What Summary Now? 1

Based upon your review of the Performance Audit of Colorado Low-Income Telephone Assistance Program prepare a summary of key findings in the audit and discuss how this information may be used to manage the program moving forward.
Purpose and Scope
The purpose of this audit was to review the effectiveness of the Colorado Low-Income Telephone Assistance Program in meeting its legislative intent as well as the oversight and management of the program by the Public Utilities Commission and Department of Human Services. The audit focused on the Public Utilities Commissions oversight controls and procedures and the Department of Human Services eligibility determination controls and procedures. We performed our audit work from September 2009 through May 2010. We acknowledge the assistance and cooperation extended by management and staff at the Public Utilities Commission and the Department of Human Services.
We conducted this performance audit in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.
Overview
The Colorado Low-Income Telephone Assistance Program (LITAP) is a state-administered program that was first established by the General Assembly in 1986 to help low-income individuals obtain access to basic local telephone services. The General Assembly designated two state agencies with specific responsibilities for administering LITAP. The Public Utilities Commission (Commission) is responsible for overall program monitoring and oversight and the Department of Human Services (Department) is responsible for determining individuals eligibility for the program.
LITAP operates in conjunction with the federal Lifeline program which was created by the Federal Communications Commission (FCC) to ensure affordable local telephone service for low-income households. The federal Lifeline program and LITAP provide separate monthly subsidies to eligible low-income individuals to offset the cost of basic telephone service primarily provided through landlines. To be eligible for the subsidies individuals must be (1) certified by the Department to receive financial assistance payments (2) a current or prospective telephone subscriber (3) a U.S. citizen or legal resident and a Colorado resident and (4) part of a household with gross monthly income at or below 185 percent of the federal poverty level. As of December 2009 about 21000 individuals were receiving the LITAP subsidy.
In Colorado most eligible LITAP participants receive a total subsidy of $16.50 that is applied to
For further information on this report contact the Office of the State Auditor at 303.869.2800. -1-
Summary 2 Colorado Low-Income Telephone Assistance Program Performance Audit May 2010
their monthly telephone bill. Of this amount $10 comes from the federal Lifeline program and $6.50 comes from Colorados LITAP. The LITAP subsidy is funded through a monthly access line fee (currently set at $0.07) that is primarily charged on all residential and business landlines in the state. During Calendar Year 2009 88 telephone carriers collected the access line fee from their residential and business customers. In total these 88 carriers collected about $1.1 million in access line fees and credited about $1.9 million in subsidies to eligible LITAP participants accounts during Calendar Year 2009.
Key Findings
Monitoring the Effectiveness of LITAP
We reviewed the Commissions monitoring of the effectiveness of LITAP in ensuring that low- income individuals have access to telephone service. Overall we found that the Commission has not adequately monitored the effectiveness of LITAP as required by statute. Further we identified serious concerns that raise questions about whether the program should continue:
Program effectiveness. Almost all low-income households in Colorado have access to telephone services without LITAP assistance. Only an estimated 5 percent of low-income households in Colorado participate in LITAP; however according to FCC data 96 percent of Colorados low-income households have access to a telephone. These data indicate that LITAP may not be effective. However the Commission lacks adequate data goals and performance measures for evaluating program effectiveness.
Subsidy amount. The current LITAP subsidy is $6.50 per month which is $3 more than the amount necessary for participants to receive the full federal Lifeline subsidy of $10 per month. This means that each year Colorado telephone customers pay about $856000 more in fees than is necessary for each LITAP participant to receive the full federal Lifeline subsidy. Additionally Colorados state subsidy amount is one of the highest in the country and the Commission has not evaluated the subsidy amount in over 10 years. In fact in 2009 the total state and federal subsidy of $16.50 more than covered the average cost of basic local telephone service (excluding taxes and surcharges) in Colorado.
Program outreach. The outreach conducted by the Commission and telephone carriers does not adequately publicize the availability of LITAP to potentially eligible individuals particularly those individuals who do not currently have telephone service. Additionally the Commission was unable to provide comprehensive information on the types or effectiveness of the outreach conducted by telephone carriers statewide. A lack of coordination and monitoring of outreach efforts have likely contributed to the low program participation rate.
Eligibility and Enrollment
We reviewed the Departments processes for determining and recertifying individuals eligibility for LITAP and found an absence of key controls:
Summary Report of the Colorado State Auditor 3
Eligibility determination. The Department does not adequately mitigate the risk of fraud because it does not ensure that the LITAP applicant is the same individual whose name is associated with the telephone account as required by statute. This increases the risk that individuals or households could be receiving more than one subsidy contrary to statute. Also the Departments process excludes individuals from LITAP who meet statutory eligibility criteria but do not participate in certain designated assistance programs. An estimated 154000 additional individuals may be eligible for LITAP based on their household income but would be deemed ineligible by the Departments eligibility determination system because they do not participate in one of these programs.
Eligibility recertification. We identified approximately 11800 of about 24000 total Qwest LITAP accounts that were potentially ineligible for subsidies. If these questionable accounts represent ineligible subsidy recipients then the State has been unnecessarily paying about $920000 each year in public funds to ineligible individuals and is at risk for having to repay about $1.4 million to the federal government for the Lifeline subsidies paid to ineligible individuals for each year they were ineligible. The Departments recertification process needs to be strengthened to ensure that only eligible individuals continue to receive the LITAP subsidy.
Financial Administration
We identified the following concerns with the Commissions financial administration and oversight of LITAP:
Verification of fee collections and subsidies. The Commission does not have sufficient controls in place to ensure that telephone carriers accurately collect and record access line fees collected from customers provide the full LITAP subsidy to all eligible participants and remit all excess collections to the State.
Access line fee. The Commission has not actively monitored and made timely adjustments to the access line fee charged to Colorado telephone subscribers. As a result the LITAP Fund has exceeded the statutory limit on uncommitted reserves in two of the last five years.
Future of the Program
We found that LITAP has become increasingly obsolete and that due to federal regulations and the States lack of jurisdiction over cellular telephones the State has limited ability to redesign LITAP to become more relevant to low-income users of todays telephone technologies. Issues related to the overall lack of effectiveness of LITAP combined with the programs emphasis on an increasingly outdated technology raise questions about whether LITAP should continue or be eliminated. All of these factors should be considered by the General Assembly when determining the future of LITAP. Eliminating the program would save telephone customers about $1.9 million per year.
Our recommendations and the responses from the Public Utilities Commission and Department of Human Services can be found in the Recommendation Locator and in the body of this report.
Rec. Page No. No.
Recommendation Summary
Agency Addressed
Agency Response
Implementation Date
1 22
Establish and implement a process for routinely monitoring LITAPs effectiveness and make program improvements by (a) establishing program goals and performance measures and (b) developing mechanisms to collect sufficient and reliable data to monitor program effectiveness.
Public Utilities Commission
Agree
Pending Further Direction from the General Assembly
2 26
Evaluate the LITAP statutory subsidy amount to determine whether it is still appropriate and necessary to provide adequate assistance to ensure access to basic local telephone service and report findings to the General Assembly for consideration.
Public Utilities Commission
Pending Further Direction from the General Assembly
3 29
Improve LITAP outreach efforts by (a) developing a formal outreach plan (b) working with the Department of Human Services and telephone carriers to define each entitys role with respect to outreach and (c) monitoring the implementation of the outreach plan and assessing the effectiveness of outreach efforts.
Public Utilities Commission
Partially Agree
Pending Further Direction from the General Assembly
4 34
Ensure eligibility is determined in accordance with statute and limits participation to eligible individuals by (a) assessing LITAP eligibility criteria to determine if they are clearly defined appropriate and cost-effective and (b) once any statutory changes are made modifying the eligibility process to ensure applicants eligibility is assessed against statutory criteria.
Department of Human Services
a. Agree b. Agree
a. July 2011 b. October 2011
RECOMMENDATION LOCATOR
-5-
Department of Human Services (Part b)
b. Agree Partially Agree
b. Pending Commission Implementation
Department of Human Services (Part b)
b. Agree
b. Pending Commission Implementation
Overview of the Colorado Low-Income Telephone Assistance Program
Chapter 1
The Colorado Low-Income Telephone Assistance Program (LITAP) is a state- administered program to help low-income individuals obtain access to basic local telephone services primarily provided through landlines. LITAP was originally established by the General Assembly in 1986 through House Bill 86-1217. The program was partially restructured in 1990 through Senate Bill 90-069 and changes were made to LITAP eligibility criteria in 2008 through House Bill 08- 1227. In the original legislation establishing the program and in subsequent legislation the General Assembly stated that:
. . . the absence of basic local exchange telecommunications services especially during time of emergency presents a potential hazard and an unnecessary danger to human health and safety. Therefore the [G]eneral [A]ssembly declares it to be of vital importance to the public health safety and welfare that low- income individuals receive assistance that is adequate to [e]nsure access to basic local exchange telecommunications services. [Section 40-3.4-102 C.R.S.]
LITAP operates in conjunction with the federal Lifeline telephone assistance program. Lifeline was created by the Federal Communications Commission (FCC) to ensure affordable local telephone service for low-income households. In the sections that follow we discuss (1) the oversight of telecommunications services nationwide; (2) the history of telephone assistance and the federal Lifeline program; (3) federal incentives for state telephone assistance programs; and (4) LITAPs operations in Colorado including its regulatory framework eligibility and enrollment the subsidy amount and carrier reimbursements participating carriers and revenue and expenses.
Telecommunications Oversight
Oversight of telecommunications services in the United States is primarily the purview of the federal government. Congress specifically authorized the FCC to regulate interstate and international communications by radio television wire and satellite. For telephone communications the FCC primarily oversees
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Colorado Low-Income Telephone Assistance Program Performance Audit May 2010
interstate service including both landline and cellular telephones. Although the federal government has responsibility for interstate and international telecommunications services states also have responsibilities for overseeing certain telecommunications services. Specifically states have authority over telecommunications services provided through landlines within their state. States do not however have the authority to oversee cellular telephone carriers or broadband service providers operating within their state. Following a recent court case it is unclear whether the FCC has the authority to regulate broadband services although it has attempted to do so in the past.
History of Telephone Assistance and the Federal Lifeline Program
The FCCs goal is to ensure the availability of communications services to all Americans at a reasonable cost and without discrimination. To further this goal in 1934 Congress first authorized the FCC to establish programs to ensure access to affordable residential telephone service. When the telephone industry was divested in the early 1980s Congress and consumer groups raised concerns that basic telephone service through landlines would no longer be affordable to low- income households. Prior to the divestiture revenue from long-distance telephone service subsidized local telephone service thereby keeping the costs of local telephone service artificially low. Revenues generated from long-distance service primarily paid the cost of connecting local networks to long-distance networks. With the divestiture however local telephone carriers became responsible for the costs of connecting their own local networks to the long- distance network. In the Telecommunications Act of 1996 Congress again emphasized the importance of telephone assistance programs and the need for all consumers to have access to telecommunications services.
In response to Congress concern the FCC established the federal Lifeline program. As mentioned previously Lifeline is a federal telephone assistance program that provides a monthly subsidy to low-income individuals to help offset the cost of basic local telephone service provided through landlines. To cover the cost of this subsidy the FCC requires all landline cellular and Voice over Internet Protocol (VoIP) telephone carriers in the country to collect a Universal Service Fund fee from their subscribers. This fee is used to fund several federal telephone assistance programs including Lifeline. Eligible Lifeline participants in most states and U.S. territories receive a federal subsidy of $8.25 that is applied to their monthly bills for landline telephone services. Telephone carriers are responsible for crediting eligible subscribers accounts with the Lifeline subsidy. The subsidy does not typically extend to other types of telephone service such as cellular telephones. In states and U.S. territories applying the federal criteria an eligible individual must either:
Report of the Colorado State Auditor 9
In 1997 the FCC created the Universal Service Administrative Company (USAC) an independent not-for-profit corporation to administer the Universal Service Fund and Universal Service programs including Lifeline in accordance with FCC rules. USACs responsibilities include coordinating with the telephone carriers for the collection of the Universal Service Fund fee eligibility determinations and payment of the Lifeline subsidies.
Federal Incentives for State Telephone Assistance Programs
The FCC through the federal Lifeline program established incentives for states and U.S. territories to create their own low-income telephone assistance subsidy programs that work in conjunction with Lifeline and enhance the benefits available to eligible individuals. The FCC offers three incentives to encourage states to operate their own programs and provide their own separate state subsidies to supplement the Lifeline subsidy.
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Colorado Low-Income Telephone Assistance Program Performance Audit May 2010
the state subsidy and its process for providing the state subsidy to telephone carriers.
States that choose not to establish their own telephone assistance programs are considered federal default states. That is the federal Lifeline program is the default telephone assistance program in these states. There are currently 10 federal default states and U.S. territories. In these states and territories USAC works directly with the telephone carriers to determine Lifeline eligibility based on federally established criteria as described previously. Most Lifeline participants in federal default states receive only the $8.25 monthly federal subsidy.
Colorados LITAP
As discussed previously LITAP is Colorados state-administered telephone assistance program. The General Assembly has designated two state agencies with specific responsibilities for administering LITAP. The Public Utilities Commission is responsible for overall program monitoring and oversight and the Department of Human Services is responsible for determining individuals eligibility for LITAP. A brief description of each agencys responsibilities is outlined below.
Report of the Colorado State Auditor 11
Departments Office of Self-Sufficiency and Independence manages the eligibility certification process. For Fiscal Year 2010 this Division was appropriated 1.1 FTE for LITAP; three division employees work part-time on certifying and recertifying LITAP eligibility.
The Commission and the Department in conjunction with other stakeholders convened a LITAP Task Force in August 2009 to improve the eligibility determination and recertification processes.
LITAP Eligibility and Enrollment
State statute [Section 40-3.4-105 C.R.S.] mandates who may be served by LITAP. To be eligible for the LITAP subsidy an individual must be:
the federal poverty level (about $41000 per year for a family of four in 2009).
Statute also requires that priority for eligibility be given to households with participants in one or more of the programs listed in the bullets below. Like LITAP these programs all provide assistance to low-income individuals. The qualifying income standards for all of these programs are equal to or more stringent than LITAPs income requirement.
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Colorado Low-Income Telephone Assistance Program Performance Audit May 2010
Approximately 21000 individuals were receiving the LITAP subsidy as of December 31 2009. As shown in the following table the average monthly number of LITAP participants has steadily declined over the past five calendar years.
LITAP Subsidy and Carrier Reimbursements
LITAP provides most eligible participants with a state telephone assistance subsidy of $6.50 per month that is credited to their telephone accounts. The subsidy does not typically extend to other types of telephone service such as cellular telephones unless the cellular carrier has been designated by the Commission as an eligible provider. Eligible participants also receive the maximum federal Lifeline subsidy of $10 as discussed previously. Essentially eligible LITAP participants receive a total subsidy of $16.50 per month on their basic local telephone service$6.50 from LITAP and $10 from Lifeline. As discussed above USAC pays the federal subsidy ($10) directly to the telephone carriers to reimburse them for crediting the subsidy to participants accounts.
The state subsidy ($6.50) is funded through a monthly access line fee (currently $0.07) that is charged primarily on all residential and business landlines in the state. Telephone carriers collect this access line fee from their customers and use the revenue to credit the LITAP subsidy to eligible customers accounts. Carriers are also allowed to use the revenue to reimburse themselves for administrative
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costs associated with the program and are required to remit any excess fees to the State. The Commission records revenue in the LITAP Fund on the States financial system only for net fees remitted to the State. If a carrier does not collect enough in access line fees to credit the subsidy to its LITAP-eligible customers and cover its administrative costs then the carrier is reimbursed by the Commission from the LITAP Fund at the end of the calendar year.
Participating Carriers
During Calendar Year 2009 88 telephone carriers in the state collected the access line fee from all of their residential and business customers. Of the 88 telephone carriers that collected the fee 33 provided the LITAP subsidy to eligible customers. As discussed in the prior section carriers must remit all fees collected in excess of subsidy payments and administrative costs to the Commission for deposit into the LITAP Fund. Most LITAP participants (95 percent) received their telephone services through Qwest Corporation. The remaining 5 percent received telephone services through one of the other 32 carriers. According to the Commission two of these carriers were cellular telephone carriers. A cellular telephone carrier may choose to participate in the program by applying to the Public Utilities Commission for designation as an eligible provider. Collections and carrier participation are discussed in more detail in Chapter 2.
LITAP Revenue and Expenses
As discussed previously LITAP receives its revenue from the monthly access line fee collected on all residential and business access lines in the state. The fee has been set at $0.07 per month since June 2009. The Commission suspended the access line fee and drew down funds from the LITAP Trust Fund from April 2006 through May 2009. The LITAP Trust Fund received funds in Calendar Year 2006 from Qwest Corporation as part of a $5.5 million settlement agreement with the Commission on an unrelated issue. The Commission drew down funds from the Trust Fund twice annually and transferred them into the LITAP Fund to cover program expenditures including state subsidy payments and administrative costs incurred by the telephone carriers and the Department of Human Services. The Commission reinstated the monthly access line fee in June 2009 when the settlement funds were close to being exhausted.
We compiled data from telephone carriers quarterly reports and Commission records to show the total amount of access line fees collected from residential and business customers as well as other sources of program funding during Calendar Years 2005 through 2009. In addition we compiled information on the total amount telephone carriers credited to eligible customers accounts for the LITAP subsidy and program administrative costs incurred by carriers and the Department of Human Services during the same 5-year period. These revenue and expenses
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Colorado Low-Income Telephone Assistance Program Performance Audit May 2010
are shown in the following table. The Commission is not currently appropriated funds and does not charge any administrative expenses to LITAP.
Audit Scope and Methodology
This report includes the results of our performance audit of LITAP. The audit assessed the effectiveness of LITAP in meeting its statutory intent and reviewed the Commissions and Departments oversight and management of the program. We assessed the Commissions oversight controls and procedures and the
Report of the Colorado State Auditor 15
Departments eligibility determination controls and procedures. We analyzed Commission and Department data and reviewed statutes rules and Department and Commission policies and procedures. We also interviewed staff from the Commission the Department the FCC USAC and five telephone carriers that operate in Colorado including Qwest Corporation. Finally to gain insight into other states telephone assistance programs and identify best practices we obtained information from 16 other states (Delaware Florida Hawaii Idaho Indiana Iowa Louisiana Minnesota Montana Nebraska New Hampshire North Dakota Oregon South Dakota Utah and Washington). We selected these states to obtain information from states that operate their own state telephone assistance programs as well as from states that do not operate their own programs (and are thus considered federal default states).
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Colorado Low-Income Telephone Assistance Program
Chapter 2
As discussed in Chapter 1 Colorados Low-Income Telephone Assistance Program (LITAP) was created to ensure access to basic local telephone service for low-income individuals especially in times of emergency. When Colorado established LITAP in 1986 the landline telephone was the only method available to the general public for communicating in real time over short and long distances. Therefore the programs emphasis was on providing the LITAP subsidy to low-income individuals with landline telephone service. Since that time technological advances have brought about cellular telephones email and instant messaging text messaging and Voice over Internet Protocol (VoIP) technologies that have increasingly replaced landline telephone service. As a result according to research conducted by the Public Utility Research Center at the University of Florida landline telephone service no longer plays the role it did in 1986 when LITAP was created. Despite changes in technology in Colorado the federal Lifeline program and LITAP remain primarily focused on subsidizing basic landline service to people with low incomes.
This audit reviewed the States oversight of LITAP as well as the overall effectiveness of the program in ensuring that low-income individuals have access to telephone services within the context of the significant technological changes that have occurred since the program was created in 1986. Overall we found that LITAP may not be effective in ensuring that low-income individuals in Colorado have access to basic local telephone service which is the purpose of the program. Additionally we found that LITAP has become increasingly obsolete and that due to federal regulations and the States lack of jurisdiction over cellular telephones and VoIP providers the State has limited ability to redesign LITAP to become more relevant to the low-income users of todays telephone technologies. Finally we found a lack of adequate controls and oversight of LITAP by the State. Specifically we found:
LITAP reaches only about 5 percent of income-eligible households. As of December 2009 according to the most recent data available of the approximately 414000 households at or below 185 percent of the federal poverty level in Colorado only about 21000 (5 percent) participated in LITAP.
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Colorado Low-Income Telephone Assistance Program Performance Audit May 2010
A high percentage of eligible individuals have access to telephone service even though they do not receive a LITAP subsidy. Specifically according to research conducted by the FCC approximately 96 percent of Colorados low-income households have access to some type of telephone despite the fact that only an estimated 5 percent receive landline telephone subsidies through LITAP. As noted above the overall trend in telecommunications is an increased reliance on cellular telephones or one of the other technology options for telephone services. Furthermore according to research from the Public Utility Research Center this trend is even more pronounced among low-income individuals who are increasingly choosing cellular telephones over landlines. According to telephone carrier reports submitted to the Public Utilities Commission the number of residential and business landlines in Colorado has decreased 19 percent since 2005. As discussed in Chapter 1 the LITAP subsidy generally applies to the cost of telephone service through a landline; it typically does not extend to other types of telephone service.
A lack of adequate controls and oversight of LITAP operations. For example we found that the State has not evaluated the LITAP subsidy amount which is established in statute to determine if the subsidy amount is still appropriate. As a result each year Colorado telephone customers together pay about $856000 more in fees than federal law requires for the State to receive the full federal subsidy of $10 per participant per month. Additionally we found that the State has not had an effective or efficient process for recertifying the continued eligibility of LITAP participants. As a result we found that almost half of the individuals receiving the LITAP subsidy may not be eligible for the program yet these individuals received telephone subsidies totaling $195000 each month. Further we found that the State provides minimal administrative oversight of telephone carriers to independently verify the amount of fees received from telephone customers and subsidies paid to LITAP participants. Finally we found that fundamental data to evaluate and monitor the effectiveness of the LITAP subsidy are lacking.
These issues and others discussed later in this chapter raise questions about whether the States Public Utilities Commission (Commission) and Department of Human Services (Department) have ensured that fees collected from telephone customers have been used prudently for the purposes intended by the General Assembly. Furthermore the concerns we identified related to LITAPs overall effectiveness in ensuring that low-income individuals have access to a telephone combined with the programs emphasis on increasingly outdated technology raise questions about whether LITAP should continue or be eliminated. To address these questions as we discuss at the end of the report the Commission and the Department will need to provide any necessary information to the Legislative
Report of the Colorado State Auditor 19
Audit Committee and the General Assembly for their consideration when determining the future of the program. When making this determination the General Assembly should consider the fact that a federal Lifeline subsidy of $8.25 will still be available to low-income individuals if the decision is made to eliminate LITAP. If the General Assembly determines that LITAP should continue the Commission and the Department must take steps to address the concerns discussed throughout this report to ensure the appropriate and effective use of fees collected from telephone customers to meet legislative intent.
The following three sections report our findings related to the States efforts to (1) monitor the effectiveness of LITAP (2) manage LITAP eligibility and enrollment and (3) oversee the financial administration of LITAP. In each section we include recommendations that the Commission and Department will need to implement if the General Assembly decides that LITAP should continue. At the end of the report we provide one alternative for subsidizing telephone services for low-income individuals if the General Assembly decides that LITAP should be eliminated.
LITAP Monitoring
This audit reviewed the Commissions monitoring of LITAPs effectiveness in meeting the legislative intent of the program which is to provide adequate assistance to low-income individuals to ensure they have access to local telephone service especially in times of emergency. Overall we found that the Commission has not adequately monitored the effectiveness of LITAP and lacks the mechanisms for doing so. In this section we discuss three findings related to the Commissions monitoring of LITAP. First we found that the Commission has not monitored the effectiveness of LITAP in ensuring that low-income individuals have access to basic