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Lifeline compliance audits aim to correct abuses

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The Federal Communications Commission (FCC) is tightening up its Lifeline program

In existence since 1985, the program provides free or low-cost phone service for low-income consumers who meet eligibility requirements. In 2005, the program was expanded to cover wireless service plans. Over the years, especially as wireless communications took off, fraud on the part of consumers or due diligence failures on the part of telecommunications carriers led to considerable abuse of the program.

29 carriers in first round of audits

Fast forward to this past April, when the FCC finalized the Lifeline Biennial Audit Plan. It requires telecommunications companies receiving $5 million or more annually in federal reimbursement to hire an independent audit firm to evaluate their overall compliance with the Lifeline program. In accordance with the approved procedures outlined in the final audit plan, the audits are to be conducted every two years. The first audits of wireless carriers who met the $5 million threshold as of calendar year 2013 — a group of 29 carriers — must be completed by April 2, 2015.

In 2013 92% of low-income households had phone service, up from 80% in 1985 when Lifeline began.Although these 29 companies are the only ones initially subject to the first round of biennial audits, this number is likely to increase in future years as more companies grow to meet the threshold for a compliance audit. But even smaller carriers that fall under the $5 million reimbursement mark are expected to comply with all Lifeline program guidelines, even if they do not face regular audits. Spot audits or targeted audits of any participating carrier are always a possibility, especially if concerns are raised about a carrier’s practices.

The consequences of noncompliance with the Lifeline program can range from fines, criminal penalties, exclusion from the program, as well as negative publicity and reputational damage. As always, it’s easier to establish policies and procedures to maintain compliance than to flirt with the consequences of noncompliance.

Whether you’re facing an audit soon or may be subject to one in the future, there are some things you need to know.

About Lifeline

The goal of the Lifeline program is to ensure all Americans have the opportunity to access phone service in order to connect to jobs, family and emergency services. Low-income consumers in the United States who meet certain requirements can receive free or low-cost federally subsidized phone service from telecommunications companies.

Other features include:

1. To be eligible for the program, consumers must have an income that is at or below 135% of the federal poverty guidelines or participate in a qualifying state, federal or tribal assistance program (e.g., Medicaid, Supplemental Nutrition Assistance Program, Supplemental Security Income).
 
2. Federal rules prohibit eligible low-income consumers from receiving more than one Lifeline discount per household or economic unit. Consumers violating this rule may be subject to criminal and/or civil penalties.

3. An eligible consumer may receive a discount on either a wireline or wireless service, but not both.

4. The Lifeline program is administered by the Universal Service Administrative Company, which is responsible for data collection and maintenance, support calculation and disbursement for the low-income program. Telecommunications companies also must adhere to certain policies and procedures in screening Lifeline applicants.

5. The percentage of low-income households with phone service has increased from 80% in 1985, when Lifeline began, to nearly 92% last year.

5 procedural areas for review

As part of the biennial audit, carriers are required to fill out a background questionnaire that explains their procedures in five key areas. They’re also asked to provide supporting documentation of their practices. The areas for review are listed below, along with sample questions from each section:

  1. Enrollment, certification and activation: Who are the responsible parties for determining the eligibility of Lifeline subscribers?
  2. Recertification: Who are the responsible parties for confirming the continued eligibility of Lifeline subscribers?
  3. De-enrollment: In what ways does your company become aware that a subscriber is no longer eligible to receive Lifeline service (e.g., subscriber notification, state administrator notification, etc.)? After receiving notification from the Universal Service Administrative Company (USAC) that a subscriber is receiving a duplicate Lifeline-supported service, when is Lifeline service terminated for the applicable subscriber?
  4. FCC Form 497: How does your company determine which subscribers should be included in the monthly FCC Form 497 claim to USAC? What is your company’s process to prevent a subscriber from obtaining a duplicate Lifeline account?  
  5. Regulatory and compliance: Has your company been subject to any internal or external audits (including reviews, attestations or investigations) that include or relate to reimbursements received during the audit period?


Review of control environment

Telecommunications companies are also required to complete a preaudit questionnaire assessing the control environment in key areas and providing documentary evidence of compliance. These areas are listed below, along with sample questions from each section.

  • Control environment: Does the person/s reviewing and approving subscribers’ eligibility criteria possess the required knowledge, skills and abilities? Provide documentary evidence of training, along with copies of training materials on this subject.
  • Risk assessment: What mechanisms exist to identify risks of faulty reporting caused by such items as lack of current knowledge of, inconsistent application of, or carelessness or disregard for standards and reporting requirements of the Lifeline program?
  • Control activities: What manual criteria checklists or automated processes are used in making eligibility determinations and in ensuring compliance with other Lifeline program rules?
  • Information and communication: What channels of communication exist for people to report suspected improprieties? Has management clearly communicated the behavior that is expected?
  • Monitoring: Is periodic review of the internal controls in relation to subscriber eligibility determination conducted by management? Are IT application controls and general controls periodically reviewed to ensure they’re designed and operating effectively?
It’s worth noting that compliance with the Lifeline program’s rules and regulations can be challenging, which is why the FCC issued the Lifeline Reform Order that resulted in the biennial audit plan. Even companies that are well-aware of the expectations of the program can find themselves out of compliance, sometimes as a result of devious or uninformed actions by consumers and even employees, such as sales staff.

Whether subject to a biennial audit or not, the most proactive carriers will want to familiarize themselves with the requirements in the final audit plan and take steps to ensure their practices are in full compliance.

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