Telecommunications: FCC Does Not Know if All Required Fees Are Collected
(Letter Report, 08/31/1999, GAO/RCED-99-216).

Pursuant to a congressional request, GAO provided information on the
effectiveness of the Federal Communications Commission's (FCC) fee
collection activities, focusing on: (1) FCC's controls for ensuring that
required regulatory and application fees are paid; and (2) the extent to
which FCC is collecting the civil monetary penalties resulting from its
enforcement actions against entities that have violated its regulations.

GAO noted that: (1) FCC does not know if it is collecting all its
required fees; (2) in the case of regulatory fees, FCC relies heavily on
the telecommunications industry to comply voluntarily with its fee
payment schedule because it does not have a system in place to ensure
that all appropriate fees are being paid; (3) FCC does not have
sufficient information to: (a) identify all the entities that should pay
regulatory fees; and (b) determine whether these entities have paid the
full amounts required; (4) in addition, FCC's fee collection database is
not linked to its licensing databases, making it difficult for FCC to
perform routine automated checks on whether all licensees have paid
their regulatory fees; (5) nevertheless, FCC has the capability to
undertake substantive oversight efforts using the information it does
have; (6) in 1998, it used available information to check on regulatory
fee collection for radio stations, identifying over 800 stations that
did not pay required fees and collecting nearly $600,000 in past-due
fees and late payment penalties; (7) however, this type of special
effort is not routinely done by FCC bureaus; (8) regarding application
fees, GAO's examination of a random sample of applications processed by
five FCC bureaus found that four of the bureaus did not have adequate
documentation that fees were paid in many cases; (9) FCC's Office of
Inspector General also has evaluated FCC's fee collection database and
reported that FCC could not provide supporting documentation for almost
half of the transactions selected for review; (10) both FCC's Office of
Managing Director and Office of Inspector General have initiatives under
way aimed at improving the fee collection processes; (11) these actions
are in early stages, however; (12) FCC reported to the Department of the
Treasury that, at the end of fiscal year 1998, it had an uncollected
balance of about $15 million in civil monetary penalties; (13) GAO found
that the FCC's reports to the Treasury contain errors and are therefore
not reliable; (14) as a result, GAO cannot reach any conclusions about
the effectiveness of FCC's collection of civil monetary penalties; (15)
data problems aside, FCC officials maintain that it is difficult to
predict how much of the outstanding balance of proposed or assessed
penalties ultimately will be collected because most of the penalties
listed in the Treasury report are not yet legally enforceable debts; and
(16) on the basis of experience from prior years, these officials
estimate that about 75 percent of the outstanding proposed or assessed
penalties will remain uncollected.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  RCED-99-216
     TITLE:  Telecommunications: FCC Does Not Know if All Required Fees
	     Are Collected
      DATE:  08/31/1999
   SUBJECT:  Fines (penalties)
	     Regulatory agencies
	     Telecommunication industry
	     Fees
	     Data bases
	     Internal controls
	     Data integrity
	     Government collections

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Cover
================================================================ COVER

Report to the Chairman, Permanent Subcommittee on Investigations,
Committee on Governmental Affairs, U.S.  Senate

August 1999

TELECOMMUNICATIONS - FCC DOES NOT
KNOW IF ALL REQUIRED FEES ARE
COLLECTED

GAO/RCED-99-216

FCC's Fees Collection Activities

(385761)

Abbreviations
=============================================================== ABBREV

  FCC - Federal Communications Commission
  OMB - Office of Management and Budget

Letter
=============================================================== LETTER

B-281140

August 31, 1999

The Honorable Susan M.  Collins
Chairman, Permanent Subcommittee
 on Investigations
Committee on Governmental Affairs
United States Senate

Dear Madam Chairman: 

In 1993, the Congress directed the Federal Communications Commission
(FCC) to begin recovering the cost of its regulatory activities by
collecting fees from the telecommunications industry.  Since then,
the collection of regulatory fees has become an increasingly
important activity for FCC.  In fiscal year 1998, over 70 percent of
FCC's new budget authority of $222 million was offset through these
regulatory fees, thereby greatly reducing the need for appropriated
funds to support FCC's operations.\1 FCC also requires that companies
and individuals submitting applications for action by the Commission
pay a fee before the application can be considered.  Since 1990,
these fees have brought in from $28 million to $51 million annually
to the General Fund of the U.S.  Treasury. 

During an investigation into telephone services fraud done at your
request, our Office of Special Investigations tested FCC's filing
procedures for telephone companies and found that it could file
documents (tariffs) describing long-distance rates without paying the
required fee.\2 Concerned about the effectiveness of FCC's fee
collection activities, you asked us to (1) review FCC's controls for
ensuring that required regulatory and application fees are paid and
(2) provide information on the extent to which FCC is collecting the
civil monetary penalties resulting from its enforcement actions
against entities that have violated its regulations. 

--------------------
\1 This figure includes regulatory fees credited to FCC's salaries
and expenses account.  Other offsetting funds, such as those related
to spectrum auctions, are outside the scope of this report. 

\2 See Telecommunications:  Telephone Slamming and Its Harmful
Effects (GAO/OSI-98-10, Apr.  21, 1998). 

   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

FCC does not know if it is collecting all its required fees.  In the
case of regulatory fees, FCC relies heavily on the telecommunications
industry to comply voluntarily with its fee payment schedule because
it does not have a system in place to ensure that all appropriate
fees are being paid.  Specifically, FCC does not have sufficient
information to (1) identify all the entities that should pay
regulatory fees and (2) determine whether these entities have paid
the full amounts required.  In addition, FCC's fee collection
database is not linked to its licensing databases, making it
difficult for FCC to perform routine automated checks on whether all
licensees have paid their regulatory fees.  Nevertheless, FCC has the
capability to undertake substantive oversight efforts using the
information it does have.  In 1998, for example, it used available
information to check on regulatory fee collection for radio stations,
identifying over 800 stations that did not pay required fees and
collecting nearly $600,000 in past-due fees and late payment
penalties.  However, this type of special effort is not routinely
done by FCC.  Regarding application fees, our examination of a random
sample of applications processed by five FCC bureaus found that four
of the bureaus did not have adequate documentation that fees were
paid in many cases.  FCC's Office of Inspector General also has
evaluated FCC's fee collection database and reported that FCC could
not provide supporting documentation for almost half of the
transactions selected for review.  Both FCC's Office of Managing
Director and Office of Inspector General have initiatives under way
aimed at improving the fee collection processes.  These actions are
in early stages, however. 

FCC reported to the Department of the Treasury that, at the end of
fiscal year 1998, it had an uncollected balance of about $15 million
in civil monetary penalties.  However, we found that the FCC's
reports to the Treasury contain errors and are therefore not
reliable.  As a result, we cannot reach any conclusions about the
effectiveness of FCC's collection of civil monetary penalties.  Data
problems aside, FCC officials maintain that it is difficult to
predict how much of the outstanding balance of proposed or assessed
penalties ultimately will be collected because most of the penalties
listed in the Treasury report are not yet legally enforceable debts. 
On the basis of experience from prior years, these officials estimate
that about 75 percent of the outstanding proposed or assessed
penalties will remain uncollected. 

This report recommends that FCC (1) take better advantage of
available information to improve its oversight of regulatory fee
collection, (2) establish procedures for ensuring that application
fees are paid before applications are processed, and (3) correct
unreliable data on civil monetary penalties and the internal control
weaknesses that led to the errors. 

   BACKGROUND
------------------------------------------------------------ Letter :2

The Omnibus Budget Reconciliation Act of 1993 directed FCC to assess
and collect annual regulatory fees in order to recover the costs
incurred in carrying out its enforcement, policy and rulemaking,
international, and user information activities.  Under FCC's rules,
telecommunications entities are required to pay annual regulatory
fees if they are subject to FCC regulations, regardless of whether
they have direct dealings with FCC.\3 Ideally, FCC would need to know
all the entities that are subject to its regulations to ensure proper
fee collection.  In practice, this is a difficult task, given the
rapid pace of change in the makeup of the telecommunications
industry. 

Separate sets of fees are associated with the various types of
telecommunications services, such as radio and television stations,
cable television systems, interstate telephone service providers, and
satellite communications companies.  The fees for each of these
services are based on several factors, such as (1) the costs of
performing regulatory activities, (2) an estimate of the number and
size of the entities subject to each type of regulatory fee, and (3)
the amount that the Congress directs FCC to recover annually through
regulatory fees.  Each year, FCC's Office of Managing Director
prepares and issues a new regulatory fee schedule that adjusts the
fees on the basis of changes in these factors.  For fiscal year 1998,
regulatory fees ranged from under $50 to more than $160,000,
depending on the type of telecommunications service. 

Fees play an important role in FCC's budget, since collections from
regulatory fees and certain other sources are used to offset FCC's
appropriation on a dollar-for-dollar basis.  As shown in table 1, FCC
has become a fee-reliant agency in recent years mainly though its
regulatory fees.\4 For example, in both fiscal years 1997 and 1998,
regulatory fees offset about 70 percent of FCC's total budget
authority.  In fiscal year 1998, the $190 million that FCC collected
from regulatory fees and other sources reduced the need for
appropriated funding to about $32 million. 

                                Table 1
                
                Historical Overview of FCC's Offsetting
                Collections Credited to Its Salaries and
                            Expenses Account

                         (Dollars in millions)

                                           Funding from offsetting
                                                 collections
                                        ------------------------------
                 Total
                   new

                budget
Fiscal          author    Funding from      Regulatory           Other
year               ity  appropriations            fees       sources\a
--------------  ------  --------------  --------------  --------------
1993              $141            $140            None        Under $1
1994               168             102             $59               7
1995               210              69             116              25
1996             202\b              59             124              19
1997               223              35             157            31\c
1998               222              32             159            31\c
----------------------------------------------------------------------
\a ï¿½Other sourcesï¿½ includes interagency reimbursables and auctions
receipts to fund the Spectrum Auctions Program. 

\b Does not include about $8 million in available unobligated funds
from various sources. 

\c Offsetting collections for the administrative costs to support the
Spectrum Auction Credit Program Account are reported separately in
the President's Budget Request and are paid from auction receipts. 

Source:  Office of Managing Director, FCC. 

From fiscal years 1995 through 1997, FCC's collection of regulatory
fees exceeded the obligation limitations set by the Congress.\5 For
fiscal year 1998, however, FCC's collections fell about $7 million
short of the target amount.  For fiscal year 1999, the Congress
raised the amount of regulatory fees that FCC is to collect to $172.5
million. 

In addition to annual regulatory fees, FCC collects application fees
as authorized under section 8 of the Communications Act of 1934, as
amended.  An applicant is required to pay a fee whenever applying for
certain types of actions by the Commission, such as the approval of
an operating license, technical certification, a change in a
station's identifying call sign, a construction permit, or transfer
of control.  For fiscal year 1998, the fees ranged in size from under
$50 for routine applications, to about $8,000 for certain types of
hearings, to more than $250,000 to launch a communications satellite. 
Unlike regulatory fees, application fees are deposited into the
General Fund of the U.S.  Treasury and are not used to offset FCC's
appropriation.  The amount of application fees collected is also much
smaller than regulatory fees.  In fiscal year 1998, application fees
brought in about $32 million. 

One of FCC's most important functions is to ensure compliance with
its rules.  Violations can disrupt the orderly provision of
telecommunications services and compromise public safety.  Section
503 of the Communications Act of 1934, as amended, authorizes FCC to
assess civil monetary penalties (called ï¿½forfeituresï¿½) against those
who violate the Communications Act or the Commission's regulations. 
Some types of actions that have resulted in penalties include
operating an unlicensed broadcast station, selling unauthorized radio
equipment, and changing consumers' long-distance telephone carriers
without permission. 

--------------------
\3 There are some exceptions.  For instance, governmental and
nonprofit entities are exempt from regulatory fees. 

\4 See Federal User Fees:  Budgetary Treatment, Status, and Emerging
Management Issues (GAO/AIMD-98-11, Dec.  19, 1997) for a discussion
of other agencies that rely heavily on offsets from fees. 

\5 Each fiscal year, the Congress establishes an obligation
limitation on how much FCC can spend from regulatory fees. 
Regulatory fees collected in excess of this amount remain available
for use in subsequent fiscal years.  For example, the $159 million in
fiscal year 1998 regulatory fees is made up of $155 million in
current year regulatory fees and $4 million in regulatory fees
collected in prior years. 

   FCC DOES NOT KNOW IF ALL FEES
   ARE BEING PAID
------------------------------------------------------------ Letter :3

FCC does not know if all required fees are being paid.  In the area
of regulatory fees, FCC relies on members of the telecommunications
industry to comply voluntarily with its fee payment schedule, since
it lacks the necessary information and systems to verify that every
entity that should pay a fee has done so.  Nevertheless, FCC can use
information it currently has to undertake substantive oversight
efforts.  In 1998, for example, FCC was able to identify over 800
radio stations that had not paid their required regulatory fees. 
However, oversight efforts such as this have not been routinely
undertaken by FCC.  As for application fees, our review of files at
five FCC bureaus showed that while one bureau was able to produce
documentation showing that fees were paid for all but a few cases,
the other four bureaus were unable to produce documentation showing
that the required fees were paid in 18 to 71 percent of cases.  FCC's
Office of Managing Director and Office of Inspector General are both
aware of problems with FCC's fee collection, and actions are under
way that could strengthen the collection process.  These actions are
in the early stages, however, and it is too early to assess their
effectiveness. 

      REGULATORY FEES
---------------------------------------------------------- Letter :3.1

According to FCC officials, there are two reasons why FCC does not
verify whether all entitites that should pay regulatory fees are
doing so.  First, while most FCC bureaus maintain databases of
information on companies that have asked for a license or have been
subject to other regulatory action, these databases do not contain
information on entities that are subject to regulatory fees but are
not licensed by FCC.  For example, the databases do not include many
telephone companies because while they are required to report their
rates to the Commission, they are not required to have a license. 
Second, even when FCC has licensing information on an entity, the
information may not be current because of changes in the company's
name, ownership, address, or identifying call sign.  For example,
radio stations have recently seen a high annual turnover in ownership
and many changes in the stations' identifying call signs.  Station
ownership may even change between the time the annual regulatory fee
notice is sent out and the time payment is due. 

Additionally, FCC's licensing databases do not always contain
information necessary to determine whether an entity has paid the
full amount of regulatory fees that it owes.  Some regulatory fees
are for fixed amounts, such as those for communications satellites. 
However, many regulatory fees are determined by the size of the
entity as measured by the broadcast market served (as with television
and radio stations), the number of subscribers served (as with cable
services), or the amount of revenue generated (as with telephone
companies).  Without information on an entity's size, it is difficult
for FCC to check on the accuracy of payment.  For example, FCC's fee
schedule requires some commercial radio operators to pay a fee that
is based on the number of units (such as pagers or radio sets) in
service, but the Commission does not require the operators to report
the number of units they have in service during the licensing
process. 

Even where information is available to FCC, several factors can limit
FCC's ability to use it to determine if required fees were paid.  For
example, FCC's licensing databases are not linked electronically to
the database that stores information on who has paid fees.  Any
comparisons between them must be done manually.  In addition, FCC
does not assign unique, agencywide identifiers to the entities it
deals with in order to track them in its databases when their name,
call sign, or ownership change.  The lack of unique identifiers makes
it difficult for FCC to match the names of those entities that paid
fees with those that owed them. 

To illustrate this point, we attempted to manually match the names of
more than 2,500 telephone companies operating in fiscal year 1998
with the names of companies listed in FCC's fee collection database
as having paid a regulatory fee that year.  We were able to match
only about 19 percent of the company names with those listed in the
fee collection database, even allowing for some variations in the
names.  (For example, when we found companies with multiple similar
names, such as Bell Atlantic Mobile and Bell Atlantic Virginia, we
counted all the fees as paid if any of the names appeared in the fee
database.) We also attempted to match the names of nearly 800
telephone companies that notified FCC of changes in their rates in
fiscal year 1998 with those listed in the fee collection database but
could match only 38 percent.  Our inability to find matches does not
necessarily mean that these entities did not pay their annual
regulatory fees, since FCC and industry officials told us that it is
possible that fees were paid under a different company name.  But
without an unambiguous means of identifying a company through a
unique identifier, we could not determine the extent to which these
companies complied with FCC's fee payment rules. 

While FCC does not attempt to verify that all entities subject to
regulatory fees have paid them, it has demonstrated that it can use
its existing information to identify some entities that may not have
paid their fees.  For example, FCC mounted a special effort during
1998 to determine whether all AM and FM radio stations paid their
regulatory fees for fiscal year 1997.  FCC manually compared radio
stations' licensing information with the list of stations that paid
their regulatory fees and found nearly 1,000 stations that did not
appear in the fee database for fiscal year 1997.  After contacting
these stations, FCC netted an additional $594,000 in past-due fees
and late penalties from nearly 800 stations.  Another 79 stations
were able to prove that they had paid the fee or were exempt.  FCC
plans to collect the remaining outstanding balance through additional
actions against roughly 100 stations. 

In other areas, FCC suspects that some entities may not have paid the
appropriate fees but has not determined the extent of actual
noncompliance.  In May 1999, FCC's Common Carrier Bureau raised
concerns that some telephone companies may not have paid their
regulatory fees or may have paid an incorrect amount.  For example,
after manually reviewing the fee database, the bureau could not
confirm whether 113 companies paid any regulatory fees in 1997,
estimating that the fees in question could amount to almost $10
million.  Also, officials in the Office of Managing Director stated
that the office is planning to review the fees paid by some broadcast
stations in fiscal year 1998 because these stations appear to have
paid about $1.2 million less in fees than required. 

FCC's fee schedule includes a deadline by which regulatory fees must
be paid.  Section 9 of the Communications Act of 1934, as amended,
authorizes the Commission to assess a penalty for the late payment of
regulatory fees, amounting to 25 percent of the fee that was not paid
by the deadline.  However, FCC did not enforce this provision against
late filers until last year when, for the first time, it sent notices
to all entities that paid the regulatory fee after the closing date
specified in the order, informing them that they owed a 25-percent
late fee.  FCC estimates that about 1,300 entities owed a total of
about $760,000 in late fees.  FCC informed us that as of August 5,
1999, it had billed all late filers and had collected $247,721 in
late fees.  Officials in FCC's Office of Managing Director stated
that they intend to continue to enforce the penalty for late payments
in coming years. 

      APPLICATION FEES
---------------------------------------------------------- Letter :3.2

Five of FCC's bureaus--Wireless Telecommunications, Mass Media,
Common Carrier, Cable Services, and International--process
applications related to the entities they regulate.  In most cases,
the applicant is required to send to the Mellon Bank in Pittsburgh,
Pennsylvania, an FCC application form describing the type of
transaction requested, along with an FCC ï¿½Remittance Adviceï¿½ form and
payment of the appropriate application fee as specified in FCC's
schedule of application fees.\6 Mellon Bank stamps the paperwork with
a receipt date, assigns a fee control number, deposits the payment
with the U.S.  Treasury, enters data from the application into the
fee collection database, and forwards the application material and
copies of proof of payment, such as a check or electronic payment
number, to the appropriate FCC bureau for processing. 

According to Office of Management and Budget (OMB) Circular A-123,
federal agencies are required to promptly record financial
transactions, and documentation for transactions and related
procedures must be clear and readily available for examination. 
However, while FCC officials told us that staff in each bureau are to
check each application for proof that the fee has been paid prior to
taking action on the application, none of the bureaus were able to
provide us with written policies documenting the procedures followed
during this process.  Additionally, we identified many cases in which
adequate documentation did not exist to show that application fees
were paid, as shown in table 2.  Although FCC was able to provide
supplemental information from other sources to show that the fee was
paid in some of the cases, only one bureau had sufficient information
to show that the fees were paid in nearly all of the cases we
selected. 

                                         Table 2
                         
                            Results of Application File Review

                     Percentage of      Percentage of
                  applications for   applications for
                         which the    which FCC staff                       Percentage of
                   application and           provided                    applications for
                          adequate       supplemental                           which the
                  documentation of        information     Percentage of  application and/
                      payment were        adequate to      applications       or adequate
                    located in the   demonstrate that    claiming to be  documentation of
                  application file    the application       exempt from     payment could
Bureau             reviewed by GAO       fee was paid      paying a fee    not be located
----------------  ----------------  -----------------  ----------------  ----------------
Mass Media                      17                  4                20                59
Cable Services                  28                  0                 1                71
Wireless                        37                 31                32                 1
 Telecommunicati
 ons
International                   45                 24                14                18
Common Carrier                  62                 15                 3                20
-----------------------------------------------------------------------------------------
Note:  Percentages may not add to 100 because of rounding. 

Source:  GAO's analysis of FCC's records. 

Specifically, we examined two types of evidence to reach our
conclusions.  First, we examined the documentation in the files
associated with 150 to 200 applications filed in the five bureaus
during fiscal year 1998.  We found that only 17 to 62 percent of the
files contained both a copy of the application and proof of payment. 
For example, as shown in the first column of data in table 2, only 28
percent of the Cable Services files we reviewed contained copies of
both documents.  According to bureau officials, there are several
explanations for why some files do not contain documentation showing
that the fee was paid.  Officials from the Cable Services and Mass
Media bureaus stated that when an application that covers multiple
stations is received, the original application is placed in one
station's file, and the other stations' files may not get copies. 
Also, officials from the Common Carrier and International bureaus
indicated that the application files are made available to the
public, who could alter or remove some files. 

We provided FCC with a list of the applications for which we could
not find adequate documentation in the files to show that an
application fee was paid.  The bureaus were able to provide
supplemental documentation showing that an application fee was paid
in up to 31 percent of the cases.  For example, as shown in the
second column of data in table 2, the International Bureau provided
further documentation to show that the required fee was paid for an
additional 24 percent of the applications we selected.  In many other
cases, however, the bureaus provided evidence that a fee was paid,
but the evidence was not sufficient to show that the fee was related
to the application we selected.  For example, in about one-third of
the cases for which the bureaus provided additional information, a
fee control number was provided as proof of payment, rather than a
copy of the check.  When the fee data generated by Mellon Bank
included a reference to the application in question, we considered
that data as adequate proof of payment.  However, in many cases, the
only identifying information in the data file was the name of the
applicant, the date and amount of payment, and the fee type.  Because
it is not uncommon for some applicants to submit several of the same
types of applications within a short period of time, it is not always
possible to determine which application a fee is associated with. 
For example, five of the fee numbers provided by the Cable Services
Bureau suggest that the fees were paid nearly a year before the
applications were filed, and one suggests that the fee was paid more
than a month after the application was filed.  It is possible,
though, that the fees associated with the numbers provided by the
bureau were actually related to other applications filed by the same
licensee.  Also, the Mass Media Bureau provided copies of
applications and FCC's Remittance Advice forms as proof that the fee
was paid.  However, these documents themselves are not adequate proof
that the fee was paid because they do not indicate that a payment was
received by Mellon Bank. 

The bureaus also identified files that were exempt from the
requirement to pay an application fee.  As shown in the third column
of data in table 2, from 1 to 32 percent of the files we examined in
the bureaus were identified by the applicant or the bureau as being
exempt from paying the fee.  In most cases, the exemptions were based
on the type of application being filed, such as a change of address,
which does not require a fee.  In about one-third of the cases, an
exemption was claimed because the applicant was identified as a
government entity.  FCC requires those claiming an exemption from
regulatory fees to provide documentation to confirm that they are
entitled to the exemption.  However, FCC does not require those
entities claiming to be exempt from application fees to provide any
proof of their exempt status.  Instead, FCC relies on applicants to
self-certify that they are entitled to an exemption by checking off a
box on their application forms. 

After examining the application files and supplemental information,
we concluded that the Wireless Telecommunications Bureau was the only
bureau to provide an application and documentation showing that a fee
was paid or not required for almost all of its files.  The other
bureaus could not provide documentation to show that a fee was paid
or not required for 18 to 71 percent of their files, as shown in the
last column of table 2. 

--------------------
\6 Under an agreement with the Department of the Treasury, Mellon
Bank manages post office boxes for federal agencies, including FCC. 

      FCC'S INSPECTOR GENERAL HAS
      IDENTIFIED SIMILAR PROBLEMS
---------------------------------------------------------- Letter :3.3

Several recently published reports have revealed additional problems
with FCC's fee collection process.  First, in September 1998, FCC's
Office of Inspector General reported that the computer system FCC
uses to record collections did not provide evidence for all
transactions, did not provide clear audit trails for changes made to
transactions, and did not provide for adequate internal controls.\7
The Inspector General's office made 128 observations and
recommendations for improvement.  For example, the report found that
FCC's collections system did not allow for an audit trail for changes
to its database and did not record and track all related
transactions.  FCC officials concurred with 126 of the report's
observations and stated that efforts were under way to address many
recommendations.  Also, as part of the Inspector General's effort,
FCC engaged an outside accounting firm to assess the completeness,
validity, and accuracy of the data contained in the fee collection
system.  The firm found that for about 45 percent of the transactions
it examined, FCC could not provide documentation to support the
transaction, or there were discrepancies between the information in
the system and the documentation provided. 

In November 1998, FCC's Office of Inspector General reported that FCC
lacked the ability to determine whether certain radio operators were
paying the appropriate regulatory fees.\8 The Inspector General
identified frequent discrepancies between the database that recorded
which operators had licenses and the database that recorded which
operators paid regulatory fees.  Concluding that neither database was
reliable, the Inspector General suspended further work on this issue
until reliable data become available. 

--------------------
\7 See Special Review of Federal Communications Commission (FCC)
Collection System, FCC Office of Inspector General (Special Review
Report No.  97-21, Sept.  25, 1998). 

\8 See Special Review of Federal Communications Commission (FCC) CMRS
Regulatory Fee Payments, FCC Office of Inspector General (Special
Review Report No.  98-8, Nov.  24, 1998). 

      COMMISSION HAS EFFORTS UNDER
      WAY TO IMPROVE FEE
      COLLECTION
---------------------------------------------------------- Letter :3.4

In presenting the fiscal year 2000 goals in its most recent
performance plan, FCC states that it will ï¿½address and correct all
management weaknesses in FCC collections and other financial
management systems to ensure that all licensees have paid the correct
auction, application, or regulatory fees and that all fiscal
accounting standards are met.ï¿½\9 The plan does not describe the
specific steps that FCC will take to achieve this broad goal or the
performance measures that it will use to gauge its progress.  FCC's
Office of Managing Director does, however, have important efforts
under way to improve fee collection.  At the time the Inspector
General's report was published in September 1998, the Managing
Director had already hired a project manager to begin to design and
implement a new financial information system.  In July 1999, FCC
awarded a contract to an independent consulting firm to acquire a new
financial system that will provide FCC with a single internal source
of information on collections, receivables, and revenues and will
maintain data concerning fees, fines, civil monetary penalties, and
auction proceeds.  In addition, the Office has begun efforts to
assign a unique identifier code to each entity that completes a
financial transaction with FCC, so that the agency can track payments
and other transactions made by the entity even when its name or
ownership changes.  The Office expects the new system and the unique
identifier code to be in operation by mid-2000.  In addition, FCC's
Office of Inspector General is continuing its efforts in this area by
contracting with an independent auditor to review FCC's financial
management practices and recommend improvements.  The auditor is
expected to complete this review by February 2000, and the Inspector
General will use its findings in its audit of the Commission's
financial statements in fiscal year 2000. 

--------------------
\9 FCC's strategic plan and annual performance plan, prepared in
response to the requirements of the Government Performance and
Results Act, is incorporated in its February 1999 report to the
Congress, Fiscal Year 2000 Budget Estimates. 

   FCC DOES NOT HAVE RELIABLE DATA
   ON PENALTY COLLECTION
------------------------------------------------------------ Letter :4

FCC can assess civil monetary penalties against those who violate its
regulations or related laws through either (1) an informal
administrative process or (2) a formal evidentiary hearing.  In the
more commonly used administrative process, FCC issues a notice that
specifies the amount of the proposed penalty and its justifications. 
The alleged violator may either pay the proposed penalty or respond
by showing reasons why the penalty should be reduced or dismissed. 
According to FCC officials, alleged violators often try to negotiate
a settlement with FCC that can involve making a voluntary payment and
taking some type of corrective action.  If the proposed penalty is
not paid or settled, FCC will issue a final order in which the
penalty is reduced, canceled, or assessed.  An administrative review
often follows at the request of an assessed violator.  Those
penalties that are not paid, settled, or canceled are referred to the
Department of Justice for collection in district court.  By statute,
such an action shall be by trial de novo,\10 and the existence of an
informal FCC administrative proceeding cannot be used to the
prejudice of the person or entity involved unless that person or
entity had paid the penalty order or a district court decision
ordering payment has become final.  FCC may also assess a penalty
after issuing a notice and conducting a full evidentiary hearing
before an administrative law judge.  According to FCC officials, this
process is used infrequently--generally, for more serious offenses. 
FCC refers the penalties assessed via this process to the Department
of Justice for collection after a final order has been obtained and
affirmed in court, if appealed.  Unlike the nonhearing penalties, the
statute provides that the validity and appropriateness of any final
hearing penalty shall not be subject to review in the enforcement
action.  From October 1997 through February 1999, FCC referred 11
cases totaling $119,500 and 1 totaling $5.7 million to the Department
of Justice for collection. 

We asked FCC's Office of Managing Director to provide us with data on
the amount of civil monetary penalties assessed and collected during
fiscal years 1997 and 1998.  In response, FCC provided us with its
annual reports to the Treasury on the status of penalty assessment
and collection.  See table 3. 

                                Table 3
                
                Summary of FCC's Civil Monetary Penalty
                 Assessments and Collections in Fiscal
                Years 1997 and 1998, as Reported to the
                       Department of the Treasury

                                                            Outstandin
Status of penalties                     Number      Amount   g balance
----------------------------------  ----------  ----------  ----------
Outstanding assessed penalties as                           $11,659,35
 of the end of fiscal year 1996                                      3
Penalties assessed in fiscal year         21\a  $414,000\a
 1997
Penalties collected in fiscal year         117   2,465,832
 1997
Penalties for which collection was          70     893,431
 stopped in fiscal year 1997
Outstanding assessed penalties as                           10,500,951
 of the end of fiscal year 1997
Penalties assessed in fiscal year           59  10,613,437
 1998
Penalties collected in fiscal year         186   1,280,643
 1998
Penalties for which collection was         435   4,615,494
 stopped in fiscal year 1998
Outstanding assessed penalties as                           15,212,251
 of the end of fiscal year 1998
----------------------------------------------------------------------
\a According to officials in FCC's Office of Managing Director who
are engaged in correcting the data errors, in fiscal year 1997 there
were actually 79 penalties assessed, totaling $2,056,000.  The number
and amount of collections for fiscal year 1997 were verified as
accurate using source documents.  The number and amount of
adjustments (collections stopped) for fiscal year 1997 were revised
but not verified.  Figures for fiscal year 1998 had not yet been
verified to source documents. 

Source:  FCC Civil Monetary Penalty Reports for Fiscal Years 1997 and
1998. 

In examining the data, however, we found an apparent error--$893,431
in penalties for which collection was stopped seemed to have been
erroneously added to the outstanding balance, instead of being
subtracted from it.  When we raised this issue with FCC, officials in
the Office of Managing Director explained that the Treasury report
for fiscal year 1997 was completed by a member of the clerical staff
and had not received any substantive review.  They also stated that
the Managing Director had recently created and filled a position that
will oversee the accuracy of all reports under the responsibility of
the Associate Managing Director for Financial Operations. 

Subsequently, the Office of Managing Director began an effort to
examine the source documents for fiscal year 1997 and found that
about $1.6 million in new assessments was erroneously counted as
adjustments (collections stopped).  In addition, the number of
penalty actions in all but one category were found to be incorrect. 
Finally, the staff stated that the outstanding balance for assessed
penalties for the end of fiscal year 1997 was correct as reported to
Treasury because the underlying dollar errors happened to cancel each
other out.  However, at the time we concluded our review in July
1999, the staff had not yet verified the amount of adjustments
(collections stopped) for fiscal year 1997 or any of the figures for
fiscal year 1998.  Without complete and accurate data, we could not
reach any conclusions about the effectiveness of FCC's collection of
civil monetary penalties. 

The data problem aside, FCC officials maintain that it is difficult
to predict how much of the outstanding balance of proposed or
assessed penalties ultimately will be collected because FCC has taken
the position that most of the penalties listed in the Treasury report
are not yet legally enforceable debts.\11 The Commission's view,
after consultation with the Department of the Treasury, is that it is
inappropriate to attempt collection efforts before there is a legal
obligation for the suspected violator to pay.  However, on the basis
of historical data on the amount of penalties collected in past
years, they estimate that about 75 percent of the outstanding balance
will remain uncollected. 

--------------------
\10 This is a trial on the merits of the case, in which the validity
of the underlying FCC order would be at issue. 

\11 On the basis of sections 503(b) and 504 of the Communications
Act, and after consultation with the Department of the Treasury, FCC
has taken the position that penalties going through its
administrative process are not legally enforceable debts until the
Department of Justice obtains a judgment.  FCC states that penalties
going through its hearing process become legally enforceable debts
after a final order has been obtained and affirmed in court if
appealed. 

   CONCLUSIONS
------------------------------------------------------------ Letter :5

FCC does not know if all entities have paid the fees they owe.  This
is particularly a problem with the collection of regulatory fees. 
FCC has identified several hundred entities that have failed to pay
appropriate fees and is aware of other possible cases of nonpayment. 
A shortfall in regulatory fee collection has budgetary ramifications,
since FCC's appropriation is reduced by its offsetting collections. 
There is also an issue of equity, since responsible members of the
industry who pay their fees are, in essence, bearing the cost for
those who do not pay. 

FCC is currently taking actions aimed at improving the financial
information system used to support fee collections, linking its
licensing and fee databases, and assigning unique identifiers to
entities doing business with the Commission.  Also, the independent
review of FCC's financial management practices by FCC's Office of
Inspector General is expected to provide a comprehensive look at
FCC's system of financial controls and recommend improvements.  These
are important first steps, but it is too early to evaluate their
effectiveness.  Nevertheless, FCC can take action now to make better
use of the information and systems currently available to provide
stronger oversight on fee collections.  Recent FCC actions have shown
that proactive oversight efforts can uncover cases in which
regulatory fees were not paid and that pursuing these cases can lead
to additional fee collections.  Such efforts, however, are not a
routine part of FCC's approach to regulatory fee collection. 

In addition, without adequate documentation of application fee
procedures and payments, FCC cannot ensure that all required
application fees are being collected.  Although FCC collects much
less in application fees each year than in regulatory fees, the
number of files for which proof of payment could not be provided
raises serious concerns about the extent to which FCC is collecting
these fees.  The fact that the Wireless Telecommunications Bureau
(which processes far more applications than the other bureaus) was
able to document that a fee was paid or not required for nearly all
the application files we reviewed demonstrates that compliance with
the requirement for adequate documentation is not unreasonable. 

Finally, while FCC's planned new system and the policy changes that
FCC has already made should help improve collection rates, the
discovery of errors in data previously reported to the Department of
the Treasury reinforces the need to ensure that the new system will
not be handicapped from the outset by erroneous data. 

   RECOMMENDATIONS
------------------------------------------------------------ Letter :6

To better ensure that FCC collects appropriate regulatory and
application fees and accurately tracks the status of civil monetary
penalty assessments and collections, we recommend that the Chairman
of the Federal Communications Commission direct FCC's Managing
Director and Bureau Chiefs to take the following actions: 

  -- Develop and implement a business plan and procedures for
     routinely using the information available to FCC to identify, to
     the extent possible, entities that have not paid required
     regulatory fees and to collect the amounts they owe.  This plan
     should include specific performance goals and measures
     consistent with the requirements of the Government Performance
     and Results Act. 

  -- Develop and implement written procedures adequate to ensure that
     the required application fee has been paid before an application
     is approved. 

  -- Conduct an audit of FCC's data on the status of civil monetary
     penalties to correct any data errors and internal control
     weaknesses that may have led to errors before incorporating
     these data into FCC's planned new financial system. 

   AGENCY COMMENTS
------------------------------------------------------------ Letter :7

We provided FCC with a draft of this report for review and comment. 
In a letter dated July 30, 1999, FCC's Managing Director wrote that
the Commission concurred with our three recommendations and will
incorporate them as part of a strategy to improve financial
management over fee collections, tracking and reporting of
receivables, and collection of enforcement actions.  The Managing
Director also emphasized that FCC is aware of the need to improve the
fee collection process and has been active in addressing deficiencies
as soon as identified.  The full text of FCC's letter, along with our
responses to several points raised in it, is included in appendix II. 

---------------------------------------------------------- Letter :7.1

We performed our review from September 1998 through July 1999 in
accordance with generally accepted government auditing standards.  We
did not evaluate the reliability of the computer-generated data
provided by FCC.  Our review was based upon interviews with officials
from various FCC offices and bureaus, as well as upon examinations of
FCC records.  Our scope and methodology are discussed further in
appendix I. 

As agreed with your office, unless you publicly announce the contents
of this report earlier, we plan no further distribution until 30 days
after the date of this letter.  We will then send copies to
interested congressional committees; the Honorable William E. 
Kennard, Chairman, FCC; the other FCC commissioners; Andrew S. 
Fishel, Managing Director, FCC; and the Honorable Jacob J.  Lew,
Director, OMB.  We will also make copies available to others upon
request. 

If you or your staff have any questions about this report, please
call me on (202) 512-7631.  Key contributors to this report are
listed in appendix III. 

Sincerely yours,

Judy A.  England-Joseph
Director, Housing and Community
 Development Issues

SCOPE AND METHODOLOGY
=========================================================== Appendix I

To determine how the Federal Communications Commission (FCC) ensures
that required regulatory and application fees are collected, we
interviewed officials in FCC's Office of Managing Director, Office of
Inspector General, and the various bureaus and offices that review
applications.  We also reviewed FCC's regulations and related laws
and reports.  To determine the extent to which common carrier
regulatory fees were paid, we obtained lists of carriers from FCC and
from several carriers that contract with other carriers to resell
their services.  We compared the names of the carriers with the names
of those who paid regulatory fees in fiscal year 1998, as captured in
FCC's fee collection database. 

To determine the extent to which application fees were paid, we
reviewed a random sample of application files from each of the five
bureaus (Wireless Telecommunications, Common Carrier, Cable Services,
Mass Media, and International) that process applications.  We asked
each bureau to provide us with a comprehensive listing of file
numbers for all applications submitted in fiscal year 1998.  Because
of slight differences in the way the information was provided, our
methodology differed slightly by bureau. 

  -- Three bureausï¿½Mass Media, Common Carrier, and
     Internationalï¿½provided a computer file with information on each
     of the applications filed in fiscal year 1998.  We drew a random
     sample of 150 applications from each of these bureaus. 

  -- The Cable Services Bureau provided us with the first and last
     file numbers used in fiscal year 1998 and copies of notices from
     which we identified the names of the applicants.  We generated a
     random list of 150 file numbers from the lists provided.  We
     were also given access to the bureau's database to confirm the
     accuracy of the names of applicants for which files could not be
     located. 

  -- The Wireless Telecommunications Bureau uses several different
     numbering systems, because of the variety of different services
     for which they process applications.  We were provided with the
     first and last number of each of several sequential numbering
     schemes used in the bureau, and drew a random sample of 100 from
     those provided.  About half of the bureau's applications were
     assigned application numbers that were based on the date.  For
     those files, we first drew a random sample of 100 dates by type
     of application.  We then requested the total number of
     applications processed on each of the chosen dates and selected
     another random number to identify a single application on each
     selected date. 

After informing FCC of our preliminary findings, FCC asked for the
opportunity to provide additional information to demonstrate that
required application fees were paid.  We reviewed the supplemental
information provided to evaluate its reliability and sufficiency and
included the results of this review in our report. 

Since we used a sample (called a probability sample) of FCC
applications to develop our estimates, each estimate has a measurable
precision, or sampling error, that may be expressed as a plus/minus
figure.  A sampling error indicates how closely we can reproduce from
a sample the results we would obtain if we were to take a complete
count of the universe using the same measurement methods.  By adding
the sampling error to and subtracting it from the estimate, we can
develop upper and lower bounds for each estimate.  This range is
called a confidence interval.  Sampling errors and confidence
intervals are stated at a certain confidence level--in this case, 95
percent.  For example, a confidence interval at the 95 percent
confidence level means that in 95 of 100 instances, the sampling
procedure we used would produce a confidence interval containing the
universe value we are estimating. 

Table I.1 contains the universe sizes, sample sizes, estimates, and
sampling errors of the estimates. 

                                        Table I.1
                         
                              Results of GAO's Review of FCC
                          Applications Files in Fiscal Year 1998

                                                        Bureau
                             ------------------------------------------------------------
Sample                          Cable      Mass    Common  Internatio            Wireless
and results                  Services     Media   Carrier         nal  Telecommunications
---------------------------  --------  --------  --------  ----------  ------------------
Universe                       17,149     1,340     4,215       2,256             124,394
Sample size                       150       150       149         148                  \a
Applications claiming to be         1        30         4          21                  \a
 exempt from paying a fee
Percentage exempt               0.01%    20.00%     2.68%      14.19%              22.73%
Sampling error for exempt          \b      6.05      2.56        5.45                6.79
 files
Applications where the             42        26        93          66                  \a
 application and adequate
 documentation of payment
 were located in the
 application file
Percentage complete in file    28.00%    17.33%    62.42%      44.59%              45.71%
Sampling error for complete      7.18      5.73      7.66        7.77                8.70
 files
Applications where the              0         6        22          35                  \a
 application and adequate
 documentation of payment
 were provided by FCC
Percentage of files where       0.00%     4.00%    14.77%      23.65%              30.52%
 payment information was
 provided by FCC
Sampling error for files         0.00      2.97      5.61        6.64                8.04
 where payment information
 was provided by FCC
Applications where                107        88        30          26                  \a
 application and/or
 adequate documentation of
 payment could not be
 located
Percentage of files where      71.33%    58.67%    20.13%      17.57%               1.04%
 application and/or
 adequate documentation of
 payment could not be
 located
Sampling error for cases         7.23      7.45      6.35        5.95              1.44\c
 where application and/or
 adequate documentation of
 payment could not be
 located
-----------------------------------------------------------------------------------------
\a Because of the sampling methodology, the exact numbers for this
category are not meaningful. 

\b The sampling error cannot be computed exactly to the small
finding.  The exact 95-percent confidence interval is from 0.02
percent to 3.57 percent. 

\c Because of the small findings in both strata, this sampling error
is only approximate. 

Source:  GAO's analysis of FCC's information. 

To determine the extent to which FCC collects civil monetary
penalties, we interviewed officials with FCC's Office of Managing
Director and Office of General Counsel and reviewed related reports,
documents, laws, and regulations. 

We conducted our review from September 1998 through July 1999,
following generally accepted government auditing standards.  We did
not evaluate the reliability of the computer-generated data provided
by FCC. 

(See figure in printed edition.)Appendix II
COMMENTS FROM THE FEDERAL
COMMUNICATIONS COMMISSION
=========================================================== Appendix I

(See figure in printed edition.)

(See figure in printed edition.)

(See figure in printed edition.)

The following are GAO's comments on the Federal Communications
Commission's letter dated July 30, 1999. 

GAO'S COMMENTS

1.  We have added a sentence to indicate that a project manager had
already been hired by the time of the FCC Inspector General's
September 1998 report. 

2.  We do not agree with FCC that there is a ï¿½high degree of
confidenceï¿½ that the required application fees were paid.  As shown
in table 2 and in appendix I of our report, only one of the five
bureaus (Wireless Telecommunications) provided documentation adequate
to show that the required fee was paid or not required for nearly all
of the sampled applications.  The other four bureaus provided
documentation to show that the required fee was paid or not required
for 82 percent to 29 percent of the sampled files.  Bureau officials
stated that data conversion problems and payments made for multiple
applications contributed to their inability to provide documentation
for the remaining files.  However, they did not provide us with
details to support these assertions.  In any event, Office of
Management and Budget Circular A-123, which is largely based on our
Standards for Internal Controls in the Federal Government, requires
that the documentation for transactions, management controls, and
other significant events must be clear and readily available for
examination.  We added a reference to this circular in our report to
reinforce the need for the Commission's controls and transactions to
be supported by written procedures and adequate documentation. 

3.  After we notified five of FCC's bureaus that we could not find
adequate documentation that application fees were paid for a number
of the files we reviewed, four of the bureaus responded with
additional documentation, as shown in table 2 of this report.  The
Cable Services Bureau did not provide additional documentation but
instead provided a spreadsheet listing fee control numbers for the
files in question.  As we state in our report, the data associated
with these numbers are not sufficient to positively identify for
which applications the fees were paid.  Despite repeated requests,
the Cable Services Bureau did not provide us with more definitive
documentation.  Also, on the basis of the documents we were provided,
we concluded that the cable applications to which FCC refers were
filed about a year after the fees in question were paid, not at the
time the fee was paid--as FCC speculates.  The report reflects this
fact. 

4.  The additional detail is not appropriate for our opening
paragraph, whose purpose is to provide a general characterization of
the importance of regulatory fees to FCC's appropriations.  A more
detailed discussion of regulatory fee collection is found in the
background section of the report. 

5.  We no longer refer to fiscal year 1998 as being the first year
that FCC failed to meet its target amount (obligation limitation) in
regulatory fee collection.  Also, we have added that FCC's collection
of regulatory fees for fiscal years 1995-97 exceeded the target
amounts set by the Congress. 

GAO CONTACT AND STAFF
ACKNOWLEDGEMENTS
========================================================= Appendix III

GAO CONTACT

John P.  Finedore, (202) 512-6248

ACKNOWLEDGEMENTS

Other key contributors to this report are James R.  Sweetman, Jr.,
Phillis Riley, David A.  Rogers, Mindi Weisenbloom, Michael R. 
Volpe, and Teresa R.  Russell. 

*** End of document. ***