Entities that provide services in more than one fee  category—such as a company that offers wireline and wireless services— must pay regulatory fees for each fee category commensurate with the  service provided. FCC’s Assessment of Regulatory Fees Is Based on Obsolete Data and Lacks Transparency

		FCC’s Regulatory Fee Assessments

From fiscal year 1998 through its most recent assessment for fiscal year  2011, FCC has based its division of regulatory fees among industry  sectors and fee categories on its fiscal year 1998 division of FTEs among  fee categories. The Communications Act requires FCC to develop accounting systems  necessary for the agency to determine whether and how the fee schedule  should be adjusted to comply with the statute’s requirement that FCC  base its regulatory fees on the number of FTEs performing regulatory  tasks, among other things. FCC officials stated that while the statute requires FCC to  amend its regulatory fees if FCC determines such amendment is  necessary to comply with the FTE-based requirement, among other  things, the statute does not prescribe a specific time at which FCC must  make such a determination. Changes in the Telecommunications Industry since 1998

The major changes that have occurred in the telecommunications  industry over the past 14 years dramatically increase the likelihood that  FCC’s current division of fees among fee categories has become  obsolete. FCC did not  comprehensively reform its process as a result of this FNPRM. FCC’s inaction in updating its FTE analysis is inconsistent with federal  guidance on user fees. Moreover, by not  periodically analyzing FTEs by fee category and adjusting its division of  regulatory fees based on this analysis, FCC may have put itself into a  situation where, in order to adjust regulatory fees based on an updated  FTE analysis, FCC may have to figure out how to handle large swings in  fees for some fee categories. FCC Has Collected $66 Million in Excess Fees That Is Unavailable without Further Congressional Action

		FCC’s Regulatory Fee Collections

On average, FCC collected 2 percent more each year in regulatory fees  than it was required to collect in its annual appropriations acts over the  past 10 fiscal years. As explained  earlier, since 2008, FCC’s annual appropriations have prohibited the use  of any excess fees from the current year or previous years without an  appropriation by Congress. Prior to fiscal year 2008, FCC’s annual  appropriations stated that any excess regulatory fees remained available  until expended. FCC has collected on  average $6.7 million in excess fees annually from fiscal year 2006 to  2011, and so the account has steadily increased. Congress has not  provided for the disposition of the funds. However, FCC has  not been fully transparent with regard to informing industry stakeholders  or others about these excess fees. We identified these alternative approaches through examining the  regulatory fee processes of five other regulatory fee-funded agencies in  the U.S. and Canada: the Nuclear Regulatory Commission (NRC),  Federal Energy Regulatory Commission (FERC), Farm Credit  Administration (FCA), Canadian Radio-television and  Telecommunications Commission (CRTC), and the Canadian Nuclear  Safety Commission (CNSC). According to officials at NRC, CRTC, and FERC, each agency aligns its  assessment of annual fees by industry sector with an annually or  biennially updated analysis of costs by industry sector. In contrast, officials at all five  agencies we met with told us their agency has a form of annual  adjustment or “true-up” mechanism such that any excess fees collected  are either applied as an adjustment to the next year’s fees or are  refunded. Recommendations for Executive Action

We recommend that the Chairman of the FCC, as part of FCC’s effort to  reform its regulatory fee process, take the following three actions:
Determine whether and how the current fee schedule should be  revised—including an overall analysis of the appropriate number of  categories and bases for calculating rates—to reflect the current  telecommunications industry and FCC’s regulatory activities, and in  consideration of the processes of other regulatory fee-funded  agencies that may be instructive, including, if appropriate, proposing  to Congress any needed changes to its current statutory authority. FCC agreed with our recommendations and stated that an  NPRM on regulatory fee reform, released on July 17, 2012, addressed  them. Appendix I: Objectives, Scope and Methodology

In response to your request to review FCC’s regulatory fee process, we  examined (1) FCC’s process for assessing regulatory fees among  industry sectors and the results of this process, (2) FCC’s regulatory fee  collections over the past 10 years compared to the amount it was directed  to collect by Congress, and (3) alternative approaches to assessing and  collecting regulatory fees that could be instructive for FCC as it considers  reforms to its process. Specifically, among others, we reviewed the  following documents:
Statute establishing FCC’s regulatory fee-collecting authority (Section  9 of the Communications Act of 1934)
FCC’s appropriations acts, fiscal years 1994 to 2011
Conference Report to Accompany the Federal Communications  Commission Authorization Act of 1991, Sept. 17, 1991
Hearing transcript, House Energy and Commerce Subcommittee on  Communications and Technology Hearing on President Obama’s  Fiscal 2013 Budget Proposal for the Federal Communications  Commission, February 16, 2012
FCC Notices of Proposed Rulemakings, Further Notice of Proposed  Rulemaking, and Reports and Orders related to FCC’s collection of  regulatory fees, fiscal years 1994 through 2012
FCC budget justifications, fiscal years 2005 to 2013
FCC internal documentation of its regulatory fee methodology
FCC internal documentation related to its core financial system,
FCC strategic plans, 2009 to 2014 and 2012 to 2016
FCC annual financial reports, fiscal years 2010 and 2011
Prior GAO work on FCC, regulatory agencies, and user fees
Federal guidance on user fees and cost accounting, including the  Office of Management and Budget’s Circular No.
Why GAO Did This Study

FCC must by law assess annual regulatory fees on telecommunications entities to recover its entire appropriationabout $336 million in fiscal year 2011. The entities from which FCC collects fees fall into one of five main industry sectors (broadcast, cable, wireline, wireless, and international) and are assigned to one of 86 fee categories, such as paging services. Recently, FCC stated that it was planning to consider reforms to its regulatory fee process. GAO was asked to examine (1) FCCs process for assessing regulatory fees among industry sectors, (2) FCCs regulatory fee collections over the past 10 years, and (3) alternative approaches to assessing regulatory fees. GAO reviewed FCC data and documents, interviewed officials from FCC and the telecommunications industry, and, to identify alternative approaches to assessing regulatory fees, met with five fee-funded U.S. and Canadian regulatory agencies.

What GAO Found

The Federal Communications Commission (FCC) assesses regulatory fees among industry sectors and fee categories based on obsolete data, with limited transparency. The Communications Act requires FCC to base its regulatory fees on the number of full-time equivalents (FTE) that perform regulatory tasks in certain bureaus, among other things. FCC based its fiscal year 2011 regulatory fee assessments on its fiscal year 1998 division of FTEs among fee categories. It has not updated the FTE analysis on which it bases its regulatory fees, in part to avoid fluctuations in fees from year to year. FCC officials stated that the agency has complied with its statutory authority by dividing fees among fee categories based on FTE dataalthough the data is from fiscal year 1998since the statute does not prescribe a specific time for FCC to update its FTE analysis. As a result, after 13 years in a rapidly changing industry, FCC has not validated the extent to which its fees correlate to its workload. Major changes in the telecommunications industry include the increasing use of wireless and broadband services and a convergence of telecommunications industries. Moreover, FCCs practice is inconsistent with federal guidance on user fees. As a result of FCCs use of obsolete data in assessing regulatory fees, companies in some fee categories may be subsidizing companies in others. FCC officials said it has become more challenging to align current FTEs to the 86 fee categories given the increasingly cross-cutting nature of FCCs work, raising the potential that FCCs fee categories may also be out of date. FCCs regulatory fee process also lacks transparency because of the limited nature of the information FCC has published on it. This has made it difficult for industry and other stakeholders to understand and provide input on fee assessments. On July 17, 2012, FCC released a regulatory fee reform Notice of Proposed Rulemaking (NPRM) proposing changes to FCCs regulatory fee program related to many issues raised in this report.
On average over the past 10 years, FCC collected 2 percent more in regulatory fees than it was required to collect. Prior to fiscal year 2008, FCCs annual appropriations stated that any excess regulatory fees remained available until expended; since 2008, FCCs annual appropriations have prohibited the use of any excess fees from the current year or previous years without an appropriation by Congress. As a result, $66 million in excess fees currently resides in an account at the Department of Treasury that cannot be used without congressional action. The account has increased by an average of $6.7 million per year for fiscal years 2006 through 2011. Congress has not provided for the disposition of these accumulating excess funds.
Approaches of other fee-funded regulatory agencies could be instructive as FCC considers reforms. For example, the Nuclear Regulatory Commission, Federal Energy Regulatory Commission, and Canadian Radio-television and Telecommunications Commission assess fees based on an annually or biennially updated analysis of costs by industry sector. Regarding excess fees, officials at five other fee-funded regulatory agencies stated that their agencies either apply excess fees as an adjustment to the subsequent years fees or refund them.

What GAO Recommends

Congress should consider whether FCCs excess fees should be appropriated for FCCs use or, if not, what their disposition should be. FCC should perform an updated FTE analysis and require at least biennial updates going forward; determine whether and how to revise the current fee schedule, including the number of fee categories; increase the transparency of its regulatory fee process; and consider the approaches of other fee-funded regulatory agencies. FCC agreed with GAOs recommendations.