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United States Government Accountability Office:
GAO:
Report to Congressional Requesters:
October 2010:
Telecommunications:
Improved Management Can Enhance FCC Decision Making for the Universal
Service Fund Low-Income Program:
GAO-11-11:
GAO Highlights:
Highlights of GAO-11-11, a report to congressional requesters.
Why GAO Did This Study:
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.
What GAO Found:
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.
What GAO Recommends:
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.
View [hyperlink, http://www.gao.gov/products/GAO-11-11] or key
components. View the results of the GAO survey online at GAO-11-13SP.
For more information, contact Lorelei St. James, (214) 777-5719,
St.JamesL@gao.gov. [End of section]
Contents:
Letter:
Background:
Program Participation and Support Payments Have Increased Primarily
Due to the Addition of Prepaid Wireless as an Eligible Service, but
Barriers to Participation Remain:
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:
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:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Scope and Methodology:
Appendix II: Lifeline Eligibility Criteria and Administrative
Processes and Responsibilities:
Appendix III: Estimated Lifeline Participation Rates Among Eligible
Households by State in 2009:
Appendix IV: Alignment of FCC Outreach Guidelines with Our Key
Practices for Consumer Education:
Appendix V: Comments from the Federal Communications Commission:
Appendix VI: Comments from the Universal Service Administrative
Company:
Appendix VII: GAO Contact and Staff Acknowledgments:
Related GAO Products:
Tables:
Table 1: General Responsibilities of Entities Involved in Low-Income
Program Administration:
Table 2: Selected Advertising and Outreach Activities by States We
Visited:
Table 3: Advertising and Outreach Methods Used by States and ETCs:
Table 4: Alignment of FCC Efforts with Useful Practices for Developing
Successful Performance Goals and Measures:
Table 5: Individuals and Organizations Interviewed:
Table 6: Lifeline Administrative Processes in States that Provide
Intrastate Lifeline Support:
Table 7: Lifeline Program Administrative Responsibilities in States
that Provide Intrastate Lifeline Support:
Table 8: Alignment of FCC Outreach Guidelines with Key Practices for
Consumer Education:
Figures:
Figure 1: Total Number of Low-Income Support Payments and Lifeline
Participants, Calendar Years 2005-2010:
Figure 2: State Public Utility Commission Views on the Barriers to
Enrolling Eligible Households in Lifeline:
Figure 3: Telephone Subscribership of Low-Income Households Compared
to All Households, 1984-2009:
Figure 4: Risk Management Framework:
Figure 5: Analysis of ETC Support Payments and Audit Coverage, 2002-
2007:
Figure 6: Estimated Lifeline Participation Rates Among Eligible
Households by State in 2009:
Abbreviations:
1996 Act: Telecommunications Act of 1996:
APA: Administrative Procedure Act:
Commission: Federal Communications Commission:
E911: Enhanced 911:
ETC: eligible telecommunications carrier:
FCC: Federal Communications Commission:
FFMIA: Federal Managers' Financial Integrity Act of 1982:
IPIA: Improper Payments Information Act of 2002:
Joint Board: Federal-State Joint Board on Universal Service:
OMB: Office of Management and Budget:
PSAP: Public Safety Answering Point:
TLS: Toll Limitation Service:
USAC: Universal Service Administrative Company:
USF: Universal Service Fund:
Telecommunications: Survey of State Public Utility Commissions
(GAO-11-13SP), an e-supplement to GAO-11-11.
[End of section]
October 28, 2010:
The Honorable Henry A. Waxman:
Chairman:
The Honorable John D. Dingell:
Chairman Emeritus:
The Honorable Joe Barton:
Ranking Member:
Committee on Energy and Commerce:
House of Representatives:
The Honorable Bart Stupak:
Chairman:
The Honorable Michael Burgess:
Ranking Member:
Subcommittee on Oversight and Investigations:
Committee on Energy and Commerce:
House of Representatives:
The Honorable Greg Walden:
House of Representatives:
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.[Footnote 1] 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.[Footnote 2] To
expand the availability of Lifeline, which discounts local service,
and to provide additional consumer choice, FCC has allowed certain
prepaid wireless providers,[Footnote 3] to be granted limited
designation as eligible telecommunications carriers (ETC)[Footnote 4]
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…"[Footnote 5] 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.[Footnote 6] 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.[Footnote 7]
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.
[Footnote 8] 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,
[Footnote 9] 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.[Footnote 10]
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.
Background:
The Nation's Universal Service Policy and the Low-Income Program
Developed Over Time:
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.[Footnote 11] 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.[Footnote 12] 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).[Footnote 13] 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.[Footnote
14] 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.[Footnote 15] 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.[Footnote 16]
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.[Footnote 17] 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.[Footnote 18] 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,
[Footnote 19] 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.[Footnote 20] 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.[Footnote 21]
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.
[Footnote 22]
* 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.[Footnote 23]
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.[Footnote 24]
* In 2005, FCC granted TracFone forbearance from the facilities
requirement for ETC designation for Lifeline support only.[Footnote
25] 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.[Footnote 26]
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.[Footnote 27]
* 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.[Footnote
28] FCC later modified a condition imposed on TracFone regarding
certification requirements to confirm that it provides customers with
access to basic and E911 service.[Footnote 29]
* 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.[Footnote 30]
Low-Income Program is Implemented Through Three Mechanisms:
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.[Footnote 31] Lifeline support
is distributed in four tiers with varying discounts.[Footnote 32]
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.[Footnote 33]
* 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.[Footnote 34] 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.[Footnote 35]
* 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.[Footnote 36]
To provide Lifeline and Link Up, carriers must be designated as ETCs
by their state commissions or FCC.[Footnote 37] 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.
Low-Income Program Administration and Eligibility:
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.
Table 1: General Responsibilities of Entities Involved in Low-Income
Program Administration:
Entity: FCC;
Description:
* Set policy;
* Make and interpret rules;
* Provide oversight and outreach for the program;
* Conduct and oversee audits of companies receiving money from the USF;
* In the states with no intrastate Lifeline support, set eligibility
criteria and develop certification and verification procedures;
* Designate carriers as ETC.
Entity: USAC;
Description:
* Day-to-day administration of the federal USF;
* Bill and collect contributions from carriers;
* Disburse payments;
* Conduct audits of contributors and recipients;
* Report to FCC at regular intervals with financial and programmatic
information.
Entity: State public utility commission;
Description:
* Designate carriers as ETCs;
* In the states that provide intrastate Lifeline support, set
eligibility criteria and develop certification and verification
procedures.
Entity: ETC;
Description:
* Submit forms for reimbursement of discounts offered to Low-Income
Program recipients;
* Advertise the availability of the program;
* Certify applicant eligibility in some states;
* Verify the continued eligibility of Lifeline subscribers.
Source: GAO analysis of FCC and USAC information.
[End of table]
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."[Footnote 38]
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.[Footnote
39] As a result, eligibility criteria and the entity responsible for
handling the administrative processes vary across states. (See
appendix II for more detail on Lifeline eligibility criteria and
administrative processes and responsibilities.)
Lifeline Service Options and Restrictions:
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[Footnote 40] or other package that
includes telephone service.
Program Participation and Support Payments Have Increased Primarily
Due to the Addition of Prepaid Wireless as an Eligible Service, but
Barriers to Participation Remain:
While Program Participation and Payments Were Relatively Stable from
2005 to 2008, both Increased in 2009:
Both participation in Lifeline (which we used as an indicator of
overall participation in the Low-Income Program)[Footnote 41], 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 200[Footnote 42]9. Likewise,
Low-Income support payments to ETCs were relatively stable from 2005
to 2008--between approximately $802 and $823 million annually.
[Footnote 43] However, due to increased program participation, support
payments in 2009 increased to approximately $1.025 billion, or 25
percent more than 2008 (see figure 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.[Footnote 44]
According to USAC, the Low-Income Program is currently the fastest
growing universal service support program.
Figure 1: Total Number of Low-Income Support Payments and Lifeline
Participants, Calendar Years 2005-2010:[A]
[Refer to PDF for image: multiple line graph]
Year: 2005
Participants: 7.1;
Low-income support payments: $802 million.
Year: 2006
Participants: 6.9;
Low-income support payments: $807.3 million.
Year: 2007
Participants: 6.9;
Low-income support payments: $823.6 million.
Year: 2008
Participants: 6.8;
Low-income support payments: $822.2 million.
Year: 2009
Participants: 8.6;
Low-income support payments: $1.003 billion.
Year: 2010;
Low-income support payments: $1.4 billion.
Source: GAO analysis of USAC data.
[A] Support payments projected by USAC for 2010; participation data
were not available for 2010.
[End of figure]
The estimated participation rate, or the percentage of eligible
households believed to be receiving Lifeline support,[Footnote 45]
also increased from 28.6 percent in 2008 to 31.9 percent in 2009.
[Footnote 46] 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.
[Footnote 47]
The Addition of Prepaid Wireless as an Eligible Service Was the
Primary Factor to Increased Participation and Payments in 2009:
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.[Footnote 48] Consumers may purchase additional usage minutes
for $0.20 per minute.[Footnote 49]
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.[Footnote 50] 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.[Footnote 51] 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
[Footnote 52] 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.[Footnote 53]
State Officials Attributed Some Participation Increases to Targeted
Advertising and Outreach Efforts:
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.
Table 2: Selected Advertising and Outreach Activities by States We
Visited:
State: California;
Selected advertising and outreach activities: California requires ETCs
to send all customers an annual notice that contains information about
Lifeline. Since 2006, the state has hired a contractor to do marketing
and outreach for the Lifeline program, which includes print, radio,
and television advertisements for the program.
State: District of Columbia;
Selected advertising and outreach activities: District of Columbia
requires ETCs to provide outreach information. In addition, the D.C.
Department of the Environment is given a total of $40,000 from the
D.C. Universal Service Trust Fund to advertise the availability of
Lifeline and three other utility discount programs.
State: Florida;
Selected advertising and outreach activities: Florida requires ETCs to
advertise Lifeline in telephone directories and an annual bill
supplement. In addition, ETCs must provide brochures, pamphlets, or
other materials to each state and federal agency providing benefits to
persons eligible for Lifeline.
State: Iowa;
Selected advertising and outreach activities: As a state that does not
provide matching support (federal default state), Iowa is not heavily
involved in advertising or outreach for the program.
Source: GAO analysis of state program information.
[End of table]
According to our survey of state public utility commissions, states
and ETCs advertise in various ways, as shown in table 3.
Table 3: Advertising and Outreach Methods Used by States and ETCs:
Advertising and outreach method: Print advertisements (pamphlets, bill
inserts, posters, billboards);
Number of states that reported using the advertising or outreach
method: 28;
Number of states that reported ETCs using the advertising or outreach
method: 44.
Advertising and outreach method: Press releases;
Number of states that reported using the advertising or outreach
method: 26;
Number of states that reported ETCs using the advertising or outreach
method: 24.
Advertising and outreach method: Outreach to community groups;
Number of states that reported using the advertising or outreach
method: 25;
Number of states that reported ETCs using the advertising or outreach
method: 32.
Advertising and outreach method: Partnerships with nonprofit
organizations;
Number of states that reported using the advertising or outreach
method: 19;
Number of states that reported ETCs using the advertising or outreach
method: 26.
Advertising and outreach method: Newspaper;
Number of states that reported using the advertising or outreach
method: 12;
Number of states that reported ETCs using the advertising or outreach
method: 36.
Advertising and outreach method: Radio;
Number of states that reported using the advertising or outreach
method: 9;
Number of states that reported ETCs using the advertising or outreach
method: 28.
Advertising and outreach method: Television;
Number of states that reported using the advertising or outreach
method: 7;
Number of states that reported ETCs using the advertising or outreach
method: 25.
Advertising and outreach method: Other;
Number of states that reported using the advertising or outreach
method: 11;
Number of states that reported ETCs using the advertising or outreach
method: 8.
Source: GAO survey.
[End of table]
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 Program Characteristics, Such as Automatic Enrollment, Expanded
Eligibility Criteria, and Higher Discounts May Have Increased
Participation:
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.[Footnote 54] 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.[Footnote 55] FCC is revisiting
this issue and has asked the Joint Board whether automatic enrollment
should be required in all states.[Footnote 56] 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.[Footnote
57] 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.[Footnote 58] 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.[Footnote 59]
Higher discounts may also increase participation in the Lifeline
program. According to FCC, states that have provided a relatively high
level of Lifeline support[Footnote 60] 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.[Footnote 61] 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.[Footnote 62]
Additionally, the Public Utility Research Center at the University of
Florida found that greater Lifeline support led to higher
participation rates.[Footnote 63]
FCC's Proposed Addition of Broadband Service Could Increase Future
Participation and Payments:
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.
[Side bar:
Advantages and Disadvantages to FCC’s Proposed Addition of Broadband
Service to the Low-Income Program:
Most states responding to our survey indicated that providing low-
income consumers access to broadband would provide such benefits as
improved access to the following:
* educational opportunities;
* employment opportunities; and;
* social services.
However, states responding to our survey and other stakeholders we
interviewed also indicated that there were disadvantages associated
with adding broadband to the Low-Income Program. For instance, most
states and other stakeholders responded that the following additional
costs to the program or consumers would be a disadvantage.
* Carrier contributions to the USF, which are generally passed on to
consumers, are likely to increase.
* Monthly service charges to consumers for broadband are higher
compared to phone.
* The cost of obtaining hardware would remain a barrier for some low-
income households.
* Program costs can grow indefinitely because there is no funding cap.
Further, some states indicated that adding broadband service to the
Low-Income Program might present more potential for fraud, waste, and
abuse in the program. One state reported that many states have limited
oversight of broadband service which could increase the potential for
the misuse of funds by ETCs. Another state reported that the inclusion
of broadband service could provide customers with increased
opportunities to abuse Lifeline discounts. The Joint Board also
collected comments from interested parties regarding potential
recommendations related to program eligibility, verification, and
outreach for the Lifeline and Link Up programs and how the potential
expansion of these programs to broadband would affect any of its
potential recommendations. See Federal-State Joint Board on Universal
Service Lifeline and Link Up Order, 25 FCC Rcd 5079, (2010) (Referral
Order). End of side bar]
FCC, USAC, and States Also Identified Factors That May Have Created
Barriers to Participation:
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.[Footnote 64] 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 appendix 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.[Footnote
65] 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.
Figure 2: State Public Utility Commission Views on the Barriers to
Enrolling Eligible Households in Lifeline:
[Refer to PDF for image: vertical bar graph]
Eligible consumers are unaware of the program:
Very great to great extent: 15;
Moderate to some extent: 24;
Little to no extent: 3;
Do not know or no response: 9.
Eligible consumers find the certification and/or verification
procedures too difficult:
Very great to great extent: 4;
Moderate to some extent: 19;
Little to no extent: 17;
Do not know or no response: 11.
Services for Lifeline support recipients are limited and eligible
consumers forgo the benefit to access additional services:
Very great to great extent: 5;
Moderate to some extent: 14;
Little to no extent: 17;
Do not know or no response: 15.
Lifeline support is not available for wireless service:
Very great to great extent: 2;
Moderate to some extent: 11;
Little to no extent: 24;
Do not know or no response: 14.
Source: GAO analysis of survey responses.
[A] Additional responses under "other" included pride and stigma with
receiving government assistance.
[B] Wireless and prepaid wireless services are eligible for Lifeline
support is some states, but not in others.
[End of figure]
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:
FCC Has Taken Limited Steps to Develop Performance Goals and Measures
for the Low-Income Program:
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.[Footnote 66] 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.[Footnote 67] 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.
Figure 3: Telephone Subscribership of Low-Income Households Compared
to All Households, 1984-2009:
[Refer to PDF for image: multiple line graph]
Subscribership:
Year: 1984;
Low-income households: 80.1%;
All households: 91.8%.
Year: 1985;
Low-income households: 80%;
All households: 91.8%.
Year: 1986;
Low-income households: 80.5%;
All households: 92.2%.
Year: 1987;
Low-income households: 80.8%;
All households: 92.5%.
Year: 1988;
Low-income households: 81.4%;
All households: 92.9%.
Year: 1989;
Low-income households: 81.9%;
All households: 93.1%.
Year: 1990;
Low-income households: 82.9%;
All households: 93.4%.
Year: 1991;
Low-income households: 83.4%;
All households: 93.7%.
Year: 1992;
Low-income households: 83.7%;
All households: 93.9%.
Year: 1993;
Low-income households: 84.8%;
All households: 94.2%.
Year: 1994;
Low-income households: 85.7%;
All households: 93.9%.
Year: 1995;
Low-income households: 85.1%;
All households: 93.9%.
Year: 1996;
Low-income households: 85.4%;
All households: 93.9%.
Year: 1997;
Low-income households: 86%;
All households: 94%.
Year: 1998;
Low-income households: 85.7%;
All households: 94.1%.
Year: 1999;
Low-income households: 85.5%;
All households: 94%.
Year: 2000;
Low-income households: 87.5%;
All households: 94.5%.
Year: 2001;
Low-income households: 87.6%;
All households: 94.4%.
Year: 2002;
Low-income households: 89.2%;
All households: 95.5%.
Year: 2003;
Low-income households: 89.2%;
All households: 95.5%.
Year: 2004;
Low-income households: 88%;
All households: 94.2%.
Year: 2005;
Low-income households: 86.4%;
All households: 92.5%.
Year: 2006;
Low-income households: 86.3%;
All households: 92.9%.
Year: 2007;
Low-income households: 88.4%;
All households: 94.6%.
Year: 2008;
Low-income households: 89.7%;
All households: 95.2%.
Year: 2009;
Low-income households: 90.4%;
All households: 95.6%.
Source: GAO analysis of FCC data.
[End of figure]
* 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.[Footnote 68] 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).[Footnote 69] 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[Footnote 70] and
Fiscal Year 2009 Summary of Performance and Financial Results[Footnote
71] 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.
FCC's Efforts Provide Limited Insight to the Low-Income Program's
Performance:
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.
Table 4: Alignment of FCC Efforts with Useful Practices for Developing
Successful Performance Goals and Measures:
Practices to enhance performance goals: Create a set of performance
goals and measures that address important dimensions of a program's
performance and balance competing priorities;
FCC's efforts: An overarching goal for the Low-Income Program exists--
to increase subscribership among low-income consumers--but explicit
performance goals and measures for how this is to be achieved and
measured have not been established;
How FCC's efforts align with practice: FCC's efforts do not align with
this practice.
Practices to enhance performance goals: Use intermediate goals and
measures to show progress or contribution to intended results;
FCC's efforts: FCC has begun to collect output data to develop
performance measures for the Low-Income Program, such as the number of
connections supported (program participation) and total amounts
disbursed, but it has not yet determined the specific outcome-based
goals of the program. Therefore, it is unclear how these output data
will illustrate progress in meeting performance goals;
How FCC's efforts align with practice: FCC's efforts do not align with
this practice.
Practices to enhance performance goals: Include explanatory
information on the goals and measures;
FCC's efforts: No effort reported;
How FCC's efforts align with practice: FCC's efforts do not align with
this practice.
Practices to enhance performance goals: Develop performance goals to
address mission-critical management problems;
FCC's efforts: FCC issued a Report and Order in August 2007 which
adopted measures to improve the management, administration, and
oversight of the USF, including actions specific to the Low-Income
Program, such as the number of connections supported (program
participation) and total amounts disbursed. However, no performance
goals were developed;
How FCC's efforts align with practice: FCC's efforts somewhat align
with this practice.
Practices to enhance performance goals: Show baseline and trend data
for past performance;
FCC's efforts: While FCC began collecting quarterly data in August
2007, to establish a baseline for performance measures, because the
Low-Income Program is in its 25th year, it is unclear if this data
collection will adequately demonstrate past performance trends;
How FCC's efforts align with practice: FCC's efforts somewhat align
with this practice.
Practices to enhance performance goals: Identify projected target
levels of performance for multiyear goals;
FCC's efforts: No targets reported;
How FCC's efforts align with practice: FCC's efforts do not align with
this practice.
Practices to enhance performance goals: Link the goals of component
organizations to departmental strategic goals;
FCC's efforts: FCC's Fiscal Year 2009 Annual Performance Report and
Fiscal Year 2009 Summary of Performance and Financial Results include
accomplishments related to enhancing universal service, such as taking
steps to reduce improper payments, but does not specifically address
the Low-Income Program, or how it has impacted the provision of
universal service;
How FCC's efforts align with practice: FCC's effort somewhat align
with this practice.
Source: GAO analysis of FCC efforts measured against key practices we
have previously identified (GAO/GGD/AIMD-99-69).
[End of table]
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 [regarding universal service objectives]
and reporting to ensure that the nation's funds are being used
effectively to advance defined programmatic goals."[Footnote 72]
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.[Footnote 73] 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.
FCC Might Conduct Broadband Pilot Programs to Help Facilitate Future
Decisions:
The National Broadband Plan recommended extending low-income universal
service support to broadband.[Footnote 74] 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."[Footnote 75] The
plan suggested that upon completion of the pilot programs, FCC should
"report to Congress on such issues as whether hardware [such as
computers] 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."[Footnote 76]
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.
[Footnote 77] 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.[Footnote 78] 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.[Footnote 79] 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.[Footnote 80]
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.[Footnote 81] 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 planning;
* 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.[Footnote 82]
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.
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:
The Low-Income Program Has Some Mechanisms to Identify and Evaluate
Risks and Monitor Compliance:
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.[Footnote 83] 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.[Footnote 84] 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.[Footnote 85]
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.[Footnote 86] 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.[Footnote 87] Also, 60 audits were conducted in 2006 and 2007
[Footnote 88] that were used to develop a statistical estimate of
error rates under the Improper Payments Information Act of 2002
(IPIA).[Footnote 89]
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:
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.[Footnote 90] 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.[Footnote
91] 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.[Footnote 92] 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.[Footnote 93] 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.[Footnote 94] 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.[Footnote 95]
* 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.[Footnote 96]
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.[Footnote 97]
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.
Figure 4: Risk Management Framework:
[Refer to PDF for image: illustration]
This figure is an illustration of the Risk Management Framework,
depicted as a circle the following information interlocking from one
to the next:
* Strategic Goals, Objectives, and Constraints;
* Risk Assessment;
* Alternatives Evaluation;
* Management Selection;
* Implementation and Monitoring.
Source: GAO.
[End of figure]
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.
[Footnote 98] 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
[Footnote 99] (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.[Footnote 100] 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.[Footnote
101] 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.[Footnote 102] Moreover, 19 states and
territories with approximately 220 ETCs have never been audited.
[Footnote 103]
Figure 5: Analysis of ETC Support Payments and Audit Coverage, 2002-
2007:
[Refer to PDF for image: illustration containing 4 pie-charts]
Overall audit:
Number of ETCs:
Out of 1,826 total ETCs, 5.3% (97 ETCs)were audited.
Dollar amount:
Out of $4,587,817,984 in total support payments, 10.0% (460,835,977)
were audited.
Audit breakdown by states:
91.5% of the support payments audited ($421,835,900 of $460,835,977)
were disbursed to ETCs in 3 states (California, New York, and Texas)
where 14.4% of ETC audits (14 of 97) occurred.
Number of ETCs:
Out of 97 audited ETCs, 14.4% (14 ETCs) were in CA, NY, and TX
Dollar amount:
Out of $460,835,977 in audited disbursements, 91.5% ($421,835,900)
were in CA, NY, and TX.
Source: GAO analysis of USAC data.
[End of figure]
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 systematic process for conducting audits
and considering audit results could help to identify.
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 of 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.
Conclusions:
Clear and consistent program goals and performance measures, risk
assessments, and the systemic consideration of audit results are key
management tools to effectively manage any program, including the Low-
Income Program. These tools help ensure that collective program funds
are effectively targeted to meet the needs of the intended recipients.
In the 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 management 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
consumers in all regions of the nation, one of the principles for
universal service 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-income households.
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 technology 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.
Recommendations for Executive Action:
To improve the management and oversight of the Low-Income Program, we
recommend that the Chairman of the FCC take the following three
actions:
* clearly define specific performance goals of the program and
subsequently develop quantifiable measures that can be used by
Congress and FCC in determining the program's success in meeting its
goals,
* 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 design and implementation of the pilot
programs, and:
* develop implementation and evaluation plans for the pilot programs.
Agency Comments and Our Evaluation:
We provided a draft of this report to FCC and USAC for their review
and 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[Footnote 104] record may need to be updated so that
quantifiable performance measures related to broadband-supported
services under the Low-Income Program could be examined consistent
with practices for developing successful performance goals 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 assessments in evaluating the program's internal controls. FCC
stated that it intends to work 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
recognition of 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 control 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 not 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 providers; whether the design and mix of
preventive and detective controls already in place for the Low-Income
Program are appropriate; and whether there 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 full 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 available at no charge on the GAO Web site at [hyperlink,
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.
Signed by:
Lorelei St. James:
Acting Director, Physical Infrastructure Issues:
[End of section]
Appendix I: Scope and Methodology:
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.
Table 5: Individuals and Organizations Interviewed:
Category: Academicians and think tanks;
Names:
John Mayo, Professor of Economics, Business and Public Policy;
Public Utility Research Center, University of Florida;
Stanford Institute for Economic Policy Research;
Technology Policy Institute.
Category: Federal and state entities;
Names:
California Division of Ratepayer Advocate;
California Public Utilities Commission;
D.C. Department of the Environment, Energy Office;
D.C. Office of People's Counsel;
D.C. Public Service Commission;
Federal Communications Commission;
Florida Department of Children and Families;
Florida Office of Public Counsel;
Florida Public Service Commission;
Iowa Office of Public Counsel;
Iowa Public Utility Commission.
Category: Telecommunication providers;
Names:
AT&T;
AT&T - California;
Fort Mojave Telecommunications, Inc.
Gila River Telecommunications, Inc.
Iowa Telecom (Windstream);
Mescalero Apache Telecommunications, Inc.
Qwest Communications;
Sebastian Corporation (holding company for Kerman Telephone and Forest
Hill Telephone companies in California);
South Slope Cooperative Communications Company;
Sprint/Nextel;
TracFone Wireless;
Verizon Communications;
Verizon Communications Florida--Regulatory Affairs.
Category: Third party administrators and related committees;
Names:
Rolka Loube Saltzer Associates;
Solix (previously known as NECA);
Universal Service Administrative Company;
USAC High Cost and Low Income Committee, Low Income Representative
(Ellis Jacobs);
USAC High Cost and Low Income Committee, State Consumer Advocates
(Wayne Jortner);
USAC High Cost and Low Income Committee, State Telecommunications
Regulators Representative (Anne C. Boyle).
Category: Trade and industry groups;
Names:
CTIA - The Wireless Association;
National Association of Regulatory Utility Commissions;
National Telecommunications Cooperative Association;
National Tribal Telecommunications Association;
Organization for the Promotion and Advancement of Small
Telecommunications Companies (OPASTCO).
Source: GAO.
[End of table]
[End of section]
Appendix II: Lifeline Eligibility Criteria and Administrative
Processes and Responsibilities:
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.
[Footnote 105]
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.[Footnote 106] In 8 states, households may earn
up to 135 percent of the federal poverty guideline and be eligible for
the Lifeline program.[Footnote 107] In 2 states the income eligibility
threshold is less than 135 percent of the federal poverty guidelines,
and in 11 states it is greater.[Footnote 108]
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).
Table 6: Lifeline Administrative Processes in States that Provide
Intrastate Lifeline Support:
Administrative process: Process in place to certify eligibility based
on program participation;
Number of states[A]: 32.
Administrative process: Self-certification under penalty of perjury;
Number of states[A]: 16.
Administrative process: Presentation of documentation of enrollment in
a qualifying low-income assistance program;
Number of states[A]: 25.
Administrative process: Automatic enrollment of eligible consumers;
Number of states[A]: 9.
Administrative process: Process in place to certify eligibility based
on income;
Number of states[A]: 19.
Administrative process: Self-certification under penalty of perjury;
Number of states[A]: 6.
Administrative process: Presentation of documentation of income;
Number of states[A]: 19.
Administrative process: Automatic enrollment of eligible consumers;
Number of states[A]: 3.
Administrative process: Verifying continued eligibility of Lifeline
support recipients: Random audits of Lifeline support recipients;
Number of states[A]: 14.
Administrative process: Verifying continued eligibility of Lifeline
support recipients: Periodic submission of supporting documents
(annual recertification or reverification);
Number of states[A]: 20.
Administrative process: Verifying continued eligibility of Lifeline
support recipients: Annual self-certification;
Number of states[A]: 12.
Administrative process: Verifying continued eligibility of Lifeline
support recipients: Online verification system using databases of
public assistance program participants or income reports;
Number of states[A]: 13.
Administrative process: Verifying continued eligibility of Lifeline
support recipients: Verification of a statistically valid sample of
Lifeline support recipients;
Number of states[A]: 17.
Administrative process: Conduct Lifeline-related audits of eligible
telecommunications carriers (ETC);
Number of states[A]: 10.
Source: GAO survey.
[A] Numbers do not sum to 39 because some states do not have a process
in place and some states have more than one process in place.
[End of table]
In addition, for the same reason, the entity responsible for executing
the process also varies across states as seen in table 7.
Table 7: Lifeline Program Administrative Responsibilities in States
that Provide Intrastate Lifeline Support:
Administrative process: Processing Lifeline applications;
Responsible entity[A]:
State Public Utility Commission: 7;
ETC: 23;
Other state agency: 12;
Third-party administrator[B]: 4.
Administrative process: Certifying applicants' eligibility on the
basis of program participation;
Responsible entity[A]:
State Public Utility Commission: 6;
ETC: 13;
Other state agency: 13;
Third-party administrator[B]: 2.
Administrative process: Certifying applicants' eligibility on the
basis of income;
Responsible entity[A]:
State Public Utility Commission: 2;
ETC: 10;
Other state agency: 7;
Third-party administrator[B]: 4.
Administrative process: Verifying that recipients continue to be
eligible for the Lifeline program;
Responsible entity[A]:
State Public Utility Commission: 4;
ETC: 26;
Other state agency: 10;
Third-party administrator[B]: 4.
Source: GAO survey.
[A] Numbers do not sum to 39 because some states do not have a process
in place and some states have more than one entity responsible for a
given process.
[B] Some states contract with third-party administrators to perform
certain administrative processes of the program.
[End of table]
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."[Footnote
109] 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.[Footnote 110] 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.
[End of section]
Appendix III: Estimated Lifeline Participation Rates Among Eligible
Households by State in 2009:
Figure 6: Estimated Lifeline Participation Rates Among Eligible
Households by State in 2009:
[Refer to PDF for image: illustrated U.S. map]
Less than 10%:
Delaware:
Hawaii:
Indiana:
Maryland:
West Virginia:
10% to less than 20%:
Arizona:
Arkansas:
District of Columbia:
Kansas:
Illinois:
Kentucky:
Louisiana:
Minnesota:
Missouri:
Nebraska:
Nevada:
New Hampshire:
Oregon:
South Carolina:
Wyoming:
20% to less than 50%:
Alabama:
Colorado:
Connecticut:
Florida:
Georgia:
Idaho:
Iowa:
Maine:
Massachusetts:
Michigan:
Mississippi:
New Jersey:
New Mexico:
New York:
North Carolina:
North Dakota:
Ohio:
Pennsylvania:
Rhode Island:
South Dakota:
Tennessee:
Texas:
Utah:
Vermont:
Washington:
Wisconsin:
50% or more:
Alaska:
California:
Montana:
Oklahoma:
Virginia:
Source: USAC, Map Resources (map).
[End of figure]
[End of section]
Appendix IV: Alignment of FCC Outreach Guidelines with Our Key
Practices for Consumer Education:
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.
Table 8: Alignment of FCC Outreach Guidelines with Key Practices for
Consumer Education:
Key practice: Define goals and objectives;
Description: Define the goals of the communication campaign, e.g., to
increase awareness or motivate a change in behavior. Define the
objective that will help the campaign meet those goals;
How FCC's guidelines align with practice: FCC's guidelines do not
align with this practice. FCC's guidelines do not address defining the
goals and objectives of outreach efforts of states and ETCs.
Key practice: Analyze the situation;
Description: Analyze the situation, including any competing voices or
messages, related market conditions, and key dates or timing
constraints. Review relevant past experiences and examples to identify
applicable "lessons learned" that may help guide efforts;
How FCC's guidelines align with practice: FCC's guidelines somewhat
align with this practice. The guidelines are based on and include
lessons learned that were identified by the Joint Board when it sought
comment on whether more extensive consumer education and outreach
efforts were necessary to increase participation in Lifeline/Link Up.
However the guidelines do not suggest that states and ETCs analyze the
situation, including any competing voices or messages, related market
conditions, and key dates or timing constraints.
Key practice: Identify stakeholders;
Description: Identify and engage all the key stakeholders who will be
involved in communications efforts. Clarify the roles and
responsibilities of each stakeholder, including which entities will
lead overall efforts;
How FCC's guidelines align with practice: FCC's guidelines somewhat
align with this practice. At the time FCC established its outreach
guidelines, it identified several entities with which state
commissions and ETCs should coordinate their outreach efforts,
including social service agencies, community centers, public schools,
and private organizations that may serve low-income individuals.
However, the guidelines do not address clarifying the roles and
responsibilities of each stakeholder, including which entities will
lead overall efforts.
Key practice: Identify resources;
Description: Identify available short-and long-term budgetary and
other resources;
How FCC's guidelines align with practice: FCC's guidelines do not
align with this practice. In its guidelines, FCC did not direct state
commissions or ETCs to identify available short-and long-term
budgetary and other resources available for outreach efforts.
Key practice: Research target audiences;
Description: Conduct audience research, such as dividing the audience
into smaller groups of people who have relevant needs, preferences,
and characteristics, as well as measuring audience awareness, beliefs,
competing behaviors, and motivators. Also, identify any potential
audience-specific obstacles, such as access to information;
How FCC's guidelines align with practice: FCC's guidelines somewhat
align with the practice. FCC recommended that states and ETCs develop
outreach materials that can be accessed by a sizeable non-English
speaking population within the carrier's service areas and establish a
toll-free call center where questions could be answers in the
consumers' native language. It also recommended that these materials
and other outreach efforts be accessible to consumers with sight,
hearing, and speech disabilities. However, in its guidelines, FCC did
not suggest that state commissions or ETCs to undertake efforts to
measure the target population's awareness of the program or to
identify the beliefs, competing behaviors, or motivators of the target
population.
Key practice: Develop consistent, clear messages;
Description: Determine what messages to develop based on budget,
goals, and audience research findings. Develop clear and consistent
audience messages; test and refine them;
How FCC's guidelines align with practice: FCC's guidelines do not
align with this practice. The guidelines do not address the
development of clear and consistent messages based on budget, goals,
and audience research findings nor testing and refining of the
messages.
Key practice: Identify credible messenger(s);
Description: Identify who will be delivering the messages and ensure
that the source is credible with audiences;
How FCC's guidelines align with practice: FCC's efforts align with
this practice. FCC's guidelines suggest that states and ETCs
coordinate their outreach efforts with governmental agencies/tribes
that administer any of the relevant government assistance programs.
Further, the guidelines state that cooperative outreach among those
most likely to have influential contact with low-income individuals
will help target messages about the program to the low-income
community.
Key practice: Design media mix;
Description: Plan the media mix to optimize earned media (such as news
stories or opinion editorials) and paid media (such as broadcast,
print, or Internet advertising). Identify through which methods (e.g.,
advertising in newsprint ads), how often (e.g., weekly or monthly),
and over what duration (e.g., 1 year) messages will reach audiences;
How FCC's guidelines align with practice: FCC's efforts somewhat align
with this practice. In its guidelines, FCC identified the various
outreach methods and materials that could be used to reach households
that do not currently have phone service. However, FCC did not suggest
designing a plan of the appropriate media mix over any given period of
time that would dictate when and how these methods would be used.
Key practice: Establish metrics to measure success;
Description: Establish both process and outcome metrics to measure
success in achieving objectives of the outreach campaign. Process
metrics assure the quality, quantity, and timeliness of the
contractor's work. Outcome metrics evaluate how well the campaign
influenced the attitudes and behaviors of the target audience(s) that
it set out to influence;
How FCC's guidelines align with practice: FCC's efforts do not align
with this practice. FCC's guidelines do not address establishing
process and outcome metrics to measure success in achieving objectives
of an outreach campaign.
Source: GAO analysis of FCC's outreach guidelines measured against key
practices we have previously identified.(GAO-08-43).
[End of table]
[End of section]
Appendix V: Comments from the Federal Communications Commission:
Federal Communications Commission:
Washington, D.C. 20554:
October 14, 2010:
Lorelei St. James:
Acting Director, Physical Infrastructure:
U.S. Government Accountability Office:
Dallas Field Office:
1999 Bryan Street, Suite 2200:
Dallas, TX 75201:
Dear Ms. St. James:
Thank you for the opportunity to review the draft Government
Accountability Office (GAO) Report regarding assessment of the
management of the Universal Service Fund Low-Income program. The Low-
Income program is designed to promote the goals of section 254 of the
Communications Act of 1934, as amended by the Telecommunications Act
of 1996 (the Act), that telephone service be affordable to low-income
consumers by providing universal service funds to reduce the price
consumers pay for basic telephone service.[Footnote 1] The Low-Income
program accomplishes this in primarily two ways. First, the
Commission's Lifeline program lowers the cost of monthly service for
eligible consumers by providing support directly to service providers
on behalf of consumer households.[Footnote 2] Second, the Link Up
program provides a one-time discount on the initial installation fee
for telephone service.[Footnote 3] As a result of this funding, the
Low-Income program has helped increase low-income telephone
subscribership from 80.1 percent in 1984 to 89.7 percent in 2008.
[Footnote 4] The Low-Income program continues to improve in reaching
and assisting consumers who are unable to afford access to telephone
service. In particular, the Commission expects to distribute
approximately $1.29 billion in low-income support during calendar year
2010, which will assist over 9.5 million low-income consumers - an
increase of almost 3 million in three years - in obtaining access to
telephone service.[Footnote 5]
The Commission is dedicated to achieving the universal service goals
of section 254 of the Act, and therefore welcomes suggestions on
making additional improvements to the Low-Income program. In its draft
report, the GAO offers four recommendations to improve the Low-Income
program. First, the GAO recommends that the Commission clearly define
specific performance goals of the program and subsequently develop
quantifiable measures that can be used in determining the program's
success in meeting its goals.[Footnote 6] Next, the GAO recommends the
Commission conduct a robust risk assessment of the Low-Income program.
[Footnote 7] Third, the GAO recommends that the Commission implement a
systematic process for considering the results of eligible
telecommunications carrier (ETC) audits and improper payment
assessments in evaluating internal controls of the Low-Income program.
[Footnote 8] In addition to these recommendations, the GAO also
recommends that, if the Commission establishes any pilot programs to
examine funding broadband under the Low-Income program, the Commission
first conduct a needs assessment and develop implementation and
evaluation plans.[Footnote 9]
We appreciate GAO's recognition of the Commission's efforts to date in
developing performance measures for the Low-Income program and agree
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.[Footnote 10] To build upon its
efforts, in 2008, the Commission released a Notice of Inquiry (2008
Performance Measures NOT) seeking comment on whether the Commission
should take steps to more clearly define the goals of the USF
programs, including the Low-Income program.[Footnote 11] In so doing,
the Commission sought comment on whether it should develop specific
quantifiable goals beyond the policies enumerated in section 254 of
the Act.[Footnote 12] In addition, the Commission sought comment on
establishing long-term performance goals and whether such measures
should be tied to implicit social welfare objectives.[Footnote 13]
Since the record closed in response to the 2008 Performance Measures
NOI, other developments have occurred concerning potential changes in
the policies and rules for the Low-Income program, which may warrant
updating this proceeding. Specifically, in 2009, Congress directed the
Commission to develop a National Broadband Plan to ensure every
American has "access to broadband capability."[Footnote 14] Congress
also required that this plan include a detailed strategy for achieving
affordability and maximizing use of broadband to advance "consumer
welfare, civic participation, public safety and homeland security,
community development, health care delivery, energy independence and
efficiency, education, employee training, private sector investment,
entrepreneurial activity, job creation and economic growth, and other
national purposes."[Footnote 15] The National Broadband Plan, released
in March 2010, makes a variety of recommendations to change the Low-
Income program, including modifying the Low-Income program to fund
broadband services in order to make these services more affordable for
low-income households.[Footnote 16]
Recognizing, among other things, that the potential modification of
the Low-Income program to include broadband would be a significant
change to the existing program, in May 2010, the Commission asked the
Federal-State Joint Board on Universal Service (Joint Board) to review
the Commission's eligibility, verification, and outreach rules for the
Lifeline and Link Up universal service programs.[Footnote 17]
Specifically, the Commission asked the Joint Board to recommend any
changes to these aspects of the Lifeline and Link Up programs that may
be necessary, given significant technological and marketplace changes
since the current rules were adopted, based on consideration of: (1)
the combination of federal and state rules that govern which customers
are eligible to receive discounts through the Lifeline and Link Up
programs, (2) best practices among states for effective and efficient
verification of customer eligibility, both at initial customer sign-up
and periodically thereafter; (3) appropriateness of various outreach
and enrollment programs; and (4) the potential modification of the Low-
Income program to support broadband, as recommended in the National
Broadband Plan.[Footnote 18] In its May 2010 Referral Order, the
Commission also asked the Joint Board to consider how the potential
modification of the low-income program to support broadband would
affect any of its recommendations regarding changes to the
Commission's eligibility, verification, and outreach rules for the
Lifeline and Link Up universal service programs. The Commission asked
the Joint Board to submit its recommended decision within 6 months, by
November 4, 2010.[Footnote 19]
Accordingly, we believe the 2008 Performance Measures NOI record may
need to be refreshed in response to any future modification of the Low-
Income programs to include broadband; the Joint Board's forthcoming
recommendations to the Commission; and the Commission's actions in
response to the Joint Board's recommendations. In doing so,
quantifiable performance measures related to broadband
supported services under the Low-Income program should be examined
consistent with the "practices to enhance performance goals," as
provided by GA0.[Footnote 20]
We also welcome GAO's recognition of the Commission's conscientious
efforts to date in developing internal control structures to safeguard
the integrity of the Low-Income program.[Footnote 21] Specifically, as
GAO states, progress has been made in assessing risk in the program
related to financial reporting pursuant to Office of Management and
Budget Circular No. A-I23, compliance with program rules, key program
controls related to disbursement and invoicing, and Low-Income
certification documents.[Footnote 22] Despite these efforts, GAO has
recognized that the internal control structure of the Low-Income
program can be further improved. We agree. In particular, as GAO's
recommendation suggests, the Low-Income program's internal controls
would benefit from a holistic risk assessment in which the Commission
considers all vulnerabilities and consequences.[Footnote 23] Such a
risk assessment should be designed to provide a critical examination
of the entire Low-Income program to determine if modifications to
business practices and internal controls are necessary to cost-
effectively address programmatic risks.[Footnote 24] As in the past,
the Commission intends to work closely with the Universal Service
Administrative Company (USAC) and provide the appropriate directives
concerning the implementation of this risk assessment. Further, the
Commission is committed to use this risk assessment to examine ways to
improve the Low-Income disbursement and invoicing processes. For
example, a robust risk assessment will provide the opportunity to
ensure USAC is disbursing one discount per low-income household, as
required under program rules.[Footnote 25] The assessment could also
provide an opportunity to improve program forms to ensure that both a
wholeseller and reseller do not make dual claims for reimbursement for
the same supported customer.[Footnote 26]
As GAO recommends, the Commission is also committed to developing a
systematic approach for considering the results of eligible
telecommunications carrier (ETC) audits and improper payment
assessments in evaluating internal controls of the Low-income program.
[Footnote 27] Consistent with this recommendation, the Office of
Managing Director (OMD) regularly reviews beneficiary audit findings
per guidance set forth in the Office of Management and Budget Circular
A-50 and the Commission's own internal directive.[Footnote 28] This
process includes: (1) reviewing USAC's management response to an
audit; (2) reviewing USAC's planned corrective action and
implementation plan; and (3) providing an OMD response and Wireline
Competition Bureau response where necessary.[Footnote 29] Also, in
order for OMD to consider a finding closed, USAC provides OMD with
supporting documentation to prove action has been taken. The
corrective actions are summarized and monitored on a monthly basis and
USAC provides OMD with a status update of all open findings and
recommendations. Going forward, GAO's recommendations will support the
Commission's efforts to make additional improvements in this area and
to provide opportunities for modifying the program's internal control
structures, including modifying the nature, extent, and scope of
audits and improper payments.[Footnote 30] OMD will work with USAC to
ensure that clear polices and procedures addressing a systematic
review of internal controls based on beneficiary audit findings are
incorporated into USAC's written audit policies, procedures, and
procurement. Further, OMD will renew its efforts to see that
meaningful performance measures are developed for USAC's senior
executives that reflect USAC leadership's responsibility for
effectively and efficiently targeting and addressing risks in the Low-
Income and other programs.
Finally, the National Broadband Plan recommended that the Commission
facilitate Low-Income pilot programs to determine which parameters
most effectively increase broadband adoption among low-income
consumers.[Footnote 31] As identified by GAO, the Commission is still
contemplating this recommendation.[Footnote 32] As consideration of
the recommendation evolves, the Commission recognizes the importance
of conducting an appropriate needs assessment accompanied by a sound
implementation and evaluation plan consistent with the criteria
identified by GAO.[Footnote 33]
Once again, we appreciate GAO's recommendations and look forward to
working with you on this in the future.
Sincerely,
Signed by:
Steven VanRoekel:
Managing Director:
Appendix V Footnotes:
[1] See 47 U.S.C. § 254(b)(1) ("Quality services should be available
at just, reasonable and affordable rates").
[2] Generally, the Lifeline program provides eligible consumers with a
discount on monthly charges for basic local landline or wireless
telephone service. See 47 C.F.R. § 54.401.
[3] Generally, the Link Up program provides a reduction in the charge
for initiating telecommunications service at a consumer's principal
place of residence. See 47 C.F.R. § 54.411.
[4] See Federal-Slate Joint Board on Universal Service, 2009 Universal
Service Monitoring Report, CC Docket Nos. 96-45, 98-62, at 2-2,
available at [hyperlink,
http://www.fcc.gov/Daily_Releases/Daily_Business/2010/db0830/DOC295442A4
.pdf].
[5] See Universal Service Administrative Company, Low-Income Receipt
and Disbursement Report (Sept. 2010); Universal Service Administrative
Company, Universal Service Fund Performance Measurements (July 30,
2010).
[6] Government Accountability Office, Improved Management Can Enhance
FCC Decision Making for the Universal Service Fund Low-Income Program,
at 40 (Oct. 2010) (GAO Draft Report).
[7] GAO Draft Report at 40. Id, at 41.
[8] Id.
[9] Id.
[10] See id. at 24-27. For example, in the Commission's Memorandum of
Understanding with the Universal Service Administrative Company
(USAC), greater clarity in administration and management of the USF
were established. See Memorandum of Understanding Between the Federal
Communications Commission and the Universal Service Administrative
Company, at I (Sept. 2008)(FCCUSAC MOU). As part of this, the
Commission established performance measures and goals for the USF and
USAC. For example, USAC is required to submit quarterly data
concerning the number of Low-Income program beneficiaries, number of
connections supported, average time it takes to process support
payments, and average (mean) monthly dollar amount disbursed per
eligible carrier. FCC/USAC MOU at 53.
[11] In the Matter of Comprehensive Review of the Universal Service
Fund Management, Administration, and Oversight, Notice of Inquiry, WC
Dkt. No. 05-195, 23 FCC Red 13583, 13590, para. 22 (2008 Performance
Measures NOI)
[12] 2008 Performance Measures NOI, 23 FCC Red at 13590, para. 22.
[13] 2008 Performance Measures NOI, 23 FCC Red at 13591, para. 25.
[14] See Connecting America: The National Broadband Plan, at xi (rel.
Mar. 16, 2010) (National Broadband Plan), available at [hyperlink,
http://www.broadband.govidownload-plan/].
[15] See id.
[16] Id at 172-173.
[17] See Federal-State Joint Board on Universal Service Lifeline and
Link Up, CC Dkt. No. 96-45, Order, 25 FCC Red 5079, 5080, para. 3Q
(Referral Order); National Broadband Plan at 172-173.
[18] Id.
[19] The Federal-State Joint Board on Universal Service, established
pursuant to the 1996 Act, provided recommendations to implement the
universal service provisions and continues to provide recommendations
regarding universal service at the Commission's discretion. The Joint
Board is comprised of FCC Commissioners, State Utility Commissioners,
and a consumer advocate representative. See 47 U.S.C. § 410(c),
254(a)(1).
[20] GAO Draft Report at 40.
[21] See id at 18-19.
[22] See id. at 31-32.
[23] See id. at 36.
[24] Office of Management and Budget, Management's. Responsibility for
Internal Control, Circular No. A-I23 (Dec. 21, 2004).
[25] See Federal-State Joint Board on Universal Service, Dkt. No. 96-
45, Report and Order, 12 FCC Red 8776, at 8947, para. 341 (1997)
(Universal Service First Report and Order); GAO Draft Report at 33.
[26] See GAO Draft Report at 33.
[27] See id at 41.
[28] See Office of Management and Budget, Audit Follow-up, Circular A-
50 (Sept. 29, 1982); FCC Directive, FCCINT, 1013.1C.
[29] See id.
[30] See GAO Draft Report at 39.
[31] See National Broadband Plan at 173.
[32] See GAO Draft Report at 28.
[33] See id. at 28-29.
[End of section]
Appendix VI: Comments from the Universal Service Administrative
Company:
USAC:
Universal Service Administrative Company:
Karen Majcher:
Vice President:
High Cost and Low Income Division:
2000 L Street, NW, Suite 200:
Washington, DC 20036:
Voice: 202-776-0080:
[hyperlink, http://www.usac.org]
Via Electronic Mail:
October 14, 2010:
Lorelei St. James:
Acting Director, Physical Infrastructure Issues:
U.S. Government Accountability Office:
Dallas Field Office:
1999 Bryan Street, Suite 2200:
Dallas, TX 75201:
Re: Response to Draft Report to Congressional Requestors on Management
of the Universal Service Fund Low Income Program:
Dear Ms. St. James:
This letter responds to the draft Government Accountability Office's
(GAO's) Report, dated September 23, 2010, to Congressional Requestors.
titled: "Improved Management Can Enhance FCC Decision Making for the
Universal Service Fund Low-Income Program." The Universal Service
Administrative Company (USAC) would like to recognize the professional
work of the GAO staff on this project. USAC submits this response to
the GAO draft report.
The federal Universal Service Low Income Program is administered by
USAC. The Federal Communications Commission (FCC or the Commission) is
responsible for the overall management, oversight and administration
of the Low Income Program and the Universal Service Fund (USF),
including all policy decisions.[Footnote 1] The GAO's draft report
focuses on the following issues: (1) the need for performance goals
and measures for the Low Income Program; (2) a needs assessment and
implementation plans for Low Income broadband pilot programs; (3) a
robust risk assessment for the Low Income Program; and (4) a
systematic process for evaluating Low Income Program audit results.
The GAO found that its recommendations were necessary to ensure the
integrity of the Low Income Program.
Low Income Program Performance Goals and Measures:
GAO's first recommendation is that the Commission should clearly
define performance goals for the Low income Program and develop
quantifiable measures that can be used by Congress and the FCC to
determine the program's success in meeting its goals. USAC, as the
administrator of the Low Income Program, will work with the FCC to
implement any orders or directives it may issue concerning Low Income
Program performance goals and measures.
Low Income Broadband Pilot Programs:
GAO's second recommendation is that the Commission should conduct a
needs assessment of the telecommunications needs of low income
households to utilize in the design and implementation of any
broadband pilot programs focused toward low income households. The GAO
also recommends the FCC develop implementation and evaluation plans
for such proposed pilot programs that may be used to develop future
policy decisions for the Low Income Program. USAC, as the
administrator of the Low Income Program, will work with the FCC to
implement any orders or directives it may issue concerning Low Income
broadband pilot program(s).
Risk Assessment for the Low Income Program:
GAO's third recommendation is that the Commission should conduct a
robust risk assessment specific to the Low Income Program that
considers all program vulnerabilities. The GAO's draft report states
that the Commission and IISAC have not conducted such a risk
assessment and explains that such an assessment could help identify
risks to the low Income Program and provide opportunities for
mitigating those risks. USAC partially concurs with this conclusion.
USAC, as the administrator of the Low Income Program, will work with
the FCC to implement to implement any orders or directives it may
issue for a formal risk assessment of the Low Income Program.
USAC appreciates the GAO's recognition of the internal controls USAC
has in place. USAC operates consistent with an extensive set of
internal controls that are designed to safeguard the I,ow Income
Program and the USF, promote administrative efficiency, and reduce the
possibility of errors that could result in waste, fraud or abuse in
the Low Income Program or the USE. It is important to note that USAC's
internal controls primarily govern the internal procedures used by
USAC to administer the Low Income Program. For example, USAC reviews
each Low Income Program support claim filed on the FCC Form 497. USAC
compares an FTC's current support claim to the information the company
previously submitted to identify possible errors and substantial
changes in the ETC's monthly support claims. USAC staff follows its
internal procedures in reviewing and processing Low Income Program
support claims. However, given the limited amount of data collected
from ETCs on the current FCC Form 497. USAC's internal procedures
cannot determine whether the ETC has claimed support for the
appropriate number of Lifeline subscribers, or whether multiple ETCs
have concurrently claimed Low Income Program support for the same
subscriber. One way to verify this information would be to revise the
FCC Form 497 to authorize USAC to collect additional information from
ETCs.
USAC also believes that the GAO's conclusion that USAC has not
conducted any risk assessments specific to the Low Income Program is
too narrow. In 2008, the independent public accounting firm Grant
Thornton, LLP (Grant Thornton) completed an extensive review of USAC's
internal controls. Grant Thornton reviewed USAC's financial reporting
internal controls to ensure compliance with OMB Circular A-123,
Management Responsibility for Internal Control, and assessed and
tested specific Low Income Program controls associated with the
administration of the program. Grant Thornton identified only one
control deficiency in USAC administration of the Low Income Program.
[Footnote 2] USAC's internal controls team recently completed (in
2010) an assessment of Low Income Program internal controls. The draft
report is almost finalized and identifies no major control
deficiencies in the Low Income Program.
USAC's role as administrator and auditor of the Low Income Program
make it uniquely situated to identify significant risks, such as those
cited in the GAO's draft report (e.g., duplicate support claims made
by wholesale and resale ETCs. duplicate support claims made by
wireline and wireless ETCs), which were revealed as the result of USAC-
conducted beneficiary audits. USAC has also conducted risk assessments
to target risk factors associated with beneficiary compliance with Low
Income Program rules. 1JSAC and the FCC will work together to continue
to identify and mitigate risks to the Low Income Program. As noted
above, USAC will work with the FCC to implement any orders or
directives it may issue for conducting a formal risk assessment for
the Low Income Program.
Systematic Audit Review:
The GAO's final recommendation is that the Commission should implement
a systematic process for considering the results of LTC audits and
improper payment assessments in evaluating internal controls of the
Low Income Program. USAC partially concurs with this recommendation.
USAC, as the administrator of the Low Income Program, will work with
the FCC to implement an orders or directives it may issue for
conducting a systematic review of audit findings and results.
USAC does not believe that the facts viewed in their full context
support the conclusion that audit findings have not been use
effectively by FCC and USAC to assess and modify internal controls
used by USAC in administering the Low Income Program. USAC carefully
reviewed and analyzed the audit findings after the conclusion of Round
I of the FCC Office of Inspector General (OIG) USF audit program. The
results of the analysis of the 60 FCC OIG USF audit program Round 1
Low Income Program beneficiary audits demonstrated that most of the
non-compliant audited findings were not the result of deficiencies in
USAC's internal controls.
While the Low Income Program was not included in Rounds 2 or 3 of the
FCC OIG USF audit program, USAC's Internal Audit Division (IAD) has
continued to conduct targeted audits of Low Income Program
beneficiaries, as it has done since 2003. Beginning in 2011, Low
Income Program benefiet cries are scheduled to be included in USAC's
new Beneficiary Compliance Audit Program (BCAP). BCAP, developed in
conjunction with the FCC, will be the next large scale audit
initiative of beneficiaries receiving Low Income Program support. To
complement BCAP, USAC also developed in conjunction with the
Commission's Office of Managing Director a new Payment Quality
Assurance (PQA) program. PQA is designed to review the accuracy of
recent IISF disbursements. This review identifies improper payments
and is completed more expeditiously than the prior FCC OIG USF program
audits. In addition, USAC regularly conducts in-depth data validations
(IDVs) of ETCs receiving Low Income Program support in which staff
obtains and reviews a carrier's underlying documentation to validate
support claims submitted on the FCC Form 497.
Since 2006, all audit findings and follow-up actions (such as monetary
recovery, admonishment, referral to the Commission, or appeal) are
recorded in USAC's internal audit tracking system. USAC provides the
Commission with reports on a regular basis so that the Commission is
aware of audit findings and the action USAC took in response to the
findings. USAC also carefully reviews findings identified in audits
and the IDVs to determine common issues related to beneficiary
compliance with the Commission's rules. USAC uses this information to
target its education and outreach efforts. For example, USAC regularly
addresses Low Income Program common audit findings in its monthly High
Cost and Low Income Newsletter, its quarterly High Cost and Low Income
regional training sessions, in webinars, and on USAC's website. In
this manner. USAC attempts to make ETCs aware of the common errors and
compliance issues that are identified through audits and IDVs and
provides best practices and other tips to assist ETCs in avoiding
these audit findings. Once the first year of BCAP audits are
completed, USAC will conduct an assessment of the audit findings
similar to the assessment performed on the FCC OIG UST audit program
rounds and will use the data to further target its education and
outreach efforts addressing beneficiary compliance.
USAC appreciates the opportunity to submit its response to GAO's draft
report on the Low Income Program.
Sincerely,
Signed by:
Karen Majcher:
Vice President, High Cost and Low Income Division:
Appendix VI Footnotes:
[1] See 47 C.F.R. § 54.702.
[2] Grant Thornton found that there was no evidence of review of the
quarterly High Cost and Low Income projections. USAC has rectified
this by creating a checklist that shows that the projections have been
reviewed.
[End of section]
Appendix VII: GAO Contact and Staff Acknowledgments:
GAO Contact:
Lorelei St. James, (214)777-5719 or stjamesl@gao.gov:
Staff Acknowledgments:
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.
[End of section]
Related GAO Products:
Telecommunications: FCC Should Assess the Design of the E-Rate
Program's Internal Control Structure. [hyperlink,
http://www.gao.gov/products/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. [hyperlink,
http://www.gao.gov/products/GAO-09-253]. Washington, D.C.: March 27,
2009.
Telecommunications: FCC Needs to Improve Performance Management and
Strengthen Oversight of the High-Cost Program. [hyperlink,
http://www.gao.gov/products/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. [hyperlink,
http://www.gao.gov/products/GAO-05-515]. Washington, D.C.: February 9,
2005.
Telecommunications: Federal and State Universal Service Programs and
Challenges to Funding. [hyperlink,
http://www.gao.gov/products/GAO-02-187]. Washington, D.C.: February 4,
2002.
Schools and Libraries Corporation: Actions Needed to Strengthen
Program Integrity Operations before Committing Funds. [hyperlink,
http://www.gao.gov/products/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.
[hyperlink, http://www.gao.gov/products/GAO/RCED/OGC-98-172R].
Washington, D.C.: May 7, 1998.
Telecommunications: FCC Lacked Authority to Create Corporations to
Administer Universal Service Programs. [hyperlink,
http://www.gao.gov/products/GAO/T-RCED/OGC-98-84]. Washington, D.C.:
March 31, 1998.
[End of section]
Footnotes:
[1] The other programs supported by the USF are: (1) the High-Cost
Program, which assists customers living in high-cost, rural, or remote
areas through financial support to telecommunications carriers that
operate in such areas; (2) the Schools and Libraries Program (commonly
referred to as "E-rate"), which assists eligible schools and libraries
in procuring telecommunications and Internet services, as well as
internal connections and basic maintenance for such services; and (3)
the Rural Health Care Program, which assists health care providers
located in rural areas through discounts for telecommunications and
Internet access services. Combined, the four USF programs provided
about $7 billion in support payments in 2009. While this report
focuses on the Low-Income Program, we also have an ongoing review of
the Rural Health Care Program. See related GAO products at the end of
the report.
[2] The term "broadband" commonly refers to high-speed Internet
access. Broadband enables consumers to receive information much faster
than a dial-up connection and provides an "always on" connection to
the Internet. Consumers can receive a broadband connection through a
variety of technologies such as cable modem, digital subscriber line
service, fiber, and satellite.
[3] Prepaid wireless service is any wireless telecommunications
service that is activated in advance by payment for a finite dollar
amount of service or for a finite number of minutes that terminate
either upon use by any person or within a certain period of time
following the initial purchase or activation, unless an additional
payment is made.
[4] The Communications Act of 1934, as amended, provides that only an
entity designated as an ETC shall be eligible for universal service
low-income support. An ETC is a telecommunications carrier that is
eligible to receive universal service support throughout the service
area for which the designation is received. ETCs must offer the
services supported by universal service using their own facilities or
a combination of their own facilities and resale of another carrier's
services to each customer in its designated service area. 47 U.S.C. §
214(e)(1); 47 C.F.R. § 54.201(d)(1).
[5] American Recovery and Reinvestment Act of 2009, Pub. L. No. 111-5,
123 Stat. 115, § 6001(k) (codified at 47 U.S.C. § 1305(k)).
[6] Federal Communications Commission, Connecting America: The
National Broadband Plan (rel. Mar. 16, 2010) (National Broadband Plan).
[7] See Framework for Broadband Internet Service, Notice of Inquiry,
25 FCC Rcd 7866 (2010).
[8] See GAO, Telecommunications: Greater Involvement Needed by FCC in
the Management and Oversight of the E-Rate Program, [hyperlink,
http://www.gao.gov/products/GAO-05-151] (Washington, D.C.: Feb. 9,
2005); GAO, Telecommunications: Long-Term Strategic Vision Would Help
Ensure Targeting of E-rate Funds to Highest-Priority Uses, [hyperlink,
http://www.gao.gov/products/GAO-09-253] (Washington, D.C.: Mar. 27,
2009); and GAO, Telecommunications: FCC Should Assess the Design of E-
Rate Program's Internal Control Structure, [hyperlink,
http://www.gao.gov/products/GAO-10-908] (Washington, D.C.: Sept. 29,
2010).
[9] Memorandum of Understanding Between the Federal Communications
Commission and the Universal Service Administrative Company,
(September 2008).
[10] GAO, Agency Performance Plans: Examples of Practices That Can
Improve Usefulness to Decisionmakers, [hyperlink,
http://www.gao.gov/products/GGD/AIMD-99-69] (Washington, D.C.: Feb.
26, 1999); GAO, Standards for Internal Control in the Federal
Government, [hyperlink,
http://www.gao.gov/products/GAO/AIMD-00-21.3.1] (Washington, D.C.:
November 1999); and Office of Management and Budget, Management's
Responsibility for Internal Control, Circular No. A-123 (Washington,
D.C., Dec. 21, 2004).
[11] 47 U.S.C. § 151.
[12] The first Lifeline program was instituted because of the concern
that the new fee might drive low-income subscribers to cancel service.
However, the focus of the program soon changed to an emphasis on
active expansion, rather than mere preservation, of telephone service
among low-income households. See Common Carrier Bureau, FCC,
Preparation for Addressing Universal Service Issues: A Review of
Current Interstate Support Mechanisms (1996).
[13] Pub. L. No. 104-104, 110 Stat. 56 (1996).
[14] 47 U.S.C. § 254.
[15] 47 U.S.C. § 254(c).
[16] See Federal-State Joint Board on Universal Service, Report and
Order, 12 FCC Rcd 8776 (1997) (1997 Universal Service Order); 47
C.F.R. § 54.101(a).
[17] 47 U.S.C. § 254 (d).
[18] FCC had originally created a Universal Service Fund in 1983 to
help keep telephone rates reasonable in high-cost areas. See MTS and
WATS Market Structure, Third Report and Order, 93 FCC 2d 241 (1983).
[19] In the third quarter of 2010, the contribution rate was 13.6
percent and it is projected to be 12.9 percent in the fourth quarter
of 2010. See Federal Universal Service Support Mechanisms Fund Size
Projections for the Third Quarter 2010, available at [hyperlink,
http://www.universalservice.org/overview/filings] (filed April 30,
2010) (USAC Filing for Third Quarter 2010 Projections) and Federal
Universal Service Support Mechanisms Fund Size Projections for the
Fourth Quarter 2010, available at [hyperlink,
http://www.universalservice.org/overview/filings] (filed August 2,
2010) (USAC Filing for Fourth Quarter 2010 Projections).
[20] In the 1996 Act, Congress articulated a national goal that
consumers in all regions of the nation, including low-income
consumers, should have access to telecommunications and information
services at rates that are reasonably comparable to rates charged for
similar services in urban areas. 47 U.S.C. § 254 (b)(2), (3). See also
1997 Universal Service Order, 12 FCC Rcd 8776, 8955, para. 335 (1997).
[21] Prior to 1996, the Lifeline discount was only available to
residents of states that provided an intrastate discount that was then
matched by a federally administered discount. Toll limitation was
added to address the Joint Board observation that studies demonstrated
that a primary reason subscribers lose access to telecommunications
services is failure to pay long distance bills. See 1997 Universal
Service Order, 12 FCC Rcd 8776, 8980, para. 385 (1997). The U.S. Court
of Appeals for the Fifth Circuit found that the Commission lacked
jurisdiction to prohibit ETCs from disconnecting Lifeline customers
for failure to pay toll charges. Texas Office of Public Utility
Counsel v. FCC, 183 F.3d 393, 421-25 (5th Cir. 1999).
[22] See Federal-State Joint Board on Universal Service; Promoting
Deployment and Subscribership in Unserved and Underserved Areas,
Including Tribal and Insular Areas, Twelfth Report and Order, Mem. Op.
and Order, and Further Notice of Proposed Rulemaking, 15 FCC Rcd 12208
(2000) (Tribal Order).
[23] See Lifeline and Link Up, Report and Order and Further Notice of
Proposed Rulemaking, 19 FCC Rcd 8302 (2004).
[24] The order required all consumers in all states qualifying under
an income-based eligibility to provide supporting documentation and
self-certify by signing a statement, under penalty of perjury, the
number of individuals in the household and that the presented
documentation accurately represents their annual household income.
Eligible consumers in federal default states are required to self-
certify by signing a statement, under penalty of perjury, that they
are eligible for the Lifeline and Link Up programs based on their
participation in a qualifying public assistance program. States that
provide intrastate support for the Lifeline program are allowed to
devise stricter measures as they deem appropriate. See 19 FCC Rcd at
8317, 8319-8322, paras. 23, 27-31 (2004).
[25] Forbearance is relief from a provision of the 1996 Act or a
commission rule if certain statutory criteria are met. See 47 U.S.C. §
160(c). Section 214(e) of the 1996 Act requires that ETCs offer
service using its own facilities or a combination of its own
facilities and resale of another carrier's services.
[26] See Federal-State Joint Board on Universal Service, Petition of
TracFone Wireless, Inc. for Forbearance from 47 U.S.C. § 214(e)(1)(A)
and 47 C.F.R. § 54.201(i), Order, 20 FCC Rcd 15095 (2005) (TracFone
Forbearance Order).
[27] Specifically, FCC required TracFone to: (1) provide its Lifeline
customers with 911 and E911 access regardless of activation status and
availability of minutes; (2) provide its Lifeline customers with E911-
compliant handsets and replace, at no additional charge to the
customer, noncompliant handsets of existing customers who obtain
Lifeline-supported service; (3) comply with conditions (1) and (2) as
of the date it provides Lifeline service; (4) obtain a certification
from each public-safety answering point (PSAP) where the carrier
provides Lifeline service confirming that the carrier provides its
customers with 911 and E911 access or self-certify that it does so if
certain conditions are met; (5) require each customer to self-certify
at time of service activation and annually thereafter that he or she
is the head of household and receives Lifeline-supported service only
from that carrier; (6) establish safeguards to prevent its customers
from receiving multiple Lifeline subsidies from that carrier at the
same address; (7) deal directly with the customer to certify and
verify the customer's Lifeline eligibility; and (8) submit to the
Wireline Competition Bureau a compliance plan outlining the measures
the carrier will take to implement these conditions. See TracFone
Forbearance Order, 20 FCC Rcd at 15098-99, 15104, paras. 6, 19.
[28] The service areas were Alabama, Connecticut, Delaware, the
District of Columbia, Massachusetts, New Hampshire, New York, North
Carolina, Pennsylvania, Tennessee, and Virginia. According to FCC, the
relevant state commissions in these states lacked the jurisdiction to
designate TracFone as an ETC. See Federal-State Joint Board on
Universal Service, TracFone Wireless, Inc. Petition for Designation as
an Eligible Telecommunications Carrier in the State of New York et
al., Order, 23 FCC Rcd 6206 (2008) (TracFone ETC Designation Order).
In states that have the jurisdiction to designate TracFone as an ETC,
TracFone must file petitions for ETC designation with the relevant
state commissions and is required to meet any of their conditions.
[29] In March 2009, FCC modified a forbearance condition imposed on
TracFone. Specifically, TracFone must request a certification from
each PSAP where it provides Lifeline service confirming that TracFone
provides its customers with access to basic and E911 service; however,
if, within 90 days of TracFone's request a PSAP has not provided the
certification and the PSAP has not made an affirmative finding that
TracFone does not provide its customers with access to 911 and E911
service within the PSAP's service area, TracFone may self-certify that
it meets the basic and E911 requirements. See TracFone Forebearance
Modification Order, 24 FCC Rcd 3375 (2009).
[30] See Federal-State Joint Board on Universal Service Lifeline and
Link Up, Order, 25 FCC Rcd 5079 (2010) (Referral Order). The Joint
Board has sought comments on the questions presented in the Referral
Order. See Federal-State Joint Board on Universal Service Seeks
Comments on Lifeline and Link Up Eligibility Verification, and
Outreach Issued Referred to Joint Board, Public Notice, 25 FCC Rcd
7551(2010).
[31] See 47 C.F.R. § 54.403; see also Lifeline and Link Up, 19 FCC Rcd
at 8306, para. 4 (2004) (specifying that support for Lifeline
subscribers is for "a single telephone line in their principal
residence"); 1997 Universal Service Order, 12 FCC Rcd at 8957, para.
341.
[32] Tier 1 support is available to all eligible Lifeline subscribers
and is equal to the incumbent ETC's actual federal tariffed subscriber
line charge. The subscriber line charge and, therefore, Tier 1
support, is capped at $6.50. Tier 2 support is equal to $1.75 per
month and is available if the carrier certifies that it will pass the
full amount to its qualifying low-income consumers and if the carrier
has received any nonfederal regulatory approvals necessary to
implement the required rate reduction. Tier 3 support is equal to one-
half the amount of any intrastate provided support or one-half the
amount of any support provided by the carrier. Tier 3 support is
capped at $1.75 per month. Tier 4 support is available to eligible
residents of tribal lands and may not exceed $25 or bring the local
residential telephone rate below $1 per month. 47 C.F.R. § 54.403.
[33] States with tribal populations included the tribal subsidy when
reporting for this question. At the same time, some states provide
more than the $3.50, which would maximize the Tier 3 "matched" portion
of the discount.
[34] Link Up discounts cannot be applied to the cost of purchasing a
wireless phone, prepaid wireless phone, or wiring inside a home.
[35] 47 C.F.R. § 54.411.
[36] 47 C.F.R. § 54.403(c).
[37] See 47 U.S.C. § 214(e); 47 C.F.R. § 54.201.
[38] States that provide intrastate Lifeline support but choose to use
the eligibility criteria and administrative processes developed by FCC
are also referred to as "federal default states."
[39] See e.g., 47 C.F.R. §§ 54.409 (consumer qualification for
Lifeline), 54.410 (certification and verification of consumer
qualification for Lifeline), 54.415 (consumer qualification for Link
Up), 54.416 (certification of consumer qualification for Link Up).
States must base eligibility criteria solely on income or factors
directly related to income. 47 C.F.R. §§ 54.409(a), 54.415(a).
[40] For the purposes of this report, a bundled service offering is
one that allows consumers to subscribe to packages that combine
telephone service with internet access and/or television service.
[41] We used Lifeline as an indicator of overall participation because
it is the largest of the three Low-Income Program mechanisms and
recurs on a monthly basis.
[42] For program participation data for years 2005-2008, see Universal
Service Monitoring Report, prepared for the Federal-State Joint Board
on Universal (Data through August 2009), (Washington, D.C., 2009).
Available at [hyperlink,
http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-295442A1.pdf]
(Sept. 10, 2010). For 2009 data, see Universal Service Administrative
Company, FCC Filings 2010, Third Quarter Appendices, LI08 - Lifeline
Subscribership by State or Jurisdiction.
[43] For support payments for years 2005-2006, see Universal Service
Monitoring Report, Prepared for the Federal-State Joint Board on
Universal (Data through August 2009), (Washington, D.C., 2009).
Available at [hyperlink,
http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-295442A1.pdf].
(Sept. 10, 2010) For years 2007-2008, see Universal Service
Administrative Company, FCC Filings 2010, Fourth Quarter Appendices,
LI07 - Low-Income Support Distributed by State.
[44] For 2009 support payments, see Universal Service Administrative
Company, FCC Filings 2010, Fourth Quarter Appendices, LI07 - Low-
Income Support Distributed by State. For the 2010 projection, see
Universal Service Administrative Company, First Quarter, Second
Quarter, Third Quarter, and Fourth Quarter Appendices, LI01 - Low-
Income Support Projected by State by Study Area 4Q2010.
[45] USAC uses census data and other publicly available data to
estimate the number of eligible households in each state, based on the
state's eligibility criteria.
[46] Historically, participation rates have varied across states. See
appendix III for participation rates across states in 2009.
[47] Conversely, estimated participation rates declined in 19 states.
[48] TracFone's SafeLink program offers eligible consumers a choice of
three monthly plans: (1) 68 minutes per month with carryover, short
message service, and international long distance to more than 80
countries; (2) 125 minutes with carryover, short message service, and
no international long distance; or (3) 250 minutes, short message
service, no carryover and no international long distance. Some
stakeholders said prepaid wireless offerings for Lifeline provide a
viable option for eligible low-income households. Other stakeholders
expressed concerns that because prepaid wireless offerings for
Lifeline have a finite number of minutes, they do not provide the same
quality of service as wireline and other wireless Lifeline offerings
with unlimited minutes.
[49] TracFone has committed to provide additional minutes for $0.10
per minute to SafeLink customers in South Carolina and Washington
D.C., when service is launched in those states. The number of
additional minutes purchased by SafeLink Wireless customers is not
tracked by FCC or USAC.
[50] Universal Service Administrative Company, FCC Filing 2010, Fourth
Quarter Appendix, LI05-Annual Low-Income Support Amounts by State and
Company-2007 through 1Q 2010.
[51] FCC requires carriers to publicize the availability of Lifeline
service in a manner reasonably designed to reach those likely to
qualify for the service. See 47 C.F.R. §§ 54.405(b); 54.411(d). See
also 47 U.S.C. § 214(e)(1)(B).
[52] As of July 2010, TracFone had obtained ETC status to provide
Lifeline in 25 states.
[53] In 2009 FCC forbore from applying the facilities requirement to
Virgin Mobile and granted Virgin Mobile limited designation as an ETC
to receive universal service Lifeline support in its licensed areas in
New York, North Carolina, Tennessee, and Virginia. See Virgin Mobile
Forebearance and Limited ETC Designation Order, 24 FCC Rcd 3381
(2009). In 2010, FCC forbore from applying the facilities requirement
to i-wireless; Head Start Telecom; Consumer Cellular, Inc.; Line Up,
LLC; and Midwestern Telecommunications (FCC denied Midwestern's
request to extend forbearance to Link Up). See, i-wireless
Forebearance Order, 25 FCC Rcd 8784 (2010); Head Start Telecom;
Consumer Cellular, Inc.; Line Up, LLC; and Midwestern
Telecommunications Forebearance Order, 25 FCC Rcd 10510 (2010);
Conexions Forbearance Order, FCC 10-178, 2010 FCC LEXIS 5963 (rel.
Oct. 1, 2010) (FCC denied Conexions request to extend forbearance to
Link-Up).
[54] Daniel Ackerberg, Michael Riordan, Gregory Rosston, Bradley
Wimmer, Low-Income Demand for Local Telephone Service: Effects of
Lifeline and Link Up, August 2009.
[55] See Lifeline and Link Up, Report and Order and Further Notice of
Proposed Rulemaking, 19 FCC Rcd at 8318-8319, paras. 25-26 (2004).
[56] See Federal-State Joint Board on Universal Service Lifeline and
Link Up, Order, 25 FCC Rcd at 5086, para. 19 (2010) (Referral Order).
[57] Pub. L. No. 111-148, 124 Stat. 119 (2010).
[58] Mark Burton, Jeffrey Macher, and John Mayo, "Understanding
Participation in Social Programs: Why Don't Households Pick up the
Lifeline?" The B.E. Journal of Economic Analysis and Policy, vol. 7,
no. 1, (2007).
[59] See 25 FCC Rcd 5079 (2010) (Referral Order).
[60] FCC defined "full or high assistance" states as those that
provided at least $3.00 of state support to get federal matching
support of at least $1.50 per line per month. "Intermediate
assistance" states were defined as those that provided between $0.50
and $3.00 of state support and receiving between $0.25 and $1.50
federal matching support per line per month. Finally, "basic or low
assistance" states were defined at those that provided less than $0.50
of state support, and receiving less than $0.25 federal matching
support per line per month.
[61] See Industry Analysis and Technology Division, Wireline
Competition Bureau, FCC, Telephone Penetration By Income By State
(Data through March 2009), (Washington, D.C., 2010).
[62] See Industry Analysis and Technology Division, Wireline
Competition Bureau, FCC, Telephone Penetration By Income By State
(Data through March 2009), (Washington, D.C., 2010).
[63] Lynne Holt and Mark Jamison, Making Telephone Service Affordable
for Low-Income Households: An Analysis of Lifeline and Link Up
Telephone Programs in Florida, University of Florida, Department of
Economics, Public Utility Research Center Working Paper, (2006).
[64] According to FCC officials, when USAC learns that carriers are
not advertising the program, it generally contacts the carrier to
remind it of FCC's advertising requirement and includes an article in
a monthly newsletter to try and reinforce to all ETCs the requirement
for carriers to advertise the Lifeline and Link Up programs.
[65] See 25 FCC Rcd 5079, (2010) (Referral Order).
[66] See Federal-State Joint Board on Universal Service, Comprehensive
Review of the Universal Service Fund Management, Administration, and
Oversight, Report and Order, 22 FCC Rcd. 16372, 16394-16395, para. 50.
(2007 Comprehensive Review Order).
[67] Low-income households were defined as those households with an
income below $10,000 in March 1984 dollars. See Industry Analysis and
Technology Division, Wireline Competition Bureau, FCC, Telephone
Penetration By Income By State (Data through March 2009), (Washington,
D.C., 2010). In addition, one research report estimated that low-
income telephone subscribership would be 4.1 percentage points lower
without Lifeline and Link Up. See Ackerberg, Riordan, Rosston, and
Wimmer.
[68] See Comprehensive Review of Universal Service Fund Management,
Administration, and Oversight, Notice of Proposed Rulemaking and
Further Notice of Proposed Rulemaking, 20 FCC Rcd. 11308 (2005).
[69] The output and efficiency measures include number of program
beneficiaries (ETC); number of low-income customers for each ETC
receiving low-income support; number of connections supported; time to
process support payments and authorize disbursements; average dollar
amount awarded and median dollar amount awarded, per carrier; Low-
Income Program data, on a quarterly basis, in Excel format, with total
amounts rolled up; and total amount disbursed. See 2007 Comprehensive
Review Order, 22 FCC Rcd. 16372 (2007).
[70] FCC, Fiscal Year 2009 Annual Performance Report (October 1,
2008 - September 30, 2009), (Washington, D.C., 2010).
[71] FCC, Fiscal Year 2009 Summary of Performance and Financial
Results, (Washington, D.C., 2010).
[72] FCC, Connecting America: The National Broadband Plan,
(Washington, D.C., 2010), p. 144.
[73] See Industry Analysis and Technology Division, Wireline
Competition Bureau, FCC, Telephone Penetration By Income By State
(Data through March 2009), (Washington, D.C., 2010) p. 2.
[74] FCC, Connecting America: The National Broadband Plan,
Recommendation 9.1 (Washington, D.C., 2010) p. 172. Some interested
parties have questioned the need to subsidize broadband. For example
the Pew Research Center's Internet & American Life Project reported
that by a 53 percent to 41 percent margin, Americans do not believe
that the spread of affordable broadband should be a major priority and
that non-Internet users are less likely than current users to say that
the government should place a high priority on the spread of high-
speed connections. See Aaron Smith, Home Broadband 2010, Pew Internet
& American Life Project, (Washington, D.C., August, 2010).
[75] FCC, Connecting America: The National Broadband Plan,
Recommendation 9.1 (Washington, D.C., 2010). p. 172.
[76] FCC, Connecting America: The National Broadband Plan (Washington,
D.C., 2010) p. 173.
[77] John Horrigan, Broadband Adoption and Use in America (OBI Working
Paper Series No. 1).
[78] See 25 FCC Rcd 5079 (2010) (Referral Order).
[79] P.H. Rossi, M.W. Lipsey, and H.E. Freeman, Evaluation: A
Systematic Approach, (Thousand Oaks, Calif., 2004).
[80] GAO, Military Personnel: Actions Needed to Achieve Greater
Results from Air Force Family Needs Assessments, [hyperlink,
http://www.gao.gov/products/GAO-01-80], (Washington, D.C.: Mar. 8,
2001).
[81] GAO, Limitations in DOD's Evaluation Plan for EEO Complaint Pilot
Program Hinder Determination of Pilot Results, [hyperlink,
http://www.gao.gov/products/GAO-08-387R] (Washington, D.C.: February
2008).
[82] See GAO, Equal Employment Opportunity Commission, Sharing
Promising Practices and Fully Implementing Strategic Human Capital
Planning Can Improve Management of Growing Workload, [hyperlink,
http://www.gao.gov/products/GAO-08-589] (Washington, D.C.: June 23,
2008), GAO, Equal Employment Opportunity: DOD's EEO Pilot Program
Under Way, but Improvements Needed to DOD's Evaluation Plan,
[hyperlink, http://www.gao.gov/products/GAO-06-538], (Washington,
D.C.: May 5, 2006), and [hyperlink,
http://www.gao.gov/products/GAO-08-387R].
[83] The OMB Circular No. A-123 provides guidance to executive
agencies on evaluating and reporting on their systems of internal
controls, consistent with the requirements of section 3512(c), (d) of
title 31, U.S. Code (commonly referred to as the Federal Managers'
Financial Integrity Act of 1982 (FFMIA), which requires agencies to
establish and maintain effective internal control. The agency head
must annually evaluate and report on the control and financial systems
that protect the integrity of its federal program. Circular No. A-123
relies on GAO's standards for internal control in the federal
government, which are promulgated pursuant to FFMIA. Office of
Management and Budget, Management's Responsibility for Internal
Control, Circular No. A-123 (Washington, D.C., Dec. 21, 2004).
[84] FCC implements policy initiatives through the rule making
process, a governmentwide process for creating rules or regulations
that implement, interpret, or prescribe law or policy. The
Administrative Procedure Act (APA) is the principal law governing how
agencies make rules. Most federal rules are promulgated under the APA-
established informal rule making process, which requires agencies to
provide public notice of proposed rule changes, as well as to provide
a period for interested parties to comment on the notices. 5 U.S.C. §
551 et seq.
[85] In its October 14, 2010, response to a draft of this report, USAC
stated that it also conducts data validations of ETC's receiving
program support in which staff obtain and review supporting
documentation for amounts paid to selected carriers. In our subsequent
discussions with USAC, we were told that this process was first
completed in 2005 and is continuing in 2010--with 30 reviews under
way; however, no reviews were conducted in 2007 or 2008.
[86] In the September 2008 Memorandum of Understanding between FCC and
USAC, FCC directed USAC to implement a comprehensive audit program (1)
to ensure that USF monies were used for their intended purpose; (2) to
verify that all USF contributors made the appropriate contributions;
and (3) to detect and deter waste, fraud, and abuse. To this end, with
regard to the Low-Income Program, USAC conducts performance audits of
ETCs that receive monies from the Low-Income Program. Audits are
conducted by USAC's Internal Audit Division.
[87] These audits exclude four that were limited scope audits and
three that assessed the ETC's compliance with FCC's Hurricane Katrina
Order, Federal-State Joint Board on Universal Service, Order, 20 FCC
Rcd 16883 (2005).
[88] These audits exclude one audit where the auditor was unable to
reach a conclusion on the ETC's compliance with program rules.
[89] Pub. L. No. 107-300; 116 Stat. 2350 (Nov. 26, 2002), as amended
by the Improper Payments Elimination and Recovery Act of 2010, Pub. L.
No. 111-204, 124 Stat. 2224 (July 22, 2010). The IPIA requires federal
agencies to review programs and activities they administer and
identify those that may be susceptible to significant improper
payments. For those programs or activities determined to be
susceptible to significant improper payments, the agency must conduct
an estimate, report the estimate to Congress, and, for programs and
activities with estimated improper payments exceeding $10 million,
report on corrective actions taken to address the improper payments.
[90] See Comments of the Universal Service Administrative Company in
WC Docket No. 05-195 (Comprehensive Review of the Universal Service
Fund Management Administration, Notice of Inquiry, 20 FCC 13583 (dated
Nov. 13, 2008)), pp. 106-107.
[91] See 1997 Universal Service Order, 12 FCC Rcd at 8957, para. 341.
[92] FCC referred the issue of duplicate claims for support to the
Joint Board in May 2010, and will await recommendations from the Joint
Board before deciding how best to address the issue. See 25 FCC Rcd
5079 (2010) (Referral Order).
[93] See Federal-State Joint Board on Universal Service; Lifeline and
Link Up, Order, 25 FCC Rcd 5079, (2010) (Referral Order).
[94] See Comments of the Florida Public Service Commission in CC
Docket No. 96-45 and WC Docket No. 03-109 (Federal-State Joint Board
on Universal Service, Public Notice, 25 FCC Rcd 7551 (2010)), (dated
July 15, 2010).
[95] See Federal-State Joint Board on Universal Service; Lifeline and
Link Up, Order, 25 FCC Rcd 5079, (2010) (Referral Order) p. 9.
[96] [hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1].
[97] GAO, Digital Television Transition: Increased Federal Planning
and Risk Management Could Further Facilitate the DTV Transition, GAO-
08-43 (Washington, D.C.: Nov. 19, 2007).
[98] USAC summarized and analyzed the results of the 60 audits
conducted in 2006 and 2007 that were used to develop a statistical
estimate of error rates under the Improper Payments Information Act of
2002, but did not do the same for the other 41 performance audits
conducted from 2003 through 2008.
[99] Included in our state-by-state analysis are the following U.S.
territories: American Samoa, District of Columbia, Guam, Northern
Mariana Islands, Puerto Rico, and the U.S. Virgin Islands.
[100] USAC performed 101 audits on 97 ETCs from 2003 to 2008.
[101] The number of unique ETCs that participated in the Low-Income
Program between 2002 and 2007 was 1,826; the number of ETCs
participating in any single year during this period ranged from 1,418
to 1,804.
[102] These 14 ETCs were in the three states with the largest amount
of support payments for this period--California, New York, and Texas.
[103] These ETCs received payments totaling approximately 8 percent of
total Low-Income support payments during this period.
[104] Comprehensive Review of the Universal Service Fund Management,
Administration, and Oversight, Notice of Inquiry, 23 FCC Rcd 13583
(2008) (2008 Performance Measures NOI).
[105] See e.g., 47 C.F.R. §§ 54.409 (consumer qualification for
Lifeline), 54.410 (certification and verification of consumer
qualification for Lifeline), 54.415 (consumer qualification for Link
Up), 54.416 (certification of consumer qualification for Link Up).
States must base eligibility criteria solely on income or factors
directly related to income. 47 C.F.R. §§ 54.409(a), 54.415(a).
[106] In New Jersey, only consumers 65 or over may qualify for the
program based on income alone.
[107] In 2009, the federal poverty guideline for a family of three was
$18,310.
[108] One state reported that it did not know the income eligibility
threshold.
[109] States that provide intrastate Lifeline support but choose to
use the eligibility criteria and administrative processes developed by
FCC are also referred to as "federal default states."
[110] See 47 C.F.R. § 54.409.
[111] See Lifeline and Link Up, Report and Order and Further Notice of
Proposed Rulemaking, 19 FCC Rcd 8302 (2004) (2004 Lifeline and Link Up
Order); Federal-State Joint Board on Universal Service, Recommended
Decision, 18 FCC Rcd 6589 (2003) (Recommended Decision).
[End of section]
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