In addition, annual disbursements  increased from $820 million in 2008 to $2.2 billion in 2012, a 167 percent  increase. Specifically:
Lifeline participation rates are low compared to the percentage of low- income households that pay for phone service. However,  broadband adoption rates have steadily increased for the low-income  population absent a Lifeline subsidy for broadband. FCC Has Recently Taken Steps towards Evaluating Lifeline

FCC has recently taken some steps toward evaluating Lifeline. This  information serves as a key internal control for billing, collection, and  disbursement operations. The results of this test are  illustrative rather than generalizable. In addition to  addressing any risks associated with having the funds outside the  Treasury, FCC identified potential benefits of moving the funds. For  example, FCC explained that having the funds in the Treasury could allow  USF payments to be used to offset other federal debts, and would provide  USAC with better tools for fiscal management of the funds, including  access to real-time data and more accurate and transparent data. Until FCC finalizes and implements its plan  and actually moves the USF funds, the risks that FCC identified will  persist and the benefits of having the funds in the Treasury will not be  realized. The NLAD database was completely implemented by March 2014 and  contains a real-time list of Lifeline beneficiaries to assist carriers in  identifying and preventing duplicate subscribers. In total, we  were unable to confirm whether 1,234,929 individuals out of the  3,474,672 that we reviewed, or 36 percent, participated in the qualifying  benefit programs they stated on their Lifeline enrollment applications or  were recorded as such by Lifeline providers. In June 2015, FCC adopted a rule requiring Lifeline providers to retain  eligibility documentation used to qualify consumers for Lifeline support  to improve the auditability and enforcement of FCC rules. However, we identified key Lifeline functions for  which FCC and USAC had limited visibility. For example, some Lifeline providers pay commissions to  third-party agents to enroll subscribers, creating a financial incentive to  enroll as many subscribers as possible. Conclusions

Lifeline’s large and diffuse administrative structure creates a complex  internal control environment susceptible to significant risk of fraud, waste,  and abuse. Nevertheless, while some academic studies have raised questions  whether Lifeline is a costly and inefficient means of achieving universal  service, FCC has not evaluated the program to determine whether it is  efficiently and effectively meeting its goals, as we recommended in our  March 2015 report. In March 2016, FCC expanded the program’s  performance goals by including subsidies for broadband service. Although classified as federal funds, the USF, with net assets of $9  billion, is maintained outside the Treasury in an account with a private  bank. As a result, OMB observed that USF funds do not enjoy the same  rigorous management practices and regulatory safeguards as funds for  other federal programs. Recommendations for Executive Action

To address control weaknesses and related program-integrity risks we  identified in Lifeline, we recommend that the Chairman of FCC  require Commissioners to review and approve, as appropriate,  spending above the budget in a timely manner; maintain and disseminate an updated list of state eligibility databases  available to Lifeline providers that includes the qualifying programs  those databases access to confirm eligibility; this step would help  ensure Lifeline providers are aware of state eligibility databases and  could also help ensure USAC audits of Lifeline providers can verify  that available state databases are being utilized to verify subscriber  eligibility; establish time frames to evaluate compliance plans and develop  instructions with criteria for FCC reviewers how to evaluate these  plans to meet Lifeline’s program goals; and develop an enforcement strategy that details what violations lead to  penalties and apply this as consistently as possible to all Lifeline  providers to ensure consistent enforcement of program violations; the  strategy should include a rationale and method for resource  prioritization to help maximize the effectiveness of enforcement  activities. To address our findings regarding the USF, we recommend that the  Chairman of FCC take action to ensure that the preliminary plans to transfer the USF funds from the  private bank to the U.S. Treasury are finalized and implemented as  expeditiously as possible;  require a review of customer bills as part of the contribution audit to  include an assessment of whether the charges, including USF fees,  meet FCC Truth-in-Billing rules with regard to labeling, so customer  bills are transparent, and appropriately labeled and described, to help  consumers detect and prevent unauthorized charges; and  respond to USAC requests for guidance and address pending  requests concerning USF contribution requirements to ensure the  contribution factor is based on complete information and that USF  pass-through charges are equitable. In written comments, reproduced in appendix IV, FCC  generally agreed with our recommendations. GAO staff who made key contributions to this  report are listed in appendix V.

Appendix I: Objectives, Scope, and Methodology

This appendix discusses in detail our methodology for addressing four  research questions: (1) the extent to which the Lifeline program (Lifeline)  demonstrates effective performance towards program goals; (2) steps the  Federal Communications Commission (FCC) and Universal Service  Administrative Company (USAC) have taken to improve financial controls  in place for Lifeline and the Universal Service Fund (USF), and any  remaining weaknesses that might exist; (3) steps FCC and USAC have  taken to improve subscriber-eligibility verification, and any remaining  weaknesses that might exist; and (4) steps FCC and USAC have taken to  improve oversight of Lifeline providers, and any remaining weaknesses  that might exist. To do this, we matched NLAD data to the  SNAP, Medicaid, and SSI data to identify potential improper payments.
Why GAO Did This Study

Created in the mid-1980s, FCC's Lifeline provides discounts to eligible low-income households for home or wireless telephone and, as of December 2016, broadband service. Lifeline reimburses telephone companies that offer discounts through the USF, which in turn is generally supported by consumers by means of a fee charged on their telephone bills. In 2016, Lifeline disbursed about $1.5 billion in subsidies to 12.3 million households.
In 2010, GAO found Lifeline had limited abilities to detect and prevent ineligible subscribers from enrolling. FCC adopted a reform order in 2012 to enhance Lifeline's internal controls. GAO was asked to examine FCC's reforms. This report discusses, among other objectives, (1) the extent to which Lifeline demonstrates effective performance towards program goals, and (2) steps FCC and USAC have taken to enhance controls over finances, subscribers, and providers, and any weaknesses that might remain.
GAO analyzed documents and interviewed officials from FCC and USAC. GAO analyzed subscriber data from 2014 and performed undercover tests to identify potential improper payment vulnerabilities. The results of GAO's analysis and testing are illustrative, not generalizable.

What GAO Found

The Federal Communications Commission (FCC) has not evaluated the Lifeline program's (Lifeline) performance in meeting its goals of increasing telephone and broadband subscribership among low-income households, but has recently taken steps to do so. Lifeline participation rates are low compared to the percentage of low-income households that pay for telephone service, and broadband adoption rates have increased for the low-income population even without a Lifeline subsidy. Without an evaluation, which GAO recommended in March 2015, FCC is limited in its ability to demonstrate whether Lifeline is efficiently and effectively meeting its program goals. In a July 2016 Order, FCC announced plans for an independent third party to evaluate Lifeline design, function, and administration by December 2020.
FCC and the Universal Service Administrative Company (USAC)—the not-for-profit organization that administers Lifeline—have taken some steps to enhance controls over finances and subscriber enrollment. For example, FCC and USAC established some financial and management controls regarding billing, collection, and disbursement of funds for Lifeline and related programs. To enhance the program's ability to detect and prevent ineligible subscribers from enrolling, FCC oversaw completion in 2014 of a database with a real-time list of subscribers to assist carriers in identifying and preventing duplicate subscribers. Additionally, in June 2015, FCC adopted a rule requiring Lifeline providers to retain eligibility documentation used to qualify consumers for Lifeline support to improve the auditability and enforcement of FCC rules.
Nevertheless, GAO found weaknesses in several areas. For example, Lifeline's structure relies on over 2,000 Eligible Telecommunication Carriers that are Lifeline providers to implement key program functions, such as verifying subscriber eligibility. This complex internal control environment is susceptible to risk of fraud, waste, and abuse as companies may have financial incentives to enroll as many customers as possible. Based on its matching of subscriber to benefit data, GAO was unable to confirm whether about 1.2 million individuals of the 3.5 million it reviewed, or 36 percent, participated in a qualifying benefit program, such as Medicaid, as stated on their Lifeline enrollment application. FCC's 2016 Order calls for the creation of a third-party national eligibility verifier by 2019 to determine subscriber eligibility. Further, FCC maintains the Universal Service Fund (USF)—with net assets exceeding $9 billion, as of September 2016—outside the Department of the Treasury in a private bank account. In 2005, GAO reported that FCC should reconsider this arrangement given the USF consists of federal funds. In addition to addressing any risks associated with having the funds outside the Treasury, where they do not enjoy the same rigorous management practices and regulatory safeguards as other federal programs, FCC identified potential benefits of moving the funds. For example, by having the funds in the Treasury, USF payments could be used to offset other federal debts, and would provide USAC with better tools for fiscal management of the funds. In March 2017, FCC developed a preliminary plan to move the USF to the Treasury. Until FCC finalizes and implements its plan and actually moves the USF funds, the risks that FCC identified will persist and the benefits of having the funds in the Treasury will not be realized.

What GAO Recommends

GAO makes seven recommendations, which FCC generally agreed with, including that FCC take action to ensure the preliminary plans to transfer the USF from a private bank to the U.S. Treasury are finalized and implemented expeditiously.