TELECOMMUNICATIONS

Additional Action 

Needed to Address 

Significant Risks in 

FCC’s Lifeline 

Program

Report to Congressional Requesters

May 2017

GAO-17-538

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-17-538, a report to 

congressional requesters

May 2017

TELECOMMUNICATIONS

Additional Action Needed to Address Significant 

Risks in FCC’s Lifeline Program

What GAO Found

The Federal Communications Commission (FCC) has not evaluated the Lifeline

program’s (Lifeline) performance in meeting its goals of increasing telephone and 

broadband subscribership among low-income households, but has recently 

taken steps to do so. Lifeline participation rates are low compared to the 

percentage of low-income households that pay for telephone service, and 

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

without a Lifeline subsidy. Without an evaluation, which GAO recommended in 

March 2015, FCC is limited in its ability to demonstrate whether Lifeline is 

efficiently and effectively meeting its program goals. In a July 2016 Order, FCC 

announced plans for an independent third party to evaluate Lifeline design, 

function, and administration by December 2020.

FCC and the Universal Service Administrative Company (USAC)—the not-forprofit organization that administers Lifeline—have taken some steps to enhance

controls over finances and subscriber enrollment. For example, FCC and USAC 

established some financial and management controls regarding billing, 

collection, and disbursement of funds for Lifeline and related programs. To 

enhance the program’s ability to detect and prevent ineligible subscribers from 

enrolling, FCC oversaw completion in 2014 of a database with a real-time list of 

subscribers to assist carriers in identifying and preventing duplicate subscribers. 

Additionally, in June 2015, FCC adopted a rule requiring Lifeline providers to 

retain eligibility documentation used to qualify consumers for Lifeline support to 

improve the auditability and enforcement of FCC rules.

Nevertheless, GAO found weaknesses in several areas. For example, Lifeline’s 

structure relies on over 2,000 Eligible Telecommunication Carriers that are 

Lifeline providers to implement key program functions, such as verifying 

subscriber eligibility. This complex internal control environment is susceptible to 

risk of fraud, waste, and abuse as companies may have financial incentives to 

enroll as many customers as possible. Based on its matching of subscriber to 

benefit data, GAO was unable to confirm whether about 1.2 million individuals of 

the 3.5 million it reviewed, or 36 percent, participated in a qualifying benefit 

program, such as Medicaid, as stated on their Lifeline enrollment application. 

FCC’s 2016 Order calls for the creation of a third-party national eligibility verifier 

by 2019 to determine subscriber eligibility. Further, FCC maintains the Universal 

Service Fund (USF)—with net assets exceeding $9 billion, as of September 

2016—outside the Department of the Treasury in a private bank account. In 

2005, GAO reported that FCC should reconsider this arrangement given the USF 

consists of federal funds. In addition to addressing any risks associated with 

having the funds outside the Treasury, where they do not enjoy the same 

rigorous management practices and regulatory safeguards as other federal 

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

having the funds in the Treasury, USF payments could be used to offset other 

federal debts, and would provide USAC with better tools for fiscal management 

of the funds. In March 2017, FCC developed a preliminary plan to move the USF 

to the Treasury. Until FCC finalizes and implements its plan and actually moves 

the USF funds, the risks that FCC identified will persist and the benefits of having 

the funds in the Treasury will not be realized.

View GAO-17-538. 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 provides discounts to eligible 

low-income households for home or

wireless telephone and, as of 

December 2016, broadband service. 

Lifeline reimburses telephone 

companies that offer discounts through 

the USF, which in turn is generally 

supported by consumers by means of

a fee charged on their telephone bills. 

In 2016, Lifeline disbursed about $1.5 

billion in subsidies to 12.3 million 

households.

In 2010, GAO found Lifeline had 

limited abilities to detect and prevent 

ineligible subscribers from enrolling.

FCC adopted a reform order in 2012 to 

enhance Lifeline’s internal controls.

GAO was asked to examine FCC’s

reforms. This report discusses, among 

other objectives, (1) the extent to which 

Lifeline demonstrates effective

performance towards program goals, 

and (2) steps FCC and USAC have 

taken to enhance controls over 

finances, subscribers, and providers,

and any weaknesses that might 

remain.

GAO analyzed documents and 

interviewed officials from FCC and 

USAC. GAO analyzed subscriber data 

from 2014 and performed undercover 

tests to identify potential improper 

payment vulnerabilities. The results of 

GAO’s analysis and testing are 

illustrative, not generalizable.

What GAO Recommends

GAO makes seven recommendations,

which FCC generally agreed with, 

including that FCC take action to 

ensure the preliminary plans to transfer 

the USF from a private bank to the 

U.S. Treasury are finalized and 

implemented expeditiously. 
Page i GAO-17-538 Telecommunications

Letter 1

Background 5

FCC Has Not Evaluated Lifeline’s Performance in Meeting 

Program Goals but Has Taken Recent Steps toward Evaluation 16

Financial Controls Exist, with Others Planned, for the Lifeline 

Program, but Weaknesses Remain 20

FCC and USAC Have Implemented Some Controls to Improve 

Subscriber Eligibility Verification, but Weaknesses Remain 35

FCC and USAC Have Taken Some Steps to Improve Oversight of 

Lifeline Providers, but Remaining Gaps Could Allow 

Noncompliance with Program Rules 51

Conclusions 62

Recommendations for Executive Action 64

Agency Comments and Our Evaluation 65

Appendix I Objectives, Scope, and Methodology 68

Appendix II Nationwide Percentage of Likely Lifeline Eligibility Confirmed and 

Unconfirmed for those Claiming Eligibility, Based on Supplemental 

Security Income 74

Appendix III Additional Information about Beneficiary and Contributor Audits 76

Appendix IV Comments from the Federal Communications Commission 78

Appendix V GAO Contact and Staff Acknowledgments 83

Contents
Page ii GAO-17-538 Telecommunications

Tables

Table 1: Universal Service Administrative Company (USAC) Audit 

Coverage of Universal Service Fund Contributors for Audit 

Periods, Calendar Years 2007–2013 27

Table 2: Assistance Programs Included in State Verification 

Databases for Selected States in Our Review, as of June 

2016 48

Table 3: Nationwide Percentage of Likely Lifeline Eligibility 

Confirmed and Unconfirmed for those Claiming Eligibility, 

based on Supplemental Security Income (SSI) 74

Table 4: Universal Service Administrative Company Beneficiary 

and Contributor Audit Program Audits for Calendar Years 

2010–2014 77

Figures

Figure 1: Disbursements and Participation in the Lifeline Program, 

2008-2016 8

Figure 2: Universal Service Fund Contribution Factor, Calendar 

Years 2000–2016 9

Figure 3: How Universal Service Fund Money Typically Flows to 

Support Universal Service Programs Including the 

Lifeline Program 12

Figure 4: Organizational Structure of the Lifeline Program 15

Figure 5: Count and Percentage of Lifeline Beneficiaries Claiming 

Eligibility via Participation in Medicaid and SNAP That 

We Could Not Confirm in Selected Case-Study States 40

Figure 6: Nationwide Percentage of Likely Lifeline Eligibility 

Confirmed and Unconfirmed for Those Claiming Eligibility 

Based on Supplemental Security Income 42
Page iii GAO-17-538 Telecommunications

Abbreviations

1996 Act Telecommunications Act of 1996

2012 Reform Order Lifeline Reform Order of January 2012

BCAP Beneficiary and Contributor Audit Program

DMF Death Master File

ETC Eligible Telecommunications Carrier

FCC Federal Communications Commission

IDV in-depth validations

IPERA Improper Payments Elimination and Recovery Act

Lifeline Lifeline program

LIHEAP Low Income Home Energy Assistance Program

NARUC National Association of Regulatory Utility 

 Commissioners

National Verifier national eligibility verifier

NLAD National Lifeline Accountability Database

OIG Office of Inspector General

OMB Office of Management and Budget

PQA Payment Quality Assurance Program

SAC study area code

Section 8 Federal Public Housing Assistance

SNAP Supplemental Nutrition Assistance Program

SPIN Service Provider Identification Number

SSI Supplemental Security Income

SSN Social Security Number

TANF Temporary Assistance for Needy Families

TPIV Third Party Identity Verification

TRS Telecommunications Relay Service

USAC Universal Service Administrative Company

USF Universal Service Fund

VPN Virtual Private Network

This is a work of the U.S. government and is not subject to copyright protection in the 

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Page 1 GAO-17-538 Telecommunications

441 G St. N.W.

Washington, DC 20548

May 30, 2017

The Honorable Claire McCaskill

Ranking Member

Committee on Homeland Security and Governmental Affairs

United States Senate

The Honorable Rob Portman

Chairman

The Honorable Thomas Carper

Ranking Member

Permanent Subcommittee on Investigations

Committee on Homeland Security and Governmental Affairs

United States Senate

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. The Federal 

Communications Commission (FCC) carries out this policy through four 

programs, including the Lifeline program (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 4th 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 and the 

Supplemental Nutrition Assistance Program (SNAP).2 After subscribers 

 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 

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

assistance to eligible, low-income individuals and families.

Letter
Page 2 GAO-17-538 Telecommunications

are enrolled in the Lifeline program, 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-forprofit, private corporation designated by FCC as the administrator of 

universal service programs, the Universal Service Administrative 

Company (USAC),4 pays Lifeline providers a subsidy from the USF for 

each subscriber to offset forgone revenues. From calendar year 1998 

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

providers.

Subsequent to our 2010 report,

5 which found that Lifeline had limited 

abilities to detect and prevent ineligible and duplicate subscribers from 

enrolling in the program, FCC adopted a Lifeline Reform Order in January 

2012 (2012 Reform Order) to comprehensively reform, modernize, and 

improve Lifeline’s internal controls.6 Specifically, the National Lifeline 

Accountability Database (NLAD)7 was established as Lifeline’s first 

enrollment database. The database contains information provided by the 

 3

47 U.S.C. § 254(d).

4

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

corporation, a 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: Improved Management Can Enhance FCC Decision Making 

for the Universal Service Fund Low-Income Program, GAO-11-11 (Washington, D.C.: Oct. 

28, 2010).

6

See Federal Communications Commission, Lifeline and Link Up Reform and 

Modernization, Report and Order and Further Notice of Proposed Rulemaking, 27 FCC 

Rcd. 6656 (2012).

7

NLAD is a Lifeline enrollment database designed to help carriers identify and resolve 

duplicate claims for Lifeline-supported service and prevent future duplicates. NLAD 

provides a means for carriers to check on a real-time and nationwide basis whether the 

consumer is already receiving a Lifeline-supported service. USAC began using NLAD in 

March 2014.
Page 3 GAO-17-538 Telecommunications

subscriber during enrollment, including the subscriber’s full name, 

residential address, date of birth, partial Social Security number (SSN); 

qualifying eligibility program, and name of the Lifeline provider offering 

service. In March 2015, we reported on the status of reform efforts and 

the extent to which FCC had evaluated Lifeline, among other things, and 

we recommended that FCC evaluate the program to determine the extent 

to which it is efficiently and effectively reaching its performance goals.8

FCC agreed with the recommendation.

You asked us to examine FCC’s reforms of Lifeline. This report 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 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.

To determine the extent to which the Lifeline program demonstrates 

effective performance towards program goals, we reviewed documents 

and interviewed multiple stakeholders associated with Lifeline, including 

FCC, FCC’s Office of Inspector General (OIG), and USAC, among others.

To determine the steps taken by FCC and USAC to improve financial 

controls in place for Lifeline and USF, and any remaining weaknesses 

that might exist, we examined USAC financial data, including USF bank 

account statements and payment data, and interviewed USF account 

managers at the bank that holds USF funding. We also reviewed internal 

financial controls established by FCC and USAC, among other things.

To evaluate the steps FCC and USAC have taken to improve subscriber 

eligibility verification, and any remaining weaknesses that might exist, we 

performed data matching and analysis to identify potential improper 

payments using Lifeline’s (NLAD) and other beneficiary databases. The 

results of the data analysis are illustrative rather than generalizable. We 

began our data analysis in November 2014, and a snapshot of NLAD 

data from that same period was used as the primary database to match 

 8

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

Lifeline Program, GAO-15-335 (Washington, D.C.: Mar. 24, 2015).
Page 4 GAO-17-538 Telecommunications

against other qualifying programs’ eligibility databases to confirm the 

subscriber was eligible for Lifeline at the time the subscriber was 

enrolled.9 We also matched NLAD data against the Social Security 

Administration’s Death Master File to identify beneficiaries registered as 

deceased who were potentially receiving Lifeline payments. In addition, 

we performed data tests to identify other potential improper payments, 

such as duplicate payments made to the same address. We conducted 

data-reliability assessments of each database by reviewing 

documentation and examining the data for anomalies, among other 

things, and found they were sufficiently reliable for our purposes. The 

results of our data matching apply only to the NLAD and specific state 

and federal program databases that we examined; they cannot be 

extrapolated to other states, programs, or periods.

To determine the steps FCC and USAC have taken to improve oversight 

of Lifeline providers, and any remaining weaknesses that exist, we 

analyzed FCC and USAC audits of Lifeline providers and resulting legal 

enforcement proceedings, and met with several stakeholders, including 

the FCC OIG and USAC’s Internal Audit Division. We also analyzed 

USACs whistleblower and consumer complaint logs.

In assessing the steps taken to improve eligibility verification and provide 

oversight, 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. See appendix I for more details 

on our scope and methodology.

We conducted this performance audit from June 2014 to May 2017 in 

accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

 9

The NLAD data we reviewed are a snapshot of enrollment data as of November 2014, 

whereas the qualifying programs enrollment data we matched against include a range of 

time that varied slightly by state and program. We adapted the time frame of our matching 

to each database; see appendix I for more details.
Page 5 GAO-17-538 Telecommunications

conclusions based on our audit objectives. We conducted our related 

investigative work in accordance with investigative standards prescribed 

by the Council of the Inspectors General on Integrity and Efficiency.

The idea that communication services should be available “so far as 

possible, to all the people of the United States” has been a goal of 

telecommunications regulation since Congress enacted the 

Communications Act of 1934.10 In particular, although Lifeline was 

created in the mid-1980s to promote wireline telephone subscribership 

among low-income households, Congress codified the nation’s 

commitment to universal service and made significant changes to 

universal service policy through the Telecommunications Act of 1996 

(1996 Act).11 The 1996 Act provided explicit statutory support for federal 

universal service policy and directed FCC to establish a Federal-State 

Joint Board on Universal Service to make recommendations to FCC on 

implementing universal service provisions of the 1996 Act. The 1996 Act 

also described universal service as an evolving level of 

telecommunications services the FCC should periodically review, taking 

into account advances in telecommunications and information 

technologies and services.

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. The qualifying programs 

include Medicaid; SNAP; Supplemental Security Income (SSI); Federal 

Public Housing Assistance (Section 8); Veterans Pension and Survivors 

Benefit; or tribal programs for those living on federally recognized tribal 

 1047 U.S.C. § 151. 

11Pub. L. No. 104-104, 110 Stat. 56 (1996). 

Background

History of the Lifeline 

Program
Page 6 GAO-17-538 Telecommunications

lands.12 Residents of tribal lands may be eligible through additional tribal 

programs.13

Since the passage of the 1996 Act, FCC has taken actions aimed at 

increasing participation in Lifeline. For example, initially to be a Lifeline 

provider, a telecommunications carrier had to use its own facilities or a 

combination of its own facilities and resale of another carrier’s service.

However, in 2005, FCC granted one carrier forbearance from that 

requirement.14 Then, in 2008, FCC approved that carrier, a non-facilitiesbased, wireless provider, for the limited purpose of providing Lifeline 

service, which paved the way for other non-facilities-based wireless 

carriers to offer wireless service. After this approval, participation in 

Lifeline began to increase significantly. From mid-2008 to mid-2012, 

Lifeline enrollment increased from 6.8 million households to 18.1 million 

households, a 166 percent increase. In addition, annual disbursements 

increased from $820 million in 2008 to $2.2 billion in 2012, a 167 percent 

increase.

In November 1998, FCC changed the universal service structure in 

response to legal concerns raised by GAO about FCC’s authority to 

create two independent corporations and Congress’s directive that a 

single entity administer universal service support.15 FCC appointed an 

existing body, USAC, as the permanent administrator of the program and 

 12As a result of FCC’s 2016 Modernization Order, as of December 2016 the Low Income 

Home Energy Assistance Program (LIHEAP), Temporary Assistance for Needy Families 

(TANF), and the National School Lunch Program’s free lunch benefit are no longer 

qualifying programs for Lifeline eligibility. Applicants still qualify for Lifeline benefits if they 

demonstrate their household income is at or below 135 percent of the Federal Poverty 

Guidelines.

13Low-income residents of tribal lands are eligible to receive a monthly discount of up to 

$34.25 off of the cost of telephone and broadband service, and a onetime discount of up 

to $100 on the initial installation or activation of a wireline or wireless telephone or 

broadband service for the primary residence.

14Forbearance is relief from applying to a telecommunications carrier any 

Communications Act provision or commission regulation if certain statutory criteria are 

met. 47 U.S.C. § 160(a). An Eligible Telecommunications Carrier (ETC)—which is a 

company eligible to receive Lifeline support—is required to offer service using its own 

facilities or a combination of its own facilities and resale of another carrier’s service. 47 

U.S.C. § 214(e). Many prepaid wireless carriers are non-facilities-based, meaning they do 

not own their own facilities. 

15In 1998, GAO issued a legal opinion that the FCC did not have authority to create the 

Schools and Library Corporation and the Rural Health Care Corporation. B-278820, Feb. 

10, 1998. 
Page 7 GAO-17-538 Telecommunications

directed the Schools and Library Corporation and the Rural Health Care 

Corporation to merge with USAC by January 1, 1999. Prior to appointing 

USAC as the administrator of all universal service programs, FCC 

prepared and submitted a report to Congress in response to 

congressional conference committee directions, proposing that USAC 

would serve in this capacity.

While Lifeline participation and disbursements increased rapidly from 

fiscal year 2008 through mid-2012, both disbursements and participation 

declined after FCC began implementing the 2012 Reform Order in mid2012. As mentioned earlier, FCC adopted the 2012 Reform Order to 

strengthen internal controls, improve accountability, and explore the 

inclusion of broadband in the program through a pilot program. To reduce 

the number of ineligible subscribers in the program, the 2012 Reform 

Order adopted measures to check subscribers’ initial and ongoing 

eligibility for Lifeline. The 2012 Reform Order required the creation of 

NLAD and required Lifeline providers to query this enrollment database to 

prevent duplicative enrollment.

From a 2012 peak of approximately 18.1 million Lifeline participants and 

$2.2 billion in disbursements, FCC reported that disbursements fell by 

nearly $40 million in 1 month after the eligibility verification requirements 

went into effect in June 2012. In the 4th quarter of calendar year 2016, 

Lifeline participation declined to approximately 12.3 million households, 

while disbursements declined to approximately $1.5 billion for the year. 

Figure 1 below shows Lifeline disbursements and participation from 2008

to 2016.
Page 8 GAO-17-538 Telecommunications

Figure 1: Disbursements and Participation in the Lifeline Program, 2008-2016

The 1996 Act requires every telecommunications carrier providing 

interstate and international telecommunications services to contribute to 

federal universal service, unless exempted by FCC.16 According to the 

act, these contributions, or fees, are to be equitable and 

nondiscriminatory and are to be deposited into the USF. For calendar 

year 2014, approximately 3,100 of 6,820 telecommunications providers 

that filed their revenues paid USF fees.17

 16FCC defines telecommunications carriers as any entity that provides 

telecommunications services except for aggregators of telecommunications services.

17Some carriers are exempt from paying USF contributions directly. For example, if 

reported revenues are such that the calculated annual contribution to the universal service 

fund is less than $10,000, then the carrier is considered de minimis and exempt from 

paying USF contributions directly for a given calendar year. 

USF Contributions and 

Lifeline Disbursements
Page 9 GAO-17-538 Telecommunications

The amount of contributions required from telecommunications carriers 

are determined each quarter, when FCC calculates the contribution factor 

based on the projected demands of the universal service programs and 

the projected contribution base. USAC then bills contributors based on 

this factor.18 As shown in figure 2, the USF contribution factor has 

increased 217 percent (approximately 12 percentage points) since 2000. 

In the 1st quarter of calendar year 2016, the USF contribution factor was 

18.2 percent, but as of the 4th quarter had dropped slightly to 17.4 

percent.

Figure 2: Universal Service Fund Contribution Factor, Calendar Years 2000–2016

Note: Carriers must pay a percentage (the contribution factor) of their projected, collected, end-user 

interstate and international telecommunications revenues.

According to FCC’s 2012 Further Notice of Proposed Rulemaking19

regarding the assessment and recovery of USF contributions, an impetus 

 18Carriers must pay a percentage (the contribution factor) of their projected, collected, 

end-user interstate and international telecommunications revenues. 

19See Federal Communications Commission, Universal Service Contribution 

Methodology, WC Docket No. 06-122, GN Docket No. 09-51, Further Notice of Proposed 

Rulemaking, 27 FCC Rcd. 5357 (2012).
Page 10 GAO-17-538 Telecommunications

for the increased USF contribution factor is the decrease in assessable 

revenues. For example, competition in the interstate long-distance 

market, growth of wireless service, and bundling of service packages has 

led to decreases in assessable revenues. As the pool of contributors and 

assessable revenues has declined over the years, the USF contribution 

requirements for those remaining contributors has increased to cover the 

costs of administering the universal service programs.

Carriers file projected revenue information on a quarterly basis, which is 

used to calculate the contribution factor for the forthcoming quarter, and 

carriers are then billed for contributions by USAC based on the quarterly 

contribution factor. Carriers generally pass their USF fee obligation on to 

their customers, typically in the form of a line item on their monthly 

telephone bill.20 Carriers, thus are able to recover the cost of their 

contributions to USAC on a monthly or quarterly basis using the money 

collected from customers. USAC uses USF contributions to pay for the 

universal service programs, including Lifeline.

Lifeline providers currently receive a subsidy of $9.25 for every nontribal 

Lifeline customer that the Lifeline provider claims is enrolled in Lifeline 

based on the monthly or quarterly forms they submit to USAC. While the 

federal nontribal Lifeline subsidy amount per beneficiary is consistent 

across all Lifeline providers, the services provided to the Lifeline 

subscriber may vary depending on the state where the beneficiary lives 

and service offerings of the Lifeline provider, as some states supplement 

the federal Lifeline subsidy with state funds. According to FCC officials, 

approximately 23 states currently offer additional funding for subscribers.

For example, Lifeline providers in California receive $13.75 per month in 

addition to the $9.25 federal subsidy. As a result, some California Lifeline 

providers are able to provide subscribers with unlimited voice minutes 

and unlimited text messages, while subscribers receiving service from the 

same Lifeline provider in another state are eligible for up to 350 free 

minutes and unlimited text messages. In its 2016 Modernization Order, 

the commission addressed this variation to some extent by adopting

minimum service standards for both voice and broadband services, to be 

 20FCC regulations do not require carriers to pass through USF fees to customers, but it is 

permissible for carriers to do so with the exception of passing on USF charges to Lifeline 

subscribers for Lifeline-supported services, which is prohibited. There are no other

customer exemptions regarding who can be assessed USF fees as a pass through 

charge. Businesses; local, state, and federal government agencies; 501(c)(3) tax-exempt 

nonprofit organizations, such as churches; and individuals, including those with low 

incomes, can all be charged USF fees by their phone carriers.
Page 11 GAO-17-538 Telecommunications

implemented in a phased-in approach, which became effective in 

December 2016.21 See figure 3 for how USF money typically flows to 

support universal service programs, including Lifeline.

 21The 2016 Lifeline Modernization Order mandates that for mobile voice, Lifeline providers 

must offer plans with no less than 500 minutes per month with increasing usage limits in 

subsequent years. Similarly, the order stipulates that fixed broadband services for Lifeline 

have a minimum standard of 150 gigabytes per month for data limits at a speed of 10/1 

megabits per second. Furthermore, the order puts in place a minimum standard for 

mobile broadband at 500 megabytes per month and increasing to 2 gigabytes per month 

by December 2018. As a starting point FCC also set the minimum service standard for 

mobile broadband speed at 3G. Prior to December 2019, voice and broadband bundles 

can still receive the full $9.25 benefit even if only the voice service meets the minimum 

service standard. Support for voice-only Lifeline services will decline to $7.25 per month 

beginning December 2019, and decline further to $5.25 per month by December 2020, 

and voice-only service for Lifeline will be eliminated by December 2021. However, voiceonly service will continue to be supported so long as it is offered with a broadband service 

meeting the minimum service standards, or if the subscribers’ Lifeline service is only 

available from one Lifeline provider in a Census block. 
Page 12 GAO-17-538 Telecommunications

Figure 3: How Universal Service Fund Money Typically Flows to Support Universal Service Programs Including the Lifeline 

Program
Page 13 GAO-17-538 Telecommunications

Pursuant to advice provided by the Office of Management and Budget 

(OMB) in April 2000, FCC maintains USF funds outside of the U.S. 

Treasury.22 The private bank that holds the USF provides banking 

services for USAC, which includes annual investment management 

services with fees of approximately $1.5 million per year as of December 

2015. Funds collected in excess of USAC’s immediate requirements for 

cash on hand for all universal service programs are invested in U.S. 

Treasury securities. According to the most-recent financial reports, as of 

September 2016, the USF account had approximately $9 billion in assets, 

and, as of December 2015, Lifeline had approximately $80 million in 

assets. As we described in previous work, the USF is a permanent 

indefinite appropriation.23 While the Antideficiency Act applies to 

appropriated funds, since 2004, Congress has exempted the USF from 

the Antideficiency Act.24 The current exemption extends until December 

31, 2017.25

FCC, USAC, and states, as well as Lifeline providers and their agents, all 

have roles and responsibilities in Lifeline. At the federal level, FCC is 

responsible for setting policy, making and interpreting rules, providing 

oversight, and, in certain states, designating carriers as Eligible 

Telecommunications Carriers (ETC)—which are companies eligible to 

receive universal support funding, including Lifeline, and generally 

referred to in this report as Lifeline providers. USAC manages the daily 

operations of Lifeline, including collecting USF fees, disbursing payments, 

auditing USF recipients and contributors, and reporting to FCC. At the 

state level, public-utility commissions can increase the scope of Lifeline in 

their states by contributing additional financial support to Lifeline 

recipients. States can also play a role in Lifeline enrollment either by 

 22Letter from Mr. Robert G. Damus, OMB General Counsel, to Mr. Christopher Wright, 

FCC General Counsel, dated April 28, 2000.

23GAO, Telecommunications: Application of the Antideficiency Act and Other Fiscal 

Controls to FCC’s E-Rate Program, GAO-05-546T (Washington, D.C: Apr. 11, 2005);

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).

24The Antideficiency Act prohibits federal agencies from making or authorizing an 

expenditure from, or creating or authorizing an obligation under, any appropriation or fund 

in excess of the amount available in the appropriation or fund unless authorized by law.

25See Pub. L. No. 108-494, title III, § 302, 118 Stat. 3986, 3998 (Dec. 23, 2004), as 

amended by Pub. L. No. 114-113, div. E, title V, § 501, 129 Stat. 2242, 2449 (Dec. 18, 

2015).

Lifeline Program 

Operations
Page 14 GAO-17-538 Telecommunications

accepting applicants directly or giving Lifeline providers access to 

information on enrollment in programs that households use to qualify for 

Lifeline for the purposes of verifying eligibility, since this information is 

generally housed at the state level.

To receive Lifeline disbursements, carriers must be designated as ETCs 

by state public-utility commissions or FCC.26 State public-utility 

commissions have the primary responsibility for designating carriers as 

ETCs; however, in a situation where the telecommunications carrier is not 

subject to jurisdiction of a state commission, FCC may designate the 

carrier as an ETC. ETCs participating as Lifeline providers are generally 

responsible for verifying applicants’ eligibility for Lifeline, advertising the 

availability of the program, submitting forms for reimbursement, and 

making annual eligibility recertifications.27 As of the fourth quarter of 2016, 

there were 2,079 ETCs. Figure 4 is a graphical representation of the 

organizational structure and corresponding responsibilities of the different 

parties involved in Lifeline program.

 2647 U.S.C. § 214(e)(2); 47 C.F.R. § 54.201(b).

2747 C.F.R. § 54.405. According to USAC documentation, Lifeline providers’ process of 

verifying means to determine eligibility by querying a state or federal social services 

eligibility database if the Lifeline provider has access to such databases. If a state agency 

or administrator is responsible for determining Lifeline eligibility, Lifeline providers may rely 

on their eligibility determination. Lifeline providers can also review documentation to 

determine eligibility for new subscribers if the Lifeline provider does not have access to a 

state eligibility database, and the Lifeline provider, rather than a state agency or 

administrator, is responsible for establishing subscriber eligibility.
Page 15 GAO-17-538 Telecommunications

Figure 4: Organizational Structure of the Lifeline Program
Page 16 GAO-17-538 Telecommunications

FCC has called for program evaluations in the past 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 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, FCC officials told us that 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 

the burden on those who contribute to the USF. Specifically, we reported 

that, according to FCC officials, FCC had not evaluated the extent to 

which Lifeline has contributed to the narrowing of the gap in penetration 

rates (the percentage of households with telephone service) between lowincome and non-low-income households, and at what cost. We, therefore, 

recommended, and FCC agreed, to conduct a program evaluation to 

determine the extent to which Lifeline is efficiently and effectively 

reaching its performance goals.28

Our 2015 report also described the results of two studies that FCC 

provided to us and that had evaluated the impact of Lifeline. These 

 

28GAO-15-335. 

FCC Has Not 

Evaluated Lifeline’s 

Performance in 

Meeting Program 

Goals but Has Taken 

Recent Steps toward 

Evaluation

FCC Has Not Evaluated 

Lifeline’s Performance in 

Meeting Program Goals
Page 17 GAO-17-538 Telecommunications

studies suggested the program may be an inefficient and costly 

mechanism to increase telephone subscribership.29 The conclusions of 

both studies suggested that many low-income households would likely 

subscribe to telephone service in the absence of the Lifeline subsidy. As 

we reported in 2015, FCC officials stated that the structure of the program 

made it difficult for the commission to determine causal connections 

between the program and the number of individuals with telephone 

access. In particular, FCC officials noted that because Lifeline has existed 

since the 1980s, it is difficult to compare results from the program to 

results in the absence of the program. We also noted in our 2015 report 

that several factors may alter how many people sign up for Lifeline 

benefits. For example, changes to income levels and prices have 

increased the affordability of telephone service, and technological 

improvements, such as mobility of service, have increased the value of 

telephone service to households.

Our current work raises additional questions about Lifeline’s effectiveness 

in meeting its program goals. Specifically:

• Lifeline participation rates are low compared to the percentage of lowincome households that pay for phone service. According to FCC, the 

participation rate shows that millions of Lifeline-eligible households 

are obtaining voice service without Lifeline. FCC’s most-recent 

monitoring report estimated that in 2015 approximately 96 percent of 

low-income households that would be eligible for Lifeline based on 

income had phone service. However, it appears that the majority of 

those low-income households are receiving phone service outside of 

Lifeline. Specifically, USAC reports that there were at least 38.9 

million households in the states and District of Columbia that were 

eligible for Lifeline as of October 2015, and only 12.5 million, or 32 

percent, were enrolled in the program.30 Additionally, FCC does not 

 29Olga Ukhaneva, “Universal Service in a Wireless World” (paper presented at the 42nd 

Research Conference on Communication, Information and Internet Policy, Washington, 

D.C., September 2014). Daniel A. Ackerberg et al., Estimating the Impact of Low-Income 

Universal Service Programs, CES-13-33 (Center for Economic Studies: 2013).

30In March 2015, we estimated a similar approximation of 40 million households as eligible 

for Lifeline in 2012. In that report, we estimated the number of households eligible for 

Lifeline by adding the number of unique households participating in federal qualifying 

programs or earning incomes at or below 135 percent of the Federal Poverty Guidelines 

according to Census data. The Census data approximate, but do not completely align 

with, Lifeline eligibility. For example, the Census data do not reflect state Lifeline eligibility 

that extends beyond the FCC minimum requirements or qualifying programs specific to 

tribal areas.
Page 18 GAO-17-538 Telecommunications

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, it is difficult for FCC to determine whether it is 

achieving the goal of increasing telephone subscribership among lowincome 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. The 2016 

Modernization Order cites a June 2015 report from the Pew Research 

Center to show that there is a “digital divide” as low-income 

consumers adopt broadband at rates well below the rest of the 

country.31 However, that report also notes that the class-related gaps 

have shrunk dramatically in 15 years, as the most pronounced growth 

has come among those in lower-income households and those with 

lower levels of educational attainment. More-recent analysis from the 

Pew Research Center shows that after accounting for mobile data 

services, the number of individuals without Internet service has 

dropped from an estimated 48 percent in 2000 to 13 percent as of 

May 2016. Telecommunications providers began to address the 

“digital divide” in some capacity prior to the 2016 Modernization 

Order’s effective date by offering their own low-cost Internet service to 

low-income households. We found that at least two companies 

operating in a total of at least 21 states have begun offering in-home 

non-Lifeline broadband wireline support for less than $10 per month to 

individuals that participate in public-assistance programs, such as 

SNAP, TANF, or public housing.32 The offered rate of these providers’

own low-income broadband service of $10 per month, is less 

expensive than FCC’s broadband reasonable-comparability cost 

 31Andrew Perrin and Maeve Duggan, Americans’ Internet Access: 2000-2015 (Pew 

Research Center: 2015). For example, according to this report, adults living in 

households with an annual income of at least $75,000 a year are the most likely to use the 

internet, with an estimated 97 percent of adults in this group currently reporting they are 

internet users. By comparison, those living in households with an annual income under 

$30,000 a year are less likely to report internet usage, with an estimated 74 percent of 

adults doing so.

32These advertised prices do not include taxes. 
Page 19 GAO-17-538 Telecommunications

benchmark of approximately $55 per month, which Lifeline 

subscribers would be paying for a similar level of service.

FCC has recently taken some steps toward evaluating Lifeline. In June 

2015, FCC solicited comments from the general public, citing our 2015 

recommendation for a program evaluation. Specifically, FCC asked 

whether it should change or modify the program goals and whether it was 

necessary to perform a program evaluation, and, if so, how to best 

conduct such an evaluation for Lifeline. In the 2016 Lifeline Modernization 

Order, which, among other things, revamped Lifeline to include 

broadband service in addition to voice service, FCC revised program 

goals to explicitly include affordability for both services.33 Also as part of 

the 2016 order, FCC instructed USAC to hire an outside, independent, 

third-party evaluator to complete a program evaluation of the Lifeline’s 

design, function, and administration. The order stipulated the outside 

evaluator must complete the evaluation and USAC must submit the 

findings to FCC by December 2020.

According to GAO’s Cost Estimating and Assessment Guide,34 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. Similarly, according to OMB guidance, it is incumbent upon 

agencies to use resources on programs that have been rigorously 

evaluated and determined to be effective, and to fix or eliminate those 

programs that have not demonstrated results.

35 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. Although the potential for this risk is acknowledged by FCC in 

its discussion of a previous expansion of Lifeline, when FCC previously 

expanded Lifeline it did so without sufficiently adjusting program rules to 

 33The 2016 Order explains that FCC will measure progress toward this goal by measuring 

the extent to which voice and broadband service expenditures exceed 2 percent of lowincome consumers’ disposable household income as compared to the next-highest 

income group, and directed FCC’s Wireline Competition Bureau to implement the details 

of this measurement, examine the available data, and publish the results in the annual 

Universal Service Monitoring Report.

34GAO, GAO Cost Estimating and Assessment Guide: Best Practices for Developing and 

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

35Office of Management and Budget, Budget of the U.S. Government, Fiscal Year 2015

Analytical Perspectives (Washington, D.C.: 2014).

FCC Has Recently Taken 

Steps towards Evaluating 

Lifeline
Page 20 GAO-17-538 Telecommunications

keep pace with the new technologies, the financial incentives, or the 

subsequent growth in the program. Similarly, our 2015 report found that 

when FCC expanded Lifeline to include wireless service without 

quantifying or estimating the potential cost increases, it contributed to 

significant increases in disbursements from 2008 to 2012. Therefore, 

completing the program evaluation as planned, and as we recommended, 

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.

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 for moving USF funds currently held in a private bank 

account to the U.S. Treasury and establishing a national eligibility verifier 

(National Verifier) that Lifeline providers could use to determine the 

eligibility of applicants seeking Lifeline service. Weaknesses remain, 

however, 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.

USAC has established financial and management controls to obtain and 

review information to carry out its responsibilities with regard to billing, 

collection, and disbursement of funds for universal service programs, 

including Lifeline. To that end, FCC and USAC developed a Service 

Provider and Billed Identification Number and General Contact 

Information Form (FCC Form 498) to collect required information, such as 

service-provider name, study area code (SAC), tax identification number, 

and contact information from all ETCs, including Lifeline providers. This 

information serves as a key internal control for billing, collection, and 

disbursement operations. For example, all carriers participating in Lifeline 

are required to have a SAC, which is a unique company-specific six-digit 

number that identifies a carrier in a specific geographic area (e.g., state or 

Financial Controls 

Exist, with Others 

Planned, for the 

Lifeline Program, but 

Weaknesses Remain

FCC and USAC Have 

Established Financial 

Controls for Lifeline
Page 21 GAO-17-538 Telecommunications

territory), and to have a unique FCC Form 98 ID.

36 USAC takes steps to 

assign a SAC to ensure only valid Lifeline providers, new Lifeline 

providers, or existing Lifeline providers that are beginning operations in a 

new geographical area receive disbursements. According to USAC policy, 

before a SAC is issued, USAC officials review the ETC designation order 

and confirm with the state public service commission that the order is final 

and valid. USAC policy states this review is generally accomplished by 

locating the ETC designation order on the state public service 

commission websites, but USAC may also contact the public service 

commission directly with any questions about the order.

GAO Testing

As part of our undercover work, we tested this authorized payment 

internal control by submitting fictitious documentation to USAC posing 

as a Lifeline provider seeking a SAC designation to begin enrolling 

customers and collecting USF subsidies. The results of this test are 

illustrative rather than generalizable. USAC appropriately rejected our 

application and explained it was unable to confirm our ETC designation 

with the state we claimed to have approved us on our fabricated 

application. Moreover, USAC also noted that there was no record that 

FCC approved our fictitious company to provide Lifeline service.

Source: GAO. | GAO-17-536

Once the SAC and FCC Form 98 ID are established and validated by 

USAC, Lifeline providers can begin providing services to qualified 

subscribers and seek reimbursement from USAC. Typically, Lifeline 

providers file their claims to USAC on a monthly or quarterly basis, but 

have as long as 1 year from the respective filing period to file a revised 

claim. Currently, USAC calculates the amount owed to the Lifeline 

provider based on the providers’ monthly or quarterly claims.

USAC enhanced some of its internal controls to help prevent improper or 

potentially fraudulent payments as a result of potential risks we identified 

during the course of our work. Specifically, on the basis of our 

observations of how USAC enters and approves a Lifeline service 

provider and processes payments, we identified internal control 

 36The FCC Form 98 is a unique identifier for a company that USAC uses to process 

payments. According to USAC officials, there are a small number of companies that have 

more than one FCC Form 98 ID, usually as a result of mergers and acquisitions.
Page 22 GAO-17-538 Telecommunications

weaknesses whereby a USAC employee could improperly use the system 

to create fraudulent payments. On the basis of our descriptions, USAC 

officials agreed that risks existed and indicated they would take steps to 

mitigate these risks, as described below.

• Employee creates a fraudulent SAC and generates a disbursement: A 

policy exists to separate the roles of data entry and review among 

USAC employees charged with administering Lifeline. However, 

during our review we found a lack of controls that would separate 

these two functions and provide oversight of data-entry actions. For 

example, an employee could create a new SAC and then enter 

contact information and banking information for the SAC. This action 

would not create an automatic notification to a reviewer or supervisor. 

As a result, a lone employee could create a SAC and request a 

disbursement for the SAC. To enhance controls, USAC officials said 

that, beginning in August 2015, reimbursement approvers began 

pulling an independent report from their system for the new SACs 

receiving disbursements for the first time and comparing it to the 

supporting ETC-designation documentation obtained from an 

individual who does not have access to enter new SACs into the 

system.

• Employee uses an existing SAC that is not currently receiving 

disbursements to generate a disbursement: During our review we 

found that a lone USAC employee could change the banking and 

contact information associated with a SAC and then act as a reviewer 

to approve the changes without a separate reviewer being 

automatically notified. The employee could then request a 

disbursement for the FCC Form 498 ID and have it deposited into a 

different bank account. To enhance controls, USAC officials said that,

beginning in August 2015, the reimbursement approvers began 

generating an independent report from the system for SACs that are 

being paid with a prior FCC Form 497 entry of zero dollars, which 

occurs when a company has not filed for 6 months and confirms it has 

no subscribers, and reviewing the FCC Form 497 record to determine 

whether there was any suspicious activity requiring further validation.

In addition, USAC officials told us they would update the user workflows 

and permissions for employees as part of a development effort that

includes revisions to ETC filing procedures. According to USAC officials,

the updated workflow requires that new FCC Form 498 ID numbers 

generated internally will be reviewed and approved by a member of the 

Finance Management Team. According to USAC officials, these internal 

user workflow changes were implemented in May 2016.
Page 23 GAO-17-538 Telecommunications

FCC maintains USF funds—whose current net assets exceed $9 billion 

according to the most recent financial reports (as of September 2016)—

outside of the U.S. Treasury pursuant to 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, 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 the 

FCC should reconsider this determination in light of the status of universal 

service monies as federal funds.37

According to an internal memo from FCC’s Managing Director in 

December 2014, OMB presented the FCC with a Fiscal Year 2016 

Budget Passback, a memo outlining various goals and objectives relating 

to USF reform, modernization, and oversight. The memo states that OMB 

observed that USF funds are federal resources and should enjoy the 

same rigorous management practices and regulatory safeguards as other 

federal programs. According to correspondence received from the FCC 

Chairman’s Senior Legal Counsel, as of March 2017, FCC has decided to 

move the funds to the Treasury to address this situation. In addition to 

addressing any risks associated with having the funds outside the 

Treasury, FCC identified potential benefits of moving the funds. For 

example, FCC explained that having the funds in the Treasury could allow 

USF payments to be used to offset other federal debts, and would provide 

USAC with better tools for fiscal management of the funds, including 

access to real-time data and more accurate and transparent data. 

To accomplish this move, the correspondence notes FCC has been 

coordinating with the Treasury and OMB to obtain a better understanding 

of obstacles involved with moving the money to the Treasury. FCC’s 

Office of the Managing Director prepared a preliminary project plan for 

moving the USF to the Treasury with the goal of completing the transfer in 

approximately 1 year.38 If the USF were held in the Treasury, the 

Secretary of the Treasury would have more cash on hand, which could 

 37GAO-05-151.

38FCC’s Office of the Managing Director also noted it plans to develop a project plan to 

move the Telecommunications Relay Service (TRS) funds, which are also held in a private 

bank to the Treasury, after the completion of the USF project plan. According to FCC, the 

current annual outlays for the TRS fund are approximately $1 billion. 

USAC’s Banking Practices 

for USF Result in 

Oversight and 

Accountability Risks, 

Which FCC Has Plans to 

Mitigate
Page 24 GAO-17-538 Telecommunications

reduce the Treasury’s need to borrow cash and its associated borrowing 

costs.

According to FCC, until the USF is moved into the Treasury, there are 

some oversight risks associated with holding the fund in a private 

account. Although USF funds are held by a bank in the name “Universal 

Service Administrative Company as Agent of the FCC for Administration 

of the FCC’s Universal Service Fund,” the contract governing the account 

does not provide the FCC with authority to direct bank activities with 

respect to the funds in the event USAC ceases to be the administrator of 

the USF. FCC officials told us that although FCC is not party to the bank 

contract for USF, they reviewed the statement of work for the contract 

and were involved in USAC’s procurement process. After we raised this 

matter with FCC officials, beginning in November 2016, FCC sought to 

amend the contract between USAC and the bank to enable the bank to 

act on FCC instructions independent of USAC in the event USAC ceases 

to be the administrator. However, as of May 2017, the amended contract 

has not been signed.

While there is 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 and 

under FCC’s preliminary plan it would not be until next year, at the 

earliest, that the funds would be moved to the Treasury. Further, 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 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.

USAC Banking Arrangements

The Universal Service Administrative 

Company (USAC) contract with the bank that 

holds the Universal Service Fund (USF) 

includes terms for the compensation owed for 

services provided by the bank, bank-data 

retention requirements, and confidentiality 

agreements. For 2015, USAC paid the bank 

annual investment fees of approximately $1.5 

million.

A different bank provides banking services for 

USAC’s administrative disbursements, such 

as payroll services, but there is no contractual 

arrangement between that bank and USAC. 

Federal Communications Commission (FCC) 

officials were unaware that USAC did not 

have a contract in place until we raised the 

matter with them in April 2015. Since 1999, 

this bank has managed USAC’s 

administrative disbursements—totaling 

approximately $141 million in 2015—for an 

annual cost of approximately $22,000. 

According to FCC, fees paid to this bank are 

funded by credits from the USF, which are 0.2 

percent of average collected balances, and 

there is not a minimum balance requirement, 

therefore, there are no separate annual fees 

paid to the bank. Regardless, there is no 

contract in place stipulating the service 

agreement, terms and conditions, or 

associated costs. FCC officials told us they 

were aware of the banking service, but that 

not having a contract in place was an 

oversight on the part of USAC and needs to 

be remedied. After we raised this issue, 

USAC solicited competitive proposals in 

October 2016 for these banking services and 

plans to put in place a contract to stipulate the 

agreement.

Source: GAO review of FCC, USAC, and banking 

information. | GAO-17-538
Page 25 GAO-17-538 Telecommunications

Currently, there are no uniform front-end eligibility checks available to 

USAC to ensure Lifeline providers have accurately tallied the number of 

subscribers for whom they seek reimbursement. As a result, USAC 

primarily relies on a “pay-and-chase” model of oversight. “Pay-and-chase”

refers to making disbursements on the front end and relying on audits or 

reviews after the funds have been disbursed to check for any 

noncompliance or improper payments. According to USAC officials, 

claims submitted by Lifeline providers are reviewed to help ensure 

accuracy, and the risks of overpayments are minimized prior to 

disbursement. However, these reviews are fairly limited. For example, 

USAC officials told us they compare provider disbursements, perform a 

trend analysis of disbursement amounts to search for suspicious claims,

and initiate additional reviews when a claim appears irregular or exceeds 

a set rate of increase determined by USAC officials as potentially risky. 

Additionally, USAC primarily relies on Payment Quality Assurance 

Program (PQA) and Beneficiary and Contributor Audit Program (BCAP) 

assessments—discussed later in this report—that occur after 

disbursements have been made to detect fraud. While USAC’s paymentreview processes may help minimize improper payments to some extent,

USAC does not confirm subscriber eligibility and therefore is limited in its 

ability to know up front whether the Lifeline providers’ forms submitted for 

payment are accurate and based on qualifying households receiving 

Lifeline service. GAO’s Framework for Managing Fraud Risks in Federal 

Programs states that, to the extent possible, agencies should conduct 

data matching to verify key information, including self-reported data and 

information necessary to determine eligibility, prior to enrollment to avoid 

the “pay-and-chase” approach to risk management, which is typically a 

less cost-effective use of resources.39

To help determine eligibility prior to enrollment, FCC has plans to create a 

third-party national eligibility verifier (National Verifier) to be launched 

nationwide by the end of 2019. The National Verifier is expected to 

interface with both state and federal eligibility databases to confirm 

eligibility. Currently, USAC and FCC are working to sign data-sharing 

agreements with state entities and federal agencies with relevant 

eligibility-data sources. If effectively implemented, the National Verifier—

discussed in more detail later in this report—could help ensure eligibility 

verification and reduce the reliance on a pay-and-chase model of 

 39GAO, A Framework for Managing Fraud Risks in Federal Programs, GAO-15-593SP 

(Washington, D.C.: July 2015). 

USAC Currently Uses a 

“Pay-and-Chase” Model of 

Oversight, but It Has Plans 

to Create a National 

Verifier to Determine 

Eligibility Prior to 

Enrollment
Page 26 GAO-17-538 Telecommunications

oversight. However, on the basis of past experience, the feasibility of 

creating data-sharing agreements that would enable an automated 

means to confirm eligibility prior to disbursements is uncertain. 

Specifically, the 2012 Reform Order set a goal for developing an 

automated means for verifying Lifeline eligibility by the end of 2013, for, at 

a minimum, SNAP, Medicaid, and SSI because these are the three most 

common programs through which subscribers qualify for Lifeline. FCC 

has not yet been able to create such an automated means. According to 

FCC officials, there are challenges in creating a national eligibility 

database as some states have privacy laws that prohibit sharing eligibility 

data with the federal government. Moreover, data quality may vary from 

state to state, or may not be maintained by the state for each Lifeline 

qualifying program. Until progress is made with the National Verifier and 

data-sharing agreements are put in place with state eligibility databases, 

USAC will continue to primarily rely on a pay-and-chase approach to 

detect fraud.

USAC performs USF contribution audits of telecommunications providers 

as a financial management control. The number of audits issued from 

January 2010 through December 2015 was limited; however, USAC plans 

to increase its audit coverage in future years. USAC performs contribution 

audits to ensure that telecommunications providers pay USF fees as 

required to support the universal service programs. As previously 

discussed, all telecommunications providers, with limited exceptions, 

must pay a percentage of their interstate and international end-user 

telecommunications revenues to support the USF. Among other things, 

USAC contribution audits review documentation to verify that the revenue 

reported by the telecommunications providers match actual revenues. 

The contribution audits are also meant to confirm, among other things, 

that telecommunications providers that opt to pass the cost of USF fees 

to customers do not charge in excess of the relevant contribution factor 

times the assessable portion of that customer’s bill.

From January 2010 through December 2015, USAC had issued 

contribution audits on 74 telecommunications providers, with audit 

periods from calendar year 2007 through 2013.40 During this 6-year 

 40According to USAC officials, most of the 74 telecommunications providers were 

randomly selected for these audits to ensure that those representing different levels of 

revenue (small, medium, large, very large) were reviewed. However, some audits were 

nonrandomly selected, such as those stemming from internal recommendations or 

whistleblower complaints.

USAC Performed a 

Limited Number of USF 

Contribution Audits of 

Telecommunications

Providers, but Plans to 

Increase Audit Coverage 

in Future Years
Page 27 GAO-17-538 Telecommunications

period, the total number of telecommunications providers that filed 

revenues with USAC each year ranged from about 6,000 to almost 

6,700.41 (See table 1.)

Table 1: Universal Service Administrative Company (USAC) Audit Coverage of Universal Service Fund Contributors for Audit 

Periods, Calendar Years 2007–2013

2007 2008 2009 2010 2011 2012 2013

Number of 

telecommunications 

providers audited

5 1 25 12 19 10 2

Number of 

telecommunications 

providers

6,071 6,188 6,176 6,320 6,425 6,479 6,678

Percentage of 

telecommunications 

providers audited

(percent)

0.08 0.02 0.40 0.19 0.30 0.15 0.03

Audited contributionbased revenue 

reported 

(dollars in millions)

493.1 185.2 277.1 169.8 516.0 604.1 0.6

Total contributionbased revenue subject 

to contributions as 

reported

(dollars in billions)

78.5 78.7 73.5 70.5 68.9 68.9 67.2

Percentage of total 

contribution-based 

revenue audited 

(percent)

0.63 0.24 0.38 0.24 0.75 0.88 0.00

Source: GAO calculations based on USAC data. | GAO-17-538

The limited audit coverage of the reported USF contribution-based 

revenue during this time frame is primarily the result of USAC not auditing 

the larger USF contributors. For example, during the period we reviewed, 

USAC audited 1 of the top 10 USF contributors and 2 of the top 30 USF 

contributors for calendar year 2014.42 Of the 74 audits performed, 8 of 

them were performed on telecommunications providers that reported $0 

 41According to USAC officials, the number of telecommunication providers is based on 

those that have filed with USAC and have a filing ID. There may be other carriers that 

exist and should be paying USF fees but have not filed with USAC.

42These percentages are based on the total unaudited cash received from contributors for 

calendar year 2014, as reported in the 2015 USAC Financial Report. 
Page 28 GAO-17-538 Telecommunications

in assessable revenues. According to USAC officials, the reason the very 

large companies are not routinely audited is due to the complexity of the 

audits and limited audit resources.

According to USAC’s most recent 2016–2017 fiscal year audit plan, USF 

contributions audits beginning in March 2016 used a targeted risk-based 

approach, which includes the amount of assessable revenues and 

whether the carrier has ever been audited, as opposed to randomly 

selecting carriers, as had been done previously. Also, the officials said 

that the percentage of audit coverage is expected to increase with the 

current audit plan as external cosourced staff from external audit firms 

were retained in March 2016 to help perform audits of higher-risk and 

larger contributors. The current audit plan also estimates that 

approximately 9 percent of the reported gross revenues from 

telecommunications carriers will be covered in future audit years. If 

effectively implemented, these changes should result in a significant 

increase of risk-based audit coverage, and should help USAC better 

assess compliance with USF contribution requirements for universal 

service funding.

The findings for the 74 USF contributions audits we reviewed indicate that 

most carriers were not reporting their assessable telecommunications 

revenue appropriately. These audit findings raise questions not only 

about the USF fees collected, but also the rate that was set by USAC.

Because the assessable telecommunications revenues reported by 

audited carriers have been incorrect, the audits raise the possibility that 

the USF rate-setting process was potentially based on inaccurate 

information. In other words, the accuracy of the USF contribution factor is 

limited as this calculation is partly based on reported telecommunications 

revenues, which the limited number of audits demonstrate may be 

reported incorrectly. Of the 74 contribution audits, USAC found that in 10 

the carrier reported revenues correctly; in 48, USAC found the carrier 

underreported assessable telecommunications revenue; and in 16, USAC 

found that the carrier overreported assessable telecommunications 

revenues—and thus may have overcollected USF fees from customers.

As part of the contribution audit, USAC also reviews a small sample of 

customer phone bills to ensure that USF fees charged to customers are 

not in excess of the relevant contribution factor times the assessable 

Most Audited Carriers 

Collected and Contributed 

Incorrect Amounts of USF 

Fees; FCC Has Initiated a 

Process for Following up 

on Overcharges
Page 29 GAO-17-538 Telecommunications

portion of that customer’s bill as required by regulation.43 For 15 of the 16 

USAC contribution audits that found the carrier overreported assessable 

telecommunications revenue to USAC, the audit noted the carrier was 

unable to be reimbursed because the 12-month time limit imposed by 

FCC rule to refile had expired. If the carrier passed through USF fees, as 

most do, it is likely that the customers were also not reimbursed. In some 

instances, when USAC audits find that the company overreports 

assessable revenue, but the limited sample testing of individual customer 

bills do not indicate an overcharge has occurred, the audits do not 

recommend or require that the company refund customers any USF fees 

that were overcollected as a result of the incorrect revenue assessment. 

The limited audit coverage combined with audit findings demonstrating 

some carriers have paid into the USF incorrectly may suggest that USF 

fees collected are not in the correct amount.

In our review of the 74 contribution audits, we also found that 60 of them 

included tests to determine whether the carrier was in compliance with 

the rules as they relate to USF recovery charges on end-user customer 

invoices.44 We found that 27 of the 60 tests identified that the carrier 

overcollected USF fees from some customers and 1 other could not 

determine whether the carrier overcharged USF fees as the carrier did 

not maintain documentation. The total amount of overcollection among 

these audits was unknown because the findings were based on a small 

sample of invoices reviewed and not the total population of potentially 

overcharged customers.

According to USAC officials, typically when a telecommunications

provider overcharges USF fees, it is not limited to a few customers but 

affects the entire customer base. For example, if a telecommunications 

provider charges all of its customers the incorrect USF quarterlycontribution factor, it would likely affect all customers. When USAC finds 

that USF fees were misapplied to a customer’s phone bill during the 

contribution audit, USAC instructs the telecommunications provider to 

comprehensively review all their phone bills to identify the universe of 

improper USF fee charges and to reimburse those customers. However, 

USAC told us that it is not responsible for determining how those 

reimbursements should take place, as that is an FCC policy issue. As a 

 4347 C.F.R. § 54.712(a).

44According to USAC officials, typically tests of customer invoices are done for every audit 

unless the telecommunications provider does not pass through USF fees to customers. 
Page 30 GAO-17-538 Telecommunications

result, USAC does not follow up with telecommunications providers to 

ensure they comprehensively review their phones bills or reimburse 

overcharged customers, but instead refers the audits that find USF 

overcharges to the FCC Enforcement Bureau.

Until recently, USAC and the FCC’s Enforcement Bureau had differing 

views about what constituted a formal referral for enforcement action with 

respect to USF overcharges. According to USAC, since January 2013 it 

has submitted lists to FCC identifying telecommunications carriers with 

potential USF fee overcharges based on completed contribution audits, 

which included 16 identified carriers.45 FCC’s Enforcement Bureau 

officials told us that the lists alone were not considered by them as 

referrals or recommendations for enforcement action, but rather as 

general information that may support investigations. According to the 

Enforcement Bureau officials, the primary referral process used for USF 

enforcement actions is through letters submitted by USAC, which 

specifically identify matters to be considered for enforcement action. In 

contrast, USAC officials told us it was their understanding that the listings 

of contributor audits that found customers were overcharged USF fees 

would be considered referrals for follow-up and potential enforcement 

actions. According to the Enforcement Bureau, 1 of the 16 contributors 

that was listed is under investigation and 2 others were considered for 

enforcement action, but, on the basis of available enforcement resources, 

the age of the alleged overcharges, and the potential severity of the 

violations, the Enforcement Bureau determined no further action was 

warranted for these 2 cases.

In our review of the 74 contribution audits, we identified an additional 11 

companies that overcharged USF fees to customers that were not 

included in the list of 16 audits that USAC provided to FCC’s Enforcement 

Bureau, totaling 27 audits that found USF overcharges to customers. 

USAC officials told us 8 of the 11 instances of overcharging USF fees 

were not forwarded to FCC because they occurred prior to 2013, which is 

when FCC and USAC established a policy to forward such audit findings 

 45According to USAC, until 2011, USAC would direct carriers to refund excess monies 

collected from customers. However, in April 2011, in response to the appeal of an audit, 

FCC held that to the extent a contributor cannot, or will not, reimburse its customers for 

the excessive amounts of contribution costs collected, USAC will refer the matter to the 

Enforcement Bureau for further investigation. After the issuance of that order, USAC and 

FCC discussed what constituted a refusal to refund customers and, starting in January 

2013, began referring all contributor audits with overcharges to the Enforcement Bureau 

on a quarterly basis.
Page 31 GAO-17-538 Telecommunications

to the FCC. Two of the audits were not on the list because they were 

approved by the USAC Board of Directors after our request for the list of 

audits that found USF overcharges. USAC officials confirmed those two 

audits were later provided to FCC. One audit was not provided, but USAC 

officials told us they will include that audit in their next report to FCC’s 

Enforcement Bureau. Thus, there was no audit follow-up or enforcement 

actions taken for 24 of the 27 audits in which USAC found the carrier was 

overcharging USF fees to customers during the 2007–2013 audit period 

time frame, and it is not known whether the carrier comprehensively 

reviewed phone bills across its customer base to identify all overcharges, 

or whether overcharged customers were ever reimbursed and whether

overcharges stopped.

The lack of agreement as to what constitutes a referral to follow up on 

USF overcharges created some risk that FCC’s Enforcement Bureau 

would not take action to review and ensure customers are reimbursed 

and any overcharges stop. However, as a result of our inquiries regarding 

the status of these referrals, FCC officials told us they initiated a new 

referral process. According to FCC officials, since December 2015, all 

FCC referrals are routed to a central point of contact, as opposed to 

individuals, within FCC’s Enforcement Bureau using a standardized email address. According to FCC officials, this revised process will better 

ensure that all referrals are reviewed by a central point of contact and 

routed to the appropriate point of contact for follow-up if necessary.

With the March 2016 Modernization Order, FCC established a budget 

mechanism for Lifeline for the first time, setting the budget at $2.25 

billion.46 According to FCC, it was mindful of concerns that establishing a 

budget on Lifeline could lead to eligible consumers being denied service. 

Yet, partly because it decided to expand Lifeline to include broadband, 

FCC stated that it had concluded that its budget mechanism would 

ensure the financial stability of the program and help guarantee access to 

all eligible consumers. It also stated that establishing the budget 

mechanism would balance the need to ensure that Lifeline continued to 

reduce the contribution burden on the nations’ ratepayers and continue to 

 46As mentioned previously, the 1996 Telecommunications Act requires every 

telecommunications carrier providing interstate telecommunications services to contribute 

to federal universal service, unless exempted by FCC. According to the act, these 

contributions, or fees, are to be equitable and nondiscriminatory and are to be deposited 

into the USF. 

FCC Adopted a Budget 

Mechanism for Lifeline, 

but Its Effectiveness in 

Controlling Expenditures 

Is Potentially Limited
Page 32 GAO-17-538 Telecommunications

support service to eligible consumers. According to the March 2016 order, 

FCC set the budget at $2.25 billion by considering current participation 

rates, possible growth of the program as a result of the expansion to 

broadband, and the safeguards already in place to reduce waste, fraud, 

and abuse. According to GAO’s Cost Estimating and Assessment 

Guide,47 a reasonable and supportable budget is essential to a program’s 

efficient and timely execution.

However, the 2016 Modernization Order does not require the FCC 

Commissioners to take any immediate action to control expenditures if 

the budget is exceeded. Instead, the order requires a bureau within FCC 

to issue a report to FCC Commissioners by July of the following year if 

total Lifeline disbursements exceeded 90 percent of the budget in the 

previous calendar year.48 The order states that the Commissioners are 

expected to take action in response to the report within a 6-month time

frame. No requirements are outlined stipulating that the budget must be 

reapproved by the Commissioners if additional funds are needed to meet 

program demands.

Thus, if costs were to overrun 90 percent of the budget, it could be a year 

or longer before the commission could take any actions according to the 

time frame outlined in the order, raising questions about the timing, 

efficacy, and ability of the budget to control expenditures. Without 

requiring the Commissioners to review and approve additional spending 

in a timely manner, substantial increases in demand like those that the 

program has experienced in the past could lead to expenditures beyond 

those that FCC budgeted. In such a case, the budget would have limited 

effect in controlling program costs.

When telecommunication carriers opt to bill customers with a USF lineitem charge, a customer may not be able to identify what line item 

accounts for the USF charge. FCC’s Truth-in-Billing rules apply when 

providers pass through USF line-item charges to customers. These rules 

are intended to improve consumers’ understanding of their telephone bills 

and to help consumers detect and prevent unauthorized charges. While 

 47GAO-09-3SP.

48For example, if in calendar year 2017, when the budget is set at $2.25 billion, the total 

disbursements exceeded $2.025 billion, then by July 2018 the bureau would be required 

to issue a report.

USAC Audit Reviews of 

FCC Truth-in-Billing Rules 

Are Limited
Page 33 GAO-17-538 Telecommunications

FCC has not adopted any particular language to specify how USF 

charges are to be labeled on a bill, the rules require that a telephone 

company’s bill must provide a brief, clear, nonmisleading, plain-language 

description of the service or services rendered to accompany each 

charge, and contain full and nonmisleading descriptions of charges, 

among other things. According to USAC officials, a customer may not be 

able to identify what line items account for the USF charge. For example, 

several USAC officials we spoke with were unable to determine what line 

items accounted for USF pass-through charges when reviewing their own 

phone bills. Similarly, FCC’s own phone bill did not clearly specify the line

item reflecting the USF pass-through charge, but instead referred to 

“regulatory pass-through charges.” FCC officials were not able to 

determine whether this line item represented USF charges during our 

meeting, but they told us they confirmed with their telecommunications 

provider after the meeting that this line item represented USF charges.

According to USAC officials, their contribution audits do not determine 

whether companies comply with the Truth-in-Billing rules with regard to 

the labeling of USF fees as this is considered outside the scope of their 

audits. Instead, according to USAC’s review officials, audits of customers’

bills as part of contribution audits are focused on ensuring carriers do not 

overcharge USF fees to customers beyond the assessable contribution 

rate, and this is made possible through detailed meetings with the 

telecommunications provider that take place during the audit. However, 

even though FCC has not adopted any particular language to specify how 

USF charges are to be labeled, USAC could assess whether there is a 

brief, clear, nonmisleading, plain-language description of the service or 

services rendered to accompany each charge. Without including in their 

audit reports instances where they cannot identify the USF charge—for 

those carriers that opt to pass through USF charges in a separate line 

item—carriers may lack the impetus to enhance the transparency of their 

bills, and their customers will remain unable to detect and prevent 

potentially unauthorized charges.

USAC has requested guidance from FCC pertaining to USF contribution 

requirements, but the guidance is still pending. Specifically, in August, 

2009 USAC sought guidance on whether various revenues derived from 

new technologies require USF fees, including whether Virtual Private 

Network (VPN) and dedicated Internet Protocol revenue should be 

classified as a telecommunication service, and thus subject to USF fees. 

Similarly, in April 2011 USAC submitted a request to FCC for guidance to

determine whether text messaging revenue is subject to USF fees. Both 

FCC Has Not Yet Provided 

USAC Guidance about 

USF Contribution 

Requirements, Which Can 

Result in Inconsistent USF 

Contributions
Page 34 GAO-17-538 Telecommunications

of these items remain pending. In April 2012, FCC adopted a Further 

Notice of Proposed Rulemaking regarding reform of the contributions 

system. The notice sought public comment on various measures to 

reform and modernize the USF contribution system, including who should 

contribute, how contributions should be assessed, improvements to the 

administration of the contributions system, and recovery of universal 

service contributions from consumers. This rulemaking remains pending. 

Additionally, in August 2014 FCC sought a recommendation from the 

Federal-State Joint Board on Universal Service49 regarding modifications 

of the universal service contribution methodology and referred the 

rulemaking record from the April 2012 notice to the joint board for its 

consideration. The joint board’s decision also remains pending, but per 

FCC officials, may address some of the issues on which USAC has 

requested guidance.

FCC is required to ensure that telecommunications carriers that provide 

interstate telecommunications services pay USF fees, on an equitable 

and nondiscriminatory basis, to the specific, predictable, and sufficient 

mechanisms established by FCC to preserve and advance universal 

service.50 In addition, according to Standards for Internal Control in the 

Federal Government, management should internally communicate the 

necessary quality information to achieve the entity’s objectives.51 Per 

FCC regulations, its Wireline Competition Bureau is required to take 

action in response to requests for reviews of decisions of the USF 

Administrator within 90 days, with the option to extend the response time 

an additional 90 days, but there is no requirement regarding the timing of 

action on requests for guidance from the USF Administrator. FCC officials 

told us the reasons for the significant delays are varied. For example, 

FCC officials told us that some guidance requests such as these from 

USAC are very complicated and require the full commission’s input, which 

can take a long time as the FCC has other competing priorities.

 49The Federal-State Joint Board on Universal Service was established in March 1996, to 

make recommendations to implement the universal service provisions of the 

Telecommunications Act. This joint board is comprised of FCC Commissioners, state 

utility commissioners, and a consumer-advocate representative. 

5047 U.S.C. § 254(d).

51 GAO, Standards for Internal Control in the Federal Government, GAO-14-704G 

(Washington, D.C.: September 2014). 
Page 35 GAO-17-538 Telecommunications

Without guidance on contribution requirements, some carriers collect 

more from customers and pay more into the fund than other carriers for 

the same service. For example, our review of the 74 contribution audits 

found 14 instances whereby a carrier classified texting or VPN revenues, 

or both, as assessable USF revenues. One audit, issued in March 2011 

found the carrier reported $117 million dollars in VPN revenues as 

telecommunications revenues assessable to USF contributions. 

According to USAC, because of the carrier’s decision to classify VPN 

revenue as a telecommunication service, the carrier may have passed 

through approximately $3.9 million in USF fees to customers. In 

comparison, another audit found a company that classified $86 million in 

text revenue as nontelecommunications revenue and therefore not 

assessable for USF contributions. According to USAC, the carrier 

reported approximately 88 percent of its mobile services as 

nonassessable, therefore approximately $1.4 million in USF fees were 

forgone and not collected from customers to fund universal service 

programs. By responding to USAC requests for guidance, FCC could help 

ensure that the contribution factor is based on complete information and 

that USF pass-through charges are equitable.

Although FCC and USAC have implemented controls to improve 

subscriber eligibility verification, such as implementing the NLAD 

database in 2014, our analysis of data from 2014, including undercover 

attempts to obtain Lifeline service, revealed significant weaknesses in 

subscriber eligibility verification. Subsequently, USAC took steps to

enhance the accuracy of the NLAD database. Lifeline providers are 

generally responsible for verifying the eligibility of potential subscribers, 

but their ability to do so is hindered by a lack of access to, or awareness 

of, state eligibility databases. These challenges might be overcome if 

USAC provided additional information to providers about those databases 

and if FCC establishes a National Verifier, as it plans to do by 2020, to 

remove responsibility for verifying eligibility from the providers.

USAC has implemented some controls to screen for subscribers 

attempting to receive duplicate Lifeline benefits, and for applicants 

attempting to enroll in the program using fictitious identities and 

addresses, and to verify whether subscribers are still eligible for Lifeline. 

These controls have reduced the number of subscribers and households 

receiving duplicate benefits both within the same Lifeline provider and 

subscribers receiving duplicate benefits across Lifeline providers. 

Specifically, in 2012, FCC directed USAC to develop NLAD to keep track 

FCC and USAC Have 

Implemented Some 

Controls to Improve 

Subscriber Eligibility 

Verification, but 

Weaknesses Remain

FCC and USAC Have 

Implemented Some 

Controls to Improve 

Subscriber Eligibility 

Verification
Page 36 GAO-17-538 Telecommunications

of all subscribers within Lifeline and to verify that subscribers are not 

already receiving Lifeline service from a different Lifeline provider. Also in 

2012, FCC began requiring the annual recertification of all subscribers’

eligibility. Lifeline providers or, if applicable, state Lifeline administrators 

are required to recertify that their subscribers are still eligible for Lifeline 

beginning the calendar year after each subscriber is enrolled.

The NLAD database was completely implemented by March 2014 and 

contains a real-time list of Lifeline beneficiaries to assist carriers in 

identifying and preventing duplicate subscribers.

52

Prior to NLAD, because Lifeline providers were unable to view each 

other’s subscriber lists, they could not detect subscribers receiving 

duplicate benefits across providers. Currently, when Lifeline providers 

enroll individuals in the program, the NLAD database automatically 

checks for potentially duplicative benefits within and among Lifeline 

providers.

In addition, since NLAD went online the database has utilized a Third 

Party Identity Verification (TPIV) process and an address validation 

control to verify applicants’ identities and addresses when their 

information is entered into NLAD. The TPIV process verifies the identity of 

an applicant by matching the applicant’s first name, last name, date of 

birth, and the last four digits of his or her Social Security number (SSN) 

against official records. The address validation control process checks 

applicants’ addresses against U.S. Postal Service data. Applicants who 

fail TPIV or address validation controls are subject to a dispute resolution 

process whereby subscribers can provide additional documentation to 

confirm their identity or documentation confirming their address is 

deliverable. If NLAD identifies the applicant as a potential duplicate 

subscriber, or the identity and address cannot be confirmed, the provider 

will not be able to register the applicant in NLAD.

 52The migration to NLAD included Lifeline subscribers from 46 states, 4 U.S. territories, 

and the District of Columbia. California, Oregon, Puerto Rico, Texas, and Vermont opted 

out of participation in NLAD. FCC allowed states to opt out of NLAD if they submitted a 

request to FCC and could demonstrate that the state has a comprehensive system in 

place to check for duplicative Lifeline support that is at least as robust as the processes 

adopted by FCC in the 2012 Lifeline Reform Order. In November 2015, FCC granted 

Puerto Rico’s subsequent request to utilize NLAD, and Lifeline providers operating in 

Puerto Rico were required to use NLAD from January 2016 forward. In April 2017, 

Vermont submitted a request to FCC to opt into NLAD. FCC stated that they are reviewing 

the request.
Page 37 GAO-17-538 Telecommunications

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 SSI using NLAD data as of 

November 2014. We focused our analysis on these three programs 

because FCC reported in 2012 that these are the three qualifying 

programs through which most subscribers qualify for Lifeline. Because 

SNAP and Medicaid data are maintained at the state level, we selected 

five states to test Lifeline beneficiaries’ participation in SNAP and six 

states to test their participation in Medicaid. We tested SSI eligibility 

across the 46 states and the District of Columbia whose Lifeline providers 

utilize NLAD. We compared the approximately 3.4 million subscribers 

that, according to information entered in NLAD, were eligible for Lifeline 

due to enrollment in one of these three programs to eligibility data for 

these programs.53

Prior to our analysis of NLAD data, we conducted reliability testing 

including examining the data for anomalies such as last four SSN digits 

that were all zeroes and out-of-scope or dates of birth based on a 

comparison to the Lifeline enrollment date. We also tested NLAD for 

complete duplicate records containing the same subscriber name, last 

four SSN digits, and date of birth. On the basis of our discussions, 

documentation review, and our own testing of the data, we concluded that 

the data fields used for this report were sufficiently reliable for the 

purpose of our review, but that the potential for significant data-entry 

errors in NLAD remains.54 Further, it is not possible to determine from 

 

53The 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 2014. For our analysis of NLAD and Medicaid data, we only matched against 

Lifeline subscribers that 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 5 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 was only as of November 2014. For more information about our 

scope and methodology, see app. I 

54To the extent there are data entry errors in NLAD, such as typos in SSN, it would have 

the effect of inflating the number of cases for which we could not confirm eligibility. In 

contrast, the matching algorithms we used for several of the state program databases 

have the potential to understate the count of unconfirmed cases. Although we cannot 

determine for certain the overall effect of these issues on our matching outcomes, our 

matching approach is useful for illustrating the general magnitude of potentially ineligible 

subscribers.

Our Analysis of 2014 

Eligibility Data Suggests 

Significant Weaknesses in 

Subscriber Eligibility 

Verification
Page 38 GAO-17-538 Telecommunications

data matching alone whether these matches definitively identify recipients 

who were not eligible for Lifeline benefits without reviewing the facts and 

circumstances of each case. For example, we could not identify based on 

the data alone whether there were data-entry errors at the time of 

enrollment incorrectly stating the qualifying Lifeline program presented by 

the subscriber at the time of Lifeline enrollment.

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.55

According to NLAD, the number of subscribers participating in these 

programs in the states selected for our analysis was 3,474,672, or 33 

percent, of the 10,589,244 unique subscribers we identified. In total, we 

were unable to confirm whether 1,234,929 individuals out of the 

3,474,672 that we reviewed, or 36 percent, participated in the qualifying 

benefit programs they stated on their Lifeline enrollment applications or 

were recorded as such by Lifeline providers.56

If providers claimed and received reimbursement for each of these 

subscribers, then the subsidy amount associated with these individuals 

 55When matching NLAD data against each of the qualifying programs that we tested, we 

used the number of subscribers listed in NLAD recorded 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 that could not be confirmed to qualify for the benefit program. 

56For 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 4 digits of the subscriber’s 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 39 GAO-17-538 Telecommunications

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 to FCC and USAC for appropriate action as warranted.

Figure 5 below shows the percentage of Lifeline subscribers (that claimed 

either Medicaid or SNAP as eligibility to qualify for Lifeline) we were 

unable to confirm as eligible using state Medicaid and state SNAP 

eligibility data for selected case-study states. The results of our analysis 

for Georgia also include the percentage of Lifeline beneficiaries we were 

unable to confirm as eligible who were validated by the state eligibility 

database, as Georgia’s state database only confirmed eligibility for 

Medicaid and SNAP at the time of our analysis.57

 57The other case study states either did not have a state eligibility database or the 

database included checks against other qualifying programs such as Temporary 

Assistance for Needy Families (TANF), which we did not review to confirm eligibility. 
Page 40 GAO-17-538 Telecommunications

Figure 5: Count and Percentage of Lifeline Beneficiaries Claiming Eligibility via Participation in Medicaid and SNAP That We 

Could Not Confirm in Selected Case-Study States

Note: Georgia has a state eligibility database available to Lifeline providers to confirm eligibility. This 

database contains SNAP and Medicaid data, which allowed us to test eligibility for those beneficiaries 

in Georgia that were validated by the state database.

Figure 6 is an interactive graphic that shows the percentage of Lifeline 

beneficiaries (that claimed eligibility via SSI to qualify for Lifeline) that we 

were able to confirm as likely eligible and that we were unable to confirm 
Page 41 GAO-17-538 Telecommunications

as likely eligible using nationwide SSI eligibility data for states that 

participate in NLAD. See appendix II for more information.
Page 42 GAO-17-538 Telecommunications

Figure 6: Nationwide Percentage of Likely Lifeline Eligibility Confirmed and Unconfirmed for Those Claiming Eligibility Based 

on Supplemental Security Income

Source: GAO analysis of Lifeline enrollment data and Supplemental Security Income (SSI) data (data); Map Resources (map). | GAO-17-538

Note: The migration of NLAD included Lifeline subscribers from 46 states, 4 U.S. territories, and the District of Columbia. 

California, Oregon, Puerto Rico, Texas, and Vermont opted out of participation in NLAD.

PR

TX

CA

OR

VT

Interactive Graphic

Print version: Go to Appendix II. Instructions: Rollover the state abbreviation for more information.
Page 43 GAO-17-538 Telecommunications

We also conducted analysis of NLAD to identify instances of subscribers 

receiving duplicate Lifeline benefits and deceased individuals appearing 

as active beneficiaries. The results of our analysis are as follows:

• We found a total of 5,510 potential internal duplicates whereby the 

last name, first name, date of birth, and last four digits of the SSN of 

one record matched another record exactly. The subsidy amount 

associated with these duplicates equaled approximately $51,000 per 

month, or $612,000 annually.

• We matched NLAD enrollment data with SSA’s Death Master File and 

identified 6,378 individuals reported as deceased who are receiving 

Lifeline benefits.58 These individuals either were enrolled, recertified, 

or both after they had been reported dead. The date of death for each 

of these individuals preceded the Lifeline enrollment or recertification 

date by at least 1 year. The subsidy amount associated with these 

individuals equaled $58,997 monthly and $707,958 annually. 

According to USAC, the NLAD recertification date field is not 

completely populated; therefore, these numbers likely understate the 

number of people reported dead who were reenrolled in Lifeline.

The results of our analysis show that a potential annual subsidy amount 

of $1.2 million could have resulted from potentially ineligible or fictitious 

individuals receiving Lifeline benefits if these individuals were not 

deenrolled by USAC or Lifeline providers and the providers claimed 

reimbursement for these subscribers.

At the time USAC provided the NLAD data to us in November 2014, 

USAC officials stated that they were performing a number of procedures 

on the initial data loaded into NLAD by providers. According to USAC 

officials, from September through December 2014 Lifeline providers were 

required to collect Independent Economic Household worksheets from all 

subscribers who were found to share the same address with another 

Lifeline subscriber. USAC officials informed us that if no such completed 

worksheet was obtained, or if the subscriber did not certify he or she was 

part of a different household from another subscriber sharing the same 

address, the subscriber was deenrolled. USAC reported that this process 

deenrolled approximately 1.3 million subscribers, some of whom could 

 58SSA’s Death Master File contains records of deaths that have been reported to SSA. 

The Death Master File includes the following information on each decedent, if the data are 

available to SSA: SSN, name, date of birth, and date of death. SSA does not have a death 

record for every deceased individual.
Page 44 GAO-17-538 Telecommunications

still have been in the data we reviewed. We did not remove these 

subscribers when we conducted our data analysis, because duplicate 

addresses are allowed if individuals are part of a separate economic 

household. USAC performed additional work to collect Independent 

Economic Household worksheets before determining whether subscribers 

should be deenrolled.

USAC officials also informed us that additional rigor was added to NLAD’s 

duplicate-checking algorithm in March 2015. Specifically, USAC officials 

explained that a process to scrub NLAD records to identify additional 

duplicates was completed in May 2015, and resulted in the deenrollment 

of approximately 374,000 subscribers. We estimate that USAC’s work to 

identify and scrub duplicates was performed on over 10 million 

subscribers, while our analysis was limited to our case-study states for 

Medicaid and SNAP and the national population of SSI recipients. As 

USAC had not completed its process of identifying and deenrolling 

duplicate subscribers when we obtained NLAD data, there may be some 

overlap between the subscribers deenrolled by USAC and the 3.4 million 

subscribers included in our analysis. However, we removed internal 

duplicates in NLAD whereby the last name, first name, date of birth, and 

last four digits of the SSN of one record matched another record exactly 

before performing any data matching, so the likelihood of any overlap in 

duplicate subscribers has been reduced. Our analysis also involved 

matching NLAD data to qualifying Lifeline program data, which FCC or 

USAC have not done.

Our undercover testing found that Lifeline may be vulnerable to ineligible 

subscribers obtaining service and 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.

The seven Lifeline providers that we did not receive service from did not 

provide it for different reasons. For example:

• Two of the seven Lifeline providers informed us that we were denied 

because they could not verify the identity of the fictitious applicants 

used for our tests.

Undercover Attempts to 

Obtain Lifeline Service 

Illustrate Beneficiary

Verification Weaknesses
Page 45 GAO-17-538 Telecommunications

• One Lifeline provider told us that the application was appearing as a 

duplicate and was not being accepted by NLAD, even though the 

fictitious identity was not enrolled.

• One other provider told us that our identity could not be verified and 

that the address provided on our application, a UPS Store mailbox, 

was in use by another Lifeline customer. We were told only a certain 

individual within the company could offer resolution; however, we 

made multiple calls and left six messages on this individual’s voice 

mail over a 5 week period and did not receive a call back.

• The remaining three providers told us that they do not ship to post 

office boxes. While FCC regulations do not preclude a Lifeline 

provider from accepting a post office box address for a billing address 

if different from the subscriber’s residential address, there is no 

requirement for them to do so.

We completed two separate tests using different identities for 2 of the 19 

providers due to the outcome of the first test for each provider. 

Specifically:

• One of these providers initially deemed us ineligible for Lifeline, but it 

did so because the representative for that provider erroneously 

calculated our pay stub income, which if calculated correctly, would 

have met eligibility requirements. We reapplied using a different 

identity claiming enrollment in a public-assistance program as support 

and providing fictitious documentation and were approved for Lifeline.

• The other provider approved us for the program, but never provided 

us with service. We were given a customer identification number and 

phone number, but the provider did not ship us a free phone as 

advertised as part of their Lifeline service. We called the Lifeline 

provider 11 times over a period of 2-1⁄2- months to inquire about the 

status of our service. A company representative told us on multiple 

occasions that our phone had been or would be shipped, only to later 

say that our phone could not be shipped because the company had 

run out of phones. We were told on multiple occasions that the phone 

would ship within 4 days, but we did not receive it from the time we 

applied in July 2015 through December 2015 and therefore we were 

unable to begin our Lifeline service. This provider did not provide an 

alternative to participating in Lifeline, such as using our own mobile 

device to receive service. We reapplied using a different identity to 

determine whether this was a recurring issue with this Lifeline 

provider. When reapplying using a different identity, we were told on 

separate occasions that our identity could not be validated and to not 
Page 46 GAO-17-538 Telecommunications

apply using low income as the eligibility qualifier. We were also told 

that the applicant’s participation in the public assistance program 

stated on the application could not be verified. However, an official 

from the state where we applied stated that the public-assistance 

program in question was not included in a database of publicassistance programs and beneficiaries made available to Lifeline 

providers.

Further, we experienced 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.

USAC officials told us that they had improved both NLAD and the TPIV 

process since they were established. USAC officials told us that they had 

identified that either Lifeline subscribers or Lifeline providers had 

exploited a TPIV override process in NLAD, so they established a control 

to remedy the problem. Specifically, USAC officials stated that in 2015 

they had modified the duplicate-checking algorithm to add additional rigor 

and eliminated the identity override process. Furthermore, as discussed 

above, USAC officials stated that they scrubbed all NLAD records to 

identify any additional duplicates that may have occurred prior to these 

enhancements. This process was completed in May 2015, and resulted in 

deenrollment of approximately 374,000 subscribers.

Additionally, for the data that we examined from when NLAD was 

launched in March 2014 through November 2014, NLAD subscriber data 

contained addresses that were associated with multiple subscribers. For 

example, through our analysis we found a single address was associated 

with 10,000 separate subscribers, all receiving Lifeline benefits through 

the same Lifeline provider. This address could not be verified by the U.S. 

Postal Service address verification system we consulted. One Lifeline 

provider listed multiple addresses in NLAD with over 500 Lifeline 

subscribers, which may be reasonable given that some of the addresses 

USAC Has Taken Steps to 

Enhance the Accuracy of 

NLAD Beneficiary 

Eligibility Data Entered by 

Providers
Page 47 GAO-17-538 Telecommunications

appear to be associated with homeless shelters. In total, we identified 48

unique addresses that were each associated with more than 500 

subscribers. In December 2016, the provider we found with over 10,000 

subscribers associated with the same address was fined $30 million and 

relinquished FCC and state authorizations to participate in Lifeline; a 

fraud investigation by FCC and the United States Attorney’s Office found 

employees fraudulently enrolling duplicate and ineligible subscribers into 

Lifeline.

Officials from USAC also stated that they are examining ways to utilize 

data analytics to check the quality of data in NLAD. For example, 

according to USAC officials, they became aware that certain prefixes and 

area codes are not used for residential phone numbers and they have 

reviewed NLAD for such information to mitigate fraud. Another example of 

analytics includes looking for SSN last four digits of “0000,” which is a 

last-four-digit code never assigned in actual SSNs, and examining 

subscribers who are over the age of 100. Measures such as these, along 

with the transition to a National Verifier, as discussed below, should help 

data quality concerns in the future and mitigate potential fraud.

Lifeline has relied primarily on Lifeline providers to verify subscriber 

eligibility for the majority of subscribers.59 Providers are to verify 

subscriber eligibility by reviewing supporting documentation or by 

checking state eligibility databases that contain information on 

beneficiaries of Lifeline-qualifying assistance programs, such as SNAP 

and Medicaid. If the data entered into the eligibility databases are 

accurate, and Lifeline providers use them as intended, eligibility 

databases available to Lifeline providers can be an important tool for 

limiting fraud, waste, and abuse in Lifeline by verifying eligibility.

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

confirm eligibility. According to FCC, as of June 2016, databases that 

could be utilized for initial eligibility determinations existed in 29 states. 

We also found that state databases do not always contain beneficiary 

information for every Lifeline qualifying program. Table 2 below shows 

what qualifying programs were available for eligibility checks for our case 

study states as of June 2016.

 59In some states, a state administrator determines eligibility.

Lifeline Providers’

Verification of Subscriber 

Eligibility Hindered by 

Lack of Access to, or 

Awareness of, State 

Eligibility Databases
Page 48 GAO-17-538 Telecommunications

Table 2: Assistance Programs Included in State Verification Databases for Selected 

States in Our Review, as of June 2016

Case-study state Programs the state database checks for eligibility

Florida Medicaid, SNAP, TANF

Georgia Medicaid, SNAP, TANF 

Michigan Home Heating Credit, LIHEAP, Medicaid, SNAP, SSI, State 

Emergency Relief, TANF

Nebraska LIHEAP, Medicaid, SNAP, TANF

New York Family Assistance, LIHEAP, Medicaid, Safety Net Assistance, 

SSI, SNAP

Ohio Did not utilize a state eligibility database 

Source: GAO analysis of information provided by Federal Communications Commission and states. | GAO-17-538

Notes: Medicaid is a joint federal-state health-coverage program for certain low-income individuals. 

Supplemental Nutrition Assistance Program (SNAP) offers nutrition assistance to eligible, low-income 

individuals and families and provides economic benefits to communities. Temporary Assistance for 

Needy Families (TANF) provides temporary financial assistance for pregnant women and families 

with one or more children. Family Assistance provides cash assistance to eligible needy families that 

include a minor child living with a parent or a caretaker relative. Low Income Home Energy 

Assistance Program (LIHEAP) assists eligible households with home energy costs. Safety Net 

Assistance provides benefits to eligible individuals, including families of individuals abusing drugs or

alcohol, and certain families who do not qualify for Family Assistance or other assistance programs. 

Supplemental Security Income (SSI) is a federal income-supplement program that provides financial 

assistance for aged, blind, and disabled people to meet basic needs for food, clothing, and shelter. 

State Emergency Relief provides immediate help to individuals and families facing conditions of 

extreme hardship or for emergencies that threaten health and safety.

Some providers with whom we spoke were unaware of databases that 

were potentially available to them. Officials from two Lifeline providers we 

spoke with were not aware of all the eligibility databases available for use 

in areas where they provide Lifeline service. For example, one Lifeline 

provider we spoke to provided us with information stating that 18 states 

maintained an eligibility database, while another Lifeline provider that 

operated in 41 states at the time told us it knew of only 8 states with 

databases. The provider operating in 41 states was unaware of 10 state 

eligibility databases in states it operated in that were identified by the 

other provider. Officials from one of these companies told us they were 

not aware of a comprehensive list of state eligibility databases. USAC 

officials confirmed that they do not provide Lifeline providers with a list of 

state databases that are available to confirm program eligibility. As a 

result, these Lifeline providers and potentially others are not utilizing 

required applicant verification tools that are available to them.

Further, USAC does not independently verify that subscribers have been 

vetted through the eligibility databases or otherwise verify subscribers’

eligibility. Lifeline providers are required by program rules to access state 

eligibility databases, where available, to determine an applicant’s 
Page 49 GAO-17-538 Telecommunications

program-based eligibility. In the absence of such a database, a Lifeline 

provider must review proof of enrollment in a qualifying program or proof 

of income eligibility. USAC audits of Lifeline providers do check to 

determine whether an administrator or eligibility database was relied 

upon. USAC does not, however, confirm that beneficiaries that Lifeline 

providers report in NLAD as having been vetted through a state database 

actually were vetted. Theoretically, a Lifeline provider could enter into 

NLAD that a state database or state administrator was used when it was 

not. This possibility could partially explain why we could not confirm 

eligibility for approximately 70 percent of those individuals we reviewed in 

Georgia that, according to NLAD, were deemed eligible by a state 

administrator. Officials from Georgia’s SNAP office told us that although 

the database is available to ETCs, it is possible they are not using the 

database, and Georgia does not have any way to check to see that the 

database is being used. As part of their annual recertification 

requirements, service providers are required to certify that they have 

procedures in place to review income and program-based eligibility 

documentation, and confirm eligibility by relying upon access to a state 

database or eligibility notice from a state Lifeline administrator, prior to 

enrolling a customer in Lifeline. The recertification form states that 

“[p]ersons willfully making false statements on this form can be punished 

by fine or imprisonment under Title 18 of the United States Code, 18 

U.S.C. § 1001.”

Lifeline providers are required to review supporting documentation, such 

as a driver’s license or Social Security card, when an applicant’s identity 

cannot be verified. However, Lifeline providers are not required to provide 

supporting documentation to USAC as part of the TPIV process; instead, 

Lifeline providers submit required information stating what documentation 

was reviewed, and USAC confirms that the type of documentation 

appropriately verifies the subscriber’s identity, but does not review the 

documentation itself. As of February 2016, providers are required to 

retain all documents used to verify a subscriber’ identity. The planned 

National Verifier will retain documentation collected as a result of the 

eligibility-determination process, and Lifeline providers will not be required 

to retain eligibility documentation for subscribers determined to be eligible 

by the National Verifier once it is implemented.

Although state eligibility databases do not exist for all states, and not all 

eligible programs are included within those state eligibility databases that 

do exist, knowing which states have program-based eligibility databases 

is an important first step to allow Lifeline providers to better determine 

applicant eligibility prior to enrollment. According to Standards for Internal 
Page 50 GAO-17-538 Telecommunications

Control in the Federal Government, management should use high-quality 

information to achieve the entity’s objectives, such as using relevant data 

from reliable sources. Maintaining and disseminating an up-to-date list of 

available state eligibility databases that includes the qualifying programs 

those databases access would help enhance Lifeline providers’

awareness, and potentially use of, these tools. Such a list could also help 

USAC, working with the states, whenever possible, to determine which 

Lifeline providers had obtained access to state eligibility databases, and 

gain greater assurance that providers are fulfilling their responsibility of 

ensuring only eligible subscribers are enrolled.

In March 2016, FCC adopted an order to create a National Verifier that 

would determine eligibility rather than having the Lifeline providers do so. 

According to FCC, to take steps to foster a long-term technological 

solution to Lifeline eligibility and to leverage the program integrity and 

enrollment procedures provided by assistance programs that capture 80 

percent of the Lifeline eligible population, the number of benefit programs 

applicants may utilize for Lifeline eligibility would be reduced. According

to the order, the five qualifying assistance programs that remain permit 

easy technological solutions to lay the groundwork for a successful 

National Verifier because they have existing and accessible databases 

that the National Verifier will be able to use. FCC officials told us that they 

intend the National Verifier to interface with both state and federal 

eligibility databases. According to FCC, with the exception of SNAP 

(which is administered at the state level), all of the eligibility programs 

have national databases (i.e., SSI, Veterans Pension, and Medicaid).60

FCC officials told us that they are working with USAC to create the 

National Verifier. The FCC has set expectations for it to be deployed in 

phases with at least five states being launched at the end of 2017, an 

additional 20 states launched in 2018, and the remaining states or 

territories by the end of 2019. FCC officials told us that USAC was 

required to submit a comprehensive draft plan for the National Verifier to 

FCC for review and approval by the end of November 2016. USAC 

 60These are the streamlined eligibility programs effective December 2, 2016. LIHEAP, 

TANF, and NSLP were removed. Tribal programs have not been changed and will need to 

be verified with documents because no aggregated databases exist. Low-income 

consumers continue to qualify for Lifeline by demonstrating income of less than 135 

percent of the Federal Poverty Guidelines. According to FCC, several states have 

received temporary waivers to continue determining Lifeline eligibility under the prior 

qualifying programs until the state is able to update Lifeline eligibility databases or 

processes to align with the federal eligibility criteria.

FCC Has Taken Steps to 

Create a National Verifier 

to Determine Eligibility
Page 51 GAO-17-538 Telecommunications

submitted its National Verifier Draft Plan to FCC on November 30, 2016, 

outlining its proposed approach to designing and building the National 

Verifier. USAC submitted its first updated version of the plan on January 

2017. According to FCC officials, USAC will provide a status update to 

FCC twice per year throughout the development and implementation of 

the National Verifier. FCC officials informed us that in January 2017, 

USAC executed a contract with the vendor for the design of the National 

Verifier.

FCC and USAC identified challenges to establishing the National Verifier.

As of January 2017, USAC had identified six initial challenges that could 

affect the successful launch, build, and operation of the National Verifier, 

including: (1) unavailability of data sources that can be used for 

automated eligibility; (2) inadequate operational capacity to effectively 

manage new processes and high volumes of eligibility verifications; (3) 

data-breach preparedness; (4) establishment of connections with state or 

federal data source; (5) emergency preparedness; and (6) designing a 

system that meets standards. FCC officials further explained that creating 

a national eligibility database requires coordination with each state, which 

can be time-consuming and challenging. For example, some states have 

privacy laws that prohibit sharing eligibility data with the federal 

government and data quality may vary from state to state. Additional 

potential concerns include challenges supporting subscribers in tribal 

areas. USAC has developed mitigation strategies to address several of 

these concerns, including working with states, vendors, and other 

stakeholders. According to USAC, progress updates to FCC and the 

public will continue to be provided every 6 months in updated National 

Verifier plans.

FCC and USAC Have 

Taken Some Steps to 

Improve Oversight of 

Lifeline Providers, but 

Remaining Gaps 

Could Allow 

Noncompliance with 

Program Rules
Page 52 GAO-17-538 Telecommunications

FCC and USAC have established mechanisms to enhance their oversight

of Lifeline providers. For example:

• As implemented in the 2012 Reform Order, Lifeline-only ETCs that do 

not utilize their own facilities must file a compliance plan with FCC 

detailing measures they will take to comply with Lifeline regulations as 

well as additional safeguards against fraud, waste, and abuse. The 

compliance plans should include information about the carrier and the 

Lifeline plans it intends to offer, including the names and identifiers 

used by the carrier, its holding-company, operating company, and all 

affiliates, and how it will comply with FCC’s rules and requirements.

• The 2012 Reform Order also required biennial audits of ETCs 

providing Lifeline service and receiving $5 million or more annually, 

determined on a holding company basis, from the low-income 

program.61 FCC regulations require that licensed certified public 

accounting firms independent of the carrier conduct these audits in a 

manner consistent with Generally Accepted Government Auditing 

Standards. In April 2014, FCC released uniform audit procedures that 

the accounting firms must use. As outlined in FCC’s audit procedures, 

these reviews would be conducted as agreed-upon procedures 

attestations.62 The first reports included reviews of calendar year 2013 

and were submitted in 2015. Due to the nature of these agreed-upon 

procedures engagements, each biennial audit report must state that 

an examination of the subject matter was not performed. Therefore, 

an opinion on the Lifeline provider’s compliance with Lifeline rules 

cannot be expressed through these procedures.

• 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.

• 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.

 61The $5 million threshold includes all operating companies and affiliates operating under 

a parent company. 

62An agreed-upon procedures engagement is one in which a practitioner is engaged by a 

client to issue a report of findings based on specific procedures performed on subject 

matter. Auditors performing this type of engagement do not perform examinations or 

reviews or issue an opinion on the subject matter. 

FCC and USAC Have 

Implemented Some 

Mechanisms to Enhance 

Oversight of Lifeline 

Providers
Page 53 GAO-17-538 Telecommunications

• Starting in fiscal year 2016, USAC implemented a risk-based selection 

method when conducting Beneficiary and Contributor Audit Program 

(BCAP) audits to identify the entities with the greatest risk. BCAP 

audits are conducted on each USAC program in accordance with 

Generally Accepted Government Auditing Standards, with their 

primary purpose to ensure compliance with FCC rules and program 

requirements, and to assist in program compliance. USAC officials 

told us that, before fiscal year 2016, many of the audited entities were 

randomly selected, and the selection process was designed to provide 

a wide variety of entities with regard to size and geographic location. 

See appendix III for more information.

Our analysis of FCC and USAC oversight of Lifeline providers found 

weaknesses in how they oversee providers entering and implementing 

the program, and enforcing penalties for violations of program rules. FCC 

has plans or has taken some steps to address some of these 

weaknesses.

In its 2012 Reform Order, FCC described how its review of compliance 

plans was critical to helping evaluate Lifeline providers’ stated plans to 

adhere to program rules before providers receive any Lifeline funds. The 

compliance plan review process requires telecommunications providers to 

provide specific information regarding their service offerings and the 

measures they will take to implement the Lifeline provider obligations as 

well as further safeguards against fraud, waste, and abuse that FCC may 

deem necessary. However, FCC officials told us that no agency 

document exists that instructs reviewers how to evaluate compliance 

plans. Without written instructions with criteria for how to review 

compliance plans, there is some risk that the compliance plan review 

process is not applied consistently or effectively, or is not conducted in 

such a way as to help facilitate Lifeline program goals. As a result, the 

compliance plan review process is limited in providing some level of 

oversight prior to disbursing funds.

Furthermore, FCC has a backlog of pending compliance plans. In 2012, 

FCC approved its first 20 compliance plans, and did not approve any 

additional plans until August 2016. In August 2016, FCC approved two 

plans from Lifeline providers specifically dedicated to wireline service. 

According to FCC, the approval of these two compliance plans was 

necessary to prevent disruption of Lifeline service for affected wireline 

customers. As of March 2017, 22 compliance plans had been approved, 

22 had been denied, and 34 were pending. FCC officials told us that the 

Oversight Weaknesses of 

Lifeline Adversely Affect 

Overall Program Integrity

FCC Has Not Developed 

Evaluation Criteria for 

Providers’ Compliance Plans 

or Applications for Entering 

Lifeline and Faces a 

Substantial Backlog of Both
Page 54 GAO-17-538 Telecommunications

delay in approving compliance plans was caused by other agency 

priorities, but were unable to detail what those priorities were. They also 

added that the number of staff assigned to reviewing compliance plans 

was limited to four; the staff have also had other assignments and 

responsibilities; and these factors were among those that led to the 

number of plans pending without an FCC decision. According to FCC 

officials, absent statutory time frames specific to the review of compliance 

plans and ETC petitions, FCC has not established any time frames for 

approving or denying these documents. The resulting situation limits the 

expansion of Lifeline service for companies providing and seeking to 

provide Lifeline service.

As with the compliance plans, FCC had a backlog of 35 pending ETC 

petitions and had approved 7 providers and denied 15 providers as of 

March 2017. According to federal statute, telecommunication providers 

must submit a petition and be designated as ETCs before they can 

receive reimbursement for providing Lifeline service. ETC designations 

are made by state regulatory commissions or by FCC if state law does 

not grant a state the authority to do so. By not making determinations on

pending compliance plans and ETC petitions, FCC has not implemented 

a key aspect of the program’s 2012 reforms. This has created a group of 

carriers that can begin or expand their Lifeline service offerings and a 

group of carriers that are prevented from entering the marketplace 

altogether or from expanding to new geographical markets.

FCC also faces a backlog for petitions to provide broadband services. As 

previously discussed, providers seeking to provide Lifeline broadband 

service must obtain the newly created Lifeline Broadband Provider (LBP) 

designation from FCC. The 2016 Lifeline Broadband Order states that 

FCC will take action on LBP designation petitions within 6 months of the 

submission of a completed filing. By January 2017, FCC had conditionally 

designated nine ETCs as LBPs, but revoked their LBP designations in 

February 2017, and returned their LBP petitions to pending status. 

According to FCC, revoking the designation provides the agency with 

additional time to consider measures that might be necessary to prevent 
Page 55 GAO-17-538 Telecommunications

further fraud, waste, and abuse in Lifeline.

63 In March 2017, the FCC 

Chairman stated interest in initiating a proceeding to eliminate the new

federal LBP designation process.

Program Oversight

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 

ETCs 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. 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 

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. However, we identified key Lifeline functions for 

which FCC and USAC had limited visibility.

While FCC approves providers’ participation in Lifeline and USAC 

conducts audits to ensure providers comply with program rules, we found 

that they do not have full insight into providers’ operations. For example, 

we found instances of Lifeline providers utilizing domestic or foreignoperated call centers for Lifeline enrollment. We spoke with officials from 

two Lifeline carriers and inquired about their operations. One Lifeline 

provider explained to us that it contracts with a company that then 

contracts with a back office and a call center in a different country to 

handle Lifeline operations. Lifeline provider officials told us that 

individuals at this overseas back office are responsible for reviewing 

government assistance program documentation and making eligibility 

determinations for Lifeline applicants. Officials from the other carrier we 

spoke with told us that they use a third-party contractor located in the 

 63Twelve states, along with the National Association of Regulatory Utility Commissioners 

(NARUC) have filed a petition for review with the U.S. Court of Appeals for the D.C. Circuit 

challenging FCC’s decision to create a separate designation and approval for broadband 

providers that will not go through the states. Part of the petitioners’ concern is that this 

change removes the states’ ability to provide a line of defense against fraud and abuse, 

normally provided by the states’ ETC designation process. In April 2017, the D.C. Court of 

Appeals granted the FCC’s request for a voluntary remand of the litigation. 

FCC and USAC Have Limited 

Oversight of Provider 

Operations and Internal 

Control Structure, Risking 

Noncompliance with Program 

Rules
Page 56 GAO-17-538 Telecommunications

United States to verify eligibility. Through our undercover tests, we also 

found that this company uses an overseas call center to enroll 

subscribers. 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 other such call centers comply with Lifeline rules.

Additionally, 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.

GAO Testing

To test internal controls over employees associated with the Lifeline 

program, 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 employees 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 to FCC and USAC 

for appropriate action as warranted.

Source: GAO | GAO-17-536

FCC and USAC also have limited insight into when Lifeline providers do 

not abide by program rules. As a result, there may be increased risks that 

Lifeline providers are not adhering to rules. On the basis of our audit and 

undercover work, we identified instances in which Lifeline providers were 
Page 57 GAO-17-538 Telecommunications

applying different policies regarding Lifeline eligibility and enrollment, 

contrary to program rules. Examples we encountered of Lifeline providers 

applying the rules incorrectly are noted below.

• Officials from one provider told us they do not enroll subscribers who 

reside in a zip code that includes tribal lands, because it is too difficult 

to confirm the subscribers’ addresses as nontribal. According to 

Lifeline rules, low-income residents living on tribal lands may be 

eligible for Lifeline benefits based on either income or participation in 

federal or tribal assistance programs.

• Officials for one provider told us that when a subscriber fails the NLAD 

identity-validation process, they do not use the dispute-resolution 

system designed by USAC and FCC to verify the subscriber’s identity 

as required by program rules, because it is too costly. The company 

opts to not enroll the customer or attempt to verify the customer’s

identity using the dispute-resolution system.

• Customer-service representatives for one provider checked the 

authenticity of the SSI documentation we provided as evidence of 

qualifying for Lifeline against a state eligibility database that does not 

contain SSI information and denied our application. In this case, the 

representative was seemingly unaware of the contents of the state 

eligibility database and could potentially disqualify legitimate qualified 

applicants that use SSI documentation to apply for Lifeline.

Variations in Lifeline provider policies and practices could also affect the 

ability of FCC and USAC to provide oversight of how providers maintain 

subscriber documentation, which may contain personally identifiable 

information, in a secure fashion. The risk to consumer information 

security in Lifeline was highlighted by a security breach and associated 

FCC enforcement action. In 2013, an investigative reporter alerted two 

Lifeline providers that documents submitted by Lifeline applicants were 

being stored on an unprotected Internet site. The providers notified FCC, 

prompting an investigation. The investigation found that, from September 

2012 through April 2013, two Lifeline providers stored sensitive 

information collected from subscribers to determine Lifeline eligibility in a 

format readily accessible via the Internet, exposing up to 300,000 

subscribers’ information to public view and to identity theft and fraud. This 

information included full SSNs, names, addresses, and other sensitive 

information. In October 2014, FCC proposed a penalty of $10 million.

FCC’s planned National Verifier may address many of the issues we 

identified with FCC’s and USAC’s oversight of Lifeline provider operations 
Page 58 GAO-17-538 Telecommunications

if it is fully implemented by the current planned date of 2019. FCC officials 

told us that, as the National Verifier is rolled out, responsibility for 

eligibility determinations, storage of supporting documentation, and 

creation of all application forms will transfer to USAC.

Additionally, USAC has a process that allows Lifeline subscribers to 

submit complaints about their service, which could provide USAC with 

insights into provider operations, but we identified weaknesses in this 

process. USAC has information on its website informing subscribers to 

contact their provider if they are experiencing service issues, broken 

handsets, or billing disputes. If the provider does not resolve the issue, 

then subscribers are informed to contact their state regulatory 

commission. After stating an option to contact USAC about the issue, the 

final option provided is for subscribers to call FCC for assistance. On the 

basis of our review of complaints recorded in 2014 by USAC, some were 

closed after USAC referred them back to Lifeline providers without 

evidence stating that a subscriber’s issue had been addressed. Some 

subscribers stated that they were having difficulty using Lifeline service, 

though the individuals’ carriers were potentially billing and receiving funds 

for these individuals. Other complaints USAC received included service 

not working and phones that were never received. As previously 

discussed, we experienced a similar issue with a Lifeline provider 

approving us for the program, but not providing us with a phone or other 

method to utilize Lifeline while conducting our undercover testing. USAC 

told us that it plans to review and revise these processes to improve how 

it handles customer complaints.

Lifeline Improper-Payment Rate

USAC further conducts a separate review of Lifeline that provides 

incomplete visibility over the providers. Specifically, USAC performs

Program Quality Assurance (PQA) assessments to determine the 

improper-payment rate for Lifeline pursuant to federal statute and OMB 

guidance. The Improper Payments Information Act of 2002, as amended,

(IPIA) requires federal agencies to review programs and activities they 

administer and identify those that may be susceptible to significant 

improper payments.64 For programs and activities identified as 

susceptible, agencies must annually estimate the amount of improper 

payments, implement actions to reduce improper payments, and report 

 64Pub. L. No. 107-300, 116 Stat. 2350 (Nov. 26, 2002) (codified as amended at 31 U.S.C. 

§ 3321 note).
Page 59 GAO-17-538 Telecommunications

those estimates and actions. IPIA focuses on payments made by a 

federal agency, contractor, or an organization administering a federal 

program or activity. We have previously reported that improper payments 

have consistently been a government-wide issue despite efforts to identify 

their root causes and reduce them.65

FCC has determined that IPIA applies to the USF programs and that 

Lifeline is susceptible to significant improper payments.66 When 

conducting PQA reviews for Lifeline, USAC reviews enrollment and 

recertification forms; FCC Form 497s for accuracy; subscriber listings for 

completeness; and duplicate subscribers with matching primary address, 

date of birth, and SSN. Using results of these assessments, USAC 

calculates estimates of improper-payment rates and provides this 

information to FCC. According to FCC’s Fiscal Year 2015 Agency 

Financial Report, the estimated 2015 improper-payment rate reported for 

Lifeline is 0.45 percent, or $7.3 million.67

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. For example, the improper-payment rate resulting from the 

PQA assessments accounts for duplicate subscribers, missing or 

incomplete subscriber data, and other factors that identify various types of 

improper-payments, but does not account for payments made to Lifeline 

providers that claimed beneficiaries who were not actually enrolled in the 

qualifying programs or were ineligible.

 65GAO, Fiscal Outlook: Addressing Improper Payments and the Tax Gap Would Improve 

the Government’s Fiscal Position, GAO-16-92T (Washington, D.C.: Oct. 1, 2015).

66Agencies were required to conduct risk assessments for all programs and activities in 

fiscal year 2011 and at least once every 3 years thereafter. Under IPIA, improper 

payments are considered “significant” if they may have exceeded both 1.5 percent of 

program payments and $10 million annually. For each program identified as susceptible, 

agencies are required to report the annual amount of estimated improper payments along 

with steps taken and actions planned to reduce such improper payments.

67FCC’s OIG raised concerns in 2015 about FCC’s reported improper payment rate, 

reporting that the data used in calculating the rate were not complete and that the rate 

might have been significantly understated. FCC management did not concur with the 

OIG’s report findings. Specifically, FCC disagreed that its improper payment rate had 

been inaccurately reported because it had obtained OMB approval to use a statistically 

valid alternative methodology for calculating the rate while not testing all of the Lifeline 

rules. 
Page 60 GAO-17-538 Telecommunications

FCC officials told us, however, that FCC and USAC will be better able to 

include eligibility testing in future year PQA testing given the new Lifeline 

rules pertaining to the retention of eligibility documentation. FCC officials 

told us that they have discussed these changes in Lifeline rules with OMB 

and both parties agree that adding testing procedures in a methodical 

manner is reasonable and appropriate.

FCC Has Inconsistently Penalized Providers with Duplicate Lifeline 

Subscribers and Has Not Developed an Enforcement Strategy

FCC directed USAC in May 2011 to perform in-depth validations (IDV) to 

uncover duplicative claims for Lifeline support. USAC was to do this by 

identifying and resolving instances of subscribers who receive 

simultaneous Lifeline benefits from multiple Lifeline providers and had 

duplicate subscribers within their own subscriber lists. After identifying 

providers with duplicate subscribers, FCC was not consistent in the 

actions it took, as it penalized some but not all of those providers. IDVs 

were conducted at the state level from 2011 to 2013 on 57 Lifeline 

providers prior to the implementation of the NLAD database. During this 

process, USAC contacted subscribers it identified as having duplicate 

service and advised them that they had to choose a single Lifeline 

provider. According to information provided by USAC, the IDVs resulted 

in the identification of approximately 87,000 intracompany duplicate 

subscribers.

Following the IDVs, FCC issued Notices of Apparent Liability that 

proposed penalties of approximately $94 million to 12 Lifeline providers 

believed to have willfully and repeatedly violated Lifeline rules by enrolling 

duplicate subscribers.68 As of October 2016, FCC had not yet determined 

the final penalties for these 12 Lifeline providers.

We found, however, that FCC proposed penalties inconsistently against 

Lifeline providers that had duplicate subscribers. For example, USAC’s 

IDVs determined that 41 Lifeline providers had intracompany duplicates; 

of these, FCC proposed penalties against 12. In some cases, Lifeline 

providers that FCC penalized had fewer duplicates than others that were 

not penalized. For example:

 68FCC’s proposed penalties for Lifeline providers are issued in Notices of Apparent 

Liability that afford companies the opportunity to respond to FCC before the proposed 

penalties become final. 
Page 61 GAO-17-538 Telecommunications

• One Lifeline provider had received $8,300 in overpayments due to 

intracompany duplicate subscribers from February through April 2013,

and FCC proposed a fine of $3.7 million. Another Lifeline provider 

received approximately $81,000 in overpayments from intracompany 

duplicates during the same period and approximately $250,000 in 

intracompany duplicate overpayments found during the course of the 

IDV review and FCC did not propose a fine for having duplicate 

subscribers.

• FCC proposed a fine to another Lifeline provider of $1.2 million for 

approximately $8,000 in overpayment of duplicate subscribers and did 

not propose a fine for another Lifeline provider that had approximately 

$16,000 in duplicate subscriber overpayments through the IDV 

process.

As a result of FCC’s actions, Lifeline providers that were issued a Notice 

of Apparent Liability for duplicate subscribers may have been prevented 

from expanding Lifeline service, while others with duplicates were 

unaffected. Officials from one Lifeline provider told us that California did 

not approve their petition to offer Lifeline service in their state because of 

the penalties levied against them.

According to FCC officials, FCC had been unable to issue a Notice of 

Apparent Liability against some providers because of the statute of 

limitations and delays in receiving IDV results from USAC. FCC is 

constrained by a statutory 1-year limitation, which begins when the 

violation occurs, on assessing forfeitures against carriers for Lifeline rule 

violations.69 FCC officials explained that the 1-year limitation has 

prevented FCC from attempting to assess fines against Lifeline providers 

when duplicate subscribers or other Lifeline rule violations were 

discovered near the end of this time frame. FCC told us that when the 

IDVs were initiated, there was not a formalized process or strategy for 

how FCC would address Lifeline providers with duplicate subscribers. 

The FCC proceeded with issuing Notices of Apparent Liability after 

reviewing the IDV results provided by USAC, though FCC officials were 

unable to provide us with information on when the results of the IDVs 

were provided to them by USAC.

 69Forfeitures assessed by the Enforcement Bureau are paid to the Treasury, whereas the 

monies due to the USF to make it “whole,” are paid back to the USF. 
Page 62 GAO-17-538 Telecommunications

According to Standards for Internal Control in the Federal Government, 

management should implement and document control activities through 

policies. FCC officials told us that the penalties that FCC proposed to levy 

against Lifeline providers with identified duplicate subscribers were part of 

a particular enforcement strategy during that time, but they did not 

provide further details on that strategy. Further, according to FCC 

officials, in June 2015, the agency did not have a documented 

enforcement strategy for proposing penalties against Lifeline providers 

who retain duplicate subscribers. As of March 2017, FCC still does not 

have a documented enforcement strategy. FCC officials told us that 

because its Enforcement Bureau lacks resources to take action in all 

instances, targets for enforcement action are generally prioritized where a 

problem appears to be pervasive, represents a trend, affects many 

consumers, or reflects particularly egregious abuse.

Grounding that approach in an articulated strategy with a rationale and 

method for resource prioritization could benefit FCC and the Lifeline 

providers against which it may choose to take action in the future. For 

example, an enforcement strategy could help FCC and USAC to allocate 

resources more effectively so that future IDVs are coordinated and any 

potential problems identified can be used for enforcement within the 1-

year statutory time frame for enforcement actions. In addition, a strategy 

could help enhance the transparency of reasoning behind any 

enforcement actions that FCC might take and maximize the effectiveness 

of enforcement activities.

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. For example, FCC and USAC have limited 

knowledge about whether individuals receiving Lifeline benefits are truly 

eligible and are receiving services from providers prior to paying Lifeline 

providers, or whether Lifeline providers use the state eligibility databases 

available to them.

Nevertheless, while some academic studies have raised questions 

whether Lifeline is a costly and inefficient means of achieving universal 

service, FCC has not evaluated the program to determine whether it is 

efficiently and effectively meeting its goals, as we recommended in our 

March 2015 report. In March 2016, FCC expanded the program’s 

performance goals by including subsidies for broadband service. 

Conclusions
Page 63 GAO-17-538 Telecommunications

However, FCC lacks information about the potential impact of the 

expansion and about the extent to which it is meeting its goals of 

telephone subscribership, as FCC reported 96 percent of low-income 

qualifying households already have phone service. The expansion to 

broadband may face many of the challenges that arose in 2008 when 

Lifeline expanded to include non-facilities-based wireless service. In light 

of our findings, we believe that our March 2015 recommendation remains 

valid and relevant.

While FCC established a budget mechanism for the first time in 2016, 

FCC did not establish requirements for approving any additional Lifeline 

spending beyond budget levels in a timely manner. If the budget is

exceeded in the future, absent a requirement for the Commissioners to 

review and approve additional spending in a timely manner, up to a year 

or more could pass before the Commission takes any actions, all of which 

limits the budget’s ability to control costs.

FCC and USAC have taken steps to address issues we have raised 

about the eligibility of subscribers by improving controls to prevent and 

detect duplicate enrollment through NLAD. In addition, FCC’s 2016 order 

establishing a National Verifier, if implemented as planned, could further 

help to address weaknesses in the eligibility-determination process. In the 

interim, as evidenced by our data analysis and undercover testing results, 

relying on thousands of private companies to verify eligibility creates 

significant risks. Further, providers may not have access or may be 

unaware of tools available to them to help facilitate such verification. 

Maintaining and disseminating an updated list of state eligibility 

databases would better position providers to have and use such 

information.

New challenges may also occur given that the 2016 reform order now 

allows broadband providers to bypass the state ETC designation process, 

and instead receive designation from FCC, potentially limiting the states’

ability to guard against waste and abuse. This change is concerning, as 

our review of FCC’s current ETC designation and compliance plan review 

process found that FCC has a significant backlog, in part because it has 

not established time frames for completing such reviews. FCC also does 

not have documented instructions with criteria for how to evaluate Lifeline 

compliance plans.

Although classified as federal funds, the USF, with net assets of $9 

billion, is maintained outside the Treasury in an account with a private 

bank. As a result, OMB observed that USF funds do not enjoy the same 
Page 64 GAO-17-538 Telecommunications

rigorous management practices and regulatory safeguards as funds for 

other federal programs. In an effort to improve management and 

oversight of the funds, FCC has developed a preliminary plan to move the 

funds to the Treasury. While acknowledging that, we note that several 

years have passed since this issue was brought to FCC’s attention. 

Further, the preliminary plan would not result in the funds actually being 

moved to the Treasury until next year, at the earliest, which means the 

risks that FCC identified will persist and the benefits of having the funds in 

the Treasury will continue to not be realized in the near term.

Moreover, USAC’s ability to provide oversight for the collection and 

disbursement of billions of dollars of USF funds is complicated by many 

factors, including the challenge of ensuring that over 6,000 

telecommunications carriers pay USF contributions correctly, and do not 

overcharge USF fees to millions of customers when those fees are 

passed through to end-users. USAC’s contribution audits were conducted 

on less than 1 percent of carriers for the period we reviewed, and typically 

found that carriers collected and contributed incorrect amounts of USF 

fees. When overpayment of USF fees was identified, FCC did not 

consistently follow up on audit findings to ensure customers are 

reimbursed and the overcharges stop. FCC recently initiated a new 

referral process to help address this issue.

When FCC takes action to address program violations, it does so 

inconsistently, likely because it has not established an enforcement 

strategy. FCC has also not yet responded to USAC requests for guidance 

on whether technologies, such as text services, require USF fees. As a 

result, some carriers collect more from customers and pay more into the 

fund than others for the same service, though USF fees are required by 

law to be paid on an equitable and nondiscriminatory basis. Further, when 

carriers pass through USF charges via line items on customer bills, 

USAC’s contribution audits do not determine whether the labeling meets 

FCC Truth-in-Billing rules, which are intended to help ensure customer 

bills are transparent and appropriately labeled and described to help 

consumers detect and prevent unauthorized charges. Taking action to 

address these weaknesses would help FCC address risks we identified.

To address control weaknesses and related program-integrity risks we 

identified in Lifeline, we recommend that the Chairman of FCC

• require Commissioners to review and approve, as appropriate, 

spending above the budget in a timely manner;

Recommendations for 

Executive Action
Page 65 GAO-17-538 Telecommunications

• maintain and disseminate an updated list of state eligibility databases 

available to Lifeline providers that includes the qualifying programs 

those databases access to confirm eligibility; this step would help 

ensure Lifeline providers are aware of state eligibility databases and 

could also help ensure USAC audits of Lifeline providers can verify 

that available state databases are being utilized to verify subscriber 

eligibility;

• establish time frames to evaluate compliance plans and develop 

instructions with criteria for FCC reviewers how to evaluate these 

plans to meet Lifeline’s program goals; and

• develop an enforcement strategy that details what violations lead to 

penalties and apply this as consistently as possible to all Lifeline 

providers to ensure consistent enforcement of program violations; the 

strategy should include a rationale and method for resource 

prioritization to help maximize the effectiveness of enforcement 

activities.

To address our findings regarding the USF, we recommend that the 

Chairman of FCC take action to

• ensure that the preliminary plans to transfer the USF funds from the 

private bank to the U.S. Treasury are finalized and implemented as 

expeditiously as possible;

• require a review of customer bills as part of the contribution audit to 

include an assessment of whether the charges, including USF fees, 

meet FCC Truth-in-Billing rules with regard to labeling, so customer 

bills are transparent, and appropriately labeled and described, to help 

consumers detect and prevent unauthorized charges; and

• 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.

We provided a draft of this report to FCC and USAC for review and 

comment. In written comments, reproduced in appendix IV, FCC 

generally agreed with our recommendations. FCC and USAC both 

provided technical comments, which we incorporated as appropriate. 

USAC did not provide written comments on the draft report.

In commenting on our recommendations, FCC stated that it agreed with 

the recommendations or outlined actions it was already taking to address 

Agency Comments 

and Our Evaluation
Page 66 GAO-17-538 Telecommunications

the recommendation. Regarding our recommendation that the

commission respond to USAC requests for guidance and address 

pending requests concerning USF contribution requirements, FCC noted 

that it has resolved a number of long-standing requests from contributors 

and expects to address additional questions in the future, which is 

consistent with what we recommend. However, FCC went on to comment 

that the commission referred the question of USF contribution reform to 

the Federal-State Joint Board on Universal Service; thus, these requests 

for guidance, as well as many of the remaining pending requests from 

contributors, may be resolved in that proceeding. Moreover, FCC 

commented that it recognizes the need for administrative efficiency, but 

must respect the processes of the institutions in place, which are 

designed to ensure the long-term sufficiency and predictability of the 

USF. In our report, we noted the steps taken by FCC in attempts to 

reform and modernize the USF contribution system, including FCC’s 2012 

Further Notice of Proposed Rulemaking, and FCC’s 2014 

recommendation on contribution reform sought from the Federal-State 

Joint Board on Universal Service. However, these items have been 

pending for years, and the USAC guidance requests pertaining to carrier 

USF fee requirements have been pending as far back as 2009. 

Therefore, we urge FCC to come to a resolution and respond to USAC 

requests for guidance in a timely manner 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.

Finally, FCC commented on our findings regarding its banking practices 

surrounding the USF. Specifically, in its letter FCC noted that USF funds 

currently are maintained in an account with a private bank but that it plans 

to move them to the Treasury. However, in May 2017, while reviewing a 

draft of this report, a senior FCC official informed us that FCC had 

experienced some challenges, such as coordinating across the various 

entities involved, that raised questions as to when and perhaps whether 

the funds would be moved as planned. Accordingly, we have revised the 

report and added a recommendation that FCC 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. We believe such 

a recommendation is warranted given the amount of time that has passed 

since FCC became aware of this issue and given the USF’s $9 billion in 

net assets, as well as the potential risks and benefits cited by FCC when 

it initially made the decision to move the funds to the Treasury. We 

provided FCC and USAC with the revised portions of the report, including 
Page 67 GAO-17-538 Telecommunications

the new recommendation, for review and comment. FCC agreed with the 

additional recommendation and USAC provided no comment.

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

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

report date. At that time, we will send copies of this report to the 

Chairman of the FCC, the Chief Executive Officer of USAC, and 

interested congressional committees. This report will also be available at 

no charge on the GAO website at http://www.gao.gov.

If you or your staffs have any questions about this report, please contact 

me at (202) 512-6722 or bagdoyans@gao.gov. Contact points for our 

Offices of Congressional Relations and Public Affairs may be found on 

the last page of this report. GAO staff who made key contributions to this 

report are listed in appendix V.

Seto Bagdoyan, Director

Forensic Audits and Investigative Service
Appendix I: Objectives, Scope, and 

Methodology

Page 68 GAO-17-538 Telecommunications

This appendix discusses in detail our methodology for addressing four 

research questions: (1) the extent to which the Lifeline program (Lifeline) 

demonstrates effective performance towards program goals; (2) steps the 

Federal Communications Commission (FCC) and Universal Service 

Administrative Company (USAC) have taken to improve financial controls 

in place for Lifeline and the Universal Service Fund (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.

To explore the extent to which Lifeline demonstrates effective 

performance towards program goals, we reviewed numerous documents 

including FCC’s 2012 Reform Order, FCC’s 2016 Modernization Order, 

and Pew Research Studies cited by FCC in support of expanding Lifeline 

to include broadband. We followed up on our 2015 work by reviewing two 

academic studies that evaluated the effect of Lifeline referred to us by 

FCC. Our prior work determined these academic studies met our criteria 

for methodological quality. We also gained the perspective of a range of 

stakeholders through interviews with program agency officials (FCC’s 

Enforcement Bureau, Wireline and Competition Bureau, Office of 

Managing Director, and Office of General Counsel); officials from

Lifeline’s program administrator (USAC); state officials (National 

Association of Regulatory Commissioners); and representatives from an 

advocacy group with members representing more than 200 national 

organizations (Leadership Conference on Civil and Human Rights); two of 

the largest Lifeline providers according to annual disbursements received 

from Lifeline; and two telecommunications law firms representing 

numerous Lifeline providers.

To determine the steps taken by FCC and USAC to improve financial 

controls in place for Lifeline and USF, and any remaining weaknesses 

that might exist, we examined USAC financial data, including USF bankaccount statements, payment data, and financial reports. We performed a 

walk-through of USAC’s processes to enter and approve Lifeline 

providers and administer USF disbursements. We analyzed 74 USF 

contribution audits conducted with audit periods in calendar years 2007 

through 2013 (approximately the past 5 years of contribution audits 

issued as of the time we requested them in December 2015). We 

reviewed USAC guidance requests; FCC Office of Inspector General 

reports; FCC orders, policies, and other key guidance; and Treasury 

guidance on fiscal policy. We interviewed officials from USAC’s Internal 

Appendix I: Objectives, Scope, and 

Methodology
Appendix I: Objectives, Scope, and 

Methodology

Page 69 GAO-17-538 Telecommunications

Audit Division, a USF account manager and attorney with the private 

bank that holds USF, as well as officials from the U.S. Treasury, Bureau 

of the Fiscal Service, and FCC’s Office of Inspector General. We also 

attended USAC board meetings.

To evaluate the steps FCC and USAC have taken to improve subscribereligibility verification, and any remaining weaknesses that might exist, we 

performed data analysis to identify potential improper payments using 

Lifeline’s National Lifeline Accountability Database (NLAD) and other 

beneficiary databases, conducted covert testing of Lifeline providers while 

posing as Lifeline applicants, reviewed documentation discussing 

subscriber-validation and eligibility controls, and interviewed officials from 

FCC and USAC.1

To identify potential improper payments, our Lifeline subscriber data 

analysis determined whether Lifeline subscribers who reported qualifying 

for the program due to participation in another federal program were 

enrolled in the specific programs recorded in NLAD. We obtained NLAD 

data in November 2014. The data contained a snapshot of enrolled 

Lifeline subscribers as of that date. We selected the three largest 

qualifying programs identified by FCC to test the eligibility of subscribers 

in NLAD; the U.S. Department of Agriculture’s Supplemental Nutrition 

Assistance Program (SNAP), the Department of Health and Human 

Services’ Medicaid program, and the Social Security Administration’s 

(SSA) Supplemental Security Income (SSI) program. We obtained 

nationwide SSI eligibility data from SSA and obtained SNAP and 

Medicaid data from selected states as these two programs’ data are 

maintained at the state level. Specifically, we obtained SNAP eligibility 

data from five states and Medicaid eligibility data from six states. As a 

result, we obtained data from a nongeneralizable selection of states. Our 

state selections were selected based on the highest dollar amount of 

2013 nontribal Lifeline disbursements2 and were selected to include 

states that do and do not have a third-party administrator that can make 

 1

NLAD is a Lifeline enrollment database designed to help carriers identify and resolve 

duplicate claims for Lifeline-supported service and prevent future duplicates. NLAD 

provides a means for carriers to check on a real-time and nationwide basis whether the 

consumer is already receiving a Lifeline Program-supported service. The NLAD database 

was completely implemented by March 2014.

2

Eligible residents of tribal lands are eligible to receive a monthly discount of up to $34.25 

off of the cost of telephone service, and a onetime discount of up to $100 on the initial 

installation or activation of a telephone from an ETC receiving High Cost support.
Appendix I: Objectives, Scope, and 

Methodology

Page 70 GAO-17-538 Telecommunications

eligibility determinations and states that do and do not have an eligibility 

database that can be used by Lifeline providers to validate eligibility in a 

qualifying Lifeline program.

We obtained SNAP data from Florida, Georgia, Michigan, New York, and

Ohio. Lifeline providers in these states received the largest Lifeline 

disbursements of NLAD participating states. We identified Florida as a 

state with a third-party administrator that verifies eligibility. We identified 

Georgia, Michigan, and New York as states with an eligibility database 

that can be used to validate enrollment in a Lifeline qualifying program. 

Ohio did not have an eligibility database or third-party administrator at the 

time of our state selection. We utilized Center for Medicare & Medicaid

Services (CMS) Medicaid Statistical Information System (MSIS) data to 

obtain Medicaid eligibility information from Florida, Georgia, Michigan, 

Nebraska, New York, and Ohio. Nebraska was another state identified as 

using a third-party administrator to verify eligibility, and was selected as 

an alternative to Florida because the Florida Medicaid data at the time of 

our state selection were only validated through 2011. However, during the 

course of our audit, Florida validated Medicaid data that met our review 

time frame. Consequently, both states were included in our analysis of 

Medicaid eligibility data.

To assess the reliability of the different datasets, we interviewed officials 

from agencies responsible for their respective databases to discuss datarelated considerations and performed electronic testing to determine the 

validity of specific data elements in the federal and selected state 

databases that we used to perform our work. We also reviewed related 

documentation, including data layouts and information on database 

controls. On the basis of our discussions, documentation review, and our 

own electronic testing of the data, we concluded that the data fields used 

for this report were sufficiently reliable for the purpose of this 

engagement. However, we did identify issues in the NLAD data that 

suggested the potential for data-entry errors (such as a February 30 

birthdate). We excluded cases that were clearly in error from our analysis.

We utilized the most up-to-date SNAP and MSIS data available at the 

time of our analysis. The 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 

request—which ranged from the third quarter of 2012 to the fourth quarter 

of 2014. Specifically, Medicaid eligibility data for Florida and Michigan 

were available through September 2013; for Nebraska and Ohio, through

December 2013; and for Georgia and New York, through September 
Appendix I: Objectives, Scope, and 

Methodology

Page 71 GAO-17-538 Telecommunications

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

against Lifeline subscribers that enrolled prior to the latest Medicaid 

eligibility data available for each state. States can take up to 3 years to 

adjust their Medicaid data, and as a result beneficiaries can be included 

or excluded retroactively. Because Medicaid data are collected and 

maintained by the states, the consistency, quality and completeness of 

the data can vary from state to 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. 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.

To ensure that our tabulations of unconfirmed eligibility are not 

overstated, we excluded any Lifeline subscribers that were enrolled in 

NLAD after the date range available for our review for each qualifying 

program. For example, if NLAD showed a subscriber enrolled in Lifeline in 

July 2014 and the corresponding date range for the qualifying program 

we reviewed had enrollment data only through December 2013, then this 

subscriber was excluded from our matching results. To further prevent the 

possibility of overstating unconfirmed eligibility, we counted subscribers 

as likely eligible for Lifeline if the Lifeline subscriber was enrolled in the 

qualifying programs at any time within the range of dates provided to us 

for each qualifying program we reviewed. For example, if NLAD shows a 

subscriber enrolled in April 2014, but was not enrolled in the qualifying 

program until June 2014, it was nevertheless counted as a match and 

that the subscriber was likely eligible for Lifeline. As a result, we are likely 

understating the unconfirmed match rate as some individuals may have 

enrolled in the qualifying program after the Lifeline enrollment date. 

However, given the potential for data-entry errors in NLAD, there is also 

potential for overstatement of unconfirmed eligibility.

We conducted work to determine that each subscriber was enrolled in a 

Lifeline qualifying program. To do this, we matched NLAD data to the 

SNAP, Medicaid, and SSI data to identify potential improper payments. 

We compared the enrolled Lifeline subscriber identity information 

recorded in NLAD as of November 2014 to the SNAP, Medicaid, and SSI 

eligibility data. For the purpose of our analysis, we considered a 

subscriber in NLAD to be a likely match and enrolled in SNAP if at least 
Appendix I: Objectives, Scope, and 

Methodology

Page 72 GAO-17-538 Telecommunications

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, and 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 the SSI program data.

To ensure that our tabulations of unconfirmed eligibility do not overstate 

potential problems with the data, 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 beneficiary first or last name 

information. As a result of not using first or last name, our Medicaid 

matching may understate unconfirmed eligibility for Medicaid. We also 

matched NLAD data against the SSA’s Death Master File (DMF) to 

identify subscribers that were listed as deceased at least 1 year prior to 

their initial Lifeline enrollment or required annual Lifeline recertification. To 

ensure that our tabulations of those Lifeline subscribers showing 

deceased in the DMF were not overstated, we required an exact match 

between NLAD and the DMF for the following four fields: first name, last 

name, date of birth, and last four digits of the SSN.

The results of our data matching are not generalizable to any other state 

or qualifying Lifeline program. It is not possible to determine from data 

matching alone whether these matches definitively identify recipients who 

were not eligible for Lifeline benefits without reviewing the facts and 

circumstances of each case. For example, we could not identify based on 

the data alone whether there were data-entry errors at the time of

enrollment incorrectly stating the qualifying Lifeline program presented by 

the subscriber at the time of enrollment. Alternatively, our matches may 

also understate the number of deceased individuals receiving assistance 

because matching would not detect Lifeline subscribers whose identifying 

information in the Lifeline qualifying program data differed slightly from 

their identifying information in NLAD.

To test subscriber controls and the vulnerability of improper payments, we 

also conducted undercover testing of 19 Lifeline providers to determine 

whether we could obtain Lifeline service using fictitious eligibility 

documentation. We selected these providers based on the providers with 
Appendix I: Objectives, Scope, and 

Methodology

Page 73 GAO-17-538 Telecommunications

the largest 2014 Lifeline disbursements that allowed us to apply 

electronically, through telephone, fax, or mail. We submitted 21 Lifeline 

benefit applications or otherwise attempted to obtain service using false 

information and fabricated supporting documents. These undercover tests 

were for illustrative purposes and are not generalizable. We also 

reviewed FCC’s Lifeline Reform and Modernization Orders, FCC and 

USAC documentation discussing subscriber controls, FCC guidance, and 

Lifeline enforcement actions and proposed penalties for violations of 

Lifeline rules.

To determine the steps FCC and USAC have taken to improve oversight 

of Lifeline providers, and any remaining weaknesses that might exist, we 

met with officials from FCC, FCC’s Office of Inspector General, USAC, 

and two Lifeline providers. We reviewed FCC documentation, including 

Lifeline Reform Orders, Lifeline provider enforcement actions, and 

required Eligible Telecommunications Carrier (ETC) petitions and Lifeline 

compliance plans. We reviewed USAC documentation, including audits 

conducted by USAC and certified public-accounting firms, Lifeline 

subscriber complaints, and work performed to identify duplicate 

subscribers. We reviewed information on 93 USAC Lifeline Beneficiary 

and Contributor Audit Program (BCAP) audits. We also analyzed reports 

released by the FCC Office of Inspector General.

We conducted this performance audit from June 2014 to May 2017 in 

accordance with Generally Accepted Government Auditing Standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives. We conducted our related 

investigative work in accordance with investigative standards prescribed 

by the Council of the Inspectors General on Integrity and Efficiency.
Appendix II: Nationwide Percentage of Likely 

Lifeline Eligibility Confirmed and Unconfirmed 

for those Claiming Eligibility, Based on 

Supplemental Security Income

Page 74 GAO-17-538 Telecommunications

Table 3: Nationwide Percentage of Likely Lifeline Eligibility Confirmed and Unconfirmed for those Claiming Eligibility, based 

on Supplemental Security Income (SSI)

Total population Total confirmed

Percentage confirmed

as eligible

Percentage not 

confirmed

as eligible

All 460,745 162,408 35.3% 64.7%

State

Alaska (AK) 1,698 543 32.0% 68.0%

Alabama (AL) 15,582 4042 25.9% 74.1%

Arkansas (AR) 5,640 1681 29.8% 70.2%

Arizona (AZ) 15,396 4795 31.1% 68.9%

Colorado (CO) 4,710 2297 48.8% 51.2%

Connecticut (CT) 3,365 1,109 33.0% 67.0%

District of Columbia (DC) 1,100 430 39.1% 60.9%

Delaware (DE) 1,087 233 21.4% 78.6%

Florida (FL) 38,421 11,677 30.4% 69.6%

Georgia (GA) 22,583 4,756 21.1% 78.9%

Hawaii (HI) 730 259 35.5% 64.5%

Iowa (IA) 2,429 1,046 43.1% 56.9%

Idaho (ID) 492 292 59.3% 40.7%

Illinois (IL) 20,359 6,359 31.2% 68.8%

Indiana (IN) 6,114 3,018 49.4% 50.6%

Kansas (KS) 5,732 2,742 47.8% 52.2%

Kentucky (KY) 13,251 7,028 53.0% 47.0%

Louisiana (LA) 17,768 5,830 32.8% 67.2%

Massachusetts (MA) 24,488 8,651 35.3% 64.7%

Maryland (MD) 9,078 2,899 31.9% 68.1%

Maine (ME) 2,701 994 36.8% 63.2%

Michigan (MI) 15,616 5,101 32.7% 67.3%

Minnesota (MN) 4,627 2,304 49.8% 50.2%

Missouri (MO) 8,579 3,199 37.3% 62.7%

Mississippi (MS) 16,497 7,643 46.3% 53.7%

Montana (MT) 557 232 41.7% 58.3%

North Carolina (NC) 16,011 3,691 23.1% 76.9%

North Dakota (ND) 258 88 34.1% 65.9%

Nebraska (NE) 59 28 47.5% 52.5%

New Hampshire (NH) 1,441 521 36.2% 63.8%

New Jersey (NJ) 11,023 3,727 33.8% 66.2%

Appendix II: Nationwide Percentage of Likely 

Lifeline Eligibility Confirmed and 

Unconfirmed for those Claiming Eligibility, 

Based on Supplemental Security Income
Appendix II: Nationwide Percentage of Likely 

Lifeline Eligibility Confirmed and Unconfirmed 

for those Claiming Eligibility, Based on 

Supplemental Security Income

Page 75 GAO-17-538 Telecommunications

Total population Total confirmed

Percentage confirmed

as eligible

Percentage not 

confirmed

as eligible

New Mexico (NM) 7,573 2,693 35.6% 64.4%

Nevada (NV) 5,593 1,285 23.0% 77.0%

New York (NY) 29,882 11,585 38.8% 61.2%

Ohio (OH) 31,988 11,656 36.4% 63.6%

Oklahoma (OK) 13,309 3,447 25.9% 74.1%

Pennsylvania (PA) 29,659 12,596 42.5% 57.5%

Rhode Island (RI) 2,062 880 42.7% 57.3%

South Carolina (SC) 5,609 1,814 32.3% 67.7%

South Dakota (SD) 395 133 33.7% 66.3%

Tennessee (TN) 16,023 5,980 37.3% 62.7%

Utah (UT) 1,390 472 34.0% 66.0%

Virginia (VA) 9,241 2,383 25.8% 74.2%

Washington (WA) 11,478 5,898 51.4% 48.6%

Wisconsin (WI) 6,833 3,467 50.7% 49.3%

West Virginia (WV) 2,252 874 38.8% 61.2%

Wyoming (WY) 66 30 45.5% 54.5%

Source: GAO analysis of Lifeline enrollment data and Supplemental Security Income (SSI) data | GAO-17-538
Appendix III: Additional Information about 

Beneficiary and Contributor Audits

Page 76 GAO-17-538 Telecommunications

Beneficiary and Contributor Audit Program (BCAP) audits are conducted 

on each Universal Service Administrative Company (USAC) program in 

accordance with Generally Accepted Government Auditing Standards, 

with their primary purpose to ensure compliance with Federal 

Communications Commission (FCC) rules and program requirements, 

and to assist in program compliance. As part of these audits, USAC 

determines whether the number of Lifeline subscribers that providers 

claim for reimbursement can be supported by the providers’ internal 

records. The scope of these audits does not include work to determine 

whether Lifeline service was working for subscribers, or to determine the 

extent of any service issues and how many potential subscribers could be 

affected. USAC officials told us that, before fiscal year 2016, many of the 

audited entities were randomly selected, and the selection process was 

designed to provide a wide variety of entities with regard to size and 

geographic location. Starting in fiscal year 2016, USAC implemented a 

risk-based selection method to audit the entities with the greatest risk.

A small percentage of Lifeline providers and Lifeline disbursements 

undergo BCAP audits. Of the 93 BCAP Lifeline audits with audit periods 

covering Lifeline disbursements from 2010 to 2014, 13 were of providers 

that received less than $1,000 in support during the period reviewed by 

USAC. In its 2012 Reform Order, FCC directed USAC to audit new 

carriers within the first year they begin receiving federal low-income 

Universal Service Fund (USF) support.1 FCC concluded that an initial 

audit will aid efficient administration of the program by confirming early on 

that the new Eligible Telecommunications Carriers (ETC) are providing 

Lifeline service in accordance with program requirements. According to 

USAC, many of these required audits were of carriers with nominal 

subscribers, and thus, in receipt of nominal disbursements. Table 4 below 

illustrates the audit coverage from BCAP audits from 2010 to 2014 and 

displays the percentage of carriers that were audited and the percentage 

of the total USAC Lifeline provider disbursement during these periods.

 1 FCC 12-11, para. 288-290.

Appendix III: Additional Information about 

Beneficiary and Contributor Audits
Appendix III: Additional Information about 

Beneficiary and Contributor Audits

Page 77 GAO-17-538 Telecommunications

Table 4: Universal Service Administrative Company Beneficiary and Contributor Audit Program Audits for Calendar Years 

2010–2014

2010 2011 2012 2013 2014

Number of audits conducted 7 27 0 41 18

Total audited Eligible 

Telecommunications Carriers 

(ETC) Lifeline disbursement 

$4.3 million $17.1 million $0 $11.6 million $1.2 million

Total ETC Lifeline disbursement $1.2 billion $1.6 billion $2.1 billion $1.8 billion $1.6 billion

Percentage of Lifeline 

disbursement audited

0.36% 1.07% 0% 0.65% 0.08%

Source: GAO calculations based on Universal Service Administrative Company (USAC) data. | GAO-17-538

The audit findings for the audits we reviewed found that some carriers 

were not complying with Lifeline rules in some capacity, such as 

inaccurate Lifeline subscriber claim reporting, inaccurate recertification 

reporting, and lack of required subscriber certification documentation.

As part of the BCAP audit, USAC officials stated they generally review a 

Lifeline provider’s operations in one or two states during a 1-month period 

of time regardless of how many states the provider operates in. USAC 

officials told us that when it notes a material issue that could impact the 

program from a holding company level, the audit work is expanded. For 

example, during an audit of one provider, USAC found the company was 

failing to deenroll subscribers, which led to a $10.9 million forfeiture

assessed by FCC.
Appendix IV: Comments from the Federal 

Communications Commission

Page 78 GAO-17-538 Telecommunications

Appendix IV: Comments from the Federal 

Communications Commission
Appendix IV: Comments from the Federal 

Communications Commission

Page 79 GAO-17-538 Telecommunications
Appendix IV: Comments from the Federal 

Communications Commission

Page 80 GAO-17-538 Telecommunications
Appendix IV: Comments from the Federal 

Communications Commission

Page 81 GAO-17-538 Telecommunications
Appendix IV: Comments from the Federal 

Communications Commission

Page 82 GAO-17-538 Telecommunications
Appendix V: GAO Contact and Staff 

Acknowledgments

Page 83 GAO-17-538 Telecommunications

Seto Bagdoyan, (202) 512- 4749 or bagdoyanS@gao.gov

In addition to the contact named above, Dave Bruno (Assistant Director), 

Scott Clayton (Analyst-in-Charge), and Daniel Silva made key 

contributions to this report. Other contributors include Maurice Belding, 

Gary Bianchi, Clayton Clark, Julia DiPonio, Michelle Duren, Colin Fallon, 

Robert Graves, Scott Hiromoto, Mary Catherine Hult, Mitch Karpman, 

Lauren Kirkpatrick, Barbara Lewis, George Ogilvie, Joshua Parr, Ramon 

Rodriguez, and Julie Spetz.

Appendix V: GAO Contact and Staff 

Acknowledgments

GAO Contact

Staff 

Acknowledgments

(101919)
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