supporting documents to determine whether we could obtain Lifeline 

benefits. These undercover tests were for illustrative purposes to highlight 

any potential internal control vulnerabilities and are not generalizable to 

the broader universe of subscribers and providers. Additional information 

on our scope and methodology is available in our May 2017 report. Our 

audit work was performed in accordance with generally accepted 

government auditing standards, and our related investigative work was 

done in accordance with investigative standards prescribed by the 

Council of the Inspectors General on Integrity and Efficiency.

FCC has not evaluated Lifeline’s performance in meeting program goals 

but, as we found in May 2017, has taken recent steps toward evaluation. 

According to GAO’s Cost Estimating and Assessment Guide, to use 

public funds effectively the government must meet the demands of 

today’s changing world by employing effective management practices and 

processes, including the measurement of government program 

performance.6 In the past, FCC has called for program evaluations to 

review the administration of universal service generally, including Lifeline, 

but has not completed such evaluations. For example, FCC specified that 

it would review USAC 1 year after USAC was appointed as the 

permanent administrator to determine whether the universal service 

programs were being administered effectively. This review, which was 

planned to have been completed by 1999, was never done. In 2005, FCC 

awarded a contract to the National Academy of Public Administration to 

study the administration of the USF programs generally, examine the 

tradeoffs of continuing with the current structure, and identify ways to 

improve the oversight and operation of universal service programs. 

However, we reported in May 2017 that FCC officials stated FCC 

subsequently terminated the contract and the study was not conducted.

In March 2015, we found that FCC had not evaluated Lifeline’s 

effectiveness in achieving its performance goals of ensuring the 

availability of voice service for low-income Americans, while minimizing 

 6

GAO, GAO Cost Estimating and Assessment Guide: Best Practices for Developing and

Managing Capital Program Costs, GAO-09-3SP (Washington, D.C.: March 2009).

FCC Has Not 

Evaluated Lifeline’s 

Performance in 

Meeting Program 

Goals but Has Taken 

Recent Steps toward 

Evaluation
Page 4 GAO-17-802T 

the burden on those who contribute to the USF.7 We recommended, and 

FCC agreed, to conduct a program evaluation to determine the extent to 

which Lifeline is efficiently and effectively reaching its performance goals.

Our May 2017 report raised additional questions about Lifeline’s 

effectiveness in meeting its program goals. For example, we reported 

that:

• FCC did not know how many of the 12.3 million households receiving 

Lifeline as of December 2016 also have non-Lifeline phone service 

(for which they pay out of pocket) along with their Lifeline benefit. 

Without knowing whether participants are using Lifeline as a primary 

or secondary phone service, we concluded that it is difficult for FCC to 

determine whether it is achieving the program’s goal of increasing 

telephone subscribership among low-income consumers while 

minimizing the USF contribution burden.

• FCC revamped Lifeline in March 2016 to focus on broadband 

adoption and generally phase out phone service, in part because FCC 

recognized that most eligible consumers have phones without Lifeline 

and to also close the “digital divide” of broadband adoption between 

low-income households and the rest of the country. However, 

broadband adoption rates have steadily increased for the low-income 

population absent a Lifeline subsidy for broadband. We found that at 

least two companies operating in a total of at least 21 states had 

begun offering in-home non-Lifeline broadband wireline support for 

less than $10 per month to individuals that participate in publicassistance programs, such as SNAP or public housing.8 The offered 

rate of these providers’ own low-income broadband service of $10 per 

month was less expensive than FCC’s broadband reasonablecomparability cost benchmark of approximately $55 per month, which 

Lifeline subscribers would be paying for a similar level of service.

Our May 2017 report also found that FCC has recently taken some steps 

toward evaluating Lifeline’s performance in meeting program goals. 

Specifically, in the 2016 Lifeline Modernization Order, FCC instructed 

USAC to hire an outside, independent, third-party evaluator to complete a 

program evaluation of Lifeline’s design, function, and administration. The 

 7

GAO, Telecommunications: FCC Should Evaluate the Efficiency and Effectiveness of the

Lifeline Program, GAO-15-335 (Washington, D.C.: Mar. 24, 2015).

8

These advertised prices do not include taxes.
Page 5 GAO-17-802T 

order stipulated the outside evaluator must complete the evaluation and 

USAC must submit the findings to FCC by December 2020. As FCC 

expects Lifeline enrollment to increase as the program is expanded to 

include broadband service, this expansion could carry with it increased 

risks for fraud, waste, and abuse, as was the case with past expansions 

of the program. Completing the program evaluation as planned, and as 

we recommended in 2015, would help FCC determine whether Lifeline is 

meeting its stated goals of increasing telephone and broadband 

subscribership among low-income consumers, while minimizing the 

burden on those who contribute to the USF.

In our May 2017 report we found that FCC and USAC have established 

financial controls for Lifeline, including obtaining and reviewing 

information about billing, collecting, and disbursing funds. They have also 

developed plans to establish other controls, such as establishing a 

national eligibility verifier (National Verifier) for Lifeline providers to 

determine the eligibility of applicants seeking Lifeline service. However, 

as discussed in our May 2017 report, we found that weaknesses remain, 

including the lack of requirements to effectively control program 

expenditures above approved levels, concerns about the transparency of 

fees on customers’ telephone bills, and a lack of FCC guidance that could 

result in Lifeline and other providers paying inconsistent USF 

contributions. To address these concerns, we recommended the 

Chairman of FCC (1) require Commissioners to review and approve, as 

appropriate, spending above the budget in a timely manner; (2) 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 changes; and (3) 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.

FCC generally agreed with those recommendations.

In addition, we found that USAC’s banking practices for the USF result in 

oversight and accountability risks that FCC has plans to mitigate. 

Specifically, FCC maintains USF funds—whose net assets as of 

September 2016 exceeded $9 billion—outside of the U.S. Treasury 

pursuant to Office of Management and Budget (OMB) advice provided in 

April 2000. OMB had concluded that the USF does not constitute public 

money subject to the Miscellaneous Receipts Statute, 31 U.S.C. § 3302, 

Financial Controls 

Exist, with Others 

Planned, for the 

Lifeline Program, but 

Weaknesses Remain
Page 6 GAO-17-802T 

a statute that requires that money received for the use of the United 

States be deposited in the Treasury unless otherwise authorized by law. 

As such, USF balances are held in a private bank account. However, 

subsequent to this OMB advice, in February 2005 we reported that FCC 

should reconsider this determination in light of the status of universal 

service monies as federal funds.9

As discussed in our May report, according to correspondence we 

received from the FCC Chairman’s Senior Legal Counsel, as of March 

2017, FCC had decided to move the funds to the Treasury. FCC identified 

potential benefits of moving the funds to the Treasury. For example, FCC 

explained that having the funds in the Treasury would provide USAC with 

better tools for fiscal management of the funds, including access to realtime data and more accurate and transparent data. According to FCC, 

until the USF is moved into the Treasury, there are also some oversight 

risks associated with holding the fund in a private account. For example, 

the contract governing the account does not provide FCC with authority to 

direct bank activities with respect to the funds in the event USAC ceases 

to be the administrator of the USF. After we raised this matter with FCC 

officials during the course of our review, beginning in November 2016, 

FCC sought to amend the contract between USAC and the bank to 

enable the bank to act on FCC instructions independently of USAC in the 

event USAC ceases to be the administrator. However, as of May 2017,

the amended contract had not yet been signed.

While FCC has put in place a preliminary plan to move the USF funds to 

the Treasury, as well as plans to amend the existing contract with the 

bank as an interim measure, several years have passed since this issue 

was brought to FCC’s attention without corrective actions being 

implemented. Further, under FCC’s preliminary plan, it would not be until 

next year, at the earliest, that the funds would be moved to the Treasury. 

In May 2017, while reviewing a draft of this report, a senior FCC official 

informed us that FCC experienced some challenges associated with 

moving the funds to the Treasury, such as coordinating across the 

various entities involved, which raised some questions as to when and 

perhaps whether the funds would be moved. Until FCC finalizes and 

implements its plan and moves the USF funds, the risks that FCC 

identified will persist and the benefits of having the funds in the Treasury 

 9

GAO, Telecommunications: Greater Involvement Needed by FCC in the Management 

and Oversight of the E-Rate Program, GAO-05-151 (Washington, D.C.: Feb. 9, 2005).
Page 7 GAO-17-802T 

will not be realized. As a result, in our May 2017 report, we recommended 

that the Chairman of FCC take action to ensure that the preliminary plans 

to transfer the USF funds from the private bank to the Treasury are 

finalized and implemented as expeditiously as possible. FCC agreed with 

this recommendation.

FCC and USAC have implemented controls to improve subscriber 

eligibility verification, such as implementing the NLAD database in 2014, 

which helps carriers identify and resolve duplicate claims for Lifelinesupported services. However, as discussed in our May 2017 report, our 

analysis of data from 2014, as well as our undercover attempts to obtain 

Lifeline service, revealed significant weaknesses in subscriber eligibility 

verification. Lifeline providers are generally responsible for verifying the 

eligibility of potential subscribers, but we found that their ability to do so is 

hindered by a lack of access to, or awareness of, state eligibility 

databases that can be used to confirm eligibility prior to enrollment. For 

example, not all states have databases that Lifeline providers can use to

confirm eligibility and some providers with whom we spoke were unaware 

of databases that were potentially available to them. These challenges 

might be overcome if FCC establishes a National Verifier, as it plans to do 

nationwide by the end of 2019, to remove responsibility for verifying 

eligibility from the providers. Additionally, since USAC was not 

maintaining and providing information to providers about these 

databases, we recommended they 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, to help ensure Lifeline providers are aware of state eligibility 

databases and USAC audits of Lifeline providers can verify that available 

state databases are being utilized to verify subscriber eligibility. FCC 

agreed with the recommendation.

For our May 2017 report, to identify Lifeline subscribers who were 

potentially ineligible to participate in the program, we tested the eligibility 

of subscribers who claimed participation in Medicaid, SNAP, and 

Supplemental Security Income (SSI) using NLAD data as of November 

2014. We focused our analysis on these three programs because FCC 

reported in 2012 that these were the three qualifying programs through 

which most subscribers qualify for Lifeline. We compared approximately 

3.4 million subscribers who, according to information entered in NLAD, 

FCC and USAC Have 

Implemented Some 

Controls to Improve 

Subscriber Eligibility 

Verification, but 

Weaknesses Remain
Page 8 GAO-17-802T 

were eligible for Lifeline due to enrollment in one of these three programs 

to eligibility data for these programs.10

On the basis of our analysis of NLAD and public-assistance data, we 

could not confirm that a substantial portion of selected Lifeline 

beneficiaries were enrolled in the Medicaid, SNAP, and SSI programs, 

even though, according to the data, they qualified for Lifeline by stating on 

their applications that they participated in one of these programs.11 In 

total, we were unable to confirm whether 1,234,929 subscribers out of the 

3,474,672 who we reviewed, or about 36 percent, participated in the 

 10The six states selected for our Medicaid analysis had eligibility dates from the third

quarter of 2012 through the most-recent eligibility fiscal quarter available for each state—

at the time of our data analysis—which ranged from the third quarter of 2012 to the fourth

quarter of 2014. For our analysis of NLAD and Medicaid data, we only matched against

Lifeline subscribers who enrolled prior to the latest Medicaid eligibility data available for

each state. Our nationwide SSI eligibility data ranged from October 2012 to December

2014, and each of the five selected states’ SNAP data ranged from October 2013 to

December 2014. Therefore, it was not necessary to exclude any Lifeline subscribers prior

to matching. To ensure a conservative estimate of unconfirmed eligibility, in the event that

any of the Lifeline subscribers were only shown as eligible for the month of December

2014, they were nevertheless counted as a match and deemed likely eligible for Lifeline,

even though NLAD data were only as of November 2014. For more information about our

scope and methodology, see the full report, GAO-17-538.

11When matching NLAD data against each of the qualifying programs that we tested, we

used the number of subscribers listed in NLAD as belonging to each program at the state 

level and matched it to the corresponding state’s qualifying program’s eligibility database. 

We took the difference between the subscribers listed as belonging to SNAP, SSI, and 

Medicaid at the state level in NLAD and our confirmed matches to determine the number 

of subscribers who could not be confirmed to qualify for the benefit program.
Page 9 GAO-17-802T 

qualifying benefit programs they stated on their Lifeline enrollment 

applications or were recorded as such by Lifeline providers.12

If providers claimed and received reimbursement for each of the 1.2 

million subscribers, then the subsidy amount associated with these 

individuals equals $11.4 million per month, or $137 million annually, at the 

current subsidy rate of $9.25 per subscriber. Because Lifeline 

disbursements are based on providers’ reimbursement claims, not the 

number of subscribers a provider has in NLAD, our analysis of NLAD data 

could not confirm actual disbursements associated with these individuals. 

Given that our review was limited to those enrolled in SNAP or Medicaid 

in selected case-study states, and SSI in states that participated in NLAD 

at the time of our analysis, our data results are likely understated 

compared to the entire population of Lifeline subscribers. These results 

indicate that potential improper payments have occurred and have gone 

undetected. We plan to refer potentially ineligible subscribers identified 

through our analysis for appropriate action as warranted.

Our undercover testing, as discussed in our May 2017 report, also found 

that Lifeline may be vulnerable to ineligible subscribers obtaining service 

and the testing found examples of Lifeline providers being nonresponsive, 

or providing inaccurate information. To conduct our 21 tests, we 

contacted 19 separate providers to apply for Lifeline service. We applied 

using documentation fictitiously stating that we were enrolled in an eligible 

public-assistance program or met the Lifeline income requirements. We 

were approved to receive Lifeline services by 12 of the 19 Lifeline 

providers using fictitious eligibility documentation. We also experienced 

 12For the purpose of our analysis, we considered a subscriber in NLAD to be a likely

match and enrolled in SNAP if at least four of the following fields matched between NLAD

and SNAP data from each state: subscriber first name; subscriber last name; subscriber

date of birth; last four digits of the subscriber’s Social Security number (SSN); and an 

exact address, zip-code, state match. We considered a subscriber listed in NLAD to be a 

likely match and enrolled in SSI if the subscriber first name, last name, date of birth, and 

last four digits of the SSN matched exactly with SSI program data. To ensure that our 

tabulations of unconfirmed eligibility do not overstate potential problems with the data, we 

counted as a “likely match” for both SNAP and SSI data matching. Specifically, for SNAP 

and SSI we counted first and last name matches with inexact, but similar, spelling to be a 

likely match and enrolled in the qualifying programs. Whereas, for Medicaid, we 

considered a subscriber listed in NLAD as a likely match enrolled in the qualifying program 

if the date of birth, last four digits of the SSN, and zip code matched exactly with Medicaid 

data for each state, because the Medicaid data we utilized did not contain first or last 

name. By not requiring the first or last name as part of the NLAD/Medicaid matching, we 

may understate the unconfirmed eligibility rate for NLAD subscribers coded as eligible via 

Medicaid.
Page 10 GAO-17-802T 

instances during our undercover tests where our calls to providers were 

disconnected, and where Lifeline provider representatives transmitted 

erroneous information, or were unable to provide assistance on questions 

about the status of our application. For example, one Lifeline provider told 

us that our application was not accepted by the company because our 

signature had eraser marks; however our application had been submitted 

via an electronic form on the provider’s website and was not physically 

signed. While our tests are illustrative and not representative of all Lifeline 

providers or applications submitted, these results suggest that Lifeline 

providers do not always properly verify eligibility and that applicants may 

potentially encounter similar difficulties when applying for Lifeline benefits. 

As described above, these challenges might be overcome if FCC 

establishes a National Verifier, as it plans to do nationwide by the end of 

2019, to remove responsibility for verifying eligibility from the providers.

FCC and USAC have implemented some mechanisms to enhance 

oversight of Lifeline providers, as discussed in our May 2017 report, but 

we found that remaining gaps could allow noncompliance with program 

rules. For example, in July 2014, FCC took additional measures to 

combat fraud, waste, and abuse by creating a strike force to investigate 

violations of USF program rules and laws. According to FCC, the creation 

of the strike force is part of the agency’s commitment to stopping fraud, 

waste, and abuse and policing the integrity of USF programs and funds. 

Similarly, 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.

However, we found FCC and USAC have limited oversight of Lifeline 

provider operations and the internal controls used to manage those 

operations. The current structure of the program relied throughout 2015 

and 2016 on over 2,000 Eligible Telecommunication Carriers (ETC) to 

provide Lifeline service to eligible beneficiaries. These companies are 

relied on to not only provide telephone service, but also to create Lifeline 

applications, train employees and subcontractors, and make eligibility 

determinations for millions of applicants. USAC’s reliance on Lifeline 

providers to determine eligibility and subsequently submit accurate and 

factual invoices is a significant risk for allowing potentially improper 

payments to occur, and under current reporting guidelines these 

occurrences would likely go undetected and unreported. Federal internal 

control standards state that management retains responsibility for the 

performance and processes assigned to service organizations performing 

operational functions. Consistent with internal control standards, FCC and 

FCC and USAC Have 

Taken Some Steps to 

Improve Oversight of 

Lifeline Providers, but 

Remaining Gaps 

Could Allow 

Noncompliance with 

Program Rules
Page 11 GAO-17-802T 

USAC would need to understand the extent to which a sample of these 

internal controls are designed and implemented effectively to ensure 

these controls are sufficient to address program risks and achieve the 

program’s objectives.

We identified key Lifeline functions for which FCC and USAC had limited 

visibility. For example, we found instances of Lifeline providers utilizing 

domestic or foreign-operated call centers for Lifeline enrollment. When we 

asked FCC officials about Lifeline providers that outsource program 

functions to call centers, including those overseas, they told us that such 

information is not tracked by FCC or USAC. With no visibility over these 

call centers, FCC and USAC do not have a way to verify whether such 

call centers comply with Lifeline rules. FCC and USAC have limited 

knowledge about potentially adverse incentives that providers might offer 

employees to enroll subscribers. For example, some Lifeline providers 

pay commissions to third-party agents to enroll subscribers, creating a 

financial incentive to enroll as many subscribers as possible. Companies 

responsible for distributing Lifeline phones and service that use incentives 

for employees to enroll subscribers for monetary benefit increase the 

possibility of fictitious or ineligible individuals being enrolled into Lifeline. 

Highlighting the extent of the potential risk for companies, in April 2016 

FCC announced approximately $51 million in proposed fines against one 

Lifeline provider, due to, among other things, its sales agents purposely 

enrolling tens of thousands of ineligible and duplicate subscribers in 

Lifeline using shared or improper eligibility documentation.

To test internal controls over employees associated with Lifeline for our 

May 2017 report, we sought employment with a company that enrolls 

individuals to Lifeline. We were hired by a company and were allowed to 

enroll individuals in Lifeline without ever meeting any company 

representatives, conducting an employment interview, or completing a 

background check. After we were hired, we completed two fictitious 

Lifeline applications as an employee of the company, successfully 

enrolled both of these fictitious subscribers into Lifeline using fabricated 

eligibility documentation, and received compensation for these 

enrollments. The results of these tests are illustrative and cannot be 

generalized to any other Lifeline provider. We plan to refer this company 

for appropriate action as warranted. As stated above, these challenges 

might be overcome if FCC establishes a National Verifier, as it plans to do 

nationwide by the end of 2019, to remove responsibility for verifying 

eligibility from the providers. In addition, in May 2017, we made two 

recommendations to help address control weaknesses and related 

program-integrity risks. Specifically, we recommended that FCC establish 
Page 12 GAO-17-802T 

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. We also recommended that FCC 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. FCC generally agreed with these 

recommendations.

In conclusion, Lifeline’s large and diffuse administrative structure creates 

a complex internal control environment susceptible to significant risk of 

fraud, waste, and abuse. FCC’s and USAC’s limited oversight of 

important aspects of program operations further complicates the control 

environment—heightening program risk. We are encouraged by FCC’s 

recent steps to address weaknesses we identified, such as the 2016 

order establishing a National Verifier, which, if implemented as planned, 

could further help to address weaknesses in the eligibility-determination 

process. We also plan to monitor the implementation status of the 

recommendations we made in May 2017.

Chairman Thune, Ranking Member Nelson, and members of the 

Committee, this concludes my prepared remarks. I would be happy to 

answer any questions that you may have at this time.

For further information regarding this testimony, please contact Seto J. 

Bagdoyan at (202) 512-6722 or bagdoyans@gao.gov. In addition, contact 

points for our Offices of Congressional Relations and Public Affairs may 

be found on the last page of this statement. Individuals who made key 

contributions to this testimony are Dave Bruno (Assistant Director), Scott 

Clayton (Analyst-in-Charge), and Daniel Silva.

GAO Contact and 

Staff 

Acknowledgments

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