September 14, 2020

The Honorable Russell Vought 

Acting Director 

Office of Management and Budget 

Eisenhower Executive Office Building 

725 17th Street, NW 

Washington, D.C. 20503

Dear Mr. Vought:

The Federal Communications Commission (FCC or Commission) is writing to you to 

follow up on the results of the audit by its Office of Inspector General of the FCC’s compliance 

with the reporting requirements for the Improper Payments Elimination and Recovery 

Improvement Act (IPERIA) for Fiscal Year (FY) 2019. 

The Office of Management and Budget’s (OMB) guidance in Appendix C of Circular A123 provides that OMB will review any program that is not compliant with IPERIA for two 

consecutive fiscal years to determine if additional funding would assist the program in reaching

compliance. For the second consecutive year, the FCC’s Inspector General’s auditors have 

determined that the Universal Service Fund’s (USF) High Cost Program is not in compliance with 

IPERIA. To support OMB in its review of the High Cost Program under Circular A-123, the FCC 

has provided information about its efforts to bring the High Cost Program into compliance in the 

attachment to this letter.

While the FCC only partially concurs with the findings of the Inspector General’s auditors, 

we will continue to take action to resolve the concerns raised by the Inspector General’s auditors 

with the goal of demonstrating that the High Cost Program is in compliance with IPERIA. The 

FCC is not seeking additional funding to support its efforts to bring the High Cost Program into 

compliance with IPERIA. If you have any questions or wish to discuss these issues further, please 

do not hesitate to contact me.

Sincerely, 

Mark Stephens

Managing Director

Federal Communications Commission

Office of the Managing Director

Washington, D.C. 20554
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USF High Cost Program

In FYs 2018 and 2019, the Inspector General’s auditors concluded that the High Cost Program’s 

improper payment rate did not adequately reflect the risk of improper payments in the program. 

The following paragraphs are brief descriptions of the key efforts by the FCC and the Universal 

Service Administrative Company (USAC) to prevent and reduce improper payments in the High 

Cost Program: 

• Improper Payment Testing Procedures: The FCC and USAC are working together to 

determine what procedures can be added or enhanced to ensure improper payment testing 

procedures adequately assess the risk associated with the High Cost Program. To assist in 

this initiative, USAC management will utilize the testing results from its Beneficiary and 

Contributor Audit Program (BCAP) audits to identify high-risk areas in the program. The 

resulting improper payment procedures will then have a deeper focus on these high-risk 

areas and will complement USAC’s other program integrity efforts.

• Improper Payment Rate Sampling Plan: The FCC and USAC will work together with 

USAC’s independent statistician to determine if there are alternative approaches that can 

be used to more clearly reflect the risks of improper payments in the High Cost Program, 

such as differentiating between Legacy and Modernized High Cost Program funds. For 

FY 2020, USAC’s sampling plan focused on higher-risk areas of the High Cost Program.

• Program Integrity Efforts: USAC’s High Cost Program team is implementing a process 

to review and validate carrier data prior to disbursement. This review will focus on highrisk areas with a greater likelihood of improper payments. Through this review, areas of 

non-compliance will be identified and addressed prior to disbursement, reducing future 

instances of improper payments. 

• Improper Payment Analysis: USAC management is performing a deep-dive analysis of 

its improper payments to more thoroughly understand their root causes and to identify 

corrective actions that will address the root causes. Through this analysis, USAC 

management is institutionalizing corrective actions as part of its program integrity efforts 

that will reduce future instances of improper payments.