Telecommunications: Improved Management Can Enhance FCC Decision Making for the Universal Service Fund Low-Income Program
Published: 2010-10-28T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Federal Communications Commission's (FCC) Low-Income Program, administered by the Universal Service Administrative Company (USAC) and supported by the Universal Service Fund (USF), provides low-income households with discounts on installation costs for new telephone service and monthly charges for basic telephone service. In this requested report, GAO examined (1) how program participation and support payments have changed over the last 5 years (2005-2009), and factors that may have affected participation; (2) the extent to which goals and measures are used to manage the program; and (3) the extent to which mechanisms are in place to evaluate program risks and monitor controls over compliance with program rules. GAO surveyed state public utility commissions; reviewed key policies, procedures, and rules; and interviewed agency officials and stakeholders.
section_title: What GAO Found
paragraphs: Low-Income Program participation and support payments have increased since 2005 due to many factors. Program participation was stable from 2005 to 2008, from 6.9 million to 7.1 million participants, but increased to 8.6 million in 2009. Likewise, support payments were relatively stable from 2005 to 2008, from $802 million to $823 million annually, before increasing to approximately $1 billion in 2009. The increases in 2009 were primarily due to the addition of a prepaid wireless service option in certain states, which allows program participants to obtain a free wireless handset and an allotment of free minutes each month. The Low-Income Program has no funding cap and USAC officials project its support payments to reach $1.4 billion in 2010. They said participation and payments will likely continue to increase beyond 2010 as prepaid wireless service options become available in additional states. FCC has taken limited steps to develop performance goals and measures for the Low-Income Program, however, these steps do not fully align with useful practices for developing successful goals and measures. While performance goals and measures specific to the Low-Income Program would enable FCC to more effectively manage the program and determine its success, FCC has not made developing such measures a priority and, as a result, has limited insight on the intent of the program and what it is accomplishing. FCC might conduct pilot programs as it considers expanding the Low-Income Program to include broadband service (high-speed Internet access), as proposed by the National Broadband Plan. For the broadband pilot programs, if conducted, it is important that FCC develop a needs assessment and implementation and evaluation plans to increase confidence in the results. If implemented properly, the pilot programs would enable FCC to improve its data collection for low-income households and could help facilitate program and policy decisions for the Low-Income Program in the future. Although FCC and USAC have some mechanisms in place to identify and evaluate risks and monitor compliance with program rules, the Low-Income Program lacks key features of effective internal controls. FCC and USAC primarily use audit findings to monitor compliance with program rules. However, the number and scope of USAC's audits have been limited and there is no systematic process in place to review the findings of those audits that are conducted. Further, FCC and USAC have not conducted a risk assessment specific to the Low-Income Program that includes consideration of all program vulnerabilities, such as the possibility that multiple carriers may claim support for the same telephone line and that households may receive more than one discount, contrary to program rules. According to GAO standards, FCC should identify all risks to meeting the program's goals and objectives and have a process to systematically consider audit findings when assessing the effectiveness of its internal controls. Without these mechanisms, FCC and USAC may not be capturing and addressing programmatic risks and collecting information that could be leveraged to assess compliance with program rules and strengthen internal controls. FCC should (1) clearly define performance goals and develop quantifiable measures that can be used to determine the program's success, (2) conduct a needs assessment and develop implementation and evaluation plans for the proposed low-income pilot programs, (3) conduct a robust risk assessment, and (4) implement a systematic process to consider audit results. FCC agreed with GAO's recommendations.

section_title: Letter
paragraphs: For many decades, federal policy has called for making affordable  residential telephone service available to the greatest possible number of  Americans—a policy known as “universal service.” This policy is carried  out through the Federal Communication Commission’s (FCC or the  Commission) universal service programs which are funded through the  Universal Service Fund (USF), and include the Low-Income Program.  This program was created in the mid-1980s to promote telephone  subscribership among low-income households. In 2009, the Low-Income  Program provided approximately $1 billion in support payments.
Traditionally, universal service policy and access to telecommunications  services for low-income subscribers has centered on landline residential  telephone service throughout the United States. However,  telecommunications technology has advanced and new ways to access  telecommunications services have been developed. For example,  consumers today have more options to access telephone service than in  the past, including cable, wireless, and broadband. To expand the  availability of Lifeline, which discounts local service, and to provide  additional consumer choice, FCC has allowed certain prepaid wireless  providers, to be granted limited designation as eligible  telecommunications carriers (ETC) for the Low-Income Program in their  licensed service areas. As new technologies continue to develop, the  universal service policy will be challenged to define “access” to  telecommunications services for low-income consumers. In particular, in  2009, FCC was mandated to develop a broadband plan that would “ensure  that all people of the United States have access to broadband  capability…” An FCC task force issued the plan in March 2010, with  recommendations, among many other things, on how to reform the USF  and modify the Low-Income Program to support broadband service. FCC  has also initiated efforts to identify the legal approach that will best  support its efforts to ensure universal access to affordable, high quality  broadband services.
We have previously reported on oversight and internal control  mechanisms used by FCC to oversee other USF programs. For example, in  our reviews of the USF E-rate program, we found weaknesses in the  administration and operational framework and have recommended  corrective actions to reduce fraud, waste, and abuse in the program. To  begin addressing these and other concerns, FCC has taken preliminary  steps, such as initiating a Universal Service Working Group, to assist in  FCC’s efforts to modernize and reform all universal service programs.
Given the importance of the USF to the nation’s telecommunications  policy, significant advances in telecommunications technology, and  potential USF reform efforts, you asked us to review issues surrounding all  the USF programs. This report focuses on the Low-Income Program and  our objectives were to review (1) how program participation and support  payments have changed in the last 5 calendar years (2005-2009) and what  factors may have affected program participation, (2) the extent to which  FCC uses performance goals and measures to manage the program, and  (3) the extent to which the program has mechanisms in place to evaluate  program risks and monitor controls over compliance with program rules.
To respond to these objectives, we reviewed key orders, reports, and  program assessments from FCC and the Universal Service Administrative  Company (USAC), the not-for-profit corporation that administers the Low- Income Program under a Memorandum of Understanding with FCC, and  interviewed officials from both organizations and other stakeholders with  knowledge of the program. The stakeholders were identified from a  variety of sources and include academicians and think tanks,  telecommunications providers, third parties contracted to administer the  program and related committees, and trade and industry groups. To  develop an understanding of how the program works in specific locations,  we conducted site visits in California, the District of Columbia, Florida,  and Iowa. We chose these locations based on criteria such as the  telephone subscribership rate of low-income households and the  participation rate of eligible low-income households. During the visits, we  interviewed officials from state public utility commissions, ETCs (wireline  and wireless), consumer advocates, and other entities as applicable, as  well as obtained pertinent documentation. In addition, we analyzed  participation and disbursement data from USAC and identified key trends.  We conducted testing to ensure the reliability of the data and reviewed the  methodology used by USAC to estimate program participation rates. As a  result, we determined that the data were sufficiently reliable for the  purposes of this report. We also conducted a Web-based survey to gather  information from state public utility commissions on how, if at all, roles  and responsibilities vary by state; barriers to program participation, if any;  advertising and outreach activities by state public utility commissions and  ETCs; and internal control procedures. The survey was available online to  officials in the 50 states and the District of Columbia on a secure Web site  and our response rate was 100 percent. This report does not contain all the  results from the survey. The survey and a more complete tabulation of the  results can be viewed at GAO-11-13SP.
Finally, we reviewed the program’s performance goals and measures and  the mechanisms used by FCC and USAC to evaluate risk and monitor  compliance with program rules. We compared this information against our  guidance on useful practices for developing successful goals and measures  and our standards for internal controls in the federal government, as well  as Office of Management and Budget (OMB) guidance on internal  controls.
We conducted this performance audit from October 2009 through October  2010 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. See appendix I for more  information about our scope and methodology.
subsections: section_title: Background
subsections: section_title: The Nation’s Universal Service Policy and the Low-Income Program Developed Over Time
paragraphs: 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. Efforts by FCC, state regulators, and  industry to promote universal service generally began in the 1950s.  Traditionally, universal service has meant providing residential customers  with affordable access nationwide to basic telephone service.
In the mid-1980s, FCC changed the way local telephone companies  recovered fixed costs and implemented a federal fee for telephone service  paid by the subscriber. Though FCC found no evidence this fee would  cause low-income consumers to cancel telephone service, it was  nevertheless concerned about the below-average telephone subscribership  rates of low-income households—80 percent compared to 92 percent for  all households in 1984—and their ability to afford telephone service. As a  result, FCC initiated two programs to make telephone service affordable  for low-income households: Lifeline, which discounts monthly service, and  Link Up, which discounts the connection charges associated with  telephone service installation.
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). 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 (Joint  Board) 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  Commission should periodically review, taking into account advances in  telecommunications and information technologies and services. In  accordance with its definition of universal service, FCC found that basic  telephone service must include, among other things, local usage, access to  emergency service such as 911, access to operator services, access to long  distance service, access to directory assistance, and toll limitation for  qualifying low-income consumers.
Further, the 1996 Act stated that every telecommunications carrier  providing interstate telecommunications services was required to  contribute to federal universal service, unless exempted by FCC. The  contributions were to be equitable, nondiscriminatory, and explicit. In  addition, FCC was authorized to require any other providers of interstate  telecommunications to contribute if the public interest so required.  Contributions are deposited into the USF, which was established by FCC  in 1997 to meet the specific objectives and principles contained in the 1996  Act. Each quarter, FCC calculates a contribution rate for all contributors  based on the needs of the universal service programs and assesses it as a  percentage of the carriers’ interstate revenue. In the second quarter of  2010, the contribution rate was a historically high 15.3 percent of  carriers’ interstate end user revenue. Carriers generally pass the cost of  the USF contribution on to their customers, typically in the form of a line  item on the monthly telephone bill. The Low-Income Program is one of  two significant parts of the USF that remains uncapped, meaning that  there is no limit to its growth.
Specific to the Low-Income Program, the 1996 Act expressed the principle  that telephone rates should be affordable and that access should be  provided to “low-income consumers” in all regions of the nation. As a  result, in its 1997 Universal Service Order, FCC made Lifeline and Link Up  available in all states regardless of whether the states provided matching  funds, required all ETCs to offer Lifeline service, and included toll  limitation service.
Since the passage of the 1996 Act, FCC has taken actions aimed at  increasing participation in the Low-Income Program.
In June 2000, FCC released the Tribal Order, which enhanced the federal  Lifeline and Link Up programs to better serve residents living on or near  federally recognized tribal lands and reservations.
With its April 2004 order, and consistent with the Joint Board’s  recommendations, FCC aimed to increase participation in the Low-Income  Program by expanding the federal default eligibility to include an income- based criterion of 135 percent of the federal poverty guidelines and  additional means tested programs. According to FCC, at that time only  one-third of eligible households were enrolled in Lifeline. In a staff  analysis, included as an appendix to the order, FCC estimated that adding  the income-based criterion could increase participation in Lifeline by  approximately 1.2 million to 1.3 million households. The order also  included outreach guidelines and revised verification and certification  procedures.
In 2005, FCC granted TracFone forbearance from the facilities requirement  for ETC designation for Lifeline support only. TracFone is a nonfacilities  based, commercial mobile radio services (wireless) provider offering  prepaid service. While FCC found that TracFone’s universal service  Lifeline offering (known as SafeLink Wireless) would provide a variety of  benefits to Lifeline-eligible consumers including increased consumer  choice, program participation, high-quality service offerings, and mobility,  FCC did not quantify or estimate potential increases in participation and  support payments for the Low-Income Program.
The Commission required TracFone to meet several conditions regarding  access to 911 and enhanced 911 (E911). In addition, TracFone had to  require its customers to self-certify at the time of service activation and  annually thereafter that they are the head of household and receive  Lifeline-supported service only from TracFone; establish safeguards to  prevent its customers from receiving multiple TracFone Lifeline subsidies  at the same address; and file with the Commission a plan outlining the  measures TracFone would take to implement these conditions.
In 2008, TracFone submitted its plan to meet the conditions for ETC  designation status and was approved by FCC as an ETC in its licensed  service areas for the purpose of receiving Lifeline support. FCC later  modified a condition imposed on TracFone regarding certification  requirements to confirm that it provides customers with access to basic  and E911 service.
In a May 2010 order, the Commission asked the Joint Board to review the  Commission’s eligibility, verification, and outreach rules for the Lifeline  and Link Up universal service programs, given among other things, the potential expansion of the Low-Income Program to broadband, as  recommended in the National Broadband Plan.
section_title: Low-Income Program is Implemented Through Three Mechanisms
paragraphs: The Low-Income Program provides support for low-income consumers  through three mechanisms: (1) Lifeline, (2) Link Up, and (3) Toll  Limitation Service.
Lifeline reimburses ETCs for discounting eligible customers’ monthly bill  for basic telephone service. The discount is available for only one  telephone connection per household. Lifeline support is distributed in  four tiers with varying discounts. According to our survey responses, in  2010, the maximum monthly Lifeline discount available to consumers— federal and intrastate discount combined—ranged from $7 to $38.50 per  month; the average maximum discount was $14.43 per month.
Link Up reimburses ETCs for discounting either wireline or wireless  service connection charges incurred when an eligible consumer starts  service for the first time or at a new address. An eligible consumer may  only receive the Link Up discount once, unless that consumer moves to a  new residence; consecutive discounts at the same address are not allowed.  Eligible consumers pay one-half of the customary telephone connection  charge with a maximum discount amount of $30; an additional discount is  available to eligible residents of tribal lands. Further, all eligible  consumers can pay the balance of the connection fee on a deferred  payment schedule.
Toll Limitation Service (TLS) reimburses ETCs for providing toll blocking  or toll control to eligible consumers at no cost to the customer. Toll  blocking allows consumers to order a service that prevents the completion  of outgoing toll calls. Toll control allows consumers to specify a limit on  the amount of toll charges that can be incurred per billing cycle.
To provide Lifeline and Link Up, carriers must be designated as ETCs by  their state commissions or FCC. States have the primary responsibility  for designating ETCs. In a situation where the telecommunications carrier  is not subject to the jurisdiction of a state commission, FCC may designate  the carrier as an ETC. In the states that do not have or choose not to assert  jurisdiction over wireless carriers, FCC has the authority to designate  wireless carriers as ETCs.
section_title: Low-Income Program Administration and Eligibility
paragraphs: FCC, USAC, state public utility commissions, and ETCs all have  responsibilities in the administration of the Low-Income Program. Table 1  summarizes the general responsibility of each entity.
States that choose not to provide intrastate Lifeline support must adhere  to eligibility criteria and administrative processes developed by FCC and  are referred to as “federal default states.” FCC authorized states that  provide intrastate support to develop their own eligibility criteria and  administrative processes—including reviewing applications, certifying  eligibility, and verifying recipients’ continued eligibility for the Lifeline  program. As a result, eligibility criteria and the entity responsible for  handling the administrative processes vary across states. (See app. II for  more detail on Lifeline eligibility criteria and administrative processes and  responsibilities.)
section_title: Lifeline Service Options and Restrictions
paragraphs: Lifeline service options for low-income households vary across states.  According to our survey, as of June 2010, wireless ETCs were eligible to  offer Lifeline discounts in 48 states. However, in 13 of the 48 states with  wireless ETCs, the state only provides the intrastate funded benefit to  wireline customers, meaning that wireless customers in those states may  receive a smaller discount than wireline customers. Additionally, at least  one prepaid Lifeline option is available in 25 of the 48 states where  wireless ETCs are eligible to participate in Lifeline.
Restrictions regarding the application of the Lifeline discount also vary  across states. For instance, in some states, recipients of Lifeline support  may not purchase additional telecommunications features, such as call- waiting or voicemail service, and continue to receive the Lifeline  discounts. In addition, according to our survey, Lifeline recipients in 14  states may not apply the Lifeline discount to a bundled service offering or  other package that includes telephone service.
section_title: Program Participation and Support Payments Have Increased Primarily Due to the Addition of Prepaid Wireless as an Eligible Service, but Barriers to Participation Remain
subsections: section_title: While Program Participation and Payments Were Relatively Stable from 2005 to 2008, both Increased in 2009
paragraphs: Both participation in Lifeline (which we used as an indicator of overall  participation in the Low-Income Program), and support payments to  ETCs increased in 2009. As shown in figure 1, from calendar years 2005  through 2008, the total number of Lifeline participants was relatively  stable—between 6.9 and 7.1 million annually—but increased to 8.6 million  in 2009. Likewise, Low-Income support payments to ETCs were relatively  stable from 2005 to 2008—between approximately $802 and $823 million  annually. However, due to increased program participation, support  payments in 2009 increased to approximately $1.025 billion, or 25 percent  more than 2008 (see fig.1). USAC projects Low-Income support payments  to reach approximately $1.4 billion in 2010; this would result in a single- year 36 percent increase. According to USAC, the Low-Income Program  is currently the fastest growing universal service support program.
The estimated participation rate, or the percentage of eligible households  believed to be receiving Lifeline support, also increased from 28.6  percent in 2008 to 31.9 percent in 2009. During that year, the estimated  participation rate increased in 31 states and the District of Columbia. The  following 11 states and the District of Columbia had increases of greater  than 10 percent: Alabama, Alaska, Florida, Georgia, Louisiana,  Massachusetts, Michigan, New Jersey, North Carolina, Tennessee, and  Virginia.
section_title: The Addition of Prepaid Wireless as an Eligible Service Was the Primary Factor to Increased Participation and Payments in 2009
paragraphs: According to USAC and FCC officials and other stakeholders, such as the  Florida Public Service Commission, increases in Lifeline in 2009 were  primarily due to the addition of free, prepaid wireless cell service by  TracFone. Instead of discounting a monthly telephone bill for Lifeline  service, TracFone’s Lifeline service (SafeLink Wireless) converts the total  amount of the USF subsidy into an allotment of free minutes each month.  The company provides a free handset and offers an option of three calling  plans that provide from 68 to 250 usage minutes per month with no  contracts, recurring fees, or monthly charges. Consumers may purchase  additional usage minutes for $0.20 per minute.
In 2009, TracFone provided Lifeline service in 19 states and the District of  Columbia, all of which experienced an increase in their estimated Lifeline  participation rate. In addition, TracFone served 9 of the 12 states  (including the District of Columbia) that had a more than 10 percent  increase in their estimated Lifeline participation rate. During 2009,  TracFone received $189.7 million in Low-Income support payments,  accounting for approximately 18 percent of total Low-Income support  payments and more than 90 percent of the increase in disbursements from  2008 to 2009. According to TracFone officials, the company has always  considered low-income consumers its customer base and, thus, has  experience advertising and marketing to this population. They also told us  that while other ETCs may advertise the availability of Lifeline services to  comply with the program’s requirements, TracFone’s participation in the  Lifeline program is an integral part of the company’s business model and  enrolling low-income customers is in the company’s interest. Therefore,  the company aggressively advertises SafeLink Wireless. According to  TracFone officials, the company spent approximately $2.4 million to  advertise its Lifeline service in January 2010.
Overall, USAC officials expect Low-Income Program participation and  support payments to continue to increase beyond 2010 because (1)  TracFone is actively seeking ETC designation in additional states and (2)  other companies, such as Virgin Mobile Wireless, are following the  TracFone model and seeking regulatory authority from FCC and states to  become eligible to participate in the Low-Income Program.
section_title: State Officials Attributed Some Participation Increases to Targeted Advertising and Outreach Efforts
paragraphs: State officials attributed some of the increase in program participation to  their state’s targeted advertising and outreach. Of the locations we visited,  the state public utility commissions in California, Washington, D.C., and  Florida take an active role in advertising and conducting outreach  activities for the program. California officials attributed the state’s high  Lifeline participation, in part, to targeted outreach to low-income  households. According to Florida officials, its outreach efforts are having a  positive impact on program participation. Table 2 lists selected activities  in each state we visited.
According to our survey of state public utility commissions, states and  ETCs advertise in various ways, as shown in table 3.
In addition to the efforts of states and ETCs, FCC and USAC also provide  advertising and outreach assistance for the Low-Income Program. FCC  developed outreach guidelines for states and ETCs to help improve  program participation. To further address low estimated participation  rates, USAC developed outreach activities that are targeted to states and  ETCs and include speaking and exhibiting at industry events; information  in Web site postings; training sessions for ETCs; newsletters, brochures,  outreach letters, and e-mail updates; and site visits to states.
section_title: Some Program Characteristics, Such as Automatic Enrollment, Expanded Eligibility Criteria, and Higher Discounts May Have Increased Participation
paragraphs: Some states and other stakeholders reported that automatic enrollment  increases participation in Lifeline. Automatic enrollment uses an  electronic interface between a state agency and a carrier to automatically  enroll low-income individuals in Lifeline following enrollment in a  qualifying public assistance program such as Medicaid or Supplemental  Security Income. According to the research of one stakeholder we  interviewed, automatic enrollment procedures are effective ways to  increase program participation. Through our survey, nine states reported  using automatic enrollment for their Lifeline programs and two reported  that plans were under way to develop an automatic enrollment system.  According to Florida officials, implementation of the automatic enrollment  process has had a significant impact on increased enrollment and provides  the potential to reach greater numbers of eligible customers. In its 2004  order, FCC declined to require states to adopt automatic enrollment, in  part, because of potential administrative, technological, and financial  burdens on states and ETCs. FCC is revisiting this issue and has asked  the Joint Board whether automatic enrollment should be required in all  states. Further, the National Broadband Plan recommends FCC should  encourage state agencies responsible for Lifeline and Link Up programs to  coordinate with other low-income support programs to streamline  enrollment for benefits using processes such as automatic enrollment.
Further, expanded eligibility criteria for Lifeline can potentially increase  participation. For example, The Patient Protection and Affordable Care  Act expands Medicaid in 2014 to a new nationwide eligibility threshold of  133 percent of the poverty level. This is likely to expand the number of  eligible consumers in some states, such as Montana, that have more  restrictive criteria and use Medicaid as a qualifying program. In all states,  eligibility is linked to participation in one or more programs, such as  Medicaid or the Supplemental Nutrition Assistance Program. Some  researchers found that states that use a higher number of qualifying  programs—meaning they provide more options for consumers to qualify  for the program—have higher participation in Lifeline. FCC has asked the  Joint Board to review and recommend any necessary changes to the  combination of federal and state rules that govern which consumers are  eligible to receive Lifeline and Link Up discounts.
Higher discounts may also increase participation in the Lifeline program.  According to FCC, states that have provided a relatively high level of  Lifeline support for telephone service for low-income consumers  experienced an average increase in subscribership of 4.6 percentage  points for low-income households from March 1997 to March 2009. In  contrast, states that provided a relatively low level of Lifeline support  experienced an average increase of 2.9 percentage points in telephone  subscribership rates for low-income households over the same time  period. Additionally, the Public Utility Research Center at the University  of Florida found that greater Lifeline support led to higher participation  rates.
section_title: FCC’s Proposed Addition of Broadband Service Could Increase Future Participation and Payments
paragraphs: If broadband service were added to the Low-Income Program,  participation and support payments might increase further. An FCC task  force, through the National Broadband Plan, recommended extending low- income universal service support to broadband. Most states and other  stakeholders, such as trade and industry groups, that we interviewed told  us that the proposed addition of discounted broadband to the Low-Income  Program may increase participation by making broadband more affordable  for low-income households. However, an important consideration is that  with no funding cap, Low-Income Program support payments can grow  indefinitely.
section_title: FCC, USAC, and States Also Identified Factors That May Have Created Barriers to Participation
paragraphs: Despite the advertising and outreach efforts in place, according to FCC,  USAC, and states, some eligible households may not be aware of the Low- Income Program. According to FCC officials, this is in part due to the  transitory lifestyle of some of the target population and the lack of specific  advertising rules for ETCs to follow. While ETCs are required to advertise  the program, FCC, as recommended by the Joint Board, elected not to  require specific advertising and outreach procedures so states and ETCs  could adopt specific standards and engage in outreach as they see fit.  USAC officials told us that they are aware of instances in which some  ETCs do not comply with FCC’s general requirement to advertise the  program. In response to our survey of 51 state public utility commissions,  39 commissions reported lack of awareness as a barrier to enrolling  eligible households in the program. California officials told us that even  though information about the program is available in seven languages, the  state has difficulty reaching and engaging some non-English-speaking  populations.
Further, while FCC developed advertising guidelines for states and ETCs,  the guidelines are not always aligned with our key practices for consumer  education (see app. IV for more detail). For example, the guidelines do not  address defining the goals and objectives of outreach efforts or  establishing process and outcome metrics to measure the success of the  effort. FCC has recognized the importance of effectively publicizing the  programs and issued an order in 2010 asking the Joint Board to review  Lifeline and Link Up, including the appropriateness of various outreach  and enrollment programs. However, the extent to which further FCC  guidelines would have an effect on the program is unclear because while  ETCs are required to comply with FCC’s general requirement to advertise  the program, states and ETCs are not required to follow FCC’s advertising  guidelines and the degree to which they use the guidelines is unknown.
In addition to the lack of program awareness, in response to our survey  the state public utility commissions also reported other barriers, though  the extent varied, as shown in figure 2. Overall, the other stakeholders we  interviewed generally cited the same barriers as the state public utility  commissions.
section_title: FCC Lacks Performance Data to Manage the Program, but Pilot Programs, if Properly Implemented, Could Provide Improved Data to Make Critical Program and Policy Decisions in the Future
subsections: section_title: FCC Has Taken Limited Steps to Develop Performance Goals and Measures for the Low- Income Program
paragraphs: FCC’s overarching goal for the Low-Income Program is to increase  telephone subscribership among low-income consumers, but it has not  quantified this goal. As discussed in the following, FCC has taken some  limited steps toward developing performance measures for its overarching  goal and the program.
FCC’s annual report on telephone penetration by income, by state, which  was first issued in 1998, also includes a related performance measure. To  help evaluate the effects of federal and state Lifeline support mechanisms,  the report includes telephone subscribership levels on a state-by-state  basis for various income categories. The report is based on data from the  Current Population Survey, which is conducted by the United States  Commerce Department’s Bureau of the Census. According to FCC,  subscribership among low-income households has grown from  approximately 80 percent in 1984, the year before FCC first established  Lifeline, to 90 percent in 2009, as shown in figure 3. However, this  measure is not linked to a quantitative goal regarding low-income  subscribership and there is no understanding of how the Low-Income  Program has contributed to the increase.   to the increase.
In June 2005, FCC issued a Notice of Proposed Rulemaking in which it  sought comment on establishing useful outcome, output, and efficiency  measures for each of the universal service programs, including the Low- Income Program. In the August 2007 Report and Order, FCC developed  output and efficiency measures for the program which it collects from  USAC on a quarterly basis, such as the number of connections supported  (program participation). FCC officials reported that it would continue to  review this area and evaluate the effectiveness of the measures adopted.  However, as of August 2010, FCC had not developed outcome measures or  taken any action to review and evaluate the effectiveness of the output and  efficiency measures because it noted that it did not have sufficient  historical data from the measures to establish goals for them.
FCC’s Fiscal Year 2009 Annual Performance Report and Fiscal Year  2009 Summary of Performance and Financial Results include  accomplishments, such as taking steps to reduce improper payments,  related to improving the administration and operation of the fund.  Nevertheless, these accomplishments do not specifically address the Low- Income Program or how they have impacted the provision of universal  service.
section_title: FCC’s Efforts Provide Limited Insight to the Low- Income Program’s Performance
paragraphs: Although FCC has a single overarching goal and has made efforts to  develop measures, it has not developed and implemented specific  outcome-based performance goals and measures for the program. Such  performance goals and measures would be very beneficial to FCC in that  they would enable FCC to assess changes, such as the addition of prepaid  wireless, and more effectively manage the current and future direction of  the program. FCC’s Chairman says modernizing universal service  programs to bring the benefits of broadband to all Americans is one of  FCC’s top priorities, but developing clear performance goals and measures  for the Low-Income Program does not appear to be a priority.  Furthermore, table 4 demonstrates that, to date, FCC’s efforts generally do  not align with useful practices we have identified for developing  successful performance goals and measures.
FCC is considering restructuring the USF and expanding the Low-Income  Program to include broadband service, as recommended by the National  Broadband Plan. In the plan, the FCC task force acknowledged that “there  is a lack of adequate data to make critical policy decisions regarding how  to better utilize funding to promote universal service objectives…as it  moves forward on reforms in the plan, it should enhance its data  collection  and reporting to ensure  that the nation’s funds are being used effectively to advance defined  programmatic goals.” Further, FCC has acknowledged that as changes  such as expanding the Low-Income Program to include broadband service  are made to the USF, it may be necessary to develop new metrics for  measuring the success of universal service policies. Clearly articulated  performance goals and measures are important to help ensure the Low- Income Program meets the guiding principles set forth by the Congress.  These guiding principles include access to telecommunications and  information services for all consumers. Outcome-based performance goals  and measures will help illustrate to what extent, if any, the Low-Income  Program is fulfilling the guiding principles set forth by the Congress.
Because there is limited information available on what the Low-Income  Program in its current form is intended to accomplish, what it is  accomplishing, and how well it is doing so, it remains unclear how FCC  will be able to make informed decisions about the future of the program  without this information. Moreover, as new technologies are developed  and “access and strategies for affordability” are continually redefined, the  performance and effectiveness of existing programs is important so that  decision makers can design and target future programs to effectively  incorporate new technologies, if appropriate.
section_title: FCC Might Conduct Broadband Pilot Programs to Help Facilitate Future Decisions
paragraphs: The National Broadband Plan recommended extending low-income  universal service support to broadband. The plan also recommended that  FCC facilitate pilot programs for low-income consumers that will “produce  actionable information to implement the most efficient and effective long- term broadband support mechanism.” The plan suggested that upon  completion of the pilot programs, FCC should “report to Congress on such  issues as whether hardware  subsidies are a cost- effective way to increase adoption. After evaluating the results by looking  at outputs such as total cost per subscriber, subscriber increases, and  subscriber churn rate, FCC should begin full-scale implementation of a  Low-Income Program for broadband.”
FCC’s efforts to develop the proposed pilot programs are in the beginning  stages.
In support of the National Broadband Plan, an FCC task force conducted a  survey of 5,005 Americans in October and November 2009 in an effort to  understand the state of broadband adoption and use, as well as barriers  facing those who do not have broadband at home. The subsequent report  includes results and analysis specific to nonadopters among low-income  households. This information was used in the National Broadband Plan to  help support the recommendation to extend low-income universal service  support to broadband.
In June 2010, FCC’s Wireline Competition Bureau hosted a roundtable  discussion to enable interested parties to discuss the design of pilot  programs that would provide subsidies for broadband access to low- income consumers. Discussion topics included long-term goals for Lifeline  and Link Up for broadband, existing data and information sources, and  scope and duration of the pilot programs.
FCC asked the Joint Board to consider how the potential expansion of the  Low-Income Program to broadband would affect any of its potential  recommendations regarding program eligibility, verification, and  outreach. The review is to be completed by November 2010.
It is too early to assess FCC’s efforts to develop the proposed pilot  programs for low-income consumers. However, it is not too early to focus  on two fundamental tools related to leading practices that we and others  have identified as key to developing successful programs.
First, a needs assessment is important to both the design of new programs  and the assessment of existing programs. A primary purpose of a needs  assessment is to identify services that may be lacking relative to some  generally accepted standard. By establishing measures of comparison,  program administrators can more accurately determine how well their  programs are doing in meeting the needs of the targeted population of the  program. We have previously reported that needs assessments should  include the following characteristics:    benchmarks to determine whether needs have changed or emerged,    a framework to interpret the meaning of the needs assessment results,    a plan to determine how needs assessment results will be prioritized in  supporting resource allocation decisions, and integration of information on other resources available to help address the  need.
Second, when conducting pilot programs, our past work has shown that  agencies should develop sound implementation and evaluation plans.  These plans should include data needs as part of the design of the pilot  itself and before implementation to increase confidence in results and  facilitate decision making about broader application of the pilot program.  Specifically, we have reported that well-developed implementation and  evaluation plans include, at a minimum, the following key features  identification of the necessary resources, including the responsible  parties;   well-defined, clear, and measurable objectives;    criteria or standards for determining pilot program performance;    clearly articulated methodology and a strategy for comparing the pilot  results with other efforts;   a clear plan that details the type and source of data necessary to evaluate  the pilot, methods for data collection, and the timing and frequency of data  collection;   benchmarks to assess pilot success;    detailed evaluation time frames, roles and responsibilities, and report    a detailed data-analysis plan to track the program’s performance and  evaluate the final results of the program; and   data reliability plan to ensure the integrity of data collection, entry, and  storage.
The broadband pilot programs, if conducted, provide FCC with an  opportunity to improve its information on the telecommunication needs of  and data collection for low-income households. Data on cost- effectiveness, such as cost per subscriber, will be especially important as  the Low-Income Program is not capped and program participation and  support payments are expected to continue to increase. A well-developed  and documented evaluation plan would help FCC evaluate the  telecommunication needs of low-income households and ensure that its  evaluations will yield methodologically sound results to support effective  program and policy decisions as FCC considers transitioning the program  to broadband.
section_title: The Low-Income Program Has Established Some Mechanisms to Identify and Evaluate Risks and Monitor Compliance; However the Program Lacks Two Key Features of Effective Internal Controls
subsections: section_title: The Low-Income Program Has Some Mechanisms to Identify and Evaluate Risks and Monitor Compliance
paragraphs: USAC has assessed some of the risks and monitors compliance with some  of the internal controls of the USF’s four programs, including the Low- Income Program. These efforts are for the purposes of providing FCC and  USAC management with information on the design and effectiveness of  internal controls related to the balances and activities reported in its  annual financial statements and include consideration of controls over  programmatic operations and regulatory reporting and compliance. The  risk assessments that have been performed and other control processes,  such as reviews of each claim for reimbursement before payment is made,  provide important information on vulnerabilities that exist in the internal  control over program activities as well as opportunities for designing and  implementing countermeasures to the identified risk.
In 2008, USAC hired an independent public accounting firm to review its  internal control processes to comply with FCC’s directive that it  implement an internal control structure consistent with the standards and  guidance contained in OMB Circular A-123, Management Responsibility for  Internal Control. The review focused primarily on USAC’s internal  controls related to financial reporting for the USF. In September 2010,  USAC officials told us that an internal team recently completed a review of  key controls with respect to the Low-Income Program. These officials  stated that a report on the results of this work was expected to be  provided to management for review in the fall of 2010. In addition, since  2007, as part of their annual financial statement audit process, FCC and  USAC have completed an annual risk assessment to identify areas of  vulnerability to financial statement misstatement due to fraud and  consider whether additional fraud countermeasures are required. In 2010,  FCC identified 17 control measures to address the following risk  categories related to the Low-Income Program: beneficiary fraud and  disbursement and invoicing errors.
According to FCC officials, program risks are also identified and assessed  through the rulemaking process under the Administrative Procedure Act.  When developing, modifying, or deleting a rule, FCC relies on public input  collected during the rulemaking process. According to FCC officials, it  was through this process that FCC identified and addressed the program  risks associated with ETCs’ failure to collect and preserve certification  documents for Lifeline support recipients.
USAC also monitors program risks through various other processes and  control activities, including review of each ETC claim submission and  analysis of monthly payment data. For example, USAC reviews each ETC  claim submission and compares the information submitted to information  provided with previous claims to identify possible errors that impact the  claim payment. USAC also prepares memoranda each month from  processed claim submissions that summarize and analyze payment data to,  among other things, identify ETCs with substantial month-over-month  changes in the amount of reimbursement requested.
In addition, USAC relies on audits as a key management tool to review  carrier processes for compliance with program rules and to review the  data underlying the carrier’s reimbursement claims to test whether the  carrier claimed the correct amount. For example, through audits, USAC  identified instances where ETCs were claiming the incorrect amount for  providing toll limitation services. From 2003 to 2008, 41 performance  audits were completed specific to the Low-Income Program. Also, 60  audits were conducted in 2006 and 2007 that were used to develop a  statistical estimate of error rates under the Improper Payments  Information Act of 2002 (IPIA).
section_title: The Low-Income Program Lacks a Risk Assessment that Considers All Program Vulnerabilities and a Systematic Process for Considering Audit Results When Assessing Internal Controls
paragraphs: Although the assessments and activities described above provided  mechanisms to identify some risks related to the Low-Income Program,  FCC and USAC have not conducted a risk assessment specific to the Low- Income Program that includes consideration of all program vulnerabilities  and associated consequences that could help identify opportunities to  mitigate those risks. For example, FCC has not addressed a number of  risks to the Low-Income Program, four of which are described below.
In comments to FCC, USAC has stated that the current version of the form  used by ETCs to make reimbursement claims from the USF does not  provide USAC with enough information to perform validations crucial to  preventing mistakes and abuse. In raising this issue, it cited instances  where both the wholesaler and reseller of a telephone connection made a  claim for reimbursement from the USF, at which point, the USF is paying  two companies for the same customer. Currently, USAC considers the  existing program safeguards as insufficient to identify duplicate  reimbursements. Consequently, to determine if this is occurring, USAC  would have to audit the records of the two companies.
Another risk is that consumers may be simultaneously receiving Lifeline  discounts on a wireline and wireless phone, which is contrary to the  program rules that specify one discount per household. In 2008, during a  Low-Income Program-related performance audit of a wireless company,  USAC for the first time compared the wireless carrier’s subscriber list to  the major wireline ETCs serving the area. USAC found several hundred  instances of consumers receiving Lifeline support for both wireless and  wireline accounts. USAC has sought guidance from FCC regarding how to  recover the related disbursements and handle these findings. However, as  of September 2010, FCC has not provided guidance on this issue. To  determine the extent to which this is occurring on an ongoing basis, USAC  would have to audit the records of the two companies because the ETCs  do not have such information. According to our survey, 8 states have  access to information that could help ensure that the household is  receiving only one Lifeline subsidy. Representatives from 21 states  indicated that they were somewhat or very concerned about consumer  fraud in the Lifeline program. In comments, several states indicated that  there were limited controls in place to enforce the program requirement  that households only receive one Lifeline discount.
FCC has asked the Joint Board to recommend changes regarding effective  and efficient verification of customer eligibility, both at initial sign-up and  periodically thereafter. Further, The National Broadband Plan  recommended that FCC consider the creation of a national centralized  database as a mechanism to minimize fraud, waste, and abuse in the Low- Income Program. Five of the 8 states in which the entity that verifies  consumers’ continued eligibility have access to information to help ensure  that the household is only receiving one Lifeline discount use a database.
In comments to the FCC, the Florida Public Service Commission reported  that the inclusion of prepaid wireless options in the Lifeline program  presents the risk that these companies, which do not bill their customers  monthly, can claim support for all subscribers without confirming that the  person is still in possession of and is using the phone. For example, in  June 2010, there were several postings on Craigslist, the electronic bulletin  board known for free local classified listings, advertising the sale of  SafeLink products—the Lifeline service offered by TracFone. One state we  visited is attempting to address this risk. In Florida, the state commission  instituted a 60-day inactivity policy in which the prepaid wireless carrier in  the state must contact the customer, via text message, voicemail, or letter,  to confirm that the customer is still active and eligible for Lifeline support.  If no response is received, the account must be deactivated. In the third  quarter of 2009, one year after the prepaid wireless company was certified  as an ETC in the state, approximately 8 percent or 33,000 customer  accounts were deactivated due to 60-day inactivity. While a good first step,  this mechanism still does not prevent the phone or minute allotment from  being sold to ineligible consumers. As previously mentioned, FCC has  asked the Joint Board to recommend changes regarding effective and  efficient verification of customer eligibility.
Another risk is that the results of ETC audits may not be adequately  considered in assessing internal controls. FCC officials told us that  completion in 2008 of the initial OMB Circular A-123 based internal control  review of USAC’s controls of the USF’s four programs, including the Low- Income Program, was the equivalent to a comprehensive risk assessment.  The 2008 review was focused primarily on financial reporting controls, and  considered some aspects of programmatic operations and regulatory  reporting and compliance of the four USF programs. However, the initial  review was not specific to the Low-Income Program and was not designed  to identify all risks to meeting the program’s objectives. The update that is  expected to be reported on in the fall of 2010 was also not designed to  consider all aspects of the program’s internal controls. For example, the  report on the results of the 2008 review acknowledged that there are  program risks associated with ETCs’ self-certification of key information,  such as subscriber eligibility and the accuracy of amounts claimed for  reimbursement that were not addressed in the internal control review. The  report also stated that ETC audits were the mechanism used by the USF  programs, including the Low-Income Program, to mitigate these risks.  Further, USAC’s update of the 2008 review did not, among other things,  consider the nature, scope, and extent of ETC audits or the results from  these audits in assessing internal control.
According to our standards for internal control, FCC should identify all  risks to meeting the program’s objectives and should consider all  significant interactions between itself and other parties as well as internal  factors at both the entity and activity level. Without a risk assessment  specific to the Low-Income Program that considers all vulnerabilities and  consequences, some programmatic risks may not be identified, analyzed,  and addressed. Moreover, managing risks can help target limited  resources. We have previously described the purpose of risk management  as identifying potential problems before they occur to mitigate adverse  impacts. Figure 4 depicts a risk management cycle representing a series  of analytical and managerial steps, which are sequential, that can be used  to assess risk, assess alternatives for reducing risks, choose among those  alternatives, implement the alternatives, monitor their implementation,  and continually use new information to adjust and revise the assessments  and actions, as needed. The approach is dynamic and can be applied at  various organizational levels.
The limitations identified above increase the importance of the periodic  audits of ETCs to provide after-the-fact detection information on ETC  compliance with program rules and the effectiveness of USAC’s internal  controls. Audits conducted on ETCs have identified instances of  noncompliance with program rules, including improper payments when  ETCs sought reimbursement for discounts that were either calculated  incorrectly, could not be adequately supported, or were provided to  potentially ineligible subscribers. For example, we found that 76 percent  of the 41 performance audits reported findings of more than one claim for  low-income support per household, which is contrary to program rules.
We analyzed reported audit findings and identified instances of repeat  audit findings at ETCs that had been audited more than once from 2003  through 2008. According to USAC officials, each audit report is reviewed  and the extent and causes of audit findings are analyzed. However, USAC  officials stated that they do not have a systematic process for considering  the results of ETC audits when assessing the program’s internal controls.  As described above, each of the internal control reviews performed have,  by design, excluded consideration of ETC audits in assessing internal  control. A systematic process that considers ETC audits could help  identify opportunities for improving internal controls. For example,  improvements to controls could include modifications to the process used  to identify questionable support claims; modifications to the nature,  extent, or scope of ETC audits; and changes to the information required  from ETCs for review prior to payment of claims.
We also analyzed payment data by state/territory and ETC to determine  the scope of audit coverage accomplished by the audits performed (see  Figure 5). For our analysis we used support payments claimed by ETCs  from 2002 to 2007—the period covered by the ETC audits that were  performed. We found that, considering the reliance placed on ETC  audits and the results of those audits conducted to date, the number and  scope of the ETC audits has been limited. For example, the 97 ETCs that  have been audited represent approximately 5 percent of the more than  1,800 ETCs that participated in the Low-Income Program from 2002 to  2007. Further, the payments that were audited represented about 10  percent of the $4.6 billion in payments during this 6-year period. In fact,  more than 90 percent of the payments audited were made to only 14 of the  97 ETCs audited. Moreover, 19 states and territories with approximatel 220 ETCs have never been audited.
According to our internal control standards, audit findings should be  considered when assessing the effectiveness of internal controls,  including: determining the extent to which the continued effectiveness of  the internal control is being monitored; assessing if appropriate policies  and procedures exist; and assessing if they are properly maintained and  periodically updated. Further, consideration should be given to potential  program risks when establishing the scope and frequency of audits.  Without a systematic process to analyze findings from audits that are of  sufficient quantity and scope and appropriately targeted based on risk,  FCC and USAC may not have information that could be leveraged to  adequately assess compliance with program rules and strengthen the  program’s internal controls. As described in this report, there are  vulnerabilities at the ETC, state, and program level for which a sys process for conducting audits and considering audit results could help to  identify.  tematic  As of July 2010, USAC was in the process of implementing a new audit and improper payment assessment approach for all of the USF programs. The  new approach is designed to include separate programs for compliance  audits and improper payment assessments. According to USAC officials,  the compliance audits will be designed solely to evaluate USF beneficiary  compliance with FCC rules and a separate process will be implemented  for improper payment assessments to estimate the rate of improper  payment associated with each of the USF programs. While we have not  assessed the new approach, according to FCC officials, it will continue to  enable FCC and USAC to identify program risks based on random  selections of beneficiaries and payments stratified based on the amount  payments. However, it will be important for USAC to have a process for  considering the results of these audits and assessments to identify  opportunities for modifying the program’s internal controls, including  modifying the nature, extent, and scope of audits and improper payment  assessments.
section_title: Conclusions
paragraphs: anagement tools to effectively manage any program, including the Low- istent program goals and performance measures, risk  Clear and cons assessments, and the systemic consideration of audit results are key  m Income Program. These tools help ensure that collective program fun are effectively targeted to meet the needs of the intended recipients. I case of the Low-Income Program, effective use of the funds is particularly important given the rapid increases in technology that are redefining the  options that consumers have to access telecommunication services. Not  identifying the most cost-effective option may leave less funding that could be used to increase access for other low-income consumers, which is the  underlying intent of universal service. Moreover, without key managemen information, FCC may be making current and future policy decisions  without being fully informed on the performance of current programs and without information on the potential performance of broadband and future  technologies as they become available. Lacking information on  performance goals and measures may also limit FCC’s ability to  demonstrate that the program is helping to provide access to affordable  telecommunication and information services to low-income con all regions of the nation, one of the principles for universal servic articulated in the 1996 Act. Furthermore, without setting performance  goals and measures, particularly as new technologies are developed to  access telephone services, FCC will not have information to judge the  impact of these options on telephone subscribership rates for low-incom households.  e  The National Broadband Plan recommended the addition of broadband as  an eligible service for the Low-Income Program. FCC has initiated a  Universal Service Working Group to assist in its efforts to modernize and  reform all universal service programs to better support broadband and has  taken initial steps to develop potential low-income pilot programs. A  needs  assessment and implementation and evaluation plans are critical elements for the proper development of pilot programs. Such assessments and plans  will provide information on the telecommunication needs of low-income  households, identify the most cost-effective options for low-income  consumers, and help FCC effectively target funds based on data-driven  information. The Low-Income Program has no funding cap and the  addition of broadband and other future telecommunications technolo without key management information and evaluation tools has the  potential to further increase the cost to consumers who pay for the  program through their telecommunications bills.
section_title: Recommendations for Executive Action
paragraphs: To improve the management and oversight of the  we recommend that the Chairman of the FCC take the following three  actions:  clearly define specific performance goals of the program and subsequen develop qua determining the program’s success in meeting its goals, ntifiable measures that can be used by Congress and FCC in    conduct a robust risk assessment of the Low-Income Program, and  implement a systematic process for considering the results of ETC audits  and improper payment assessments in evaluating internal controls of the  Low-Income Program.
If FCC conducts pilot programs as it considers adding broadband to the  Low-Income Program, we recommend that the Chairman of the FCC take  the following two actions:  conduct an assessment of the telecommunication needs of low-income  households to inform the d programs, and  esign and implementation of the pilot    develop implementation and evaluation plans for the pilot program s.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to FCC and USAC for their review a comment. Their full comments are reprinted in appendix V and appendix  VI, respectively. In its written comments, FCC agreed with our  recommendations. Specifically, FCC agreed that more work is needed to  define specific performance goals of the program and develop quantifiable measures that can be used in determining the program’s success. FCC  recognized that the potential modification of the Low-Income Program to  include broadband would be a significant change to the existing program  and stated that the 2008 Performance Measures Notice of Inquiry record  may need to be updated so that quantifiable performance measures relatedto broadband-supported services under the Low-Income Program could beexamined consistent with practices for developing successful performancegoals and measures. With respect to the proposed Low-Income pilot  programs, FCC recognized the importance of conducting an appropriate  needs assessment accompanied by a sound implementation and evaluation  plan consistent with the criteria we identified. FCC also stated that the  Low-Income Program’s internal controls would benefit from a risk  assessment in which all vulnerabilities and consequences are considered  and that it is committed to developing a systematic approach for  considering the results of ETC audits and improper payment assessmen ts  in evaluating the program’s internal controls. FCC stated that it intends towork closely with USAC to implement a risk assessment, as we  recommended, and ensure that clear policies and procedures addressing a  systematic review of internal controls based on audit findings are  incorporated into USAC’s written audit policies, procedures, and  procurement.
In its written comments, USAC noted that it appreciated our recog the internal controls it has in place and that it will work with FCC to  implement any orders or directives it may issue to implement our  recommendations. USAC also provided additional information—that we  reflected in our report—on processes used to validate, on a test basis,  certain information provided by selected carriers.
USAC did not fully concur with our conclusion that FCC and USAC have  not conducted a risk assessment specific to the Low-Income Program that  considers all vulnerabilities. Among other things, USAC stated that the  review performed by an independent public accounting firm in 2008 did  assess and test specific internal controls for the Low-Income Program. We  agree that some Low-Income Program internal controls were, in fact,  assessed and tested; however, we determined that the review focused on the risks associated with financial reporting and not the Low-Income  Program or its programmatic aspects. With respect to the internal con trol  assessment that is being conducted by USAC’s own staff and is in process  as of October 2010, as stated in our report, this assessment also was n designed to identify and address specific Low-Income Program risks and  vulnerabilities. No risk assessment that USAC has undertaken to date has  been the type of risk assessment that we envision under the related  recommendation we make in this report. Such an assessment would  consider the existing design of the Low-Income program as a whole,  including the roles of FCC, USAC, beneficiaries, and service provide whether the design and mix of preventive and detective controls alrea place for the Low-Income Program are appropriate; and whether ther may be internal controls that are needed but not currently in place.
USAC also stated that it does not believe that the facts viewed in their fu context support the conclusion that audit findings have not been used  effectively by FCC and USAC to assess and modify internal controls used  by USAC in administering the Low-Income Program. We disagree; and as  stated in our report, we found that USAC does not have a formal systemic  process in place to consider the results of audits when assessing the  program’s internal controls. We continue to believe that there are  vulnerabilities at the ETC, state, and program level for which a systematic  process for conducting audits and considering audit results could help  identify. A systematic process to consider audit results is consistent with  the objectives of internal controls in the federal government and FCC’s  and USAC’s responsibilities to establish and maintain internal controls  that appropriately safeguard program funding and resources. It will be  important that efforts to implement the new audit approach that is now  under way include processes for systematically considering the results of  audits and assessments to identify opportunities for modifying the  program’s internal controls, including modifying the nature, extent, or  scope of audits.
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 to the appropriate  congressional committees, the Chairman of the Federal Communications  Commission, and the Acting Chief Executive Officer of the Universal  Service Administrative Company. In addition, the report will be a at no charge on the GAO Web site at http://www.gao.gov.
If you have any questions about this report, please contact me at 214-777- 5719 or stjamesl@gao.gov. Contact points for our Offices of Congressional  Relations and Public Affairs may be found on the last page of this report.  Major contributors to this report are listed in appendix VII.
section_title: Appendix I: Scope and Methodology
paragraphs: To obtain background information on the administration of the program,  we reviewed key orders, reports, and program assessments from the  Federal Communications Commission (FCC) and the program’s  administrator, the Universal Service Administrative Company (USAC), and  interviewed officials from both organizations regarding program and  operational procedures; conducted a Web-based survey to gather  information from each state public utility commission, including the  District of Columbia; interviewed other stakeholders; and conducted site  visits. The survey was available online to officials in the 50 states and the  District of Columbia on a secure Web site and our response rate was 100  percent. This report does not contain all the results from the survey. The  survey and a more complete tabulation of the results can be viewed at  GAO-11-13SP. The stakeholders, listed in table 5, were identified from a  variety of sources, including our previous work and by other experts in  telecommunications. The site visits—to California, the District of  Columbia, Florida, and Iowa—were chosen to provide detailed analyses of  programs with varying characteristics. We chose these locations based on  criteria such as the telephone subscribership rate of low-income  households and the participation rate of eligible low-income households.  During the site visits, we interviewed officials from the state public utility  commission, the state consumer advocate, ETCs (wireline and wireless),  and other entities as applicable. We also obtained pertinent supporting  documentation.
Because this was not a sample survey, it has no sampling errors. However,  the practical difficulties of conducting any survey may introduce errors,  commonly referred to as nonsampling errors. For example, difficulties in  interpreting a particular question, sources of information available to  respondents, or data entry and analysis can introduce unwanted variability  into the survey results. We took steps in developing the questionnaire,  collecting data, and analyzing these data to minimize such nonsampling  errors. For example, prior to administering the survey, a GAO survey  specialist designed the questionnaire in collaboration with GAO subject  matter experts. We also pretested the questionnaire with members of the  Public Utilities Commission of three states and the District of Columbia.  On the basis of the findings from pretests, we modified our questionnaire  to ensure that the questions were relevant, clearly stated, and easy to  comprehend. To ensure adequate response rates, we sent e-mail reminders  and conducted follow-up telephone calls with nonrespondents. When the  data were analyzed, a second independent data analyst checked all  computer programs for accuracy. Since this was a Web-based survey,  respondents entered their answers directly into the electronic  questionnaires, eliminating the need to key data into a database, thereby  minimizing errors.
To determine the extent to which program participation and expenditures  have changed in the last 5 years and what factors may have affected  program participation and support payments, we analyzed participation  and disbursement data from USAC and identified key trends including  projections for 2010. We conducted testing to ensure the reliability of the  data and reviewed the methodology used by USAC to estimate program  participation rates. As a result, we determined that the data were  sufficiently reliable for the purposes of this report. In addition, we  interviewed FCC and USAC officials, as well as other stakeholders. We  conducted site visits, as described above, to obtain opinions regarding  program elements associated with participation and barriers to  participation, if any. We also obtained opinions regarding the effect, if any,  of prepaid wireless options on program participation. In addition, we  conducted a Web-based survey of state public utility commissions, as  described above, to gather information about barriers to program  participation, if any, and advertising and marketing activities by state  commissions and ETCs. Finally, we compared FCC’s guidelines for  advertising the program and assessed them against our key practices for  consumer education planning.
To determine FCC’s performance goals and measures used to manage the  program, we reviewed the Telecommunications Act of 1996 and other  relevant legislation as well as FCC documentation, including rules, orders,  strategic plans, performance and accountability reports, and FCC’s  Memorandum of Understanding with USAC. In addition, we interviewed  FCC and USAC officials to determine how these goals and measures were  developed. Finally, we reviewed FCC’s performance goals and measures  for the program and compared them with our guidance on key attributes  of successful performance goals and measures.
To identify the mechanisms FCC and USAC used to identify and evaluate  risk and monitor compliance with program rules, we reviewed relevant  FCC and USAC documents, including comments for the record, fraud risk  assessments, and audit reports, and interviewed officials from both  entities. During our site visits and through our Web-based survey, we  identified related program risks and processes used at the state level to  certify and verify consumer eligibility and concerns. Finally, we compared  FCC’s and USAC’s mechanisms to assess and evaluate risk and monitoring  compliance with program rules against our internal control standards and  Office of Management and Budget guidance on internal controls.
We conducted this performance audit from October 2009 through October  2010 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.
section_title: Appendix II: Lifeline Eligibility Criteria and Administrative Processes and Responsibilities
paragraphs: FCC authorized states that provide intrastate Lifeline support to develop  their own eligibility criteria and administrative processes for the  program—including reviewing applications, certifying eligibility, and  verifying recipients’ continued eligibility for the Lifeline program. As a  result, eligibility and administrative processes vary across states that  provide intrastate Lifeline support.
Of the 39 states that provide intrastate Lifeline support, 36 allow  consumers to qualify for the Lifeline program based on participation in a  low-income assistance program; the number of programs that confer  eligibility for the Lifeline program varies by state. For instance, in  Montana, the only program that confers eligibility for the Lifeline program  is Medicaid. In Alaska, 10 programs confer eligibility, including Federal  Public Housing Assistance, Supplemental Nutrition Assistance Program  (formerly Food Stamps), Low Income Home Energy Assistance Program,  Alaska Adult Public Assistance, and Head Start (under the income  qualifying provision).
States that provide intrastate Lifeline support can also set the income  eligibility threshold. Twenty-two of the 39 states that provide intrastate  Lifeline support allow consumers to qualify for the program based on  income alone. In 8 states, households may earn up to 135 percent of the  federal poverty guideline and be eligible for the Lifeline program. In 2  states the income eligibility threshold is less than 135 percent of the  federal poverty guidelines, and in 11 states it is greater.
Further, FCC determined that states that provide intrastate support also  have the discretion to determine their own administrative processes,  which also vary across states (see table 6).
In addition, for the same reason, the entity responsible for executing the  process also varies across states as seen in table 7.
For those states that choose not to provide intrastate Lifeline support,  FCC developed eligibility criteria and administrative processes for the  Lifeline program to which these states must adhere. These states are  referred to as “federal default states.” To be eligible for the Lifeline  program in these states, consumers must participate in one of seven low- income assistance programs—Federal Public Housing Assistance,  Supplemental Nutrition Assistance Program (formerly Food Stamps), Low  Income Home Energy Assistance Program, Medicaid, National School  Lunch Program’s free lunch program, Supplemental Security Income, and  Temporary Assistance for Needy Families—or have household income at  or below 135 percent of the federal poverty guidelines. Households living  in tribal areas have an expanded list of tribal-based programs that also  confer eligibility for the Lifeline program.
In federal default states, the ETC is responsible for processing  applications, certifying applicants’ eligibility for the program based on  program and income criteria, and verifying the recipients’ continued  eligibility for the program.
section_title: Appendix III: Estimated Lifeline Participation Rates Among Eligible Households by State in 2009
section_title: Appendix IV: Alignment of FCC Outreach Guidelines with Our Key Practices for Consumer Education
paragraphs: FCC requires ETCs to publicize the availability of Lifeline service in a  manner reasonably designed to reach those likely to qualify for the  service. In its 2004 Order, FCC adopted a recommendation from the  Federal-State Joint Board on Universal Service to provide outreach  guidelines to states and ETCs to help improve program participation.  Below is a summary of the guidelines:    states and ETCs should utilize outreach materials and methods designed  to reach households that do not currently have telephone service;    states and ETCs should develop outreach advertising that can be read or  accessed by any sizeable non-English speaking population within a  carrier’s service area; and   states and ETCs should coordinate their outreach efforts with government  agencies/tribes that administer any of the relevant government assistance  programs.
While FCC has developed advertising guidelines for states and ETCs, the  guidelines are not always aligned with our key practices for consumer  education, as shown in table 8.
section_title: Appendix V: Comments from the Federal Communications Commission
section_title: Appendix VI: Comments from the Universal Service Administrative Company
section_title: Appendix VII: GAO Contact and Staff Acknowledgments
subsections: section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Sally Moino and Robert Owens  (Assistant Directors), Joanna Chan, Derrick Collins, Benjamin Gant,  Natasha Guerra, Stuart Kaufman, Scott McNulty, Sara Ann Moessbauer,  Josh Ormond, Amy Rosewarne, Mindi Weisenbloom, and Jessica Wintfeld  made key contributions to this report.
section_title: Related GAO Products
paragraphs: Telecommunications: FCC Should Assess the Design of the E-Rate  Program’s Internal Control Structure. GAO-10-908. Washington, D.C.:  September 29, 2010.
Telecommunications: Long-Term Strategic Vision Would Help Ensure  Targeting of E-rate Funds to Highest-Priority Uses. GAO-09-253.  Washington, D.C.: March 27, 2009.
Telecommunications: FCC Needs to Improve Performance Management  and Strengthen Oversight of the High-Cost Program. GAO-08-633.  Washington, D.C.: June 13, 2008.
Telecommunications: Greater Involvement Needed by FCC in the  Management and Oversight of the E-Rate Program. GAO-05-515.  Washington, D.C.: February 9, 2005.
Telecommunications: Federal and State Universal Service Programs and  Challenges to Funding. GAO-02-187. Washington, D.C.: February 4, 2002.
Schools and Libraries Corporation: Actions Needed to Strengthen  Program Integrity Operations before Committing Funds.  GAO/T-RCED-98-243. Washington, D.C.: July 16, 1998.
Telecommunications: Court Challenges to FCC’s Universal Service Order  and Federal Support for Telecommunications for Schools and Libraries.  GAO/RCED/OGC-98-172R. Washington, D.C.: May 7, 1998.
Telecommunications: FCC Lacked Authority to Create Corporations to  Administer Universal Service Programs. GAO/T-RCED/OGC-98-84.  Washington, D.C.: March 31, 1998.