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August 27, 2019

The Honorable Ron Johnson 

Chairman 

Committee on Homeland Security and Governmental Affairs 

United States Senate 

340 Dirksen Senate Office Building 

Washington, D.C. 20510

Dear Chairman Johnson:

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 Improper Payments Elimination and Recovery Improvement Act (IPERIA) reporting 

requirements for Fiscal Year (FY) 2018.

The FCC’s Inspector General’s auditors determined that the Universal Service Fund’s

(USF) Lifeline Program (Lifeline) as well as the USF’s High Cost Program (High Cost) were out 

of compliance with the government-wide improper payments reporting requirements for the FY 

2018 reporting year. The requirements for IPERIA reporting compliance are described in the 

Office of Management and Budget’s (OMB) guidance on improper payments reporting in 

Appendix C of OMB Circular A-123. 

Specifically, the Inspector General’s auditors reported the following four findings:

• For FY 2018, the FCC reported an estimated gross improper payment amount for the 

Lifeline Program of $227.02 million with an improper payment rate of 18.47 percent. 

This improper payment rate exceeded the limit of less than 10 percent of the program’s 

gross outlays as described in OMB’s guidance on improper payments reporting.

• The FCC’s estimated improper payment rate for the High Cost Program did not 

adequately reflect the significant risks of improper payments that exist in the High Cost 

Program. As a result, the Inspector General’s auditors reported that they were unable to 

rely on the improper payment rate reported for the High Cost Program and found that the 

program is out of compliance with OMB’s guidance on improper payments reporting.

• The FCC did not report improper payments of $12.5 million and recoveries of $1.1 

million for the Lifeline Program that were identified through sources outside of the 

Universal Service Administrative Company’s (USAC) payment recapture audits.

• The FCC did not report the true root causes for improper payments in the Lifeline 

Program because the FCC’s FY 2018 improper payments reporting did not address the 

risks associated with authentication of consumer eligibility and fraudulent activities.

Federal Communications Commission

Office of the Managing Director

Washington, D.C. 20554
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Per the reporting requirements for agencies on non-compliance as contained in OMB 

Circular A-123, below please find information from the FCC on its efforts to bring the agency 

back into compliance for both the Lifeline Program and the High Cost Program.

1) Measurable milestones to be accomplished in order to achieve compliance for each

program or activity.

a) Lifeline Program

• To prevent payments for ineligible subscribers, the FCC and USAC began deploying 

the National Verifier in 2018. The National Verifier confirms subscribers’ eligibility 

to participate in the Lifeline Program and prevents duplicate enrollments. In addition, 

the eligibility of every subscriber in a state or territory is re-verified upon deployment 

of the National Verifier to that state or territory. As of August 31, 2019, the National 

Verifier has been implemented in 38 states and territories.

• To prevent payments for improperly certified subscribers, the FCC and USAC 

developed standard forms for the Lifeline Program’s certification, re-certification, and 

one-per-household worksheets. As a result of this initiative, since July 1, 2018, all 

service providers have been required to use these forms. 

• To prevent payments to phantom subscribers, the FCC and USAC made changes to 

the calculation of carriers’ claims for Lifeline reimbursement in January 2018, so that 

USAC now calculates claims based on subscribers that have been fully validated by 

the National Lifeline Accountability Database (NLAD), rather than on carriers’ selfvalidated claims. 

• To prevent payments for ineligible subscribers, USAC’s Lifeline Program integrity 

team, along with the FCC, instituted updated review procedures in August 2017. 

These procedures include additional risk-based reviews of various data points.

• On an annual basis, USAC management performs a root cause analysis of common 

audit findings. Through this analysis, USAC management identifies the top audit 

findings for the Lifeline Program based on USAC’s experience over time. USAC 

management then performs an assessment to determine the root cause associated with 

these findings. Finally, USAC management implements a corrective action plan to 

reduce future instances of these findings, and thus, further reduce the improper 

payment rate. 

b) High Cost Program

• The FCC and USAC will work together to determine if it is appropriate to expand 

improper payment testing procedures for the High Cost Program, given the nature and 

design of the High Cost Program.

• 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.

• On an annual basis, USAC management performs a root cause analysis of common 
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audit findings. Through this analysis, USAC management identifies the top audit 

findings for the High Cost Program based on USAC’s experience over time. USAC 

management then performs an assessment to determine the root cause associated with 

these findings. Finally, USAC management implements a corrective action plan to 

reduce future instances of these findings, and thus, further reduce the improper 

payment rate. 

2) The designation of a senior agency official who should be accountable for the progress of the 

agency in coming into compliance for each program or activity.

Mark Stephens, Managing Director, has been designated as the accountable official for FCC 

compliance. The Managing Director oversees the FCC’s operations group, which includes 

the Chief Financial Officer. 

3) The establishment of an accountability mechanism, such as a performance agreement, with 

appropriate incentives and consequences tied to the success of the senior agency official in 

leading agency efforts to achieve compliance for each program and activity.

The FCC is committed to continually improving and strengthening the program integrity of 

its operations and the programs that it oversees. The Managing Director’s performance plan 

will be modified to include measures related to strengthening program integrity and assuring 

compliance with improper payment related laws and guidance.

Please feel free to contact me at 202-418-0817 if you have any questions about this 

correspondence.

Sincerely, 

Mark Stephens

Managing Director