	FCC Has Not Evaluated Lifeline’s Performance in Meeting Program Goals but Has Taken Recent Steps toward Evaluation

FCC has not evaluated Lifeline’s performance in meeting program goals  but, as we found in May 2017, has taken recent steps toward evaluation. Our May 2017 report raised additional questions about Lifeline’s  effectiveness in meeting its program goals. For example, we reported  that:
FCC did not know how many of the 12.3 million households receiving  Lifeline as of December 2016 also have non-Lifeline phone service  (for which they pay out of pocket) along with their Lifeline benefit. Without knowing whether participants are using Lifeline as a primary  or secondary phone service, we concluded that it is difficult for FCC to  determine whether it is achieving the program’s goal of increasing  telephone subscribership among low-income consumers while  minimizing the USF contribution burden. FCC revamped Lifeline in March 2016 to focus on broadband  adoption and generally phase out phone service, in part because FCC  recognized that most eligible consumers have phones without Lifeline  and to also close the “digital divide” of broadband adoption between  low-income households and the rest of the country. However,  broadband adoption rates have steadily increased for the low-income  population absent a Lifeline subsidy for broadband. Our May 2017 report also found that FCC has recently taken some steps  toward evaluating Lifeline’s performance in meeting program goals. Specifically, in the 2016 Lifeline Modernization Order, FCC instructed  USAC to hire an outside, independent, third-party evaluator to complete a  program evaluation of Lifeline’s design, function, and administration. Financial Controls Exist, with Others Planned, for the Lifeline Program, but Weaknesses Remain

In our May 2017 report we found that FCC and USAC have established  financial controls for Lifeline, including obtaining and reviewing  information about billing, collecting, and disbursing funds. To address these concerns, we recommended the  Chairman of FCC (1) require Commissioners to review and approve, as  appropriate, spending above the budget in a timely manner; (2) 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 changes; and (3) 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. Specifically, FCC maintains USF funds—whose net assets as of  September 2016 exceeded $9 billion—outside of the U.S. Treasury  pursuant to Office of Management and Budget (OMB) advice provided in  April 2000. FCC identified  potential benefits of moving the funds to the Treasury. For example, FCC  explained that having the funds in the Treasury would provide USAC with  better tools for fiscal management of the funds, including access to real- time data and more accurate and transparent data. According to FCC,  until the USF is moved into the Treasury, there are also some oversight  risks associated with holding the fund in a private account. Until FCC finalizes and  implements its plan and 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. As a result, in our May 2017 report, we recommended  that the Chairman of FCC take action to ensure that the preliminary plans  to transfer the USF funds from the private bank to the Treasury are  finalized and implemented as expeditiously as possible. FCC and USAC Have Implemented Some Controls to Improve Subscriber Eligibility Verification, but Weaknesses Remain

FCC and USAC have implemented controls to improve subscriber  eligibility verification, such as implementing the NLAD database in 2014,  which helps carriers identify and resolve duplicate claims for Lifeline- supported services. These challenges  might be overcome if FCC establishes a National Verifier, as it plans to do  nationwide by the end of 2019, to remove responsibility for verifying  eligibility from the providers. In  total, we were unable to confirm whether 1,234,929 subscribers out of the  3,474,672 who we reviewed, or about 36 percent, participated in the  qualifying benefit programs they stated on their Lifeline enrollment  applications or were recorded as such by Lifeline providers. Similarly, 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. The current structure of the program relied throughout 2015  and 2016 on over 2,000 Eligible Telecommunication Carriers (ETC) to  provide Lifeline service to eligible beneficiaries. 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. FCC generally agreed with these  recommendations. In conclusion, Lifeline’s large and diffuse administrative structure creates  a complex internal control environment susceptible to significant risk of  fraud, waste, and abuse.
Why GAO Did This Study

Created in the mid-1980s, FCC's Lifeline program 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.
This testimony is based on GAO's May 2017 report and discusses steps FCC has taken to measure Lifeline's performance in meeting goals; steps FCC and USAC have taken to enhance controls over finances, subscribers, and providers; and any weaknesses that might remain.
For the May 2017 report, GAO analyzed documents and interviewed officials from FCC and USAC. GAO also analyzed subscriber data from 2014 and performed undercover tests to identify potential improper payment vulnerabilities. The results of this analysis and testing are illustrative, not generalizable.

What GAO Found

In its May 2017 report 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 by providing financial support, but it has recently taken steps to begin to do so. FCC does not know how many of the 12.3 million households receiving Lifeline as of December 2016 also have non-Lifeline phone service, or whether participants are using Lifeline as a secondary phone service. FCC revamped Lifeline in March 2016 to focus on broadband adoption; however, broadband adoption rates have steadily increased for the low-income population absent a Lifeline subsidy for broadband. 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 March 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 the Lifeline program—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. To enhance the program's ability to detect and prevent ineligible subscribers from enrolling, FCC oversaw completion in 2014 of an enrollment database and, 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, in its May 2017 report, 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. On the basis of 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 the end of 2019 to determine subscriber eligibility. Further, FCC maintains the Universal Service Fund (USF)—with net assets of $9 billion, as of September 2016—outside the Department of the Treasury in a private bank account. In 2005, GAO recommended that FCC reconsider this arrangement given that the USF consists of federal funds. In addition to addressing any risks associated with having the funds outside the Treasury, FCC identified potential benefits of moving the funds. For example, by having the funds in the Treasury, USAC would have 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

In its May 2017 report, GAO made seven recommendations, including that FCC ensure plans to transfer the USF from the private bank to the Treasury are finalized and implemented expeditiously. FCC generally agreed with all the recommendations.