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. 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. 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.) 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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). 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. 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. 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. 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. 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. 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. 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. 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. 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.

Summary: 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. 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.