United States General Accounting Office

GAO Report to the Chairman, Permanent

Subcommittee on Investigations,

Committee on Governmental Affairs,

U.S. Senate

August 1999 TELECOMMUNICATIONS

FCC Does Not Know if All

Required Fees Are

Collected

GAO/RCED-99-216

GAO United States

General Accounting Office

Washington, D.C. 20548

Resources, Community, and

Economic Development Division

B-281140 

August 31, 1999

The Honorable Susan M. Collins

Chairman, Permanent Subcommittee

 on Investigations

Committee on Governmental Affairs

United States Senate

Dear Madam Chairman:

In 1993, the Congress directed the Federal Communications Commission

(FCC) to begin recovering the cost of its regulatory activities by collecting

fees from the telecommunications industry. Since then, the collection of

regulatory fees has become an increasingly important activity for FCC. In

fiscal year 1998, over 70 percent of FCC’s new budget authority of

$222 million was offset through these regulatory fees, thereby greatly

reducing the need for appropriated funds to support FCC’s operations.1 FCC

also requires that companies and individuals submitting applications for

action by the Commission pay a fee before the application can be

considered. Since 1990, these fees have brought in from $28 million to

$51 million annually to the General Fund of the U.S. Treasury.

During an investigation into telephone services fraud done at your request,

our Office of Special Investigations tested FCC’s filing procedures for

telephone companies and found that it could file documents (tariffs)

describing long-distance rates without paying the required fee.2

 Concerned

about the effectiveness of FCC’s fee collection activities, you asked us to

(1) review FCC’s controls for ensuring that required regulatory and

application fees are paid and (2) provide information on the extent to

which FCC is collecting the civil monetary penalties resulting from its

enforcement actions against entities that have violated its regulations.

Results in Brief FCC does not know if it is collecting all its required fees. In the case of

regulatory fees, FCC relies heavily on the telecommunications industry to

comply voluntarily with its fee payment schedule because it does not have

a system in place to ensure that all appropriate fees are being paid.

Specifically, FCC does not have sufficient information to (1) identify all the

1

This figure includes regulatory fees credited to FCC’s salaries and expenses account. Other offsetting

funds, such as those related to spectrum auctions, are outside the scope of this report.

2

See Telecommunications: Telephone Slamming and Its Harmful Effects (GAO/OSI-98-10, Apr. 21,

1998).

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entities that should pay regulatory fees and (2) determine whether these

entities have paid the full amounts required. In addition, FCC’s fee

collection database is not linked to its licensing databases, making it

difficult for FCC to perform routine automated checks on whether all

licensees have paid their regulatory fees. Nevertheless, FCC has the

capability to undertake substantive oversight efforts using the information

it does have. In 1998, for example, it used available information to check

on regulatory fee collection for radio stations, identifying over 800 stations

that did not pay required fees and collecting nearly $600,000 in past-due

fees and late payment penalties. However, this type of special effort is not

routinely done by FCC. Regarding application fees, our examination of a

random sample of applications processed by five FCC bureaus found that

four of the bureaus did not have adequate documentation that fees were

paid in many cases. FCC’s Office of Inspector General also has evaluated

FCC’s fee collection database and reported that FCC could not provide

supporting documentation for almost half of the transactions selected for

review. Both FCC’s Office of Managing Director and Office of Inspector

General have initiatives under way aimed at improving the fee collection

processes. These actions are in early stages, however.

FCC reported to the Department of the Treasury that, at the end of fiscal

year 1998, it had an uncollected balance of about $15 million in civil

monetary penalties. However, we found that the FCC’s reports to the

Treasury contain errors and are therefore not reliable. As a result, we

cannot reach any conclusions about the effectiveness of FCC’s collection of

civil monetary penalties. Data problems aside, FCC officials maintain that it

is difficult to predict how much of the outstanding balance of proposed or

assessed penalties ultimately will be collected because most of the

penalties listed in the Treasury report are not yet legally enforceable debts.

On the basis of experience from prior years, these officials estimate that

about 75 percent of the outstanding proposed or assessed penalties will

remain uncollected.

This report recommends that FCC (1) take better advantage of available

information to improve its oversight of regulatory fee collection,

(2) establish procedures for ensuring that application fees are paid before

applications are processed, and (3) correct unreliable data on civil

monetary penalties and the internal control weaknesses that led to the

errors.

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Background The Omnibus Budget Reconciliation Act of 1993 directed FCC to assess and

collect annual regulatory fees in order to recover the costs incurred in

carrying out its enforcement, policy and rulemaking, international, and

user information activities. Under FCC’s rules, telecommunications entities

are required to pay annual regulatory fees if they are subject to FCC

regulations, regardless of whether they have direct dealings with FCC.

3

Ideally, FCC would need to know all the entities that are subject to its

regulations to ensure proper fee collection. In practice, this is a difficult

task, given the rapid pace of change in the makeup of the

telecommunications industry.

Separate sets of fees are associated with the various types of

telecommunications services, such as radio and television stations, cable

television systems, interstate telephone service providers, and satellite

communications companies. The fees for each of these services are based

on several factors, such as (1) the costs of performing regulatory activities,

(2) an estimate of the number and size of the entities subject to each type

of regulatory fee, and (3) the amount that the Congress directs FCC to

recover annually through regulatory fees. Each year, FCC’s Office of

Managing Director prepares and issues a new regulatory fee schedule that

adjusts the fees on the basis of changes in these factors. For fiscal year

1998, regulatory fees ranged from under $50 to more than $160,000,

depending on the type of telecommunications service.

Fees play an important role in FCC’s budget, since collections from

regulatory fees and certain other sources are used to offset FCC’s

appropriation on a dollar-for-dollar basis. As shown in table 1, FCC has

become a fee-reliant agency in recent years mainly though its regulatory

fees.4

 For example, in both fiscal years 1997 and 1998, regulatory fees

offset about 70 percent of FCC’s total budget authority. In fiscal year 1998,

the $190 million that FCC collected from regulatory fees and other sources

reduced the need for appropriated funding to about $32 million.

3

There are some exceptions. For instance, governmental and nonprofit entities are exempt from

regulatory fees.

4

See Federal User Fees: Budgetary Treatment, Status, and Emerging Management Issues

(GAO/AIMD-98-11, Dec. 19, 1997) for a discussion of other agencies that rely heavily on offsets from

fees.

Page 3 GAO/RCED-99-216 FCC’s Fees Collection Activities
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Table 1: Historical Overview of FCC’s

Offsetting Collections Credited to Its

Salaries and Expenses Account

Funding from offsetting collections

Dollars in millions

Fiscal

year

Total new

budget

authority

Funding from

appropriations Regulatory fees Other sourcesa

1993 $141 $140 None Under $1

1994 168 102 $59 7

1995 210 69 116 25

1996 202b 59 124 19

1997 223 35 157 31c

1998 222 32 159 31c

a”Other sources” includes interagency reimbursables and auctions receipts to fund the

Spectrum Auctions Program.

bDoes not include about $8 million in available unobligated funds from various sources.

cOffsetting collections for the administrative costs to support the Spectrum Auction Credit

Program Account are reported separately in the President’s Budget Request and are paid from

auction receipts.

Source: Office of Managing Director, FCC.

From fiscal years 1995 through 1997, FCC’s collection of regulatory fees

exceeded the obligation limitations set by the Congress.5

 For fiscal year

1998, however, FCC’s collections fell about $7 million short of the target

amount. For fiscal year 1999, the Congress raised the amount of regulatory

fees that FCC is to collect to $172.5 million.

In addition to annual regulatory fees, FCC collects application fees as

authorized under section 8 of the Communications Act of 1934, as

amended. An applicant is required to pay a fee whenever applying for

certain types of actions by the Commission, such as the approval of an

operating license, technical certification, a change in a station’s identifying

call sign, a construction permit, or transfer of control. For fiscal year 1998,

the fees ranged in size from under $50 for routine applications, to about

$8,000 for certain types of hearings, to more than $250,000 to launch a

communications satellite. Unlike regulatory fees, application fees are

deposited into the General Fund of the U.S. Treasury and are not used to

offset FCC’s appropriation. The amount of application fees collected is also

much smaller than regulatory fees. In fiscal year 1998, application fees

brought in about $32 million.

5

Each fiscal year, the Congress establishes an obligation limitation on how much FCC can spend from

regulatory fees. Regulatory fees collected in excess of this amount remain available for use in

subsequent fiscal years. For example, the $159 million in fiscal year 1998 regulatory fees is made up of

$155 million in current year regulatory fees and $4 million in regulatory fees collected in prior years.

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One of FCC’s most important functions is to ensure compliance with its

rules. Violations can disrupt the orderly provision of telecommunications

services and compromise public safety. Section 503 of the

Communications Act of 1934, as amended, authorizes FCC to assess civil

monetary penalties (called “forfeitures”) against those who violate the

Communications Act or the Commission’s regulations. Some types of

actions that have resulted in penalties include operating an unlicensed

broadcast station, selling unauthorized radio equipment, and changing

consumers’ long-distance telephone carriers without permission.

FCC Does Not Know

if All Fees Are Being

Paid

FCC does not know if all required fees are being paid. In the area of

regulatory fees, FCC relies on members of the telecommunications industry

to comply voluntarily with its fee payment schedule, since it lacks the

necessary information and systems to verify that every entity that should

pay a fee has done so. Nevertheless, FCC can use information it currently

has to undertake substantive oversight efforts. In 1998, for example, FCC

was able to identify over 800 radio stations that had not paid their required

regulatory fees. However, oversight efforts such as this have not been

routinely undertaken by FCC. As for application fees, our review of files at

five FCC bureaus showed that while one bureau was able to produce

documentation showing that fees were paid for all but a few cases, the

other four bureaus were unable to produce documentation showing that

the required fees were paid in 18 to 71 percent of cases. FCC’s Office of

Managing Director and Office of Inspector General are both aware of

problems with FCC’s fee collection, and actions are under way that could

strengthen the collection process. These actions are in the early stages,

however, and it is too early to assess their effectiveness.

Regulatory Fees According to FCC officials, there are two reasons why FCC does not verify

whether all entitites that should pay regulatory fees are doing so. First,

while most FCC bureaus maintain databases of information on companies

that have asked for a license or have been subject to other regulatory

action, these databases do not contain information on entities that are

subject to regulatory fees but are not licensed by FCC. For example, the

databases do not include many telephone companies because while they

are required to report their rates to the Commission, they are not required

to have a license. Second, even when FCC has licensing information on an

entity, the information may not be current because of changes in the

company’s name, ownership, address, or identifying call sign. For

example, radio stations have recently seen a high annual turnover in

Page 5 GAO/RCED-99-216 FCC’s Fees Collection Activities
B-281140 

ownership and many changes in the stations’ identifying call signs. Station

ownership may even change between the time the annual regulatory fee

notice is sent out and the time payment is due.

Additionally, FCC’s licensing databases do not always contain information

necessary to determine whether an entity has paid the full amount of

regulatory fees that it owes. Some regulatory fees are for fixed amounts,

such as those for communications satellites. However, many regulatory

fees are determined by the size of the entity as measured by the broadcast

market served (as with television and radio stations), the number of

subscribers served (as with cable services), or the amount of revenue

generated (as with telephone companies). Without information on an

entity’s size, it is difficult for FCC to check on the accuracy of payment. For

example, FCC’s fee schedule requires some commercial radio operators to

pay a fee that is based on the number of units (such as pagers or radio

sets) in service, but the Commission does not require the operators to

report the number of units they have in service during the licensing

process.

Even where information is available to FCC, several factors can limit FCC’s

ability to use it to determine if required fees were paid. For example, FCC’s

licensing databases are not linked electronically to the database that

stores information on who has paid fees. Any comparisons between them

must be done manually. In addition, FCC does not assign unique,

agencywide identifiers to the entities it deals with in order to track them in

its databases when their name, call sign, or ownership change. The lack of

unique identifiers makes it difficult for FCC to match the names of those

entities that paid fees with those that owed them.

To illustrate this point, we attempted to manually match the names of

more than 2,500 telephone companies operating in fiscal year 1998 with

the names of companies listed in FCC’s fee collection database as having

paid a regulatory fee that year. We were able to match only about

19 percent of the company names with those listed in the fee collection

database, even allowing for some variations in the names. (For example,

when we found companies with multiple similar names, such as Bell

Atlantic Mobile and Bell Atlantic Virginia, we counted all the fees as paid if

any of the names appeared in the fee database.) We also attempted to

match the names of nearly 800 telephone companies that notified FCC of

changes in their rates in fiscal year 1998 with those listed in the fee

collection database but could match only 38 percent. Our inability to find

matches does not necessarily mean that these entities did not pay their

Page 6 GAO/RCED-99-216 FCC’s Fees Collection Activities
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annual regulatory fees, since FCC and industry officials told us that it is

possible that fees were paid under a different company name. But without

an unambiguous means of identifying a company through a unique

identifier, we could not determine the extent to which these companies

complied with FCC’s fee payment rules.

While FCC does not attempt to verify that all entities subject to regulatory

fees have paid them, it has demonstrated that it can use its existing

information to identify some entities that may not have paid their fees. For

example, FCC mounted a special effort during 1998 to determine whether

all AM and FM radio stations paid their regulatory fees for fiscal year 1997.

FCC manually compared radio stations’ licensing information with the list

of stations that paid their regulatory fees and found nearly 1,000 stations

that did not appear in the fee database for fiscal year 1997. After

contacting these stations, FCC netted an additional $594,000 in past-due

fees and late penalties from nearly 800 stations. Another 79 stations were

able to prove that they had paid the fee or were exempt. FCC plans to

collect the remaining outstanding balance through additional actions

against roughly 100 stations.

In other areas, FCC suspects that some entities may not have paid the

appropriate fees but has not determined the extent of actual

noncompliance. In May 1999, FCC’s Common Carrier Bureau raised

concerns that some telephone companies may not have paid their

regulatory fees or may have paid an incorrect amount. For example, after

manually reviewing the fee database, the bureau could not confirm

whether 113 companies paid any regulatory fees in 1997, estimating that

the fees in question could amount to almost $10 million. Also, officials in

the Office of Managing Director stated that the office is planning to review

the fees paid by some broadcast stations in fiscal year 1998 because these

stations appear to have paid about $1.2 million less in fees than required.

FCC’s fee schedule includes a deadline by which regulatory fees must be

paid. Section 9 of the Communications Act of 1934, as amended,

authorizes the Commission to assess a penalty for the late payment of

regulatory fees, amounting to 25 percent of the fee that was not paid by

the deadline. However, FCC did not enforce this provision against late filers

until last year when, for the first time, it sent notices to all entities that

paid the regulatory fee after the closing date specified in the order,

informing them that they owed a 25-percent late fee. FCC estimates that

about 1,300 entities owed a total of about $760,000 in late fees. FCC

informed us that as of August 5, 1999, it had billed all late filers and had

Page 7 GAO/RCED-99-216 FCC’s Fees Collection Activities
B-281140 

collected $247,721 in late fees. Officials in FCC’s Office of Managing

Director stated that they intend to continue to enforce the penalty for late

payments in coming years.

Application Fees Five of FCC’s bureaus—Wireless Telecommunications, Mass Media,

Common Carrier, Cable Services, and International—process applications

related to the entities they regulate. In most cases, the applicant is

required to send to the Mellon Bank in Pittsburgh, Pennsylvania, an FCC

application form describing the type of transaction requested, along with

an FCC “Remittance Advice” form and payment of the appropriate

application fee as specified in FCC’s schedule of application fees.6

 Mellon

Bank stamps the paperwork with a receipt date, assigns a fee control

number, deposits the payment with the U.S. Treasury, enters data from the

application into the fee collection database, and forwards the application

material and copies of proof of payment, such as a check or electronic

payment number, to the appropriate FCC bureau for processing.

According to Office of Management and Budget (OMB) Circular A-123,

federal agencies are required to promptly record financial transactions,

and documentation for transactions and related procedures must be clear

and readily available for examination. However, while FCC officials told us

that staff in each bureau are to check each application for proof that the

fee has been paid prior to taking action on the application, none of the

bureaus were able to provide us with written policies documenting the

procedures followed during this process. Additionally, we identified many

cases in which adequate documentation did not exist to show that

application fees were paid, as shown in table 2. Although FCC was able to

provide supplemental information from other sources to show that the fee

was paid in some of the cases, only one bureau had sufficient information

to show that the fees were paid in nearly all of the cases we selected.

6

Under an agreement with the Department of the Treasury, Mellon Bank manages post office boxes for

federal agencies, including FCC.

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Table 2: Results of Application File Review

Bureau

Percentage of

applications for which

the application and

adequate

documentation of

payment were located

in the application file

reviewed by GAO

Percentage of

applications for which

FCC staff provided

supplemental

information adequate to

demonstrate that the

application fee was paid

Percentage of

applications claiming

to be exempt from

paying a fee

Percentage of

applications for which

the application and/or

adequate

documentation of

payment could not be

located

Mass Media 17 4 20 59

Cable Services 28 0 1 71

Wireless

Telecommunications 37 31 32 1

International 45 24 14 18

Common Carrier 62 15 3 20

Note: Percentages may not add to 100 because of rounding.

Source: GAO’s analysis of FCC’s records.

Specifically, we examined two types of evidence to reach our conclusions.

First, we examined the documentation in the files associated with 150 to

200 applications filed in the five bureaus during fiscal year 1998. We found

that only 17 to 62 percent of the files contained both a copy of the

application and proof of payment. For example, as shown in the first

column of data in table 2, only 28 percent of the Cable Services files we

reviewed contained copies of both documents. According to bureau

officials, there are several explanations for why some files do not contain

documentation showing that the fee was paid. Officials from the Cable

Services and Mass Media bureaus stated that when an application that

covers multiple stations is received, the original application is placed in

one station’s file, and the other stations’ files may not get copies. Also,

officials from the Common Carrier and International bureaus indicated

that the application files are made available to the public, who could alter

or remove some files.

We provided FCC with a list of the applications for which we could not find

adequate documentation in the files to show that an application fee was

paid. The bureaus were able to provide supplemental documentation

showing that an application fee was paid in up to 31 percent of the cases.

For example, as shown in the second column of data in table 2, the

International Bureau provided further documentation to show that the

required fee was paid for an additional 24 percent of the applications we

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B-281140 

selected. In many other cases, however, the bureaus provided evidence

that a fee was paid, but the evidence was not sufficient to show that the

fee was related to the application we selected. For example, in about

one-third of the cases for which the bureaus provided additional

information, a fee control number was provided as proof of payment,

rather than a copy of the check. When the fee data generated by Mellon

Bank included a reference to the application in question, we considered

that data as adequate proof of payment. However, in many cases, the only

identifying information in the data file was the name of the applicant, the

date and amount of payment, and the fee type. Because it is not

uncommon for some applicants to submit several of the same types of

applications within a short period of time, it is not always possible to

determine which application a fee is associated with. For example, five of

the fee numbers provided by the Cable Services Bureau suggest that the

fees were paid nearly a year before the applications were filed, and one

suggests that the fee was paid more than a month after the application was

filed. It is possible, though, that the fees associated with the numbers

provided by the bureau were actually related to other applications filed by

the same licensee. Also, the Mass Media Bureau provided copies of

applications and FCC’s Remittance Advice forms as proof that the fee was

paid. However, these documents themselves are not adequate proof that

the fee was paid because they do not indicate that a payment was received

by Mellon Bank.

The bureaus also identified files that were exempt from the requirement to

pay an application fee. As shown in the third column of data in table 2,

from 1 to 32 percent of the files we examined in the bureaus were

identified by the applicant or the bureau as being exempt from paying the

fee. In most cases, the exemptions were based on the type of application

being filed, such as a change of address, which does not require a fee. In

about one-third of the cases, an exemption was claimed because the

applicant was identified as a government entity. FCC requires those

claiming an exemption from regulatory fees to provide documentation to

confirm that they are entitled to the exemption. However, FCC does not

require those entities claiming to be exempt from application fees to

provide any proof of their exempt status. Instead, FCC relies on applicants

to self-certify that they are entitled to an exemption by checking off a box

on their application forms.

After examining the application files and supplemental information, we

concluded that the Wireless Telecommunications Bureau was the only

bureau to provide an application and documentation showing that a fee

Page 10 GAO/RCED-99-216 FCC’s Fees Collection Activities
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was paid or not required for almost all of its files. The other bureaus could

not provide documentation to show that a fee was paid or not required for

18 to 71 percent of their files, as shown in the last column of table 2.

FCC’s Inspector General

Has Identified Similar

Problems

Several recently published reports have revealed additional problems with

FCC’s fee collection process. First, in September 1998, FCC’s Office of

Inspector General reported that the computer system FCC uses to record

collections did not provide evidence for all transactions, did not provide

clear audit trails for changes made to transactions, and did not provide for

adequate internal controls.7

 The Inspector General’s office made 128

observations and recommendations for improvement. For example, the

report found that FCC’s collections system did not allow for an audit trail

for changes to its database and did not record and track all related

transactions. FCC officials concurred with 126 of the report’s observations

and stated that efforts were under way to address many recommendations.

Also, as part of the Inspector General’s effort, FCC engaged an outside

accounting firm to assess the completeness, validity, and accuracy of the

data contained in the fee collection system. The firm found that for about

45 percent of the transactions it examined, FCC could not provide

documentation to support the transaction, or there were discrepancies

between the information in the system and the documentation provided.

In November 1998, FCC’s Office of Inspector General reported that FCC

lacked the ability to determine whether certain radio operators were

paying the appropriate regulatory fees.8

 The Inspector General identified

frequent discrepancies between the database that recorded which

operators had licenses and the database that recorded which operators

paid regulatory fees. Concluding that neither database was reliable, the

Inspector General suspended further work on this issue until reliable data

become available.

Commission Has Efforts

Under Way to Improve Fee

Collection

In presenting the fiscal year 2000 goals in its most recent performance

plan, FCC states that it will “address and correct all management

weaknesses in FCC collections and other financial management systems to

ensure that all licensees have paid the correct auction, application, or

7

See Special Review of Federal Communications Commission (FCC) Collection System, FCC Office of

Inspector General (Special Review Report No. 97-21, Sept. 25, 1998).

8

See Special Review of Federal Communications Commission (FCC) CMRS Regulatory Fee Payments,

FCC Office of Inspector General (Special Review Report No. 98-8, Nov. 24, 1998).

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regulatory fees and that all fiscal accounting standards are met.”9 The plan

does not describe the specific steps that FCC will take to achieve this broad

goal or the performance measures that it will use to gauge its progress.

FCC’s Office of Managing Director does, however, have important efforts

under way to improve fee collection. At the time the Inspector General’s

report was published in September 1998, the Managing Director had

already hired a project manager to begin to design and implement a new

financial information system. In July 1999, FCC awarded a contract to an

independent consulting firm to acquire a new financial system that will

provide FCC with a single internal source of information on collections,

receivables, and revenues and will maintain data concerning fees, fines,

civil monetary penalties, and auction proceeds. In addition, the Office has

begun efforts to assign a unique identifier code to each entity that

completes a financial transaction with FCC, so that the agency can track

payments and other transactions made by the entity even when its name or

ownership changes. The Office expects the new system and the unique

identifier code to be in operation by mid-2000. In addition, FCC’s Office of

Inspector General is continuing its efforts in this area by contracting with

an independent auditor to review FCC’s financial management practices

and recommend improvements. The auditor is expected to complete this

review by February 2000, and the Inspector General will use its findings in

its audit of the Commission’s financial statements in fiscal year 2000.

FCC Does Not Have

Reliable Data on

Penalty Collection

FCC can assess civil monetary penalties against those who violate its

regulations or related laws through either (1) an informal administrative

process or (2) a formal evidentiary hearing. In the more commonly used

administrative process, FCC issues a notice that specifies the amount of the

proposed penalty and its justifications. The alleged violator may either pay

the proposed penalty or respond by showing reasons why the penalty

should be reduced or dismissed. According to FCC officials, alleged

violators often try to negotiate a settlement with FCC that can involve

making a voluntary payment and taking some type of corrective action. If

the proposed penalty is not paid or settled, FCC will issue a final order in

which the penalty is reduced, canceled, or assessed. An administrative

review often follows at the request of an assessed violator. Those penalties

that are not paid, settled, or canceled are referred to the Department of

Justice for collection in district court. By statute, such an action shall be

9

FCC’s strategic plan and annual performance plan, prepared in response to the requirements of the

Government Performance and Results Act, is incorporated in its February 1999 report to the Congress,

Fiscal Year 2000 Budget Estimates.

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by trial de novo,

10 and the existence of an informal FCC administrative

proceeding cannot be used to the prejudice of the person or entity

involved unless that person or entity had paid the penalty order or a

district court decision ordering payment has become final. FCC may also

assess a penalty after issuing a notice and conducting a full evidentiary

hearing before an administrative law judge. According to FCC officials, this

process is used infrequently—generally, for more serious offenses. FCC

refers the penalties assessed via this process to the Department of Justice

for collection after a final order has been obtained and affirmed in court, if

appealed. Unlike the nonhearing penalties, the statute provides that the

validity and appropriateness of any final hearing penalty shall not be

subject to review in the enforcement action. From October 1997 through

February 1999, FCC referred 11 cases totaling $119,500 and 1 totaling

$5.7 million to the Department of Justice for collection.

We asked FCC’s Office of Managing Director to provide us with data on the

amount of civil monetary penalties assessed and collected during fiscal

years 1997 and 1998. In response, FCC provided us with its annual reports

to the Treasury on the status of penalty assessment and collection. See

table 3.

10This is a trial on the merits of the case, in which the validity of the underlying FCC order would be at

issue.

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Table 3: Summary of FCC’s Civil

Monetary Penalty Assessments and

Collections in Fiscal Years 1997 and

1998, as Reported to the Department of

the Treasury

Status of penalties Number Amount

Outstanding

balance

Outstanding assessed penalties as

of the end of fiscal year 1996 $11,659,353

Penalties assessed in fiscal year

1997 21a $414,000a

Penalties collected in fiscal year

1997 117 2,465,832

Penalties for which collection was

stopped in fiscal year 1997 70 893,431

Outstanding assessed penalties as

of the end of fiscal year 1997 10,500,951

Penalties assessed in fiscal year

1998 59 10,613,437

Penalties collected in fiscal year

1998 186 1,280,643

Penalties for which collection was

stopped in fiscal year 1998 435 4,615,494

Outstanding assessed penalties as

of the end of fiscal year 1998 15,212,251

aAccording to officials in FCC’s Office of Managing Director who are engaged in correcting the

data errors, in fiscal year 1997 there were actually 79 penalties assessed, totaling $2,056,000.

The number and amount of collections for fiscal year 1997 were verified as accurate using source

documents. The number and amount of adjustments (collections stopped) for fiscal year 1997

were revised but not verified. Figures for fiscal year 1998 had not yet been verified to source

documents.

Source: FCC Civil Monetary Penalty Reports for Fiscal Years 1997 and 1998.

In examining the data, however, we found an apparent error—$893,431 in

penalties for which collection was stopped seemed to have been

erroneously added to the outstanding balance, instead of being subtracted

from it. When we raised this issue with FCC, officials in the Office of

Managing Director explained that the Treasury report for fiscal year 1997

was completed by a member of the clerical staff and had not received any

substantive review. They also stated that the Managing Director had

recently created and filled a position that will oversee the accuracy of all

reports under the responsibility of the Associate Managing Director for

Financial Operations.

Subsequently, the Office of Managing Director began an effort to examine

the source documents for fiscal year 1997 and found that about

$1.6 million in new assessments was erroneously counted as adjustments

(collections stopped). In addition, the number of penalty actions in all but

Page 14 GAO/RCED-99-216 FCC’s Fees Collection Activities
B-281140 

one category were found to be incorrect. Finally, the staff stated that the

outstanding balance for assessed penalties for the end of fiscal year 1997

was correct as reported to Treasury because the underlying dollar errors

happened to cancel each other out. However, at the time we concluded

our review in July 1999, the staff had not yet verified the amount of

adjustments (collections stopped) for fiscal year 1997 or any of the figures

for fiscal year 1998. Without complete and accurate data, we could not

reach any conclusions about the effectiveness of FCC’s collection of civil

monetary penalties.

The data problem aside, FCC officials maintain that it is difficult to predict

how much of the outstanding balance of proposed or assessed penalties

ultimately will be collected because FCC has taken the position that most

of the penalties listed in the Treasury report are not yet legally enforceable

debts.11 The Commission’s view, after consultation with the Department of

the Treasury, is that it is inappropriate to attempt collection efforts before

there is a legal obligation for the suspected violator to pay. However, on

the basis of historical data on the amount of penalties collected in past

years, they estimate that about 75 percent of the outstanding balance will

remain uncollected.

Conclusions FCC does not know if all entities have paid the fees they owe. This is

particularly a problem with the collection of regulatory fees. FCC has

identified several hundred entities that have failed to pay appropriate fees

and is aware of other possible cases of nonpayment. A shortfall in

regulatory fee collection has budgetary ramifications, since FCC’s

appropriation is reduced by its offsetting collections. There is also an issue

of equity, since responsible members of the industry who pay their fees

are, in essence, bearing the cost for those who do not pay.

FCC is currently taking actions aimed at improving the financial

information system used to support fee collections, linking its licensing

and fee databases, and assigning unique identifiers to entities doing

business with the Commission. Also, the independent review of FCC’s

financial management practices by FCC’s Office of Inspector General is

expected to provide a comprehensive look at FCC’s system of financial

controls and recommend improvements. These are important first steps,

11On the basis of sections 503(b) and 504 of the Communications Act, and after consultation with the

Department of the Treasury, FCC has taken the position that penalties going through its administrative

process are not legally enforceable debts until the Department of Justice obtains a judgment. FCC

states that penalties going through its hearing process become legally enforceable debts after a final

order has been obtained and affirmed in court if appealed.

Page 15 GAO/RCED-99-216 FCC’s Fees Collection Activities
B-281140 

but it is too early to evaluate their effectiveness. Nevertheless, FCC can

take action now to make better use of the information and systems

currently available to provide stronger oversight on fee collections. Recent

FCC actions have shown that proactive oversight efforts can uncover cases

in which regulatory fees were not paid and that pursuing these cases can

lead to additional fee collections. Such efforts, however, are not a routine

part of FCC’s approach to regulatory fee collection.

In addition, without adequate documentation of application fee

procedures and payments, FCC cannot ensure that all required application

fees are being collected. Although FCC collects much less in application

fees each year than in regulatory fees, the number of files for which proof

of payment could not be provided raises serious concerns about the extent

to which FCC is collecting these fees. The fact that the Wireless

Telecommunications Bureau (which processes far more applications than

the other bureaus) was able to document that a fee was paid or not

required for nearly all the application files we reviewed demonstrates that

compliance with the requirement for adequate documentation is not

unreasonable.

Finally, while FCC’s planned new system and the policy changes that FCC

has already made should help improve collection rates, the discovery of

errors in data previously reported to the Department of the Treasury

reinforces the need to ensure that the new system will not be handicapped

from the outset by erroneous data.

Recommendations To better ensure that FCC collects appropriate regulatory and application

fees and accurately tracks the status of civil monetary penalty assessments

and collections, we recommend that the Chairman of the Federal

Communications Commission direct FCC’s Managing Director and Bureau

Chiefs to take the following actions:

• Develop and implement a business plan and procedures for routinely using

the information available to FCC to identify, to the extent possible, entities

that have not paid required regulatory fees and to collect the amounts they

owe. This plan should include specific performance goals and measures

consistent with the requirements of the Government Performance and

Results Act.

• Develop and implement written procedures adequate to ensure that the

required application fee has been paid before an application is approved.

Page 16 GAO/RCED-99-216 FCC’s Fees Collection Activities
B-281140 

• Conduct an audit of FCC’s data on the status of civil monetary penalties to

correct any data errors and internal control weaknesses that may have led

to errors before incorporating these data into FCC’s planned new financial

system.

Agency Comments We provided FCC with a draft of this report for review and comment. In a

letter dated July 30, 1999, FCC’s Managing Director wrote that the

Commission concurred with our three recommendations and will

incorporate them as part of a strategy to improve financial management

over fee collections, tracking and reporting of receivables, and collection

of enforcement actions. The Managing Director also emphasized that FCC

is aware of the need to improve the fee collection process and has been

active in addressing deficiencies as soon as identified. The full text of FCC’s

letter, along with our responses to several points raised in it, is included in

appendix II.

We performed our review from September 1998 through July 1999 in

accordance with generally accepted government auditing standards. We

did not evaluate the reliability of the computer-generated data provided by

FCC. Our review was based upon interviews with officials from various FCC

offices and bureaus, as well as upon examinations of FCC records. Our

scope and methodology are discussed further in appendix I.

As agreed with your office, unless you publicly announce the contents of

this report earlier, we plan no further distribution until 30 days after the

date of this letter. We will then send copies to interested congressional

committees; the Honorable William E. Kennard, Chairman, FCC; the other

FCC commissioners; Andrew S. Fishel, Managing Director, FCC; and the

Honorable Jacob J. Lew, Director, OMB. We will also make copies available

to others upon request.

Page 17 GAO/RCED-99-216 FCC’s Fees Collection Activities
B-281140 

If you or your staff have any questions about this report, please call me on

(202) 512-7631. Key contributors to this report are listed in appendix III.

Sincerely yours,

Judy A. England-Joseph

Director, Housing and Community

 Development Issues

Page 18 GAO/RCED-99-216 FCC’s Fees Collection Activities
Page 19 GAO/RCED-99-216 FCC’s Fees Collection Activities
Contents

Letter 1

Appendix I 

Scope and

Methodology

22

Appendix II 

Comments From the

Federal

Communications

Commission

26

Appendix III 

GAO Contact and Staff

Acknowledgements

32

Tables Table 1: Historical Overview of FCC’s Offsetting Collections

Credited to Its Salaries and Expenses Account

4

 Table 2: Results of Application File Review 9

 Table 3: Summary of FCC’s Civil Monetary Penalty Assessments

and Collections in Fiscal Years 1997 and 1998, as Reported to the

Department of the Treasury

14

Table I.1: Results of GAO’s Review of FCC Applications Files in

Fiscal Year 1998

24

Abbreviations

FCC Federal Communications Commission

OMB Office of Management and Budget

Page 20 GAO/RCED-99-216 FCC’s Fees Collection Activities
Page 21 GAO/RCED-99-216 FCC’s Fees Collection Activities
Appendix I 

Scope and Methodology

To determine how the Federal Communications Commission (FCC)

ensures that required regulatory and application fees are collected, we

interviewed officials in FCC’s Office of Managing Director, Office of

Inspector General, and the various bureaus and offices that review

applications. We also reviewed FCC’s regulations and related laws and

reports. To determine the extent to which common carrier regulatory fees

were paid, we obtained lists of carriers from FCC and from several carriers

that contract with other carriers to resell their services. We compared the

names of the carriers with the names of those who paid regulatory fees in

fiscal year 1998, as captured in FCC’s fee collection database.

To determine the extent to which application fees were paid, we reviewed

a random sample of application files from each of the five bureaus

(Wireless Telecommunications, Common Carrier, Cable Services, Mass

Media, and International) that process applications. We asked each bureau

to provide us with a comprehensive listing of file numbers for all

applications submitted in fiscal year 1998. Because of slight differences in

the way the information was provided, our methodology differed slightly

by bureau.

• Three bureaus–Mass Media, Common Carrier, and International–provided

a computer file with information on each of the applications filed in fiscal

year 1998. We drew a random sample of 150 applications from each of

these bureaus.

• The Cable Services Bureau provided us with the first and last file numbers

used in fiscal year 1998 and copies of notices from which we identified the

names of the applicants. We generated a random list of 150 file numbers

from the lists provided. We were also given access to the bureau’s

database to confirm the accuracy of the names of applicants for which

files could not be located.

• The Wireless Telecommunications Bureau uses several different

numbering systems, because of the variety of different services for which

they process applications. We were provided with the first and last

number of each of several sequential numbering schemes used in the

bureau, and drew a random sample of 100 from those provided. About half

of the bureau’s applications were assigned application numbers that were

based on the date. For those files, we first drew a random sample of 100

dates by type of application. We then requested the total number of

applications processed on each of the chosen dates and selected another

random number to identify a single application on each selected date.

Page 22 GAO/RCED-99-216 FCC’s Fees Collection Activities
Appendix I 

Scope and Methodology

After informing FCC of our preliminary findings, FCC asked for the

opportunity to provide additional information to demonstrate that

required application fees were paid. We reviewed the supplemental

information provided to evaluate its reliability and sufficiency and

included the results of this review in our report.

Since we used a sample (called a probability sample) of FCC applications to

develop our estimates, each estimate has a measurable precision, or

sampling error, that may be expressed as a plus/minus figure. A sampling

error indicates how closely we can reproduce from a sample the results

we would obtain if we were to take a complete count of the universe using

the same measurement methods. By adding the sampling error to and

subtracting it from the estimate, we can develop upper and lower bounds

for each estimate. This range is called a confidence interval. Sampling

errors and confidence intervals are stated at a certain confidence level—in

this case, 95 percent. For example, a confidence interval at the 95 percent

confidence level means that in 95 of 100 instances, the sampling procedure

we used would produce a confidence interval containing the universe

value we are estimating.

Table I.1 contains the universe sizes, sample sizes, estimates, and sampling

errors of the estimates.

Page 23 GAO/RCED-99-216 FCC’s Fees Collection Activities
Appendix I 

Scope and Methodology

Table I.1: Results of GAO’s Review of FCC Applications Files in Fiscal Year 1998

Bureau

Sample

and results

Cable

Services

Mass

Media

Common

Carrier International

Wireless

Telecommunications

Universe 17,149 1,340 4,215 2,256 124,394

Sample size 150 150 149 148 a

Applications claiming to be exempt from

paying a fee 1 30 4 21 a

Percentage exempt 0.01% 20.00% 2.68% 14.19% 22.73%

Sampling error for exempt files b 6.05 2.56 5.45 6.79

Applications where the application and

adequate documentation of payment were

located in the application file 42 26 93 66 a

Percentage complete in file 28.00% 17.33% 62.42% 44.59% 45.71%

Sampling error for complete files 7.18 5.73 7.66 7.77 8.70

Applications where the application and

adequate documentation of payment were

provided by FCC 0 6 22 35 a

Percentage of files where payment

information was provided by FCC 0.00% 4.00% 14.77% 23.65% 30.52%

Sampling error for files where payment

information was provided by FCC 0.00 2.97 5.61 6.64 8.04

Applications where application and/or

adequate documentation of payment could

not be located 107 88 30 26 a

Percentage of files where application

and/or adequate documentation of

payment could not be located 71.33% 58.67% 20.13% 17.57% 1.04%

Sampling error for cases where application

and/or adequate documentation of

payment could not be located 7.23 7.45 6.35 5.95 1.44c

aBecause of the sampling methodology, the exact numbers for this category are not meaningful.

bThe sampling error cannot be computed exactly to the small finding. The exact 95-percent

confidence interval is from 0.02 percent to 3.57 percent.

cBecause of the small findings in both strata, this sampling error is only approximate.

Source: GAO’s analysis of FCC’s information.

To determine the extent to which FCC collects civil monetary penalties, we

interviewed officials with FCC’s Office of Managing Director and Office of

General Counsel and reviewed related reports, documents, laws, and

regulations.

Page 24 GAO/RCED-99-216 FCC’s Fees Collection Activities
Appendix I 

Scope and Methodology

We conducted our review from September 1998 through July 1999,

following generally accepted government auditing standards. We did not

evaluate the reliability of the computer-generated data provided by FCC.

Page 25 GAO/RCED-99-216 FCC’s Fees Collection Activities
Appendix II 

Comments From the Federal

Communications Commission

Note: GAO comments

supplementing those in the

report text appear at the

end of this appendix.

Now on p. 12.

See comment 1.

See comment 2.

Page 26 GAO/RCED-99-216 FCC’s Fees Collection Activities
Appendix II 

Comments From the Federal

Communications Commission

See comment 3.

See comment 4.

Page 27 GAO/RCED-99-216 FCC’s Fees Collection Activities
Appendix II 

Comments From the Federal

Communications Commission

See comment 5.

Page 28 GAO/RCED-99-216 FCC’s Fees Collection Activities
Appendix II 

Comments From the Federal

Communications Commission

Page 29 GAO/RCED-99-216 FCC’s Fees Collection Activities
Appendix II 

Comments From the Federal

Communications Commission

The following are GAO’s comments on the Federal Communications

Commission’s letter dated July 30, 1999.

GAO’s Comments 1. We have added a sentence to indicate that a project manager had

already been hired by the time of the FCC Inspector General’s

September 1998 report.

2. We do not agree with FCC that there is a “high degree of confidence”

that the required application fees were paid. As shown in table 2 and in

appendix I of our report, only one of the five bureaus (Wireless

Telecommunications) provided documentation adequate to show that the

required fee was paid or not required for nearly all of the sampled

applications. The other four bureaus provided documentation to show that

the required fee was paid or not required for 82 percent to 29 percent of

the sampled files. Bureau officials stated that data conversion problems

and payments made for multiple applications contributed to their inability

to provide documentation for the remaining files. However, they did not

provide us with details to support these assertions. In any event, Office of

Management and Budget Circular A-123, which is largely based on our

Standards for Internal Controls in the Federal Government, requires that

the documentation for transactions, management controls, and other

significant events must be clear and readily available for examination. We

added a reference to this circular in our report to reinforce the need for

the Commission’s controls and transactions to be supported by written

procedures and adequate documentation.

3. After we notified five of FCC’s bureaus that we could not find adequate

documentation that application fees were paid for a number of the files we

reviewed, four of the bureaus responded with additional documentation,

as shown in table 2 of this report. The Cable Services Bureau did not

provide additional documentation but instead provided a spreadsheet

listing fee control numbers for the files in question. As we state in our

report, the data associated with these numbers are not sufficient to

positively identify for which applications the fees were paid. Despite

repeated requests, the Cable Services Bureau did not provide us with more

definitive documentation. Also, on the basis of the documents we were

provided, we concluded that the cable applications to which FCC refers

were filed about a year after the fees in question were paid, not at the time

the fee was paid—as FCC speculates. The report reflects this fact.

Page 30 GAO/RCED-99-216 FCC’s Fees Collection Activities
Appendix II 

Comments From the Federal

Communications Commission

4. The additional detail is not appropriate for our opening paragraph,

whose purpose is to provide a general characterization of the importance

of regulatory fees to FCC’s appropriations. A more detailed discussion of

regulatory fee collection is found in the background section of the report.

5. We no longer refer to fiscal year 1998 as being the first year that FCC

failed to meet its target amount (obligation limitation) in regulatory fee

collection. Also, we have added that FCC’s collection of regulatory fees for

fiscal years 1995-97 exceeded the target amounts set by the Congress.

Page 31 GAO/RCED-99-216 FCC’s Fees Collection Activities
Appendix III 

GAO Contact and Staff Acknowledgements

GAO Contact John P. Finedore, (202) 512-6248

Acknowledgements Other key contributors to this report are James R. Sweetman, Jr.,

Phillis Riley, David A. Rogers, Mindi Weisenbloom, Michael R. Volpe, and

Teresa R. Russell.

(385761) Page 32 GAO/RCED-99-216 FCC’s Fees Collection Activities
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