The Low Income Program
Initial Statistical Analysis of Data from the 2006/2007
Compliance Audits
By
Office of Inspector General
Federal Communications Commission 
October 3, 2007
2
Background and Introduction
This report contains a statistical analysis of data from the 2006/2007 audits of the 
Low Income Universal Service (“LI”) Program of the Federal Communications 
Commission (“FCC” or “Commission”).  The primary objective of the Inspector general 
(“IG”) in auditing the LI program was to produce data to measure the level of 
compliance of LI beneficiaries with Commission Rules and opinions interpreting those 
rules.  To assess compliance and risk, a stratified random sample of 60 Service Areas was 
drawn and compliance attestation examinations/audits were completed.  In addition, the 
audits were intended to produce data that would provide the basis for statistical estimates 
of the erroneous payment rate and the amount of erroneous payments, under the Improper 
Payments Information Act of 2002 (“IPIA”).1  Under the IPIA, estimates of both the 
erroneous payment rate and amount of erroneous payments may guide the Commission in 
assessing risk associated with the LI Program. Under IPIA standards, a program is at risk 
if the erroneous payment rate exceeds 2.5 percent and the amount of erroneous payment 
is greater than $10 million.
Statistical results from this stratified random sample suggest that the program is 
at risk.  The erroneous payment rate is estimated at 9.5 percent with a margin of error ± 
2.1 percent at the 90 percent confidence level. 2 Compliance with rules and regulations 
was generally high (85 percent or more), exceptions included: advertised supported 
services, link-up discount, determining consumer qualifications, officer certification, 
Form 497 submission, and record keeping.
Low Income Program Description
Program Overview
The LI Program of the Universal Service Fund (“USF”), which is administered by 
the Universal Service Administrative Company (“USAC”), is designed to ensure that
quality telecommunications services are available to low-income customers at just, 
reasonable, and affordable rates. Similar programs have existed since at least 1985. The 
Telecommunications Act of 1996 reiterated their importance by including the principle 
that "consumers in all regions of the nation, including low income consumers . . . should 
have access to telecommunications and information services . . ."3
  
1 Pub. L. 107-300, 116 Stat. 2350.
2 During the period audited, nearly $795.8 million were disbursed to recipients under the Low Income 
program,
3 47 U.S.C. § 254(b)(3). 
3
In its May 8, 1997 First Report and Order in the USF proceeding,4 the 
Commission established rules to govern Lifeline, Link Up, and Toll Limitation Service 
(TLS) program support - the three components of the LI Program.5 Lifeline support 
reduces eligible consumers' monthly charges for basic telephone service. Link Up 
support reduces the cost of initiating new telephone service. Toll Limitation Service 
support allows eligible consumers to subscribe to toll blocking or toll control at no cost.
On June 30, 2000, the FCC amended its rules to "increase access to 
telecommunications services and subscribership among low-income individuals living on 
American Indian and Alaska Native lands.6" As a result of this order, residents of federal 
tribal lands receive up to an additional $25 in Lifeline support (Tier 4 support) and an 
additional $70 in Link Up support to cover 100 percent of all charges between $60 and 
$130. These provisions bring the cost of basic local telephone service for most tribal 
residents to $1.00, the minimum charge for tribal Lifeline service. The order also 
expanded the federal default eligibility criteria to include low-income programs that 
residents of tribal lands were most likely to receive assistance from.
On April 29, 2004, the FCC released the Lifeline and Link Up Order7 further 
modifying the LI Program. The order expanded the eligibility criteria for qualifying 
consumers to include an income-based criterion and participation in National School 
Lunch free lunch program and Temporary Assistance for Needy Families (TANF) as 
additional criteria. By expanding the eligibility criteria to include an income-based 
criterion, the Commission estimated that 1.17 million to 1.29 million additional 
households that do not participate in the program-based criteria would enroll in Lifeline 
based on the new criteria.
In addition, the Lifeline and Link Up Order adopted certification and validation 
procedures that are designed to minimize potential abuse of the Low Income Program. 
The FCC required carriers that serve in federal default states to complete a verification of 
a statistically valid sample of their Lifeline customers and submit the results to USAC by 
June 22, 2005 and annually on that date. The Lifeline and Link Up Order also clarified 
recordkeeping requirements and adopted outreach guidelines for carriers.
Overview of Administrative Process
  
4 Federal-State Joint Board on Universal Service, CC Docket No. 96-45, Report and Order, 12 FCC Rcd 
8776 (FCC 97-157) (1977).
5 The Commission’s LI rules are codified at 47 C.F.R. § 54.400-417.
6 Federal-State Joint Board on Universal Service, CC Docket No. 96-45, Twelfth Report and Order, 
Memorandum Opinion and Order, 15 FCC Rcd. 12208 (FCC 00-208) (2000).
7 Interstate Common Line Support for Lifeline and Link-Up, WC Docket No. 03-109, Report and Order, 19 
FCC Rcd. 8302 (FCC 04-87) (2004) (“Lifeline and Link-Up Order”).
4
Consumers apply for Lifeline, Link Up, and Toll Limitation Service (TLS) 
support through their local telephone company or a designated agency.8 The companies 
then seek reimbursement from the federal USF LI Program for the revenue they forgo by 
providing discounted service to eligible low-income consumers. 
Eligible telecommunications carriers (“ETCs”) (incumbent local exchange 
companies (“ILECs”), competitive local exchange companies (“CLECs”), and wireless 
carriers so designated)  that have provided eligible consumers with Lifeline discounts file 
the Lifeline and Link-Up Worksheet (Form 497) with USAC to receive LI Program 
support, which reimburses them for providing service at discounted rates. Carriers must 
file one Form 497 for each month for which they claim support. Carriers may either file 
forms for three months on a quarterly basis or file one form monthly.
USAC pays companies based on a projection and then trues-up that amount when 
it receives a company's support claim on Form 497. Carriers can file original and revised 
Form 497s for up to 25 months depending on the time of year. Carriers frequently file 
revisions to update their support claims.
USAC routinely reviews carriers' support claims to ensure they are consistent 
with the Commission's rules. In addition to the review of the data submitted on Form 
497, USAC's Internal Audit Division conducts Low Income beneficiary audits to ensure 
program compliance.
USAC disburses Low Income support payments once each month. The payment 
amount disbursed to each company is a projection that is based on the company's 
historical support claims for the past twelve months.
Two months prior to the start of each quarter, USAC is required to file projections 
with the FCC for each support program. The Low Income projection is calculated by 
applying a growth rate across all carriers currently receiving low income support.
The application process for Lifeline and Link -p varies by state. In some states, 
consumers apply for Lifeline by contacting their local telephone company directly. In 
others, consumers must apply through a designated agency.  For information on how to 
apply for Lifeline and Link Up, consumers can visit USAC's Low Income Consumer 
website or call their local telephone company directly.
As note previously, USAC, reimburses eligible telecommunications carriers for 
providing Lifeline, Link Up, and Toll Limitation Service to eligible low-income 
  
8Eligibility for Lifeline, Link Up, and Toll Limitation Service (TLS) varies by state. Individuals who reside 
in states that have their own discount programs qualify for federal Lifeline, Link Up, and TLS support if 
they meet the eligibility criteria established by their state.
5
consumers. All ETCs receiving High Cost and LI support must provide all of the services 
described in the Commission's rules.  A wireline or wireless telephone company seeking 
reimbursement from the LI Program must be designated as an ETC by its state 
commission or, in some cases, by the FCC. In addition, all ETCs providing LI support 
services must ensure that their consumers are eligible for the discount based on the 
applicable state or federal requirements.9
Eligible telecommunications carriers must file the appropriate forms: ETCs that 
have provided eligible consumers with Lifeline discounts file the Lifeline and Link Up 
Worksheet (Form 497) with USAC to receive support that reimburses them for providing 
service at discounted rates. Additionally, as for all USF programs, ETCs must file: (1)
Form 499-Q, Quarterly Telecommunications Reporting Worksheet; (2) Form 499-A,
Annual Telecommunications Reporting Worksheet; and (3)Form 498, Service Provider 
Information Form.
Compliance and IPIA Audits
In early 2006, the Inspector General established two objectives that an audit of the 
LI Program was to achieve. The primary objective was to determine the extent of 
compliance with FCC rules, orders and interpretive opinions. Because the LI program 
was considered to possibly (although not definitely) be at risk10 based on analysis of 24 
transactions from the 2003-06 period, the second objective of the audit was to provide a 
statistical measure of the erroneous payment rate that could better inform future decision 
making under the IPIA. In order to determine compliance (as captured within the general 
administrative process for approval described above), a compliance audit of each 
recipient on a specific Service Area Provider was undertaken. With the IG’s use of a
compliance attestation examination, the auditee (management of the service provider) is 
required to sign an assertion letter acknowledging its responsibility for compliance with 
applicable requirements of Commission rules (e.g., 47 C.F.R §§ 54.400 - 54.417), as well 
as FCC orders and to make specific assertions relative to an applicant’s compliance with 
those Rules. Auditors validated or invalidated the assertions, and provide the cause(s) for 
the failure of an assertion.  That is, auditors determine whether a beneficiary of the LI
  
9States have primary responsibility for designating telecommunications providers as ETCs.  A carrier 
seeking ETC designation on non-tribal lands must first consult with its state utility regulator to see if the 
state utility regulator has ETC jurisdiction and procedures in place for seeking ETC status. If not, the 
carrier may petition the FCC and must provide an affirmative statement from the state utility regulator to 
that effect.  A carrier seeking ETC designation on tribal lands may directly petition the FCC for designation 
without first seeking designation from its state utility regulator.
10 FCC Report to Congress on Improper Payments, March 31, 2004.
6
program is in compliance with FCC rules and, if the beneficiary is not in compliance, the 
auditors provides the cause(s) of, or reason(s) for non-compliance.
Table 1 contains the assertion letter that each auditee signed.  Data generated from 
the compliance attestation audits, which were based on the assertions set out in Table 1 
below, where then analyzed statistically.
Table 1
EXAMPLE ASSERTIONS LETTER
FY 2005 Example Assertions Letter for Study Area Code (ADD)
Report of Management on Compliance with Applicable Requirements of 47 C.F.R. 
Section 54 of the Federal Communications Commission’s Rules, Regulations and 
Related Orders
Management of (name of telecommunications carrier) is responsible for ensuring that the 
carrier is in compliance with applicable requirements of the Federal Communications 
Commission (FCC) rules at 47 C.F.R. §§ 54.101, 54.201 -- 54.209, and 54.400 -- 54.417 
as well as related FCC Orders.
Management has performed an evaluation of the carrier’s compliance with the applicable 
requirements of FCC rules at 47 C.F.R. §§ 54.101, 54.201 -- 54.209, and 54.400 --
54.417, and related FCC Orders with respect to providing discounts to eligible low 
income consumers and seeking reimbursement from the Universal Service Fund (USF) 
during the year ended September 30, 2005.  
The Carrier makes the following assertions with respect to Low Income Program 
reimbursements received from the USF for Study Area Code (ADD) during the year 
ended September 30, 2005:
A. Carrier Eligibility – the (name of Telecommunications Carrier) asserts that it:
1. is an eligible telecommunications carrier (ETC) (47 C.F.R. §§ 54.201(a); 
Definition of eligible telecommunications carriers, generally, which discusses 
carrier eligibility) and provides the services required for eligibility (54.101(a): 
Services designated for support, and (b):  Requirement to offer all designated 
services; which describe the services that an eligible carrier must offer to 
receive federal universal service support)
7
2. makes available Lifeline service, as defined in 54.401, to qualifying low-
income consumers (47 C.F.R. § 54.405(a): Carrier obligation to offer lifeline, 
which discusses carriers’ obligations to offer, publicize, notify and allow 
lifeline services)
B. Advertising Supported Services – the (name of Telecommunications Carrier) asserts 
that it:
1. publicizes the availability of supported services in a manner reasonably 
designed to reach those likely to qualify for the service. Lifeline (47 C.F.R. § 
54.405:  Carrier obligation to offer lifeline,:  Link Up program defined and 
Toll Limitation Support services (47 C.F.R. § 54.201(d)(2):  Definition of 
eligible telecommunications carriers, generally, which requires the 
advertising of the availability of services)
C. Rate verification -- the (name of Telecommunications Carrier) asserts that it
1. provides discounts to qualifying subscribers for Lifeline service and requests 
reimbursement from USAC according to the following requirements and 
maximums:
i. Tier 1:  Available to all eligible Lifeline subscribers equal to the 
Incumbent  Local Exchange Carrier’s (ILEC’s) actual federal tariffed 
subscriber line charge (SLC), currently capped at $6.50 per month (47 
C.F.R. § 54.403 (a)(1):  Lifeline support amount, which discusses Tier 
1 support)
ii. (if carrier is a Competitive ETC), uses the subscriber line charge of the 
Incumbent LEC and also uses a reasonable average calculation if using 
the subscriber line charge(s) of multiple Incumbents.  47 C.F.R. § 
54.407:  Reimbursement for offering Lifeline, which discusses that 
carriers comply with USAC administrative procedures – in this case 
the FCC Form 497 requires that for multiple rates an average support 
amount should be used)
iii. Tier 2:  $1.75 per month available to qualified low-income consumers, 
if the carrier received any non-federal approvals necessary to 
implement the required rate reduction and passes through the full 
amount of Tier 2 support to the qualifying low-income consumer 
(47 C.F.R. § 54.403 (a)(2): Lifeline support amount, which discusses 
Tier 2 support)
iv. Tier 3:  An additional amount of federal Lifeline support equal to one-
half the amount of any State-mandated Lifeline support, or one half of 
any Lifeline support provided by the Service Provider, up to a 
maximum of $1.75 per month (47 C.F.R. § 54.403 (a)(3):  Lifeline 
8
support amount, which discusses Tier 3 support)
v. Tier 4:  Additional federal Lifeline support of up to $25 per month to 
eligible residents of tribal lands, as defined in § 54.400 (e), as long as the 
amount does not bring the basic local residential rate below $1 per 
month per qualifying low-income subscriber (47 C.F.R. § 54.403 (a)(4):  
Lifeline support amount, which discusses Tier 4 support)
2. provides discounts to qualifying subscribers for Link Up service and requests 
reimbursement from USAC according to the following requirements and 
maximums:
i. a reduction of half of the customary Carrier charge or $30, whichever 
is less, for commencing telecommunications service for a single 
telecommunications connection at a consumer’s principal place of 
residence (47 C.F.R. § 54.411 (a)(1):  Link Up program defined, which 
discussed the amount of the reduction)
ii. for an eligible resident of Tribal lands, an additional reduction of up to 
$70 to cover 100 percent of the charges between $60 and $130 for 
commencing telecommunications service for a single 
telecommunications connection at a consumer’s principal place of 
residence (47 C.F.R. § 54.411 (a)(3) ):  Link Up program defined, 
which discussed the amount of the additional reductions)
3. allows eligible consumers to voluntarily subscribe to toll blocking or toll 
control at no cost, and
i. maintains support, such as percent of participation, to demonstrate that 
consumers voluntarily elected the service (47 C.F.R. § 54.101(9):  Toll 
limitation for qualifying low-income consumers, which describes toll 
limitation services, and 54.417(a):  Recordkeeping requirements, 
which require that carriers maintain records to document compliance 
with FCC requirements)
ii. not charge a service deposit to customers electing the service 
(47 C.F.R. § 54.401(c):  Lifeline defined, which specifies that carriers 
may not collect a service deposit in order to initiate Lifeline service, if 
the qualifying low-income consumer voluntarily elects toll limitation 
service from the carrier) 
iii. only claim the incremental cost of providing the service (47 C.F.R. §§ 
54.403(c):  Lifeline support amount, which specifies that Lifeline 
support for providing toll limitation shall equal the ETC’s incremental 
cost of providing either toll blocking or toll control, and 54.417(a): 
Recordkeeping requirements, which require that carriers maintain 
9
records to document compliance with FCC requirements and Federal-
State Board on Universal Service, CC Docket No. 96-45, Report and 
Order, 12 FCC Rcd 8776, ¶¶ 385-389 (1997))
D. Consumer Qualification for Lifeline Service – the (name of Telecommunications 
Carrier) asserts that it:
1. maintains policies and procedures that are effectively implemented to review 
and certify consumer eligibility for Lifeline, Link Up and Toll Limitation 
services (47 C.F.R. § 54.410:  Certification and Verification of Consumer 
Qualification for Lifeline, which discusses the certification and verification 
requirements).  This includes that an officer of the carrier:
a. in a state that mandates state Lifeline support, certifies that the carrier 
is in compliance with state Lifeline income certification procedures 
and that, to the best of his/her knowledge, documentation of income 
was presented (47 C.F.R. § 54.410(b)(1):  Certification and 
Verification of Consumer Qualification for Lifeline, which requires 
compliance with state certification procedures to document consumer 
eligibility)
b. in a state that does not mandate state Lifeline support, certifies that the 
carrier has procedures in place to review income documentation and 
that, to the best of his/her knowledge, the carrier was presented with 
documentation of the consumer’s household income (47 C.F.R. § 
54.410(b)(2):  Certification and Verification of Consumer 
Qualification for Lifeline, which requires compliance with state 
certification procedures to document consumer eligibility)
c. by June 22, 2005, in states that mandate state Lifeline support, 
complies with state verification procedures to validate consumers’ 
continued eligibility for Lifeline (47 C.F.R. § 54.410 (c)(1):
Certification and Verification of Consumer Qualification for Lifeline, 
which requires compliance with state verification procedures to 
document consumer eligibility)
2. by June 22, 2005, in states that do not mandate Lifeline support, has 
implemented procedures to verify the continued eligibility of a statistically 
valid random sample of their Lifeline consumers and provided the results of 
the sample to the USAC.  If verifying income, an officer of the carrier 
certifies, under penalty of perjury, that the carrier has income verification 
procedures in place and that, to the best of his/her knowledge, the carrier was 
presented with corroborating income documentation.  In addition, the carrier 
has documentation that the consumer certified that he/she continues to 
participate in the Lifeline qualifying program or that the presented 
documentation accurately represents the consumer’s household income and 
10
the number of individuals in the household (47 C.F.R. § 54.410(c)(2):  
Certification and Verification of Consumer Qualification for Lifeline,  which 
requires compliance with state verification procedures to document consumer 
eligibility)
E. Submission of Lifeline and Link Up Worksheet (Form FCC 497) – the (name of 
Telecommunications Carrier) asserts that it:
1. submitted properly completed FCC Forms 497 for each month, representing 
discounts actually provided to subscribers, for the year ended September 30, 
2005, and has the required supporting documentation for the number of 
subscribers, rates and other information provided on the Form (47 C.F.R. 
54.407:  Reimbursement for offering Lifeline, which discusses carrier 
reimbursement for providing Low Income Program support and requires the 
carrier to keep accurate records in the form directed by USAC and provide the 
records to USAC)
F. General Recordkeeping Requirements – the (name of Telecommunications Carrier) 
asserts that:
1. it maintains records to document compliance with all FCC and state 
requirements governing the Lifeline and Link Up programs (47 C.F.R. §  
54.417(a):  Recordkeeping requirements, which require that carriers maintain 
records to document compliance with all FCC and state requirements 
governing the Low Income Program and provide documentation to FCC or 
USAC upon request)
2. if it sells Lifeline connections to non-ETC resellers, obtains certifications 
form the non-ETC reseller that it is complying with the FCC’s Lifeline and 
Link Up requirements (In the Matter of Lifeline and Link-Up, WC Docket No. 
03-109, Report and Order and Further Notice of Proposed Rulemaking, 19 
FCC Rcd 8302, ¶ 40 (2004), which clarified the recordkeeping obligations of 
non-ETC resellers that purchase Lifeline-discounted wholesale services from 
ETCs to offer discounted services to low-income consumers. 
11
Sample Design
The LI program sample design was a two-stage, stratified simple random sample 
of 60 SACs from a population data base of 1,555. The three strata were defined in terms 
of “total amount disbursed” as follows, with the number N of SACs in the population and 
number n in the random sample in parentheses:
1. Amount disbursed less than $500,000 (N=1,439, n=42.)
2. Amount disbursed from $500,000 to less than $25,000,000. (N=112, n=14.)
3. Amount disbursed from $25,000,000 and up. (N=4, n=4.)
Based on the analysis of the 24 audits of transaction data from 2003-06, it was 
estimated that a stratified sample of size 45 (32, 9, and 4 in the strata above) would 
produce a margin of error for the error rate of 2.5 percent at the 90 percent confidence 
level, assuming a full audit of all customers of the selected providers. USAC decided to 
increase the sample size to 60 to provide an extra margin of safety to account for the 
second stage of sampling as explained in the next paragraph.
Since it would be an almost impossible task to examine all twelve monthly 
statements from all customers of the service providers chosen in the first stage of 
sampling, a program to randomly sample customer statements throughout the year was 
developed using experimental design techniques. As it would be difficult for a provider 
to sample customers scattered throughout the year, the design featured assigning two 
months at random to each provider and then randomly select customer statements for 
audit in the assigned months. Specifically, the 66 possible pairings of months of the year
were randomly sorted and assigned to each of the 60 service providers chosen in the first 
stage of sampling. This resulted in each of the twelve months being assigned between 7 
(July) and 11 (May, August, December) times. A random sample of a minimum of 30 to 
60 customer invoices were selected and audited for each of the two months assigned to a 
provider. (This minimum number of invoices depended on the number of customers 
receiving benefits, and was chosen so that the margin of error for a specific provider was 
less than 2.5 percent assuming an improper payment rate of 5 percent, which was 
considered conservative in light of previous audits.) If the number of customers in a 
month was less than 30, then all invoices for that month were audited. At the discretion 
of the audit companies, the minimum sample sizes were increased in some cases.) In 
order to adequately capture all seven components of the Low Income program: Tiers I-
IV, TLS, Tribal and Non-Tribal Link-up, the sample of customer invoices was stratified 
when necessary so that at least 20-30 statements covering each component was audited.
12
Sample Selection
The sample of providers was chosen using SAS PROC SURVEYSELECT.
The assignment of months to selected providers was carried out by listing all 66 
possible pairs of months, randomly sorting the list and assigning the sorted list in order to 
each of the 60 selected providers. The expected (in the probability sense) number of 
times each month would be assigned to a provider is 10 (=60*[2/12]). Due to the 
randomness of the assignment process, the realized frequencies varied from 7 (July) to 11 
(May, August, December).
The sample of customers within each assigned month was chosen at random by 
the audit companies after creating a database listing of all customers for the month.
There were no issues associated with sampling.
Estimation Formulas11
The LI sample design was stratified into three strata. One stratum consisted of the 
four Service Providers with disbursements of $25,000,000 or more, all of which were 
audited.  Simple random samples were selected from the two strata.
To estimate the amount and proportion of erroneous payments in the population, 
the separate ratio estimator was used. The remainder of this section gives the formulas 
used to compute the separate ratio estimator and its margin of error.
The following notation is used:
ix = amount disbursed to Serving Area i.
iy = absolute value of improper payment amount to Serving Area i.
known population total of x.xt =
known population total of x in stratum h.xht =
Number of Serving Areas in stratum hhN =
sample size from stratum h.hn =
1
h i
ihh
xxn
Î
= å = sample mean disbursement x in stratum h.
1
ih
ihh
yyn
Î
= å = sample mean of improper payments y in stratum h.
  
11 See W.G. Cochran, Sampling Techniques, 3rd edition, John Wiley & Sons, New York (1977).
13
¶ h
h
h
yp
x==Proportion of erroneous payments in stratum h.
µ ¶
yh xh http= = estimate of total erroneous payments in stratum h.
µ µ
yyh
h
tt= å = separate ratio estimator of total erroneous payments.
µ y
x
tp
t=
$
= separate ratio estimator: population proportion of erroneous payments
µ
ii ihdypx=- = residual for serving area in stratum h.
1
h i
ihh
ddn
Î
= å = sample mean residual in stratum h.
( )22 1 1 hdh i
ihh
sddn
Î
=-- å = sample variance of residuals d in stratum h.
22111ME = (1.645)
hdh
hxhh
NstnNæö-ç÷
èøå
= 90 percent margin of error for separate ratio 
estimate of the proportion.
Estimation Results
The erroneous payment rate is estimated at 9.5 percent with a margin of error ± 
2.1 percent at the 90 percent confidence level.  
Compliance with rules and regulations was generally high (85 percent or more), 
exceptions being: (1) advertise supported services; (2) Link-Up discount; (3) determining 
consumer qualifications; (4) officer certification; (5)  Form 497 submission; and (6) 
record keeping.  See Table 2 for details.
Table 2
LOW INCOME PROGRAM COMPLIANCE*
ASSERTION
Materially Non-Material
A.1 Compliant Non-Compliant Non-Compliant Other
LOW INCOME ELIGIBILITY 100%
14
Materially Non-Material
A.2 Compliant Non-Compliant Non-Compliant Other
OFFER LIFELINE 100%
Materially Non-Material
B.1 Compliant Non-Compliant Non-Compliant Other
ADVERTISE SUPPORTED 
SERVICES 70.5% 20.7% 8.8%
Materially Non-Material
C.1.i Compliant Non-Compliant Non-Compliant Other
TIER 1 RATE 90.7% 4.9% 4.4%
Materially Non-Material
C.1.ii Compliant Non-Compliant Non-Compliant Other
TIER 1 USE OF ILEC RATE 94.7% 2.9% 2.4%
Materially Non-Material
C.1.iii Compliant Non-Compliant Non-Compliant Other
TIER 2 RATE 88.5% 9.3% 2.2%
Materially Non-Material
C.1.iv Compliant Non-Compliant Non-Compliant Other
TIER 3 RATE 84.6% 10.3% 5.1%
Materially Non-Material
C.1.v Compliant Non-Compliant Non-Compliant Other
TIER 4 RATE 93.4% 6.6%
Materially Non-Material
C.2.i Compliant Non-Compliant Non-Compliant Other
LINK UP DISCOUNT 73.5% 23.6% 2.9%
Materially Non-Material
C.2.ii Compliant Non-Compliant Non-Compliant Other
LINK UP DISCOUNT - TRIBAL 93.7% 6.3%
Materially Non-Material
C.3.i Compliant Non-Compliant Non-Compliant Other
SUPPORT OF TOLL ELECTION 87.8% 9.8% 2.5%
Materially Non-Material
C.3ii Compliant Non-Compliant Non-Compliant Other
NO DEPOSIT FOR LIFELINE 97.3% 2.7%
15
Materially Non-Material
C.3.iii Compliant Non-Compliant Non-Compliant Other
CLAIMS ONLY INCREMENTAL 
COST 93.9% 6.1%
Materially Non-Material
D.1 Compliant Non-Compliant Non-Compliant Other
DETERMINATION OF CONSUMER 
QUALIFICATION 58.9% 32.2% 8.9%
Materially Non-Material
D.2 Compliant Non-Compliant Non-Compliant Other
VERIFY ELIGIBILITY 
STATISTICALY (NON-
MANDATED) 96.0% 4.0%
Materially Non-Material
D.1.a Compliant Non-Compliant Non-Compliant Other
OFFICER CERTIFICATION (STATE 
MANDATED) 74.4% 22.7% 2.9%
Materially Non-Material
D.1.b Compliant Non-Compliant Non-Compliant Other
PROCEDURES FOR 
QUALIFICATION (NON-
MANDATED) 88.2% 11.8%
Materially Non-Material
D.1.c Compliant Non-Compliant Non-Compliant Other
VERIFY CONTINUED ELIGIBILITY 
(MANDATED) 86.2% 11.2% 2.6%
Materially Non-Material
E.1 Compliant Non-Compliant Non-Compliant Other
ACCURATE SUBMISSION OF 
FORM 497 55.6% 26.2% 18.2%
Materially Non-Material
F.1 Compliant Non-Compliant Non-Compliant Other
RECORDKEEPING 
REQUIREMENTS 62.6% 23.7% 13.7%
Materially Non-Material
Compliant Non-Compliant Non-Compliant Other
CERTIFICATION FROM 
RESELLERS 98.4% 1.6%
* Weighted Percent Totals 
16
Causes of Non-Compliance
When there was non-compliance on any assertion, data were collected on causes of non-
compliance.  Table 3 contains all 21 possible causes of non-compliance.  Data were collected 
such that, if an auditor found multiple causes of non-compliance, all causes of non-compliance 
information would be presented. 
Table 3
  
1-Imprecise FCC Rule/s
2-Contradictory FCC Rule/s
3-Overly Complex FCC Rules
4-Disregarded FCC Rule/s
5-Followed State Rule/s (apparent conflict with FCC Rule/s)
6-Followed USAC Procedures (apparent conflict with FCC Rule/s)
7-Inadequate Documentation Retention
8-Inadequate Auditee Processes and/or Polices and Procedures
9-Inadequate Systems for Collecting, Reporting, and/or Monitoring Data
10-Insufficient Resources/Time to Complete Task/Activity
11-Failure to Review/Monitor Work, Material, or Data/Application Submitted by 
Consultant/Agent
12-Applicant/Auditee Weak Internal Controls
13-Applicant/Auditee Data Entry Error
14-Service Provider Weak Internal Controls
15-Service Provider Data Entry Error
16-Service Provider Error (other)
17-USAC Error
18-SOLIX Error
19-NECA Error
20-Force Majeure (Acts of God and Nature)
21-Other
Table 4
LOW INCOME PROGRAM REASON FOR NON-COMPLIANCE*
Assertion N 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
B.1
ADVERTISE SUPPORTED SERVICES N 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Materially non-compliant 14 1 0 0 8 0 0 1 6 0 0 0 2 0 0 0 0 0 0 0 0 0
Non-materially non-compliant 4 0 0 0 0 0 0 0 3 0 0 0 0 0 0 0 0 0 0 0 0 1
17
C.1.i
TIER 1 RATE N 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Materially non-compliant 3 0 0 0 0 0 0 0 1 0 0 1 1 1 0 0 0 0 0 0 0 0
Non-materially non-compliant 2 0 0 0 0 0 0 0 1 1 0 0 1 0 0 0 0 0 0 0 0 0
C.1.ii
TIER 1 USE OF ILEC RATE N 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Materially non-compliant 2 0 0 0 0 0 0 0 1 0 0 0 1 1 0 0 0 0 0 0 0 0
Non-materially non-compliant 1 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
C.1.iii
TIER 2 RATE N 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Materially non-compliant 5 0 0 0 0 0 0 0 3 1 0 1 1 1 0 0 0 0 0 0 0 0
Non-materially non-compliant 1 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0
C.1.iv
TIER 3 RATE N 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Materially non-compliant 6 0 0 0 0 0 0 0 3 1 0 1 2 1 0 0 0 0 0 0 0 0
Non-materially non-compliant 3 0 0 0 0 0 0 0 1 2 0 0 0 0 0 0 0 0 0 0 0 0
C.1.v
TIER 4 RATE N 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Materially non-compliant 4 0 0 0 0 0 0 0 1 1 0 0 2 1 0 0 0 0 0 0 0 0
C.2.i
LINK UP DISCOUNT N 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Materially non-compliant 15 0 0 0 0 0 0 1 8 2 0 0 5 1 0 0 0 0 0 0 0 1
Non-materially non-compliant 2 0 0 0 1 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0
C.2.ii
LINK UP DISCOUNT-TRIBAL N 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Materially non-compliant 2 0 0 0 0 0 0 0 1 0 0 0 2 0 0 0 0 0 0 0 0 0
C.3.i
SUPPORT OF TOLL ELECTION N 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Materially non-compliant 7 0 0 0 0 0 0 0 4 2 0 0 2 1 0 0 0 0 0 0 0 0
Non-materially non-compliant 1 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0
C.3.ii
NO DEPOSIT FOR LIFELINE N 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Materially non-compliant 2 0 0 0 0 0 0 0 2 0 0 0 0 0 0 0 0 0 0 0 0 0
C.3.iii
CLAIMS ONLY INCREMENTAL COST N 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Materially non-compliant 5 0 0 0 0 0 0 1 3 0 0 0 2 0 0 0 0 0 0 0 0 0
D.1 DETERMINATION OF CONSUMER
QUALIFICATION N 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Materially non-compliant 24 2 0 0 7 0 0 10 14 2 0 0 5 0 1 0 0 0 0 0 0 0
Non-materially non-compliant 5 0 0 0 1 0 0 1 1 0 0 0 0 0 0 0 0 0 0 0 0 2
18
D.2 VERIFY ELIGIBILITY STATISTICALLY
(NON-MANDATED) N 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Materially non-compliant 1 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0
D.1.a
OFFER CERTIFICATION (STATE-MANDATED) N 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Materially non-compliant 11 0 0 0 2 0 0 2 10 1 0 0 1 0 0 0 0 0 0 0 0 0
Non-materially non-compliant 1 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0
D.1.b PROCEDURES FOR QUALIFICATION
(NON-MANDATED) N 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Materially non-compliant 4 1 0 0 2 0 0 2 2 0 0 0 3 0 0 0 0 0 0 0 0 0
D.1.c VERIFY CONTINUED ELIGIBILITY
(MANDATED) N 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Materially non-compliant 5 0 0 0 0 0 0 3 3 0 0 0 1 0 0 0 0 0 0 0 0 0
Non-materially non-compliant 1 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0
E.1
ACCURATE SUBMISSION OF FORM 497 N 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Materially non-compliant 23 1 0 0 5 0 1 0 11 11 0 0 5 1 1 1 0 0 0 0 0 0
Non-materially non-compliant 10 0 0 0 1 0 0 3 1 3 0 1 0 1 0 0 1 0 0 0 0 0
F.1
RECORDKEEPING REQUIREMENTS N 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Materially non-compliant 20 0 0 0 2 0 0 17 3 0 0 0 2 0 0 0 0 0 0 0 0 0
Non-materially non-compliant 7 0 0 0 0 0 0 6 1 0 0 0 1 0 0 0 0 0 0 0 0 0
F.2
CERTIFICATION FROM RESELLERS N 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Materially non-compliant 3 0 0 0 3 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
* Cause
1-Imprecise FCC Rule/s
2-Contradictory FCC Rule/s
3-Overly Complex FCC Rules
4-Disregarded FCC Rule/s
5-Followed State Rule/s (apparent conflict with FCC Rule/s)
6-Followed USAC Procedures (apparent conflict with FCC Rule/s)
7-Inadequate Documentation Retention
8-Inadequate Auditee Processes and/or Polices and Procedures
9-Inadequate Systems for Collecting, Reporting, and/or Monitoring Data
10-Insufficient Resources/Time to Complete Task/Activity
11-Failure to Review/Monitor Work, Material, or Data/Application Submitted by Consultant/Agent
12-Applicant/Auditee Weak Internal Controls
13-Applicant/Auditee Data Entry Error
14-Service Provider Weak Internal Controls
15-Service Provider Data Entry Error
19
16-Service Provider Error (other)
17-USAC Error
18-SOLIX Error
19-NECA Error
20-Force Majeure (Acts of God and Nature)
21-Other
**N is the sample size sample size
Causality Code #8: ‘Inadequate auditee processes and/or policies and procedures’
is by far the greatest ‘cause’ of non-compliance. Other frequently cited causes depend on 
the nature of the rule/regulation. 
Qualitative Discussion and Conclusions
The Low Income Program of USF appears to be at risk. The estimated erroneous 
payment rate is 9.5 percent. There was, however, general compliance with FCC Rules 
and Regulations (85 percent or more) with several  notable exceptions. The percentage 
of carriers that did not materially comply with the requirement to advertise supported 
services was 20.7 percent, and the percentage of carriers that non-materially comply with 
this requirement was 8.8 percent.  There was non compliance on Assertion C.2.i  which is 
associated with link-up, and 23.6 percent of carriers were materially non-compliant 2.9
percent of carriers were non-materially non-compliant. 
There was non-compliance on Assertion D1 which requires carriers to determine 
qualifications of consumers. 32.2 percent of carriers were materially non-compliant and 
8.9 percent were non-materially, non-compliant. A non-compliance rate of 41.1 percent
suggests that there are incentives for both consumers and carriers to unnecessarily 
transact this subsidized service. 
The non-compliance rate on Assertion D1a (officer certification) was relatively 
high at 25.6 percent of the population of carriers. In addition, the requirement of 
accurately submitting Form 497 was violated by 44.4 percent of the population of carrier, 
with material non-compliance at 26.2 percent. Assertion F1 concerns record keeping, and 
on this rule 37.4 percent of carriers were non-compliant with 23.7 percent materially non-
compliant.  
Where auditors could render opinions on compliance/non-compliance with FCC 
rules more frequently observed causes of non-compliance are: Inadequate documentation, 
inadequate systems for collecting & reporting and inadequate auditee processes; and 
Applicant/Auditee Weak Internal Controls.
20
Under the IPIA, estimates of both the erroneous payment rate and amount of 
erroneous payment are intended guide the Commission in assessing risk that is associated 
with the Low Income Program.  Under IPIA standards, a program is at risk if the 
erroneous payment rate exceeds 2.5 percent and the amount of erroneous payment is 
greater than $10 million.  To assess compliance and risk, a stratified random sample of 60 
SACs was drawn and compliance attestation examinations/audits were completed.  The 
statistical results from this stratified random suggest that the program is at risk, and there 
are significant administrative problems in the program. As noted above, the erroneous 
payment error rate is 9.5 percent.