FCC Should Take Additional Action to Manage Fraud Risks in Its Program to Support Broadband Service in High-Cost Areas

GAO was asked to review funding reforms and fraud controls the Federal Communications Commission has implemented for rate-of-return carriers. This report examines the extent to which FCC: (1) has implemented funding reforms specific to rate-ofreturn carriers, and (2) is managing fraud risks for the high-cost program in accordance with leading practices. One of the reforms that GAO reviewed established a funding mechanism for the carriers whereby FCC determines the level of financial support to provide the carriers based on cost and revenue estimates produced by a model. Stakeholders told GAO that this model-based funding mechanism is less prone to fraud risks than the traditional cost-accounting funding mechanism, which reimburses carriers for their reported costs. However, FCC did not make use of this reform mandatory and a substantial number of rate-of-return carriers continue to receive support from the traditional funding mechanism. FCC officials said they developed the model-based funding mechanism in consultation with industry stakeholders. However, FCC officials said they did not have plans to assess the accuracy of cost estimates from the model, which has been in use for several years, or require carriers to receive model-based support as a way to reduce fraud risks. By assessing the model, FCC would have greater assurance that it is producing reliable cost estimates and be better positioned to determine whether to make its use mandatory.

FCC’s efforts do not fully align with some elements of GAO’s fraud risk framework, including:

• planning regular fraud-risk assessments tailored to the high-cost program, and
• designing and implementing an antifraud strategy for the program.

Without regular fraud-risk assessments of the high-cost program, FCC has no assurance that it has fully considered important fraud risks, determined its tolerance for risks that could be lower priorities, or made sound decisions on how to allocate resources to respond to fraud risks. Not doing so could result in FCC compensating carriers for improper, ineligible, or inflated costs. Furthermore, in the absence of an antifraud strategy, FCC has little assurance that it can prevent or detect the types of documented rate-of-return carrier misconduct that have previously occurred. Designing and implementing an anti-fraud strategy that conforms to leading practices would help FCC effectively manage and respond to the fraud risks identified during the fraud-risk assessments.