Telecommunications: FCC Should Take Additional Action to Manage Fraud Risks in Its Program to Support Broadband Service in High-Cost Areas
Fast Facts
The Federal Communications Commission seeks to ensure that people in rural and other hard-to-serve areas can access modern communications. To that end, it reimburses small telecommunications companies for eligible expenses to deploy services in these areas.
In the past, FCC has reimbursed companies for ineligible expenses, such as personal vehicles or travel, that were not necessary for maintaining and extending telecommunications services.
FCC has improved the way it reimburses companies to prevent similar cases and reduce fraud risks, but it could better target its efforts. We made 5 recommendations to help FCC do this.
The FCC
Highlights
What GAO Found
The Federal Communications Commission (FCC) has implemented several funding reforms for small, rural telecommunications carriers—referred to as “rate-of-return carriers”—receiving high-cost program support. These reforms are aimed at controlling the program's expenditures and incentivizing efficient broadband deployment. According to FCC's strategic plan, FCC must ensure the high-cost program is well managed, efficient, and fiscally responsible. One of the reforms that GAO reviewed established a funding mechanism for the carriers whereby FCC determines the level of financial support to provide the carriers based on cost and revenue estimates produced by a model. Stakeholders told GAO that this model-based funding mechanism is less prone to fraud risks than the traditional cost-accounting funding mechanism, which reimburses carriers for their reported costs. However, FCC did not make use of this reform mandatory and a substantial number of rate-of-return carriers continue to receive support from the traditional funding mechanism. FCC officials said they developed the model-based funding mechanism in consultation with industry stakeholders. However, FCC officials said they did not have plans to assess the accuracy of cost estimates from the model, which has been in use for several years, or require carriers to receive model-based support as a way to reduce fraud risks. By assessing the model, FCC would have greater assurance that it is producing reliable cost estimates and be better positioned to determine whether to make its use mandatory.
FCC has some policies and processes in place to manage fraud risks for the high-cost program. For example, the Universal Service Administrative Company (USAC)—the not-for-profit corporation that administers the program—reviews and audits rate-of-return support payments and forwards potential fraud cases to FCC's Office of Inspector General and Enforcement Bureau for further investigation. FCC is also developing a data-analytics tool to help detect fraud, and in August 2019 launched a new Fraud Division to focus on investigating fraud in the Universal Service Fund's programs. However, FCC's efforts do not fully align with some elements of GAO's fraud risk framework, including:
planning regular fraud-risk assessments tailored to the high-cost program, and
designing and implementing an antifraud strategy for the program.
Without regular fraud-risk assessments of the high-cost program, FCC has no assurance that it has fully considered important fraud risks, determined its tolerance for risks that could be lower priorities, or made sound decisions on how to allocate resources to respond to fraud risks. Not doing so could result in FCC compensating carriers for improper, ineligible, or inflated costs. Furthermore, in the absence of an antifraud strategy, FCC has little assurance that it can prevent or detect the types of documented rate-of-return carrier misconduct that have previously occurred. Designing and implementing an antifraud strategy that conforms to leading practices would help FCC effectively manage and respond to the fraud risks identified during the fraud-risk assessments.
Why GAO Did This Study
The Universal Service Fund's high-cost program provides financial support to telecommunications carriers in areas where the cost to provide broadband is high. Through this program, FCC provides about $2.5 billion in annual support payments to rate-of-return carriers. The manner in which FCC currently provides the support payments to some of these carriers is prone to fraud risks. A prior case involved a rate-of-return carrier that received at least $27 million in improper payments from the program.
GAO was asked to review funding reforms and fraud controls FCC has implemented for rate-of-return carriers. This report examines the extent to which FCC: (1) has implemented funding reforms specific to rate-of-return carriers, and (2) is managing fraud risks for the high-cost program in accordance with leading practices. GAO reviewed FCC's and USAC's procedures, relevant regulations, and guidance, and assessed these documents against applicable criteria, including federal internal-control standards, FCC's strategic plan, and GAO's fraud risk framework. GAO interviewed FCC and USAC officials, in addition to industry and other stakeholders representing a variety of non-generalizable viewpoints.
Recommendations
GAO is making five recommendations, including that FCC should assess the model-based support mechanism and consider making its use mandatory, and implement an antifraud strategy for the high-cost program. FCC stated it would take steps to implement these recommendations.
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Federal Communications Commission | The Chairman of FCC should ensure that FCC's Office of Managing Director follows the leading practices in GAO's fraud risk framework related to a dedicated entity's management of its antifraud activities, such as serving as the repository of knowledge on fraud risks and coordinating antifraud initiatives. (Recommendation 1) |
In 2024, we confirmed that FCC established a dedicated entity, called the Fraud Risk Group, that focuses on Universal Service Fund law enforcement investigations and fraud risk prevention and detection. The Fraud Risk Group consists of Certified Public Accountants, Certified Fraud Examiners, and professionals experienced in fraud risk assessments and anti-fraud efforts. Overall, the group is responsible for, among other things, investigating fraud and fraud risks within the Universal Service Fund programs; developing plans for fraud risk assessment and prevention; assisting the programs by mitigating vulnerabilities to fraud; developing and implementing a fraud awareness culture and a community of practice; and working to recover improperly disbursed Universal Service Fund payments through robust investigations. By following leading practices from GAO's fraud risk framework related to a dedicated entity for managing antifraud activities, FCC is better ensuring that it is addressing and strategically targeting the most significant fraud risks facing the high-cost program.
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| Federal Communications Commission | The Chairman of FCC should plan regular fraud-risk assessments tailored to the high-cost program and assess these risks to determine the program's fraud risk profile, as provided in GAO's fraud risk framework. (Recommendation 2) |
In 2024, based on supporting documentation FCC provided, we determined that FCC's efforts addressed our recommendation to assess fraud risks to the high-cost program and plan for regular fraud risk assessments. In July 2022, an FCC contractor completed a fraud-risk assessment report of the high-cost program. The assessment was conducted using GAO's fraud risk framework and identified program fraud risks and vulnerabilities and included risk responses and recommendations to enhance program controls. The assessment provided the (1) applicable fraud risks within the high-cost program; (2) potential impact and likelihood of such fraud risks; and (3) actions needed to prevent, detect, and respond to fraud risks in the future. In February 2024, FCC provided its policy for conducting periodic and ad hoc fraud-risk assessment refreshes. By taking these steps, FCC is in a better position to help ensure that its antifraud controls are targeted at areas at greatest risk for fraud in the high-cost program and help safeguard program resources.
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| Federal Communications Commission | The Chairman of FCC should design and implement an antifraud strategy for the high-cost program with specific control activities, based upon the results of fraud-risk assessments and a corresponding fraud risk profile, as provided in GAO's fraud risk framework. (Recommendation 3) |
In 2024, we confirmed that FCC assessed fraud risks to the high-cost program and planned for regular fraud risk assessments. Using the risk assessment, FCC designed and implemented an antifraud strategy specific to the high-cost program. This antifraud strategy uses the recommendations from the program's fraud-risk assessment to identify strategies and corrective actions to mitigate the program's vulnerabilities to risk of fraud. In particular, the risk assessment included 14 recommendations and FCC developed strategies and corrective actions to address all of them. FCC's Fraud Risk Group is responsible for monitoring the progress of the strategies and corrective actions. By following leading practices from GAO's fraud risk framework to design and implement an antifraud strategy for the high-cost program, FCC has better assurance that it can prevent or detect carrier misconduct that has previously occurred. Furthermore, the strategy helps FCC to effectively manage and respond to the fraud risks identified during the fraud-risk assessments.
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| Federal Communications Commission | The Chairman of FCC should assess the model-based support mechanism to determine the extent to which it produces reliable cost estimates. (Recommendation 4) |
As of February 2024, FCC officials said FCC intends to implement this recommendation and is considering ways to improve the model-based support mechanism for rate-of-return carriers participating in the high-cost program. FCC does not expect this recommendation to be implemented until fiscal year 2028. We will continue to review FCC's efforts related to this recommendation, including FCC efforts, if any, to verify the model's cost estimates.
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| Federal Communications Commission | The Chairman of FCC should consider whether to make use of the model-based support mechanism mandatory depending on the results of the assessment. (Recommendation 5) |
As of February 2024, FCC reported that it was considering ways to improve the model-based support mechanism for rate-of-return carriers participating in the high-cost program. FCC indicated that any such improvements may help facilitate the transition of carriers from legacy support mechanisms to the model-based support mechanism. Although FCC expects to implement this recommendation, officials said it would likely not be fully implemented until fiscal year 2028. We will continue to monitor FCC's progress and efforts in regard to this recommendation.
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