Crop Insurance
Actions Needed to Reduce Program's Vulnerability to Fraud, Waste, and Abuse Gao ID: GAO-05-528 September 30, 2005Federal crop insurance protects producers against losses from natural disasters. In 2004, the crop insurance program provided $47 billion in coverage, at a cost of $3.6 billion, including an estimated $160 million in losses from fraud and abuse. The U.S. Department of Agriculture's (USDA) Risk Management Agency (RMA) administers this program with private insurers. The Agricultural Risk Protection Act of 2000 (ARPA) provided new tools to monitor and control abuses, such as having USDA's Farm Service Agency (FSA) conduct field inspections. GAO assessed, among other things, the (1) effectiveness of USDA's processes to address program fraud and abuse and (2) extent to which the program's design makes it vulnerable to abuse.
While RMA employs a range of processes to help prevent and detect fraud, waste, and abuse and has reported more than $300 million in savings over the past 4 years in the crop insurance program, GAO found that RMA does not effectively use all the tools it has available. Inspections during the growing season are not being used to maximum effect. Between 2001 and 2004, FSA conducted only 64 percent of the inspections RMA had requested. Without inspections, producers may falsely claim crop losses. RMA's data analysis of the largest farming operations is incomplete. According to GAO's analysis, in 2003, about 21,000 of the largest farming operations in the program did not report individuals or entities with an ownership interest in these operations. As a result, USDA should be able to recover up to $74 million in claims payments. FSA did not give RMA access to the data needed to identify such individuals or entities. RMA is not effectively overseeing insurance companies' quality assurance programs. GAO's review of 120 cases showed that companies completed only 75 percent of the required reviews and those that were conducted were largely paper exercises. RMA has infrequently used its new sanction authority to address program abuses. RMA has not issued regulations to implement its new sanction authority under ARPA. RMA imposed only 114 sanctions from 2001 through 2004. Annually, RMA identifies about 3,000 questionable claims, not all of which are necessarily sanctionable. Eight recent crop insurance fraud cases, investigated by USDA's Office of Inspector General and resulting in criminal prosecutions between June 2003 and April 2005, reflect these issues. Totaling $3 million in insurance claims, these cases show how producers, sometimes in collusion with insurance agents and others, falsely claim prevented planting, weather damage, and low production. In some cases, producers hid or moved production from one field to another. Several of these cases also demonstrate the importance of having FSA and RMA work together to identify and share information on questionable farming practices/activities. RMA's regulations, as well as statutory requirements, create program design problems that hinder RMA officials' efforts to reduce program abuse. For example, RMA's regulations allow producers to insure fields individually rather than all fields combined. This option enables producers to "switch" reporting of yield among fields to either make false claims or build up a higher yield history on a field to increase its eligibility for higher insurance guarantees. High premium subsidies, established by statute, may also limit RMA's ability to control program abuse because the subsidies shield producers from the full effect of paying higher premiums associated with frequent or larger claims.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-05-528, Crop Insurance: Actions Needed to Reduce Program's Vulnerability to Fraud, Waste, and Abuse
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Report to the Chairman, Committee on Homeland Security and Governmental
Affairs, U.S. Senate:
September 2005:
Crop Insurance:
Actions Needed to Reduce Program's Vulnerability to Fraud, Waste, and
Abuse:
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-528]:
GAO Highlights:
Highlights of GAO-05-528, a report to the Chairman, Committee on
Homeland Security and Governmental Affairs, U.S. Senate:
Why GAO Did This Study:
Federal crop insurance protects producers against losses from natural
disasters. In 2004, the crop insurance program provided $47 billion in
coverage, at a cost of $3.6 billion, including an estimated $160
million in losses from fraud and abuse. The U.S. Department of
Agriculture‘s (USDA) Risk Management Agency (RMA) administers this
program with private insurers. The Agricultural Risk Protection Act of
2000 (ARPA) provided new tools to monitor and control abuses, such as
having USDA‘s Farm Service Agency (FSA) conduct field inspections. GAO
assessed, among other things, the (1) effectiveness of USDA‘s processes
to address program fraud and abuse and (2) extent to which the
program‘s design makes it vulnerable to abuse.
What GAO Found:
While RMA employs a range of processes to help prevent and detect
fraud, waste, and abuse and has reported more than $300 million in
savings over the past 4 years in the crop insurance program, GAO found
that RMA does not effectively use all the tools it has available.
Specifically:
* Inspections during the growing season are not being used to maximum
effect. Between 2001 and 2004, FSA conducted only 64 percent of the
inspections RMA had requested. Without inspections, producers may
falsely claim crop losses.
* RMA‘s data analysis of the largest farming operations is incomplete.
According to GAO‘s analysis, in 2003, about 21,000 of the largest
farming operations in the program did not report individuals or
entities with an ownership interest in these operations. As a result,
USDA should be able to recover up to $74 million in claims payments.
FSA did not give RMA access to the data needed to identify such
individuals or entities.
* RMA is not effectively overseeing insurance companies‘ quality
assurance programs. GAO‘s review of 120 cases showed that companies
completed only 75 percent of the required reviews and those that were
conducted were largely paper exercises.
* RMA has infrequently used its new sanction authority to address
program abuses. RMA has not issued regulations to implement its new
sanction authority under ARPA. RMA imposed only 114 sanctions from 2001
through 2004. Annually, RMA identifies about 3,000 questionable claims,
not all of which are necessarily sanctionable.
Eight recent crop insurance fraud cases, investigated by USDA‘s Office
of Inspector General and resulting in criminal prosecutions between
June 2003 and April 2005, reflect these issues. Totaling $3 million in
insurance claims, these cases show how producers, sometimes in
collusion with insurance agents and others, falsely claim prevented
planting, weather damage, and low production. In some cases, producers
hid or moved production from one field to another. Several of these
cases also demonstrate the importance of having FSA and RMA work
together to identify and share information on questionable farming
practices/activities.
RMA‘s regulations, as well as statutory requirements, create program
design problems that hinder RMA officials‘ efforts to reduce program
abuse. For example, RMA‘s regulations allow producers to insure fields
individually rather than all fields combined. This option enables
producers to ’switch“ reporting of yield among fields to either make
false claims or build up a higher yield history on a field to increase
its eligibility for higher insurance guarantees. High premium
subsidies, established by statute, may also limit RMA‘s ability to
control program abuse because the subsidies shield producers from the
full effect of paying higher premiums associated with frequent or
larger claims.
What GAO Recommends:
To reduce program fraud, Congress should consider reducing premium
subsidies to producers who repeatedly file questionable claims. In
addition, USDA should (1) improve the effectiveness of growing season
inspections, (2) recover payments from operations that failed to
disclose producers‘ ownership interests, (3) strengthen oversight of
insurers‘ use of quality controls, and (4) issue regulations for its
expanded sanction authority.
USDA agreed with most of GAO‘s recommendations. However, it stated that
it does not have the resources to conduct all growing season
inspections.
www.gao.gov/cgi-bin/getrpt?GAO-05-528.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Robert A. Robinson at
(202) 512-3841 or robinsonr@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
RMA Has Strengthened Procedures for Preventing Questionable Claims, but
the Program Remains Vulnerable to Abuse:
RMA's Regulations and Statutory Requirements Hinder RMA Officials'
Efforts to Reduce Abuse in the Crop Insurance Program:
RMA's Failure to Follow Its Guidelines Has Resulted in Program Losses
for Some New and Expanded Crop Insurance Products:
Conclusions:
Matter for Congressional Consideration:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendixes:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Selected Information on the Federal Crop Insurance
Program, 1981-2004:
Appendix III: Results of Implementation of the Agricultural Risk
Protection Act of 2000: Survey of FSA County Directors of USDA:
Appendix IV: Results of Improving Compliance and Integrity in the
Federal Crop Insurance Program: Survey of Crop Insurance Agents:
Appendix V: Crop Insurance Fraud Cases Criminally Prosecuted, June 2003
to April 2005:
Appendix VI: Comparison of Loss Ratios for Crop Development and
Expansion Products:
Appendix VII: Comments from the U.S. Department of Agriculture:
GAO Comments:
Appendix VIII: GAO Contact and Staff Acknowledgments:
Related GAO Products:
Tables:
Table 1: Premium Subsidies Before and After ARPA:
Table 2: Crop Insurance Policyholders Failing to Disclose Ownership
Interest, by Entity Type, Crop Year 2003:
Table 3: RMA Sanctions Requested and Imposed, Crop Years 2001 to 2005:
Table 4: Number of USDA OIG Crop Insurance Investigations, Number of
Referrals to the Department of Justice, and Case Disposition, Fiscal
Years 1996 to 2005:
Table 5: Production Reported by an Irrigated Cotton Producer Indicating
Yield Switching:
Table 6: Crop Insurance Fraud Cases Investigated by the USDA/OIG and
Resulting in Criminal Prosecution, June 2003 to April 2005:
Figures:
Figure 1: Location of Producers Identified by RMA for Field
Inspections, 2003:
Figure 2: FSA Inspectors' Primary Reasons for Not Conducting Field
Inspections of Producers with Notable Policy Irregularities:
Abbreviations:
ARPA: Agricultural Risk Protection Act of 2000:
FCIC: Federal Crop Insurance Corporation:
FSA: Farm Service Agency:
FSI: Office of Forensic Audits and Special Investigations:
NASS: National Agricultural Statistics Service:
OIG: Office of Inspector General:
OMB: Office of Management and Budget:
RMA: Risk Management Agency:
SRA: Standard Reinsurance Agreement:
USDA: U.S. Department of Agriculture:
Letter September 30, 2005:
The Honorable Susan M. Collins:
Chairman, Committee on Homeland Security and Governmental Affairs:
United States Senate:
Dear Chairman Collins:
Federal crop insurance is part of the overall safety net of programs
for American farmers. It provides protection for participating farmers
against the financial losses caused by droughts, floods, or other
natural disasters. Farmers' participation is voluntary, but the federal
government encourages it by subsidizing the insurance premiums. In
2004, the crop insurance program provided $47 billion in insurance
coverage for over 200 million acres of farmland at a cost of $3.6
billion to the federal government, including an estimated $160 million
resulting from fraud, waste, and abuse.
The U.S. Department of Agriculture's (USDA) Risk Management Agency
(RMA), which supervises Federal Crop Insurance Corporation (FCIC)
operations, has overall responsibility for administering the crop
insurance program. RMA oversees the development of new insurance
products and the expansion of existing insurance products to new areas
to help farmers reduce the chance of financial loss. RMA is also
responsible for ensuring that the program is carried out efficiently
and effectively and for protecting against fraud, waste, and abuse. In
this regard, RMA uses a broad range of tools, including compliance
reviews, data mining, and on-site field inspections. RMA administers
the program in partnership with private insurance companies that share
a percentage of the risk of loss or opportunity for gain associated
with each insurance policy written. RMA acts as a reinsurer--
reinsurance is sometimes referred to as insurance for insurance
companies--for a portion of all policies the federal crop insurance
program covers. In addition, RMA pays companies a percentage of the
premium on policies sold to cover the administrative costs of selling
and servicing these policies. In turn, insurance companies use this
money to pay commissions to their agents who sell the policies and fees
to adjusters when claims are filed.
Insurance companies are responsible for reporting to RMA on policy
activity, such as applications for insurance, reports of acres planted,
and notices of loss. Insurance companies, as part of their contractual
agreement with RMA, also have an important role to play in ensuring
that the policies they issue are administered fairly and accurately.
For example, insurance companies must conduct quality assurance
reviews, such as field inspections for policies with a claim equal to
or greater than $100,000, to examine whether the claims they have paid
are in compliance with policy provisions. RMA conducts a regular
nationwide review of insurance companies' compliance with the crop
insurance program's procedures to ensure that companies' quality
assurance programs are in place.
RMA receives policy information from the insurance companies through
its computerized acceptance system. Using this system, RMA checks all
policies for completeness and accuracy. In 2004, RMA provided crop
insurance on 1.2 million policies and paid claims on 330,000 of these
policies through 17 insurance companies. The Federal Crop Insurance
Act, as amended, requires RMA to set crop insurance premiums at
actuarially sufficient rates, defined as a long-run loss ratio target
of no more than 1.075. A loss ratio is calculated as claims paid
divided by total premiums collected. A loss ratio greater than 1.00
indicates that the program paid more in claims than was collected in
premiums.
Generally, producers can purchase crop insurance to insure up to 85
percent of their normal harvest (yield). This yield is calculated by
looking at a producer's actual production history. To obtain insurance
and receive claims payments, producers must comply with the crop
insurance program's provisions. Specifically, they must accurately
report to their insurance company the number of acres planted; meet
deadlines specified in the policy (e.g., for planting and harvesting
crops); pay premiums when due (generally at the end of the growing
season); and report any crop losses immediately. Producers are also
obligated to exercise good farming practices to minimize the potential
for losses and to report their Social Security numbers and the Social
Security numbers of all persons with an ownership interest of 10
percent or more in the farming operation (e.g., a corporation) holding
the policy.
Over the years, concerns have arisen that some producers may have
abused the crop insurance program by allowing crops to fail through
neglect or deliberate actions in order to collect insurance and that
some insurance companies have not exercised due diligence in
investigating losses and paying claims.[Footnote 1]
In part to improve compliance with, and the integrity of, the crop
insurance program, Congress enacted the Agricultural Risk Protection
Act of 2000 (known as ARPA). This act provided RMA and the USDA's Farm
Service Agency (FSA) with new tools for monitoring and controlling
program abuses. (FSA, which has an extensive field office structure, is
generally responsible for helping producers enroll in agricultural
support programs, overseeing these programs, and issuing program
payments.) Specifically, ARPA required the Secretary of Agriculture to
develop and implement a coordinated plan for FSA to assist RMA in the
ongoing monitoring of the crop insurance program, including conducting
fact-finding into allegations of program fraud, waste, or abuse;
reporting the results of any such fact-finding to RMA; and assisting
RMA and approved insurance companies in auditing a statistically
appropriate number of claims made under any policy. Furthermore, ARPA
required the Secretary of Agriculture to use information technologies,
such as data mining and data warehousing, to administer and enforce the
crop insurance program. Data mining is the analysis of data to
establish relationships and identify patterns, while data warehousing
is storing gathered data so that it can be easily analyzed, extracted,
synthesized or otherwise used. RMA conducts data mining to target
compliance reviews and investigations on suspect claims. Under USDA
guidance, developed pursuant to a requirement in ARPA, RMA is to
annually provide FSA and the insurance providers with a list of
producers exhibiting high loss ratios, high frequency and severity of
losses, or who are suspected of poor farming practices. RMA provides
this list--called the spot-check list--every April to the appropriate
FSA state offices for distribution to FSA county offices. The FSA
county office is to conduct reviews on the larger of the first 10
producers or the top 5 percent of the producers on the list. Staff in
FSA county offices review these cases for potential fraud, waste, and
abuse by inspecting fields insured by the listed producers. They then
refer the results of these inspections to RMA, which provides the
results to the insurance companies holding the policies for the
producers for further review or investigation, if appropriate. Finally,
ARPA gave RMA additional authority to impose sanctions for program
abuses.
In addition, under the Improper Payments Information Act of 2002, RMA
has to provide an estimate of error rates associated with program
payments and report on action to reduce improper payments.[Footnote 2]
RMA estimates improper payments to be about 5 percent of the claims
paid annually. RMA acknowledges that this estimate is not based on a
tested methodology and revised its sampling methodology, beginning in
2004, to provide a more accurate estimate. The Office of Management and
Budget (OMB) has accepted RMA's proposed sampling methodology, which is
to include a 3-year review cycle of insurance companies, to determine
the federal crop insurance program's error rate, and satisfy the
statutory requirements of the Improper Payments Information Act. RMA's
3-year review cycle will assess insurance companies' adherence to their
contract with RMA, quality control guidelines, and RMA-approved
policies and procedures.
You asked us to examine RMA's procedures for assuring integrity in the
crop insurance program. As agreed with your office, we (1) assessed the
effectiveness of USDA's procedures and processes to prevent and detect
fraud, waste, and abuse in selling and servicing crop insurance
policies; (2) determined the extent to which program design issues may
make the program more vulnerable to fraud, waste, and abuse; and (3)
determined the effectiveness of USDA's procedures to assure program
integrity in developing new crop insurance products. Also, as you
requested, we provided examples of recent crop insurance fraud
prosecutions to show the types of actions that producers, agents, and
loss adjusters have used to circumvent RMA's procedures.
To address these issues, we reviewed relevant statutory provisions and
RMA's regulations and guidelines for managing the crop insurance
program and spoke with RMA and FSA officials in headquarters and field
offices. We also reviewed relevant reports, including RMA's most recent
annual report to Congress in 2002. To assess the effectiveness of
USDA's procedures and processes to prevent and detect fraud, waste, and
abuse in selling and servicing crop insurance policies, we examined a
nonrandom sample of 120 insurance claims from the 2,794 claims that RMA
identified as having notable policy irregularities and warranting a
field inspection in both 2003 and 2004. Of these 120 claims, 100 were
the largest claims paid, and 20 were selected to ensure that all data
mining selection criteria were represented, including producers who
frequently receive payments because they claim that adverse weather
conditions prevented them from planting their crop, as well as policy
irregularities that suggested collusion among agents, adjusters, and
producers.
We also conducted two surveys. In the first, we surveyed all 829 FSA
county officials responsible for conducting field inspections in 2003
to assess the effectiveness of USDA's procedures and processes to
prevent and detect fraud, waste, and abuse in selling and servicing
crop insurance policies. In the second, we surveyed a stratified,
random sample of 935 of the approximately 13,000 crop insurance sales
agents to solicit their views on control weaknesses and suggestions for
improving oversight of the crop insurance program. This sample
methodology allows us to project the survey results to all crop
insurance agents. We received responses from 92 percent of the 829 FSA
officials in the first survey and 76 percent of the 935 insurance
agents in the second survey. To determine the extent to which program
design issues may contribute to fraud, waste, and abuse in the crop
insurance program, we conducted a qualitative assessment of economic
studies. We also discussed these issues with USDA officials in
headquarters and field offices. To determine the effectiveness of RMA's
procedures for assuring program integrity in developing and expanding
crop insurance products, we evaluated the agency's policies,
procedures, and other pertinent documents to identify the controls in
place to assure program integrity. We selected a nonrandom sample of 16
developmental and expansion programs between 1998 and 2002 to determine
whether they complied with RMA's policies and procedures; the sample
included policies with low and high claims experience to determine if
loss experience was affected by compliance with procedures.
To show the types of actions that producers, agents, and loss adjusters
have used to circumvent RMA's procedures, our Office of Forensic Audits
and Special Investigations (FSI) reviewed eight cases of crop insurance
fraud prosecuted between June 2003 and April 2005. To research these
cases, it reviewed USDA's Inspector General's case files, spoke with
representatives from the U.S. Department of Justice, and reviewed
relevant reports, court papers, and other documentation. FSI conducted
its investigation from February through June 2005 in accordance with
quality standards for investigations as set forth by the President's
Council on Integrity and Efficiency.
We conducted our review from July 2004 through August 2005, according
to generally accepted government auditing standards, which included an
assessment of data reliability and internal controls. Appendix I
contains more detailed information on our scope and methodology.
Results in Brief:
Employing a broad range of processes to prevent and detect fraud,
waste, and abuse in the crop insurance program, RMA has reported that
questionable claims payments fell more than $300 million over the past
4 years. However, our review showed that RMA is not effectively using
all of the tools it has available and that producers and others
continue to take advantage of the program. In addition, program design
issues, including insuring individual fields, risk-sharing provisions,
and prevented planting can impede RMA's effort to ensure program
integrity. Specifically:
* Inspections during the growing season are not being used to maximum
effect. Although FSA is assisting RMA, as required under ARPA, by
conducting field inspections, FSA is not doing so in accordance with
USDA guidance. Between 2001 and 2004, producers filed claims on about
380,000 policies annually, and RMA's data mining identified about 1
percent of these claims as questionable and needing FSA inspection.
Under USDA guidance, FSA should have conducted all of the requested
inspections. However, FSA conducted only 64 percent of the inspections
RMA requested; FSA inspectors said that they did not conduct all
requested inspections primarily because they did not have sufficient
time. Between 2001 and 2004, FSA offices in nine states did not conduct
any of the field inspections RMA requested in one or more of the years.
Until we brought this matter to their attention in September 2004, FSA
headquarters officials were unaware that FSA offices in these nine
states had not conducted field inspections for one or more of the
years. FSA may not be as effective as possible in conducting field
inspections because RMA does not provide FSA with information on the
nature of the suspected abusive behavior or the results of follow-up
investigations. About 80 percent of the FSA inspectors we surveyed
believe that receiving more information from RMA would help them be
more effective in detecting fraud, waste, and abuse. In addition, FSA
state officials told us that inspectors are reluctant to conduct field
inspections because they believe RMA and insurance companies do not use
the information to deny claims for producers who do not employ good
farming practices. Finally, these inspections do not always occur in a
timely fashion, which would help detect abuse during the growing
season. Because of these problems, the insurance companies and RMA
cannot always determine the validity of a claim.
* RMA's data analysis of the largest farming operations is incomplete.
As required by ARPA, RMA is using data mining to administer and enforce
the crop insurance program and to analyze patterns that suggest
fraudulent activity, such as unusually high or frequent claims.
However, RMA's analysis excludes comparisons of the largest farming
operations--including those organized as partnerships and joint
ventures. RMA cannot make these comparisons because producers do not
always report the individuals or entities having a beneficial interest
of 10 percent or more in the farming operation holding the policy, as
required. RMA's database does not identify a producer's ownership
interest in other farming operations, and it has not been given access
to similar data that FSA maintains. According to our review of FSA's
database for 2003, 21,310 entities, or 31 percent of the entities we
analyzed, did not report to RMA one or more individuals or entities who
had a beneficial interest in their farming operation, as RMA
regulations require. RMA should be able to recover up to $74 million in
claims paid to these 21,310 entities--the amount of claims paid in
proportion to the interest of the member who was not reported.
Additionally, through data mining, we identified 115 of these 21,310
entities with questionable insurance claims totaling $9.2 million.
Finally, we identified nine farming entities that had one or more
owners who had previously been ruled ineligible to participate in the
federal crop insurance program because, for example, they had not paid
their insurance premium. We have referred this information to RMA for
further investigation. As our analysis indicates, without access to
FSA's database, RMA is missing opportunities to compare claims
experience among these large operations and to identify potentially
fraudulent behavior.
* RMA is not effectively overseeing insurance companies' quality
assurance programs. Eighty of the 120 insurance claim files we reviewed
should have received a quality assurance review because, for example,
they claimed more than $100,000 in crop losses. However, we found the
insurance companies conducted reviews on only 59 of these claims.
Furthermore, the reviews were largely paper exercises, such as
computational verifications, rather than comprehensive claim analysis.
RMA did not ensure that companies conducted all reviews called for
under its guidance and did not examine the quality of the companies'
reviews. RMA officials acknowledged that their agency's guidance for
conducting quality assurance reviews needs revision to improve the
compliance program. They noted RMA is working with a contractor to
revise its guidance.
* RMA has infrequently used its new sanction authority to address
program abuses. RMA has not fully used its new authority under ARPA to
sanction producers, insurance agents, and claims adjusters who
willingly and intentionally provide false or inaccurate information or
fail to comply with other FCIC program requirements. RMA has identified
about 3,000 producers with suspicious claim payments--notable policy
irregularities compared with other producers growing the same crop in
the same county--each year since the enactment of ARPA. While not all
of these policy irregularities were necessarily sanctionable, RMA has
imposed only 114 sanctions from 2001 through 2004. RMA's referrals to
USDA's Inspector General declined from a high of 37 in 2000 to 14 in
2004. According to RMA officials, RMA has requested and imposed few
sanctions because it has not issued regulations to implement its
expanded authority under ARPA. Without regulations, RMA has not
established what constitutes an "FCIC requirement" and how it will
determine that a violation has occurred or what procedural process it
will follow before imposing sanctions. Insurance agents we surveyed and
company officials we contacted believe that RMA needs to more
aggressively seek to penalize those producers, agents, and adjusters
who abuse the program. RMA officials told us that they will give
priority to issuing regulations implementing the sanctions authorized
under ARPA.
We also found that RMA's insurance information system contains
inaccurate data and does not always identify inaccurate claims payments
and that RMA did not always account for changes in farming practices in
a timely manner.
While RMA can improve its day-to-day oversight of the federal crop
insurance program in a number of ways, the program's design, as laid
out in RMA's regulations or as required by statute, hinders RMA
officials' efforts to administer certain program provisions to prevent
fraud, waste, and abuse. Specifically:
* RMA's regulations allow producers the option of insuring their fields
individually rather than combined as one unit. Producers may want to
insure fields separately out of concern that they would experience
losses in a certain field because of localized weather conditions, such
as hail or flooding. Insuring fields separately provides greater
assurance that such losses will be covered. However, insuring fields
separately enables producers to "switch" production among fields--
reporting production of a crop from one field that was actually
produced on another field--either to make false insurance claims based
on low production or to build up a higher yield history on a particular
field in order to increase its eligibility for higher future insurance
guarantees. Of the 2,371 producers included on RMA's list of producers
with irregular claims in 2003, 12 percent were suspected of switching
production among their fields.
* To induce insurance companies to deliver crop insurance to all
eligible producers, RMA's regulations allow the companies to place
producers with frequent or high claims in an insurance fund that shifts
almost all of the risk associated with these claims to the federal
government. Accordingly, the companies have less incentive to
rigorously challenge questionable claims.
* RMA is statutorily required to offer producers "prevented planting"
coverage. With this coverage, producers can file claims if they are
unable to plant the crop because of an insured cause of loss, such as
too much rain causing wet fields. However, as RMA and company officials
told us, it is often difficult to determine whether the producer had
the opportunity to plant a crop, hampering their ability to hold down
fraudulent claims.
* The statutorily established premium subsidies can be as high as 67
percent and, therefore, may also inhibit RMA's ability to control
program abuse. High premium subsidies shield producers from the full
effect of paying higher premiums associated with frequent or larger
claims because the subsidies significantly reduce producers' premiums.
Over one-half of the crop insurance agents responding to our survey
believed that crop insurance should cost more for producers with a
pattern of claims that are higher or more frequent in comparison with
other producers for the same crop in the same location to discourage
fraud, waste, and abuse in the program.
Eight recent crop insurance fraud cases, investigated by USDA's Office
of Inspector General (OIG) and resulting in criminal prosecutions
between June 2003 and April 2005, reflect issues we identified. These
eight cases, totaling $3.1 million in insurance claims, show how
producers, sometimes in collusion with insurance agents and others,
falsely claim prevented planting, weather damage, and low production.
Some of the cases show producers hiding or moving production from one
field to another. Several of these cases also demonstrate the
importance of having FSA and RMA work together to identify and share
information on questionable farming practices/activities.
When developing and expanding new crop insurance products, RMA did not
always follow its guidelines, which, according to USDA, were designed,
among other things, to minimize exposure to loss. As a result, claims
and loss ratios have been substantially higher for some new crop
products. For example, for the fall-planted watermelon program launched
in southern Texas, RMA approved the product without completing all data
collection and reviews of data called for under its guidelines. RMA
paid more than $20 million for fall-planted watermelon claims in 1999.
RMA cited a shortage of experienced staff as a major factor
contributing to its failure to follow its guidelines. In addition, we
found that RMA did not always annually evaluate these new products, as
laid out in its guidelines. In most cases, this lack of oversight did
not appear to result in significantly greater losses. However, in the
sweet potato program, a timely evaluation of the loss experience might
have averted the payment of several million dollars in claims.
According to RMA officials, they do not typically conduct annual
reviews, as the guidelines state they are to do, because they believe
they need several years of loss experience to adequately evaluate a new
product.
To better protect the crop insurance program from fraud, waste, and
abuse, Congress should consider allowing RMA to reduce premium
subsidies for producers who consistently have claims that are irregular
in comparison with other producers growing the same crop in the same
location. We are also making a number of recommendations to the
Secretary of Agriculture to improve RMA's and FSA's implementation of
ARPA and oversight of the crop insurance program. Among other things,
we are recommending that the Secretary of Agriculture direct the
Administrators of RMA and FSA to develop an action plan to improve the
effectiveness of the inspections conducted during the growing season.
We are also recommending that the Secretary of Agriculture direct FSA
to share producer-derived information with RMA to administer and
enforce requirements of the crop insurance program. Lastly, we are
recommending that the Secretary of Agriculture promulgate regulations
implementing the expanded authority under ARPA to impose sanctions and
direct RMA to eliminate optional unit coverage for producers who use
this coverage to frequently file questionable claims and receive
payments.
We provided a draft of this report to USDA for its review and comment.
USDA agreed to act on most of our recommendations, but it disagreed
with two of them. For example, USDA agreed to take steps to improve the
effectiveness of its growing season inspections and to strengthen
oversight of crop insurance providers' implementation of quality
control reviews. It also agreed that promulgating regulations to
implement the expanded authority under ARPA to impose sanctions would
enhance RMA's sanctions efforts, although it did not believe that the
lack of regulations has precluded it from using ARPA's authority to
impose sanctions. USDA disagreed with our recommendation that FSA field
offices conduct all inspections called for under agency guidance
because it believes FSA does not have sufficient resources to complete
all of these inspections. USDA may want to study the costs and benefits
of conducting these inspections. USDA also disagreed with our
recommendation to eliminate optional unit coverage for producers who
received payments for questionable claims because, among other things,
it did not believe eliminating such coverage would be prudent or cost-
effective. However, we continue to believe that it is reasonable for
USDA to use all tools at its disposal and that our recommendations will
reduce the federal crop insurance program's vulnerability to fraud and
abuse. Our detailed response to USDA's comments appears at the end of
this letter and following USDA's written comments in appendix VII.
Background:
Farming is an inherently risky enterprise. In conducting their
operations, producers are exposed to both production and price risks.
Crop insurance is one method producers can use to protect themselves
against these risks. Over the years, the federal government has played
an active role in helping to mitigate the effects of these risks on
farm income by promoting the use of crop insurance. Appendix II
contains information on the crop insurance program from 1981 to 2004.
Under the program, participating producers are assigned (1) a "normal"
crop yield based on their actual production history and (2) a price for
their commodity based on estimated market conditions. Producers can
then select a percentage of their normal yield to be insured and a
percentage of the price they wish to receive when crop losses exceed
the selected loss threshold. The following example illustrates how a
claim payment is determined. A producer whose normal crop production
averages 100 bushels of corn per acre and who chooses to buy insurance
at the 75 percent coverage level will be guaranteed 75 percent of 100
bushels, or 75 bushels per acre. Assuming that the producer had chosen
the maximum price coverage and that RMA had estimated the market price
for corn at $2 per bushel, the producer would have total coverage of
$150 per acre. Should something like drought cut the producer's actual
harvest to 25 bushels, the producer will be paid for the loss of 50
bushels per acre--the difference between the insured production level
of 75 bushels and the actual production of 25 bushels. The insurance
would pay the producer's claim at $2 x 50 bushels, or $100.
In addition, under the crop insurance program's "prevented planting"
provision, insurance companies pay producers who were unable to plant
the insured crop because of an insured cause of loss that is general in
their surrounding area, such as weather conditions causing wet fields,
and that prevents other producers from planting acreages with similar
characteristics. These producers are entitled to claim payments that
generally range from 50 to 70 percent of the coverage they purchased,
depending on the crop.
Critical to the success of the crop insurance program is aligning the
premium rates with the risk each producer represents. The risk
associated with growing a particular crop varies from location to
location, from farm to farm, and from producer to producer. If the
rates are too high for the risk represented, producers are less likely
to purchase insurance, lowering the program's income from premiums.
Conversely, if the rates are too low, producers are more likely to
purchase crop insurance, but because the rates are too low, the income
from premiums will be insufficient to cover the claims. Economists
refer to this situation as adverse selection.
To align crop insurance premium rates with the risk represented, RMA
establishes rates that vary by crop, location (county), farm, and
producer. RMA's objective is to set the rates that each producer pays
according to the risk associated with the producer's location, crop,
and past production. For the major field crops, RMA begins its premium
rate-setting process by looking at past crop insurance experience for
each county and state. On the basis of that historical experience, RMA
sets a premium rate for each crop in each county at the 65 percent
coverage level for average production. Using this premium rate, RMA
makes adjustments to establish rates for other coverage levels. RMA
also adjusts premium rates to assume producers will insure individual
fields, called "optional units," rather than all fields combined,
called "basic units."[Footnote 3] RMA uses an algorithm to make
adjustments to establish premium rates for producers whose production
levels are higher or lower than the county's average. According to RMA,
this latter adjustment is based on the assumption that producers with
higher-than-average production levels are less likely to experience
losses. Finally, to encourage participation in the crop insurance
program, the federal government subsidizes the premiums.
Moreover, for producers that do not have a sufficient number of years-
-at least 4--of actual production history records, RMA uses the
historical average county yield (called a transitional yield), adjusted
by a factor based on the number of years for which the producers have
provided records. Producers may also substitute the transitional yield
for actual yields in disaster years. In general, RMA sets a floor under
a producer's annual yield so that a yield in any year cannot fall below
60 percent of the transitional yield for that crop.
RMA establishes the terms and conditions that the private insurance
companies selling and servicing crop insurance policies are to use
through a contract called the standard reinsurance agreement (SRA). The
SRA is a cooperative financial assistance agreement between RMA,
through the FCIC, and the private crop insurance companies to deliver
federal crop insurance under the authority of the Federal Crop
Insurance Act. The SRA establishes the minimum training, quality
control review procedures, and performance standards required of all
insurance providers in delivering any policy insured or reinsured under
the Federal Crop Insurance Act, as amended. For example, under the SRA,
companies must provide training to their sales agents that includes
information on how to recognize common indicators of misrepresentation
or abuse, review anomalies identified by FCIC that suggest an unusual
claims pattern, and report all cases of suspected misrepresentation,
fraud, waste, or abuse.
To distinguish among different levels of risk, the SRA establishes
three reinsurance funds with commensurate requirements for the amount
of risk companies can cede back to FCIC: assigned risk, developmental,
and commercial. FCIC created the assigned risk fund for the riskiest
policies. Under the SRA, insurance companies may include individual
policies in this fund up to limits established for each state.
Beginning in 2005, the maximum amount of premium and associated
liability for claims payments that can be allocated to the assigned
risk fund varies from 25 percent in some states (e.g., Illinois,
Indiana, and Iowa) to 75 percent in others (e.g., Mississippi, North
Dakota, and Texas). Companies must retain 15 to 25 percent of the
policies' premiums and associated liability for claims payments for
policies in this fund, depending on the state.
RMA is responsible for ensuring that the federal crop insurance program
is carried out efficiently and effectively and for protecting against
fraud, waste, and abuse in the program. In this regard, RMA uses a
broad range of tools, including compliance reviews, company quality
assurance reviews, data mining, and FSA field inspections. RMA has a
compliance staff of 78 employees in six field locations to review
company quality assurance activities and investigate anomalous claims
payments. For their part, insurance companies must conduct quality
assurance reviews, such as program or field reviews, for policies with
a claim RMA has identified as anomalous and policies with a claim equal
to or greater than $100,000; these reviews are to determine whether the
claims they have paid are in compliance with policy provisions.
In 2004, RMA initiated a new operational review program that provides
for extensive review of each insurance provider's operation every 3
years. RMA's 3-year review cycle will assess insurance providers'
adherence to their contract with RMA, quality control guidelines, and
RMA-approved policies and procedures. This review will differ from
prior reviews in that RMA will direct the companies to investigate
policies that RMA has identified as having anomalous claims and require
RMA to assess a statistical sample of additional policies. In the past,
the insurance companies reviewed a statistical sample of claims and
policies, and RMA examined the results of the companies' reviews.
To strengthen oversight at the local level, RMA conducts data mining
and uses past loss experience to develop a sample of producers with
notable policy irregularities, such as unusually high or frequent
losses. Staff in FSA county offices review these cases for potential
fraud, waste, and abuse by inspecting the fields of the producers on
the list. Figure 1 shows the location of producers RMA identified for
field inspections in 2003.
Figure 1: Location of Producers Identified by RMA for Field
Inspections, 2003:
[See PDF for image]
[End of figure]
Congress enacted ARPA, amending the Federal Crop Insurance Act, in
part, to improve compliance with, and the integrity of, the crop
insurance program. ARPA expanded RMA's authority to impose sanctions in
two ways. First, it provided RMA authority to impose sanctions against
producers, agents, loss adjusters, and insurance companies that
willfully and intentionally provide false or inaccurate information to
FCIC or to an approved insurance provider. (Previously, RMA had
authority to impose sanctions only on individuals who willfully and
intentionally provided false information.) Second, ARPA provided
authority to impose sanctions against producers, agents, loss
adjusters, and insurance companies for willfully and intentionally
failing to comply with any other FCIC requirement. RMA has the
authority to disqualify producers who have committed a violation not
only from the insurance program but also from most other farm programs
for up to 5 years. RMA can also impose a civil fine for each violation,
up to the financial gain the individual obtained as a result of the
false or inaccurate information provided or of the noncompliance, or
$10,000, whichever is greater. Working with RMA's regional compliance
offices, RMA's sanctions office processes requests for sanctions from
the field offices and forwards the findings and recommendations to
RMA's appeals and litigation office. Following this office's review,
USDA's Office of General Counsel provides a legal opinion on the
sanction request. After consulting with the Office of General Counsel,
if the Administrator of RMA considers the case valid, RMA files a
complaint with USDA's Administrative Law Office. At the defendant's
request, the Administrative Law Office will hold a hearing, after which
the administrative law judge will render a decision.
ARPA also increased the percentage share of the premium the government
pays for most coverage levels of crop insurance, beginning with the
2001 crop year. Although the percentage of the premium the government
pays declines as producers select higher levels of coverage, the
government contribution significantly increases for all levels of
coverage, particularly for the highest levels of coverage. For example,
as shown in table 1, the share of the premium paid by the government
rose from 42 to 59 percent of the premium for 65 percent
coverage.[Footnote 4]
Table 1: Premium Subsidies Before and After ARPA:
Percentage of coverage selected by producer: 50;
Percentage of premium paid by the government: Before ARPA[A]: 55;
Percentage of premium paid by the government: After ARPA: 67.
Percentage of coverage selected by producer: 55;
Percentage of premium paid by the government: Before ARPA[A]: 46;
Percentage of premium paid by the government: After ARPA: 64.
Percentage of coverage selected by producer: 60;
Percentage of premium paid by the government: Before ARPA[A]: 38;
Percentage of premium paid by the government: After ARPA: 64.
Percentage of coverage selected by producer: 65;
Percentage of premium paid by the government: Before ARPA[A]: 42;
Percentage of premium paid by the government: After ARPA: 59.
Percentage of coverage selected by producer: 70;
Percentage of premium paid by the government: Before ARPA[A]: 32;
Percentage of premium paid by the government: After ARPA: 59.
Percentage of coverage selected by producer: 75;
Percentage of premium paid by the government: Before ARPA[A]: 24;
Percentage of premium paid by the government: After ARPA: 55.
Percentage of coverage selected by producer: 80;
Percentage of premium paid by the government: Before ARPA[A]: 17;
Percentage of premium paid by the government: After ARPA: 48.
Percentage of coverage selected by producer: 85;
Percentage of premium paid by the government: Before ARPA[A]: 13;
Percentage of premium paid by the government: After ARPA: 38.
Source: RMA.
[A] For crop years 1999 and 2000, the actual premium subsidy was higher
than shown. Under emergency supplemental acts, producers received an
additional 30 percent discount in 1999 and 25 percent discount in 2000.
[End of table]
RMA Has Strengthened Procedures for Preventing Questionable Claims, but
the Program Remains Vulnerable to Abuse:
Since ARPA, RMA has taken a number of steps to improve its procedures
and processes to prevent and detect fraud, waste, and abuse in selling
and servicing crop insurance policies. Most notably, RMA reports that
data mining analyses and subsequent communication to producers resulted
in a decline of at least $300 million in questionable claims payments
from 2001 to 2004. However, we found that RMA is not effectively using
all of the tools it has available and that producers and others can
continue to take advantage of the program. We identified weaknesses in
four key areas: (1) field inspections, (2) analysis that excludes many
large farming operations when producers do not report their interest in
them, (3) quality assurance reviews, and (4) imposition of sanctions.
Weaknesses in these areas continue to leave the program vulnerable to
questionable claims, and insurance companies and RMA cannot always
determine the validity of a claim to minimize fraud, waste, and abuse.
We also found that RMA's insurance information system does not always
identify policies that fail to comply with policy provisions and that
RMA's implementation approach may not always respond to unanticipated
vulnerabilities in a timely manner.
Data Mining and Other Actions Have Improved RMA's Ability to Manage the
Crop Insurance Program:
Each year, RMA develops a list of producers whose operations warrant an
on-site inspection (the spot-check list) during the growing season
because data mining uncovered patterns in their claims that are
consistent with the potential for fraud and abuse. For example, the
list includes:
* producers, agents, and adjusters linked in irregular behavior that
suggests collusion;
* producers who for several consecutive years received most of their
crop insurance payments from prevented planting indemnity payments;
* producers who appear to have claimed the production amounts for
multiple fields as only one field's yield, thereby creating an
artificial loss on their other field(s); and:
* producers who, in comparison with their peers, have excessive
harvested losses over many years.
Since RMA began using data mining in 2001, it has identified about
3,000 producers annually who warrant an on-site inspection because of
anomalous claims patterns. In addition, RMA annually performs about 100
special analyses to identify areas of potential vulnerability and
trends in the program.
RMA provides the list of producers from its spot-check list to the
appropriate FSA state offices for distribution to FSA county offices,
as well as to the insurance company selling the policy to the producer.
Staff in FSA county offices advise the selected producers that they
have been identified for an inspection as a result of data mining and
conduct field inspections during the growing season. In conducting
these inspections, inspectors are to determine the tillage method used;
weed control practices; type and amount of fertilizer applied; weather
conditions; and how the inspected crop compares with others in the
area. As a result of these inspections and other information, RMA
reported total cost savings of $312 million, primarily in the form of
estimated payments avoided: $48 million in 2001, $112 million in 2002,
$81 million in 2003, and $71 million in 2004. For example, according to
RMA, claims payments to producers identified for an inspection
decreased nationwide from $234 million in 2001 to $122 million in 2002.
According to RMA, some of the producers on the list bought less
insurance and a few dropped crop insurance entirely, but most simply
changed their behavior regarding loss claims.
Field Inspections Specified in RMA's Coordination Plan Are Not Being
Used to Maximum Effect:
ARPA required USDA to have a plan for FSA to assist RMA and approved
insurance providers in auditing a statistically appropriate number of
crop insurance claims. Under USDA guidance, developed pursuant to this
requirement, RMA is to annually provide a list of producers who exhibit
high loss ratios and high frequency and severity of losses or who are
suspected of poor farming practices. Upon receipt of this list, the FSA
county office is to review the first 10 producers or the top 5 percent
of the producers on the list, whichever is larger. If less than 10
producers are on the list, then FSA is to check all of them.[Footnote
5] All the lists that RMA has provided to FSA county offices include 10
or fewer producers, but FSA is not conducting field inspections for all
producers on the list. Between 2001 and 2004, producers filed about
380,000 claims annually. RMA's data mining identified about 1 percent
of these claims as questionable and needing inspection.
Overall, FSA conducted only 64 percent of the inspections RMA requested
from 2001 to 2004. Specifically, FSA submitted inspection reports for
only 70 percent of the inspections RMA requested in 2001 (1,737
requested), 49 percent in 2002 (3,303 requested), 67 percent in 2003
(3,094 requested), and 73 percent in 2004 (3,832 requested). During
this period, FSA offices in nine states failed to conduct any of the
field inspections RMA had requested in one or more of the years. Until
we brought this matter to their attention in September 2004, FSA
headquarters officials were unaware that these nine states had not
conducted field inspections for one or more of the years. According to
FSA officials in five states we contacted, county directors are
reluctant to conduct field inspections because they believe RMA and
insurance companies do not use the information to deny claims for
producers who do not employ good farming practices. As such, they
believe it does not make sense for them to spend time conducting these
reviews. However, by not conducting all requested inspections, FSA is
missing opportunities to identify producers who file unwarranted
claims.
For their part, FSA inspectors believe they would be more effective in
determining fraud, waste, and abuse if they received information from
RMA on the claims patterns RMA's data mining has identified as
questionable. For example, of the 3,832 claims RMA identified for field
inspections in 2004, approximately two-thirds were selected for
anomalous claims patterns associated with fraud, such as switching
information on production yields from one insured field to another.
About 80 percent of the FSA inspectors we surveyed believed that
receiving more information from RMA would help them be more effective
in detecting fraud, waste, and abuse when they conduct field
inspections. (See app. III for a summary of the results of our survey
of FSA inspectors.) Additionally, several FSA inspectors surveyed
provided written comments regarding the need for feedback. As one
respondent noted, there is little incentive to document field
inspection findings because FSA rarely learns what, if any, action was
taken. Another respondent commented that he would like feedback from
RMA on how useful the inspections have been. He would like to avoid
spending time on inspections that may not be useful to RMA. RMA
headquarters officials acknowledged that providing feedback to FSA
inspectors might help improve the quality of the field inspections.
Similarly, company officials told us that information from RMA's data
mining would help claims adjusters pay particular attention to
determining the total production for the producer's farming operation
and differences between fields with and without losses.
Although FSA inspectors cited a lack of communication with RMA on
specific cases and findings as a major impediment to completing
inspections, they also identified other reasons. As figure 2 shows, the
most commonly cited reason was "not having enough time."
Figure 2: FSA Inspectors' Primary Reasons for Not Conducting Field
Inspections of Producers with Notable Policy Irregularities:
[See PDF for image]
[End of figure]
We discussed the reported lack of time with FSA headquarters officials,
who advised us that field offices' broad range of responsibilities
provide limited time for field inspections in support of RMA. They said
our survey results taken as a whole underscore the importance of
effective communication and information sharing between RMA and FSA to
maximize the effectiveness of field inspectors' work.
FSA's field inspections also do not always occur in a timely manner
and, therefore, FSA inspectors may miss opportunities to detect abuse
during the growing season. RMA generally provides its spot-check list
to FSA in April, at the start of the growing season. USDA guidance
directs FSA staff to perform at least two field inspections--one within
30 days of the final planting date and one before harvest--on a minimum
of one representative tract. FSA selects a representative tract for
each crop listed by RMA on the spot-check list.[Footnote 6] However,
about 17 percent of FSA inspectors reported that they received RMA's
request for a field inspection more than 30 days after the final
planting date. In some cases, inspection requests came in as much as 6
months later.
Additionally, insurance companies may receive the results of some field
inspections too late to determine the validity of the claim. After FSA
county offices conduct the field inspections, they report the findings
to RMA, which then provides the results to the insurance companies
holding the policies for the producers. According to company officials,
they are unable to use the results of some field inspections because
the information is received months after the claim was paid. For
example, in one claim file we reviewed, on November 24, 2003, RMA
referred to an insurance company a soybean producer in Ohio who had
received claims payments in each of the past 5 years and was suspected
of underreporting his production in 2003. FSA's field inspection,
conducted in September just prior to harvest, found the crop to be
"above average to average" for the county and did not identify any
concerns regarding the crop's expected yield. To determine whether the
producer underreported production, the insurance company needed to
conduct a preharvest appraisal of the producer's fields. While the
insurance company conducted a quality assurance review of the claim, it
received RMA's reports after the producer harvested the soybeans--too
late to conduct preharvest appraisals to validate production.[Footnote
7]
FSA may also be missing opportunities to provide RMA with critical
information to assess a claim's validity. In reviewing claims, we found
that FSA frequently inspects only one tract, but that tract was not
always the tract on which a claim was filed. In written comments on our
survey, several FSA inspectors reported that they believe conducting a
growing season inspection on more than one tract is necessary to ensure
the monitoring program is effective. However, these inspectors also
noted that conducting inspections on more than one tract of land would
place additional demands on their time.
RMA's Analysis to Detect Potential Program Fraud and Abuse for Many
Large Farming Operations Is Incomplete:
RMA's data mining excludes many large farming operations because
producers fail to report other individuals' and entities' interests in
these operations. However, these entities, such as partnerships and
corporations, may include individuals who are also members of one or
more other entities. Because it does not know the ownership interests
in these farming operations, RMA cannot readily identify potential
fraud. For example, producers who are members of more than one farming
operation may have the opportunity to move production from one
operation to another to file unwarranted claims, without RMA's
knowledge that these producers participate in more than one farming
operation.
These farming operations do not always report other individuals or
entities who hold or acquire a beneficial interest of 10 percent or
more in the insured operation, as required by RMA regulations. RMA was
unaware that these entities had failed to fully disclose ownership
interest because it has not been given access to the FSA data file
identifying a producer's ownership interest in other farming
operations. However, ARPA requires the Secretary of Agriculture to
develop and implement a coordinated plan for RMA and FSA to reconcile
all relevant information received by either agency from a producer who
obtains crop insurance coverage. The Secretary of Agriculture also must
require RMA and FSA to reconcile this producer-derived information on
at least an annual basis, starting with the 2001 crop year, to identify
and address any discrepancies. We were able to obtain the FSA data file
and determine whether (1) farming operations report all members who
have a substantial beneficial interest in the operation, (2) these
farming operations file questionable crop insurance claims, and (3)
agents or claims adjusters had financial interests in the
claim.[Footnote 8] As shown in table 2, of the 69,184 entities that had
crop insurance policies in 2003 and that were in both RMA's and FSA's
databases, 21,310, or 30.8 percent, did not report one or more members
who held a beneficial interest of 10 percent or more in the farming
operation holding the policy.
Table 2: Crop Insurance Policyholders Failing to Disclose Ownership
Interest, by Entity Type, Crop Year 2003:
Entity type of policyholder: Corporation;
Number of entities analyzed[A]: 38,463;
Number of entities failing to disclose ownership interest[B]: 12,130;
Percentage: 31.5%.
Entity type of policyholder: General partnership;
Number of entities analyzed[A]: 24,780;
Number of entities failing to disclose ownership interest[B]: 7,486;
Percentage: 30.2%.
Entity type of policyholder: Limited partnership;
Number of entities analyzed[A]: 4,401;
Number of entities failing to disclose ownership interest[B]: 1,479;
Percentage: 33.6%.
Entity type of policyholder: Sole proprietorship[C];
Number of entities analyzed[A]: 1,540;
Number of entities failing to disclose ownership interest[B]: 215;
Percentage: 14.0%.
Total;
Number of entities analyzed[A]: 69,184;
Number of entities failing to disclose ownership interest[B]:
21,310[D];
Percentage: 30.8%.
Sources: GAO analysis of RMA and FSA data.
[A] We excluded trusts and joint ventures from the analysis because RMA
and FSA use conflicting definitions. We then identified 69,184 entities
in both the FSA and RMA files. FSA's database for ownership in entities
contained 345,421 entities for 2003, and the RMA database contained
112,467 entities that could have one or more members holding a
beneficial interest of 10 percent or more.
[B] Entities and members in the RMA database were compared against the
FSA database. If the entity or any member that held a beneficial
interest of 10 percent or more as reported in the FSA database did not
match the RMA database, the policy was identified as an entity failing
to disclose ownership interest.
[C] Sole proprietors operate farming entities using an employer tax
identification number and may conduct business under an assumed name.
[D] Of the 21,310 entities failing to disclose ownership interest,
5,848 entities had members with tax identification numbers that
differed by one digit in the RMA and FSA databases.
[End of table]
RMA should be able to recover a portion of the $224.8 million in claims
paid to the 21,310 entities that failed to disclose the ownership
interest of one or more members in 2003. According to RMA regulations,
if the policyholder fails to disclose the ownership interest in the
farming operation as required, the policyholder must repay the amount
of the claims payment that is proportionate to the interest of the
person who was not disclosed.[Footnote 9] The average ownership
interest of the persons not disclosed for the 21,310 entities was 33
percent; as a result, RMA should be able to recover up to $74 million
in claims payments.
According to our analysis of RMA's and FSA's databases, results were
similar for 2004--20,659 entities failed to disclose the ownership
interest of one or more members. As a result, RMA should be able to
recover up to $70 million in claims payments. In addition, we
identified 24 crop insurance agents who sold policies to farming
entities in which the agents held a substantial beneficial interest but
failed to report their ownership interest to RMA as required.[Footnote
10] These farming entities received $978,912 in claims payments in 2003
and 2004.
RMA regulations require that, if a person who is not reported is also
ineligible to participate in the crop insurance program, the crop
insurance policy is void, and the policyholder must repay the entire
claims payment. For example, a person can be ineligible because of
delinquent debt, such as unpaid premiums, to RMA or insurance
companies. For 2003 and 2004, using FSA's data, we found that nine
farming operations contained one or more members participating in the
crop insurance program who RMA had determined were ineligible to
participate.
If RMA had complete information on entity ownership interests, it could
strengthen the review of some of the largest claims. For example, in
analyzing the 21,310 entities failing to disclose ownership interest in
2003, we found 210 entities with questionable insurance claims totaling
$11.1 million on 244 policies. Furthermore, we identified one claims
adjuster who adjusted a policy in 2004 with claims payments of $91,094
for a farming operation in which he held a beneficial interest of 33
percent.[Footnote 11] RMA guidance prohibits conflict-of-interest
activities. Among other things, insurance providers are not to permit
adjusters to adjust a claim of a party in which the adjuster has a
material or financial interest.[Footnote 12] Without FSA's entity data,
RMA is missing opportunities to identify potentially fraudulent
behavior in these operations.
Furthermore, an internal RMA study found that entities that purchase
crop insurance for only 1 or 2 years have higher claims experience than
entities that participate continuously over a number of years.[Footnote
13] According to FSA officials in two states we contacted, some
entities are apparently created temporarily to avoid tracking by RMA,
making it difficult for RMA to identify questionable claims patterns
over time. They told us that after these entities participate in the
crop insurance program for a few years, they are dissolved, and the
farming operations are reestablished under new entity names.
RMA Cannot Effectively Assess Insurance Companies' Performance Because
of Weaknesses in Quality Assurance Reviews:
RMA also looks to insurance companies that are selling and servicing
crop insurance to help them ensure program compliance and minimize
losses. RMA guidance states that insurance providers will provide
oversight to properly underwrite the federal crop insurance program,
including implementing a quality control program, conducting quality
control reviews, and submitting an annual report to FCIC. However, RMA
is not effectively overseeing insurance companies' quality assurance
programs and, for the claims we reviewed, it does not appear that most
companies are rigorously carrying out their quality assurance
functions. For example, 80 of the 120 insurance claim files we reviewed
claimed more than $100,000 in crop losses or met some other significant
criteria; RMA's guidance states that the insurance provider must
conduct a quality assurance review for such claims. However, the
insurance companies conducted reviews on only 59 of these claims, and
the reviews were largely paper exercises, such as computational
verifications, rather than comprehensive analysis of the claim.
In 2002, USDA's OIG reported that RMA's efforts to develop a quality
control review system had been rendered ineffective by the absence of a
policy establishing what the system should measure and what standards
of accountability should apply.[Footnote 14] The Inspector General
noted that RMA had not (1) determined whether it should measure each
insurance company's performance, (2) established an acceptable standard
error rate to hold companies accountable for excessive errors, and (3)
defined an error so that error rates or improper payment measurements
were meaningful. As a result, the Inspector General stated, RMA is no
closer to having a fully developed and reliable quality control review
system to evaluate the delivery of the federal crop insurance program
than it was in 1993, when the Inspector General recommended that RMA
develop and implement such a system. Similarly, in 1999, we recommended
that RMA improve its methodology for estimating error rates for claims
payments.[Footnote 15] We reported that such information is essential
for evaluating the crop insurance program's effectiveness over time and
for providing controls over claims payments.
RMA's own most recent internal review reached a similar conclusion. In
September 2002, RMA's Deputy Administrator for Compliance reported that
RMA needed to significantly revise its guidance to accomplish
meaningful quality assurance reviews with measurable results. This
conclusion was based on a review of 17 insurance providers' compliance
with FCIC's quality assurance requirements. For example, the Deputy
Administrator noted, RMA's guidance did not define the type and amount
of documentation needed to meet review requirements and to support the
insurance companies' review results and conclusions. Furthermore,
because the insurance companies relied heavily on the use of check
sheets to document and report the results of their reviews, rather than
inspecting fields, RMA could not confirm that quality assurance reviews
were performed as required. According to RMA officials, RMA is working
with a contractor to incorporate the report's recommendations and
revise its guidance. As of August 2005, RMA had not issued revised
guidance on the companies' conduct of quality assurance reviews.
RMA May Be Missing Opportunities to Impose Sanctions Because It Has Not
Developed Regulations Implementing its Expanded Authority to Impose
Sanctions under ARPA:
While ARPA expanded RMA's authority to impose sanctions on producers,
agents, and adjusters who abuse the crop insurance program, RMA has
only used this authority on a limited basis. RMA has imposed sanctions
on individuals who have provided false or inaccurate information, but
it has not used its new authority to impose sanctions on individuals
who willfully and intentionally fail to comply with FCIC requirements.
Under ARPA, RMA has authority to impose sanctions on agents, loss
adjusters, approved insurance providers, and others who willfully and
intentionally (1) provide false or inaccurate information or (2) fail
to comply with other FCIC requirements. Earlier legislation allowed RMA
to impose sanctions only on individuals who willfully and intentionally
provided false information. ARPA provides RMA with the authority to
disqualify producers who have committed a material violation from
receiving benefits under the insurance program and from most other farm
programs for up to 5 years. Previously, RMA had authority to disqualify
producers from purchasing catastrophic risk protection or receiving
noninsured assistance for up to 2 years and from receiving any other
benefit under the crop insurance program for up to 10 years. The new
legislation also provides RMA with greater flexibility to impose civil
fines.
ARPA expanded RMA's authority to impose sanctions in order to improve
compliance with, and the integrity of, the crop insurance program.
However, as table 3 shows, except for 2004, RMA imposed few sanctions
even though it has identified about 3,000 suspicious claim payments
each year since 2001. From 2001 to 2004, RMA imposed 114 sanctions.
Table 3: RMA Sanctions Requested and Imposed, Crop Years 2001 to 2005:
Action: Requests for sanctions;
1996: [B];
1997: 22;
1998: 27;
1999: 27;
2000: 16;
2001: 15;
2002: 83;
2003: 56;
2004: 81;
2005[A]: 21.
Action: Sanctions imposed;
1996: 8;
1997: 16;
1998: 28;
1999: 8;
2000: 10;
2001: 9;
2002: 19;
2003: 19;
2004: 67;
2005[A]: 14.
Source: RMA.
Note: Sanctions requested and imposed include civil fines,
disqualifications, debarments, and suspensions. A civil fine may be
imposed against a producer, agent, loss adjuster, an approved insurance
company, or other person that willfully and intentionally provides any
false or inaccurate information to RMA or to an approved insurance
provider with respect to a policy or plan of insurance or willfully and
intentionally fails to comply with an RMA requirement. The fine may be
imposed for each violation in an amount not to exceed the greater of
$10,000 or the amount of financial gain obtained as a result of the
false or inaccurate information or the noncompliance. In the case of a
violation committed by an agent, loss adjuster, an approved insurance
company, or other person (other than a producer), the violator may be
disqualified for up to 5 years from participating in the USDA crop
insurance program. In the case of a violation committed by a producer,
the producer may be disqualified for up to 5 years from receiving any
monetary or nonmonetary benefit under both the crop insurance program
and other farm programs, such as price supports.
[A] Data as of July 2005.
[B] Data not available.
[End of table]
According to RMA officials, RMA's ability to impose sanctions is
limited because it has not developed regulations to implement its new
authority under ARPA to impose sanctions on individuals who willfully
and intentionally fail to comply with an FCIC requirement. RMA's
sanctions office submitted draft regulations to USDA's Office of
General Counsel in 2001 and again in 2003. However, the Office of
General Counsel has not approved the draft regulations. RMA
headquarters officials we spoke with in April 2005 told us that the
number of sanctions has not substantially increased because regulations
have not been promulgated to establish what constitutes an FCIC
requirement and how USDA will determine that a material violation has
occurred or what process would be followed before imposing sanctions.
RMA officials told us that they will give priority to issuing
regulations implementing the sanctions authorized under ARPA.
Furthermore, since ARPA, the number of RMA referrals to USDA's OIG has
declined from a high of 37 in 2000 to 14 in 2004. Crop insurance
investigations opened by OIG have declined from 40 in 2000 to 12 in
2004, as shown in table 4. The table also shows the number of
convictions, on average, is less than 10 per year.
Table 4: Number of USDA OIG Crop Insurance Investigations, Number of
Referrals to the Department of Justice, and Case Disposition, Fiscal
Years 1996 to 2005:
Dollars in millions.
RMA referrals to USDA's OIG;
1996: 12;
1997: 20;
1998: 12;
1999: 18;
2000: 37;
2001: 28;
2002: 16;
2003: 14;
2004: 14;
2005[A]: 8.
OIG investigations opened;
1996: 27;
1997: 19;
1998: 13;
1999: 24;
2000: 40;
2001: 18;
2002: 16;
2003: 8;
2004: 12;
2005[A]: 11.
Disposition of OIG referrals to the Department of Justice:
Referred;
1996: 1;
1997: 6;
1998: 3;
1999: 8;
2000: 3;
2001: 28;
2002: 13;
2003: 14;
2004: 7;
2005[A]: 5.
Accepted;
1996: 1;
1997: 6;
1998: 3;
1999: 7;
2000: 2;
2001: 14;
2002: 7;
2003: 2;
2004: 1;
2005[A]: 3.
Declined;
1996: 0;
1997: 0;
1998: 0;
1999: 1;
2000: 1;
2001: 14;
2002: 6;
2003: 10;
2004: 3;
2005[A]: 1.
Pending;
1996: 0;
1997: 0;
1998: 0;
1999: 0;
2000: 0;
2001: 0;
2002: 0;
2003: 2;
2004: 3;
2005[A]: 1.
Department of Justice disposition:
Indictments;
1996: 10;
1997: 6;
1998: 12;
1999: 2;
2000: 11;
2001: 13;
2002: 6;
2003: 15;
2004: 15;
2005[A]: 2.
Convictions;
1996: 9;
1997: 11;
1998: 2;
1999: 6;
2000: 4;
2001: 5;
2002: 14;
2003: 8;
2004: 9;
2005[A]: 6.
Dollar impact[B];
1996: $1.4;
1997: $1.7;
1998: $0.1;
1999: $1.9;
2000: $2.0;
2001: $14.0;
2002: $1.9;
2003: $0.7;
2004: $1.7;
2005[A]: $9.7.
Source: USDA's OIG.
[A] Data as of August 2005.
[B] Includes recoveries/collections, restitutions, fines, claims
established to demand repayment of USDA benefits, and cost avoidance.
[End of table]
As table 4 also shows, while the number of referrals to the Department
of Justice has increased, the Department of Justice has declined more
cases than it has accepted since 2000.[Footnote 16] According to
Department of Justice officials, the factors considered when accepting
a case include sufficiency of the evidence, complexity of the case,
whether the fraudulent activity is part of a pattern or scheme, and
workload and resources that would be needed to investigate and
prosecute the case. These officials told us that crop insurance fraud
cases are highly complex and involve a significant number of documents
that must be reviewed and presented in court. Furthermore, the dollar
value of crop insurance cases frequently is not as large as in other
cases, such as drug trafficking or some white-collar crimes. Finally,
the officials noted, some cases require a full-time auditor to guide
the prosecutors in reviewing the insurance and financial documents to
facilitate presentation to the jury in the trial.
Insurance agents we surveyed and company officials we contacted
believed that RMA needs to more aggressively seek to penalize those
producers, agents, and adjusters that abuse the program. (See app. IV
for a summary of the results of our survey of crop insurance agents.)
Other Weaknesses Affect the Crop Insurance Program's Vulnerability:
We found two other weaknesses in the crop insurance program that leave
it vulnerable to abuse. First, while RMA has made some improvements to
verify data in its information system, the system still contains
inaccurate data and does not always identify inaccurate claims
payments. Consequently, RMA has a greater risk of accepting policies
that have erroneous information and of paying for excessive losses.
Second, production yields can change when producers change farming
practices, but RMA may not also respond promptly to the resulting
change in yields, which can lead to excessive claims payments.
RMA's Insurance Information System Contains Inaccurate Data and Does
Not Always Identify Inaccurate Claims Payments:
RMA uses its insurance information system to reduce its vulnerability
to fraud and abuse. Among other things, this system is to provide a
means of validating data to ensure that reimbursements are made on
accurate information. OMB guidance states that financial management
systems shall be designed with consistent internal controls over data
entry, transaction processing, and reporting to ensure that information
is valid and that federal resources are protected.[Footnote 17] Without
proper controls, an agency risks the possibility of processing
irregularities. RMA has made improvements in its verification checks to
try to ensure accurate information, but some weaknesses remain.
Even though RMA is aware of the need for accurate data, we found that,
at times, RMA's insurance information system contained inaccurate data.
The system contained inaccuracies because RMA had not established
adequate verification checks in making annual adjustments to reflect
changes to the crop insurance program.
Each year RMA's program automation group reviews system requirements
for needed system changes in response to annual program and policy
changes. In addition, the group seeks input on needed improvements,
based on prior years' problems, from RMA program users and insurance
company representatives. This process has been helpful in improving the
overall accuracy of the data in the system. For example, RMA has made
the following changes to its insurance information system since 1999:
* In 1999, RMA implemented a verification check to identify policies
that are on the same acreage but have two different insurance
providers.
* In 2001, RMA began weekly automated reporting on producers with
duplicate policies.
* In 2002, RMA implemented a verification check to (1) identify
producers with unrealistic crop yield reports and (2) ensure that crop
yield would be verified when producers changed to a new insurance
provider.
* In 2003, RMA implemented a verification check to validate producers'
claims that they were new participants in the crop insurance
program.[Footnote 18]
* In 2004, RMA implemented a verification check to identify and
eliminate duplicate policies for the same producer with more than one
insurance provider.
Each of these improvements addressed a specific information system
weakness that had been identified in prior years, and each improvement
reduced the likelihood of improper crop insurance payments.
Nevertheless, we found that certain insurance policies, called written
agreements--unique policies RMA regional offices develop to meet a
local producer's specific needs--would bypass all of the verification
checks that other policies undergo. Policy information from the written
agreements is provided to the insurance companies, but not all the
specific policy data are entered into RMA's information system. In
fact, we found that some of the policies had extremely low insurance
premium rates, resulting in understated premiums. For example, a policy
we reviewed showed that the total premium was $1,555 for liability
coverage of about $520,000, but the correct total premium should have
been $155,473. For crop years 2003 and 2004, RMA had 8,511 written
agreement policies with a total liability of over $400 million in its
insurance information system. Because these types of policies bypass
all system checks, other errors could occur.
After we advised RMA of this problem, it reported that it changed the
information system to check for unusually low premium rates. However,
in order to conduct all the necessary verification checks on written
policies, RMA will have to conduct time-consuming coordination efforts
with its regional offices and the program automation group.
We also found, in cases of a partial loss, claims payments were made
that were higher than a specific unit's insurance liability. RMA
officials stated that the insurance information system contains an edit
check to ensure that the total claim is not greater than the total
liability. However, we found that the system did not have an edit check
to ensure that, in cases of a partial loss, claims paid for each
insured optional unit were not higher than the total liability for
those fields. When we reported this issue to RMA, it said that it would
modify its system. However, due to a number of complexities associated
with this change, RMA said that the change would not be implemented
until the 2006 crop year.
In addition, for 2001 to 2004, we found 14 producers enrolled in the
crop insurance program who RMA had determined were ineligible to
participate in the program. RMA officials stated that the insurance
information system contains an edit check to identify producers
determined ineligible to participate in the crop insurance program.
Nevertheless, our analysis found that RMA's system does not identify
all producers ineligible to participate in the crop insurance program.
These ineligible producers received about $145,000 in claims payments.
RMA Did Not Always Account for Changes in Farming Practices in a Timely
Manner:
According to a 2003 RMA study, RMA overpaid claims between 2000 and
2002 in wheat-producing counties in Oregon and Washington because of a
program vulnerability. Overpayments occurred because RMA did not begin
reducing producers' relatively high insurance guarantees to take into
consideration a change in farming practices that began in 1996. This
change resulted in lower yields on insured fields that had a higher
yield history and insurance guarantee. RMA began to take this change
into account in farming practices with the 2004 crop year, but it does
not expect to fully resolve this issue until about 2014. RMA officials
told us that if they were to fully adjust producers' insurance
guarantees to reflect the lower yields in just a year, the agency would
still be legally obligated to provide the higher guarantee because
guarantees are based on a 10-year historical average. Under the Federal
Crop Insurance Act, as amended, RMA is to provide yield coverage based
on the actual production history of the crop over at least the past 4
years, building up to the previous 10-year period.
Before 1996, producers could insure their wheat crop for a higher yield
if they agreed to allow insured fields to lie fallow for 1 to 2 years
between plantings, a practice called "summer fallow," rather than plant
these fields every year (continuous cropping). This practice is used in
semiarid regions, primarily to conserve moisture for the next season.
By not planting, producers could allow the soil to recover moisture
and, it is expected, produce a higher yield when the field is later
planted.
Until 1996, RMA knew which practices producers followed. However, in
1996, USDA's National Agricultural Statistics Service (NASS) changed
the way it reported information on producers' farming
practices.[Footnote 19] NASS had been collecting and reporting county
data on wheat yields by whether producers allowed their fields to lie
fallow in alternate years or planted them every year. In 1996, when
NASS stopped reporting yield data by type of production practice, RMA
stopped distinguishing between producers' production practices. RMA
allowed producers to continue to insure their wheat at the higher yield
level associated with summer fallow practices, whether or not the
producers periodically let fields lie fallow or planted them every
year.
Under the Federal Crop Insurance Act, producers are assigned a yield
based on production records. Between 1995 and 2000, many wheat
producers in Oregon and Washington shifted their farming practices to
planting fields every year while using the higher summer fallow
production records to establish their insured yield. During this
period, the number of insured acres in the Oregon counties alone rose
from 4,535 to 108,569. However, RMA did not adjust its coverage to take
into account the lower yields associated with fields planted every
year. Consequently, producers received an insurance guarantee based on
a history of yields from fields that had been fallow in alternate
years, even though now they planted these fields every year, which made
them unlikely to achieve the higher yields of a summer fallow practice.
According to RMA's data, a summer fallow practice provides producers
yields that are up to 33 percent higher than annual planting practice.
For example, a producer who grew an average of 40 bushels of wheat per
acre using the summer fallow production practice may have the potential
to grow only 30 bushels per acre using annual planting practice. Since
RMA allows producers to use production history from summer fallow
practices to establish insurable yields for annual crop production, the
producer in this example can grow 30 bushels annually and make an
insurance claim for the other 10 bushels (although over time the actual
production history will decrease, reducing the producer's ability to
file a claim). RMA's data mining showed that producers took advantage
of this program vulnerability. Excessive insurance guarantees for some
producers may have contributed to higher claims.
Beginning with the 2004 crop year, RMA decided to offer insurance for
wheat in these counties by the practice producers employed, either a
summer fallow practice or continuous cropping practice. While this
decision should reduce program vulnerability, the problem will only be
eliminated gradually. RMA did not require producers to recertify their
historical acreage and production by separate practice to correct the
insurance guarantee. RMA officials agreed that some producers will
continue receiving claims payments based on an inflated "normal" yield
history until the production history is corrected with actual yields
over the next 10 years.
RMA's Regulations and Statutory Requirements Hinder RMA Officials'
Efforts to Reduce Abuse in the Crop Insurance Program:
RMA's regulations, as well as statutory mandates, have created a
program design that can impede RMA officials' efforts to prevent and
detect fraud, waste, and abuse in a number of ways. First, in terms of
RMA's regulations, producers can insure their fields individually
instead of insuring all fields combined, which makes it easier for them
to switch production among fields, either to make false insurance
claims or to build up a higher yield history on a particular field in
order to increase its eligibility for higher future insurance
guarantees. In addition, companies participating in the crop insurance
program bear minimal risk on some of the policies they sell and
service, giving the companies little incentive to rigorously challenge
questionable claims on these policies. In terms of statutory
requirements, RMA must offer producers "prevented planting" coverage--
coverage if an insured crop is prevented from being planted--but it is
often difficult to determine whether the producer had the opportunity
to plant a crop. Furthermore, statutorily established premium subsidies
are high and, therefore, may shield high-risk producers from the full
effect of paying higher premiums.
Option to Allow Producers to Insure Each of Their Fields Separately May
Contribute to Program Abuse:
Many patterns of producer fraud, waste, and abuse are possible if
producers manipulate how they report production from separately insured
units. Under RMA's regulations, producers can insure production of a
crop on each optional unit or insure an entire basic unit. With
separately insured optional units, for example, if hail damages a crop
on one field, producers receive an insurance indemnity to cover the
hail losses. However, if producers insured their entire crop in a
single basic insurance unit, the hail losses may not have caused the
production yield of all units combined to have been below the level
guaranteed by the insurance and, therefore, would not warrant an
indemnity payment.
However, separately insured optional units make it easier for producers
to report production from one field that was actually produced on a
second field in order to make false insurance claims or to build up a
higher yield history on a particular field to increase its eligibility
for higher future insurance guarantees.[Footnote 20] Since claims
payments for optional units are based upon the yield in each field,
rather than the yield for the entire farm, the result of this
misreporting is to generate or increase claims on the first field while
enhancing the yield for future insurance guarantees on the second
field. In a future period, the producer reallocates production from the
second field to the first field, thus increasing indemnities on the
second field while rebuilding the yield of the first field. Insurance
companies or RMA could increase inspection activity in an attempt to
reduce occurrences of production switching, but increased activity
would raise the costs of administering the program.
According to a 2002 RMA study, relative losses per unit increase as the
number of separately insured optional units increases.[Footnote 21]
Furthermore, given the similarities in a producer's separately insured
units, the study could not identify any credible reasons, in the
absence of fraud, waste, or abuse, that the losses should increase with
increases in the number of separately insured units. Finally, the study
concluded that such loss patterns are unlikely to occur naturally.
According to an RMA official, gathering the evidence to support a yield-
switching fraud case requires considerable resources, especially for
large farming operations. Furthermore, the official noted, in order to
prove production switching, adjusters would need to appraise all of a
producer's fields just before harvest.
In 2003, RMA identified 2,371 suspicious claims, 273 of which (about 12
percent) had patterns associated with switching production among
fields. Furthermore, in our review of claim files, we identified 10
producers with patterns of claims associated with this type of fraud.
Table 5 highlights a pattern of claims suggesting yield switching, as
shown by the production history for a producer farming over 2,000 acres
of irrigated cotton in west Texas. Generally, this producer insured a
yield of about 700 pounds per unit. To the extent an individual unit
reports production below the insurance guarantee, the producer is paid
an indemnity.
Table 5: Production Reported by an Irrigated Cotton Producer Indicating
Yield Switching:
Unit identifier: 101;
Production per acre (in pounds): Crop year 2001: 1,419;
Production per acre (in pounds): Crop year 2002: 113;
Production per acre (in pounds): Crop year 2003: 184.
Unit identifier: 102;
Production per acre (in pounds): Crop year 2001: 156;
Production per acre (in pounds): Crop year 2002: 1,769;
Production per acre (in pounds): Crop year 2003: 366.
Unit identifier: 103;
Production per acre (in pounds): Crop year 2001: 208;
Production per acre (in pounds): Crop year 2002: 230;
Production per acre (in pounds): Crop year 2003: 1,523.
Unit identifier: 104;
Production per acre (in pounds): Crop year 2001: 303;
Production per acre (in pounds): Crop year 2002: 387;
Production per acre (in pounds): Crop year 2003: 183.
Unit identifier: 105;
Production per acre (in pounds): Crop year 2001: [A];
Production per acre (in pounds): Crop year 2002: 445;
Production per acre (in pounds): Crop year 2003: 166.
Claim payment received;
Production per acre (in pounds): Crop year 2001: $539,233;
Production per acre (in pounds): Crop year 2002: $450,077;
Production per acre (in pounds): Crop year 2003: $639,457.
Source: GAO analysis of RMA's claim data.
[A] Unit number 105 was not insured in crop year 2001.
[End of table]
For example, in 2001 the producer harvested the crop on Unit 101 with a
reported yield of 1,419 pounds of cotton per acre and reported losses
on the remaining three units, thereby obtaining claims payments of over
$500,000. It appears some of the production from the three units with
claims for losses was shifted to the unit with the high production. By
building up a higher yield history on Unit 101, the producer increased
the insurance guarantee on this unit for 2002 and beyond. In 2002, the
producer claimed a loss on Unit 101, as well three other units,
obtaining claims payments of over $400,000. In 2003, the pattern was
repeated, resulting in claims payments of more than $600,000.
FSA's field inspection of Unit 101 in 2003, conducted in September just
prior to harvest, found that the "cotton looked good and was comparable
with other fields in the area." Nonetheless, the insurance company paid
the claims on the units to the producer in December 2003 and January
2004.
Moreover, we found that the producer in this case--a farming operation
set up as a general partnership--leased land from the owner of the
cotton gin where the farming operation sold its cotton and where the
cotton gin recorded the production levels that the farming operation
used to substantiate its claims. The owner of the gin also provided the
partnership with loan security to obtain operating capital.
Furthermore, one of the partners in the farming operation, who had a
power of attorney to sign documents on behalf of the partnership, was
also employed in the office of the cotton gin. We referred this case to
RMA for follow-up investigation, which reported that there was not
enough evidence of abuse to refer the case for sanction or prosecution.
In his 2003 loss review, however, the claims adjuster questioned the
producer's farming practices, prompting the insurance company to
perform a preharvest inspection in 2004. The producer did not file a
claim in 2004. In 2005, RMA and insurance company representatives
performed joint preharvest appraisals on this producer's fields in
anticipation of a filing for a claim. No claim had been filed for 2005
at the time we completed our review.
Minimal Risk Sharing on Some Policies May Not Provide Insurance
Companies Strong Incentive to Carry Out Their Responsibilities under
the Program:
Insurance companies participating in the crop insurance program share a
percentage of the risk of loss or opportunity for gain on each
insurance policy they write, but the federal government ultimately
bears a high share of the risk. Under the SRA, insurance companies are
allowed to assign policies to one of three risk funds--assigned risk,
developmental, or commercial. The SRA provides some criteria for
designating policies to these funds. For the assigned risk fund, the
companies cede up to 85 percent of the premium and associated liability
for claims payments to the government and share a limited portion of
the gains and losses on the policies they retain. Economic incentives
to control program costs associated with fraud, waste, and abuse are
commensurate with financial exposure. Therefore, for policies placed in
the assigned risk fund, companies have far less incentive to
investigate claims than the federal government would. For example, in
one claim file we reviewed, an insurance company official characterized
the producer as filing frequent, questionable claims; however, the
company paid a claim of over $500,000. The official indicated that if
the company vigorously challenged the claim, the producer would have
defended his claim just as vigorously, and the company would have
potentially incurred significant litigation expenses, which RMA does
not reimburse. In the company's opinion, it was less costly to pay the
claim. In 2003, companies placed about 19 percent of the policies they
wrote in the assigned risk fund and about 69 percent in the commercial
fund. However, for those producers on RMA's spot-check list, about 47
percent of the policies were in the assigned risk fund, and 38 percent
were in the commercial fund.
RMA and Insurance Companies Have Difficulty Determining Potential Abuse
Associated with Prevented Planting Coverage:
Under the Federal Crop Insurance Act, as amended, RMA must offer
prevented planting coverage. Under the act and its implementing
regulations, RMA allows claims for prevented planting if producers
cannot plant due to an insured cause of loss that is general in the
surrounding area and that prevents other producers from planting
acreage with similar characteristics.[Footnote 22] Claims for prevented
planting are paid at a reduced level, recognizing that producers do not
incur all production costs associated with planting and harvesting a
crop. However, determining whether producers can plant their crop may
be difficult. Annually, RMA pays about $300 million in claims for
prevented planting.
In written comments on our survey, 25 FSA inspectors reported that they
believe some producers in their county who claimed prevented planting
losses never intended to plant or did not make a good faith attempt to
plant their crop. Additionally, in some cases, it appears that the
insurance company's claims adjusters may not exercise due diligence in
evaluating prevented planting claims. For example, a producer in south
Texas received claims payments of over $21,000 for prevented planting
claims for corn in 2003 and 2004. The producer claimed that excess
rainfall made his fields too wet to plant. However, according to a June
2004 FSA field inspection report, there was no evidence the producer
had made any attempt to prepare the fields for planting in either the
2003 or 2004 growing seasons. The FSA inspection report noted, and
photographs showed, the fields contained permanent grasses and 5-foot
tall weeds, as well as large hay bales from the prior growing season.
In addition, rainfall for the county in April and May, 2003, was well
below normal, and there was no evidence that the producer had ordered
seed in anticipation of planting. Moreover, in 2003, of the 66 corn
policies in the county, the producer's policy had the only claim for
prevented planting. Because the cause of loss was not general to the
area, the producer should not have received payment on the claim.
Similarly, in 2004, the producer filed one of only three claims for
prevented planting of the 55 corn policies in the county. According to
an official of the insurance company that sold and serviced this
policy, prevented planting claims are paid early in the growing season,
and because information on other companies' claims experience is
unavailable, it is difficult to assess whether producers' claims are
due to an insured cause of loss that is general in the surrounding area
and that prevents other producers from planting acreage with similar
characteristics. On the basis of our review, RMA investigated the 2003
and 2004 prevented planting claims for this producer and subsequently
directed the insurance company to seek reimbursement for the 2003 claim
payment.
High Premium Subsidies May Inhibit RMA's Ability to Control Program
Abuse:
To encourage program participation, ARPA increased premium subsidies--
the share of the premium paid by the government--but this increase may
hamper RMA's ability to control program waste and abuse. Premium
subsidies are calculated as a percentage of the total premium, and
producers pay only between 33 to 62 percent of the policy premium,
depending on coverage level. High premium subsidies shield producers
from the full effect of paying higher premiums. Because premium rates
are higher in riskier areas and for riskier crops, the subsidy
structure transfers more federal dollars to those who produce riskier
crops or farm in riskier areas.
In addition, premium rates are higher for producers who choose to
insure their fields separately under optional units, rather than all
fields combined, because the frequency of claims payments is higher on
the separately insured units. Again, however, because of high premium
subsidies, producers pay only a fraction of the higher premium. Thus,
the subsidy structure creates a disincentive for producers to insure
all fields combined. Over one-half (56 percent) of the crop insurance
agents responding to our survey believed that charging higher premiums
for producers with a pattern of high or frequent claims would
discourage fraud, waste, and abuse in the crop insurance program.
Finally, in disaster years, ARPA increases insurance protection by
allowing producers to substitute a percentage of the historical average
county yield for actual yields. As a result of ARPA, RMA sets a floor
under producers' annual yields so that yields in any year cannot fall
below 60 percent of the historical average county yield (called the
transitional yield) for that crop. Consequently, the amount of crop
insured against loss is at least 60 percent of the average county
yield, giving producers higher coverage than experience would allow.
Although RMA sets a higher premium for producers because of actual
production losses, because of high premium subsidies producers pay only
a fraction of the higher premium. Thus, the subsidy structure creates
an incentive for producers to insure at the higher level of protection.
Recently Prosecuted Crop Insurance Fraud Cases Highlight Program
Vulnerabilities:
Eight recent crop insurance fraud cases that were investigated by
USDA's OIG and resulted in criminal prosecution between June 2003 and
April 2005 reflect some of the issues we identified. The cases show how
producers, sometimes in collusion with others, falsely report planting,
claims of damage and production to try to circumvent RMA's procedures.
In some cases, producers hid production or switched it from one field
to another. Several of these cases also demonstrate the importance of
having FSA and RMA work together to identify and share information on
questionable farming practices/activities. Table 6 summarizes these
eight cases, which accounted for $3.1 million in fraudulent claims
payments. These cases, which were researched and analyzed by our Office
of Forensic Audits and Special Investigations, are described here and
in more detail in appendix V.
Table 6: Crop Insurance Fraud Cases Investigated by the USDA/OIG and
Resulting in Criminal Prosecution, June 2003 to April 2005:
Case: 1;
Fraud allegation: Failure to plant;
How detected: OIG/RMA/FSA identified irregularities through joint data
mining effort and follow-up inspection;
Collusion: Possible. Insurance adjuster indicted for falsely verifying
losses;
Fraudulent claims payments: $57,155.
Case: 2;
Fraud allegation: False claim of crop damage from hail, heat, and
drought;
How detected: RMA and FSA received complaints and initiated review;
Collusion: Possible. Insurance policy purchased from agency owned by a
sister-in-law;
Fraudulent claims payments: $39,826.
Case: 3;
Fraud allegation: False claim of crop damage from excessive moisture;
How detected: OIG initiated. Fraud detection survey of grain elevator
disclosed irregularities;
Collusion: No;
Fraudulent claims payments: $435,087.
Case: 4;
Fraud allegation: Failure to plant;
How detected: FSA filed complaint with RMA;
Collusion: Yes. Insured was also agent and issued policies through his
agency. Insurance adjusters falsified forms. Seed dealers also provided
false receipts;
Fraudulent claims payments: $630,000.
Case: 5;
Fraud allegation: False claim of crop damage;
How detected: RMA noticed suspicious adjustments in grain quality by
grain elevator company;
Collusion: Yes. Farmer and grain elevator operator;
Fraudulent claims payments: $1,000,000.
Case: 6;
Fraud allegation: False crop yield history to inflate insurance claim;
How detected: OIG hotline complaint;
Collusion: Yes. Insurance agents pled guilty to falsifying insurance
documents;
Fraudulent claims payments: [A].
Case: 7;
Fraud allegation: No ownership interest in crops; underreporting of
crop yield;
How detected: OIG hotline complaint;
Collusion: No;
Fraudulent claims payments: $19,000.
Case: 8;
Fraud allegation: Failure to plant; false claim of moisture damage;
concealing production;
How detected: Bankruptcy fraud investigation revealed insurance fraud;
Collusion: Ongoing investigation of insurance representatives;
Fraudulent claims payments: $912,364.
Sources: GAO's analysis of USDA and U.S. Department of Justice case
information.
[A] Data not available.
[End of table]
These eight crop insurance cases are described as follows:
* Case 1. The subject of this investigation, a producer in Tennessee,
in 1999 improperly obtained crop insurance coverage for his tomato crop
and received a claims payment for losses that had not occurred.
Moreover, this producer was ineligible to participate in the crop
insurance program because he had not paid a past premium. In order to
hide the fact that he was the true grower of 1999 tomato crops in two
Tennessee counties, he used his wife's name on crop insurance
documents. In addition, his wife filed a report with the insurance
company claiming a higher level of acreage planted to inflate the value
of any subsequent insurance claim. An insurance adjuster assisted the
producer by fraudulently signing forms showing he inspected and
measured the nonexistent crops and that his observations supported the
wife's claimed loss.
* Case 2. A producer planted a wheat crop after the planting deadline,
which made the crop ineligible for crop insurance. He reported,
however, that the crop had been planted before the deadline and falsely
claimed crop losses because of hail, heat, and drought. Furthermore,
the producer did not have an ownership interest in the crop. Instead,
the producer's brother leased the farm land and paid the cost of
planting, and the brother's wife owned the insurance agency that issued
the insurance policy on the crop. FSA filed a complaint with RMA
because FSA officials had observed that the crop was planted past the
planting deadline.
* Case 3. Two producers conspired to file fraudulent crop insurance
claims, stating that their bean crops had been damaged by excessive
moisture. They underreported the crop yield to the insurance company
and hid production by delivering the harvest to processing plants using
false names. The scheme was discovered by OIG during a fraud detection
survey at a grain elevator. Investigators reviewed the sales of
uninsured crops and identified production sold under other names that
actually belonged to the two producers.
* Case 4. A farming partnership filed fraudulent insurance claims of
crop losses for cotton, wheat, and grain sorghum that were never
planted. The producer, who also owned an insurance agency formed a
farming partnership with other family members for these acres, and the
producer's insurance agency wrote insurance policies for the farming
partnership. Two insurance adjusters, who did not visit any of the
fields, filed false appraisal and production worksheets verifying the
losses. A seed dealer also prepared false receipts to support the
producer's planting claims. However, inconsistent statements on
documents submitted to FSA led to an inspection of the farming
operation, and inspectors found little evidence of planting. A
subsequent investigation resulted in admissions of guilt.
* Case 5. The manager of a grain elevator conspired with producers to
sell their wheat at discounted prices by providing them with false
documentation showing that a large portion of their crop was damaged by
weather and below weight. The manager also falsified documents, stating
that the crop was of lower quality and provided falsified samples of
severely damaged wheat to mislead insurance adjusters. Producers could
then collect crop insurance and disaster payments from the federal
government.
* Case 6. Two crop insurance agents conspired with producers to inflate
actual production histories, which allowed the producers to receive
higher indemnity payments on insurance claims. The agents backdated an
insurance application, created a false insurance policy based on a
fictitious yield rate, and had the producers sign blank insurance
documents. This fraud was identified through an OIG hotline complaint.
* Case 7. An investigation was initiated following an OIG hotline
complaint that a producer had reported different crop yields to FSA and
RMA. OIG determined that the producer had, among other things, (1)
filed four false insurance claims, stating that he had experienced a
failed harvest and needed to replant; (2) filed claims on crops in
which he had no ownership interest; (3) inflated the size of a corn
crop loss; and (4) filed a claim in which he underreported the yield.
* Case 8. Producers falsely claimed they (1) were prevented from
planting because of excess moisture and (2) had planted crops that they
did not plant and claimed losses on these crops. The producers also
filed claims in which they underreported the yield and for crops in
which they had no interest. In order to report a crop loss and
manipulate their yields, the producers sold crops using other people's
names. These schemes were discovered during the course of a bankruptcy
fraud investigation involving some of the producers.
RMA's Failure to Follow Its Guidelines Has Resulted in Program Losses
for Some New and Expanded Crop Insurance Products:
RMA has not always developed or expanded crop insurance products
according to its guidelines, thereby contributing to program losses.
RMA's guidelines (1) identify RMA's mission for expanding the crop
insurance program; (2) outline the process and procedures by which the
RMA responds to requests to add a new insurance program; (3) specify
data submission requirements for analysis of the new program request;
and (4) establish the framework RMA will use to implement, maintain,
and evaluate a new program expansion.[Footnote 23] According to RMA,
these guidelines are intended to ensure producer interest and crop
suitability and to minimize exposure to loss. We found that, in some
instances when RMA did not follow its guidelines, it had higher claims
and loss ratios.
Most of the newly developed and expanded products we reviewed--15 of
the 16 products--were developed under the guidelines RMA had in place
before ARPA. Under these guidelines, RMA officials are to obtain
information documenting, among other things, the following:
* significant grower interest in the insurance coverage;
* the crop's economic significance;
* actuarial sufficiency and data availability (e.g., producer acreage,
crop yield, production cost, and weather data);
* a risk profile and analysis (e.g., perils affecting the crop,
production experience, available markets, and product viability);
* agronomic, aquatic, and horticultural suitability (e.g., commercial
life cycle of the crop, rotation requirements, whether the crop is an
annual, biennial, or perennial);
* marketing potential (e.g., market characteristics, risks, and
competition); and:
* implementation parameters (e.g., crop year for implementation and
number of states).
Under ARPA, the FCIC Board of Directors is required to have actuarial
and underwriting experts independently review policies, plans of
insurance, and related materials before approving new products.
Of the 16 crop insurance products we reviewed, 11 were newly developed,
and 5 were expansions of an existing crop into a new geographic
area.[Footnote 24] RMA's overall loss ratio for the 16 pilot crop
products was about 2.0 (or $2.00 in claims paid for every $1.00 in
premium). Four of the 16 cases we reviewed had loss ratios of 1.0 or
less. (See app. VI for a comparison of loss ratios for these 16 crop
insurance products.) In 12 of the 16 cases, it appeared that RMA
followed its guidelines in terms of documenting the proposed insured
crops' past production experience, crop suitability, potential for
loss, and implementation parameters. However, for the cases in which
RMA did not follow its guidelines, the products experienced claims in
excess of premiums of over $50 million.
For example, FCIC's Board of Directors approved coverage of fall-
planted watermelons as part of a broader watermelon insurance pilot
program covering watermelon production in seven states and 15 counties
for spring-and fall-planted watermelons--without considering all the
factors called for under its guidelines--such as a horticultural study.
Such a consideration would have provided assurance that the proposed
product was actuarially sound, according to the OIG.[Footnote 25]
Overall, the watermelon pilot program had over $51 million in claims
payments in 1999, its first year of operations, and had a loss ratio
(claims paid divided by premiums) of 5.8. Of the claims payments in
1999, $21.1 million, or 44 percent, was for fall-planted watermelons in
the three Texas counties. According to the Inspector General, a
horticultural analysis would have shown that fall watermelons were a
high-risk crop in that region of Texas. The product was discontinued
after a year. In responding to the Inspector General about its offering
of insurance for fall-planted watermelons in Texas, RMA commented that
a shortage of experienced staff was a major factor contributing to the
agency's lack of adherence to its guidelines.
In another case--the apple quality option policy--the FCIC Board of
Directors quickly approved this product despite a number of questions
suggesting the need for additional study. The approved product, which
insured a higher grade of apples than existing apple crop policies,
experienced large losses. In determining whether to approve this
product, the Board of Directors contracted for studies from five
independent companies. One of the studies reported 10 major concerns
about the product, including incomplete documentation, the large number
of counties in the pilot program (approximately 86 percent of the apple
crop), and an understated premium rate. Three of the other four
reviewers raised similar concerns. The other reviewer supported the
proposal with minor reservations. Even with these concerns, the FCIC
Board of Directors quickly approved the pilot without additional
analyses. The claims for this product for crop years 2001 through 2003
were about $4.4 million, and the product had a loss ratio of 2.6. RMA
officials contend that the loss ratio can primarily be attributed to
some apple producers in California, who may have abused the system.
According to RMA officials, the Board of Directors discussed the
concerns raised by the studies but still approved the request for the
pilot. A delay in approval might have delayed the pilot's
implementation for a year. As of August 2005, RMA was moving to
contract with independent reviewers to evaluate the apple quality
option pilot program including its actuarial soundness and whether it
effectively meets the needs of apple producers.
Upon approval by the FCIC Board of Directors, new products have a
probationary period--generally 1 to 3 years. Under RMA guidelines,
newly developed products are to be examined annually to see that they
are meeting performance goals--such as producer participation by year,
state, county, and insurance company; loss ratios; and appropriate
premiums. RMA is to make adjustments if warranted and determine whether
the product should be continued or terminated.
According to RMA officials, in lieu of a formal review, RMA informally
collects data on each new insurance product by at least annually
corresponding with RMA regional offices and outside sources. They said
that annual reviews are only of limited value in providing the
information RMA needs to determine the viability of a product because
it takes several years to get a clear picture of how well an insurance
product will perform.
The lack of an annual evaluation did not appear to significantly affect
future years' loss experience for most of the 11 new products we
reviewed. However, timely annual evaluation of the sweet potato program
might have saved the federal crop insurance program several million
dollars. The sweet potato program's loss ratio from 1998 through 2002
ranged from 2.3 to 5.2, but RMA waited until 2003 before making changes
to it and made additional changes for the 2004 crop year. From 1998 to
2003, the sweet potato program recorded claims of $47 million compared
with premiums of about $12 million. An evaluation completed in 2003
suggested that the high dollar claims for this product could not fully
be attributed to weather conditions but rather suggested potential
fraud or abuse. Earlier, more timely reviews could have identified the
irregular claims activity in selected counties and might have averted
the claims payments. In October 2004, the FCIC Board of Directors
terminated the existing sweet potato pilot program and implemented a
new program that included reduced coverage and increased growing
experience requirements for participation. In May 2005, the Inspector
General reported on RMA's failure to follow its procedures for
performing new product reviews, including the sweet potato pilot
program, and recommended that RMA improve the timeliness of its
evaluations for new products.[Footnote 26]
Conclusions:
Federal crop insurance plays an invaluable role in assuring the
nation's farmers that their crops will be protected from natural
disasters. However, the importance of the program and the significant
role it plays in U.S. agriculture is frequently overshadowed by
controversy associated with fraud, waste, and abuse in the program. In
recent years, with the assistance of the new tools in ARPA, RMA has
made progress in strengthening a number of program elements and thereby
reducing fraud, waste, and abuse, as well as the amount of funds paid
in error.
Still, we identified weaknesses in how RMA, FSA, and insurance
companies carry out their program responsibilities, and these
weaknesses continue to leave the program vulnerable to questionable
claims and missed opportunities to prevent losses to the federal
government. Lack of timely, useful communication between RMA and FSA
has resulted in insufficient information sharing between the two
agencies, as well as with the insurance companies and insufficient
inspections of land with suspicious claims. Furthermore, RMA has not
been given access by FSA to key information on producers who have a
beneficial interest in one or more farming operations. As a result,
many of the largest farming operations are not closely scrutinized in
the crop insurance program. Many of these farming entities fail to
disclose producers having an ownership interest in the entity and who
may be ineligible to participate in the federal crop insurance program.
In addition, insurance companies' quality control reviews of claims are
weak because RMA does not effectively oversee the companies' quality
assurance efforts leaving the crop insurance program susceptible to
fraud and abuse. Finally, RMA has used one of its key enforcement
tools--sanctions against producers, agents, and companies--on a very
limited scale because, 4 years after ARPA, it has not promulgated
regulations establishing how it will impose some of the additional
sanctions authorized under ARPA.
We recognize that the crop insurance regulations or statutory
provisions are intended to strengthen protection for producers.
However, in many cases, RMA has difficulty ensuring that these
provisions are not abused. RMA has opportunities to improve the
program's design by eliminating the option of insuring fields (optional
units) for producers who have a history of high losses in comparison
with other producers growing the same crop in the same area. The
program's high premium subsidies, specified in the Federal Crop
Insurance Act, as amended by ARPA, may also limit RMA's ability to
control program abuse because the subsidies shield producers from the
full effect of paying higher premiums associated with frequent or
larger claims.
Periodic lapses in program management when developing and expanding new
crop insurance products limit the effectiveness of RMA's guidelines and
can cause unnecessary losses to the crop insurance program. Generally,
when RMA followed its guidelines, new products incurred fewer losses.
ARPA provided RMA with a new, seemingly more rigorous process to review
new products. However, the new process cannot succeed unless RMA more
closely follows its guidelines.
The crop insurance program is designed to accommodate the needs of all
of America's producers. Fraud, waste, and abuse can cause producers to
pay more for crop insurance and hurt the reputation of the program.
Further reducing vulnerability to fraud, waste, and abuse in the crop
insurance program will require a coordinated effort among the agencies
and companies managing the program--RMA, FSA, and the participating
insurance companies. Each agency and the companies have an important
role in monitoring agent, adjuster, and producer actions and in sharing
key program information with one another.
Matter for Congressional Consideration:
To better protect the crop insurance program from fraud, waste, and
abuse, Congress should consider allowing RMA to reduce premium
subsidies--and hence raise the insurance premiums--for producers who
consistently have claims that are irregular in comparison with other
producers growing the same crop in the same location.
Recommendations for Executive Action:
To better ensure that field inspections are used to the maximum effect
to address fraud, waste, and abuse in the federal crop insurance
program, we recommend that the Secretary of Agriculture take the
following eight actions. Specifically, we recommend that the Secretary
direct the Administrators of RMA and FSA to create an action plan to
ensure that:
* FSA field offices conduct all inspections called for under agency
guidance;
* RMA informs FSA field inspectors of the suspect claim patterns that
they are to investigate; and:
* FSA inspections are conducted in a timely manner, and inspection
results are reported expeditiously to insurance companies.
We further recommend that the Secretary of Agriculture:
* promulgate regulations to implement its expanded authority under ARPA
to impose sanctions;
* direct FSA to share producer-derived information with RMA for data
mining to administer and enforce the requirements of the crop insurance
program;
* direct RMA to determine if payments have been made to ineligible
producers or to entities that failed to disclose ownership interests
and, if so, to recover the appropriate amounts;
* direct RMA to strengthen its oversight of the insurance companies'
implementation of the quality control review system; and:
* direct RMA to reduce the insurance guarantee or eliminate optional
unit coverage for producers who consistently have claims that are
irregular in comparison with other producers growing the same crop in
the same location.
Agency Comments and Our Evaluation:
We provided USDA with a draft of this report for its review and
comment. We received written comments from USDA's Under Secretary for
Farm and Foreign Agricultural Services. The department agreed to act on
most of our recommendations, including (1) ensuring that inspections
are conducted in a timely manner, and that inspection results are
reported expeditiously to insurance companies; (2) directing FSA to
share producer-derived information with RMA; (3) directing RMA to
determine if payments have been made to ineligible producers or to
entities that failed to disclose ownership interests and, if so, to
recover the appropriate amounts; and (4) directing RMA to strengthen
its oversight of the insurance companies' implementation of the quality
control review system.
With respect to issuing regulations to implement its expanded authority
under ARPA to impose sanctions, USDA agreed that promulgation of ARPA-
based sanction regulations would enhance RMA's sanctions efforts.
However, USDA stated that it was incorrect to suggest that the lack of
regulations is a critical impediment to imposing sanctions. USDA also
stated that there has been a learning curve since ARPA was enacted but
that it has been imposing sanctions under its ARPA authority since 2000
and that it has made "significant and steady progress" in both the
numbers and types of sanctions imposed. Our report indicates that USDA
has imposed some sanctions since the enactment of ARPA. However, the
number of sanctions imposed by RMA has not increased appreciably since
the enactment of ARPA. For example, RMA imposed an average of less than
20 sanctions annually from 1996 to 2000, and an average of less than 20
sanctions annually from 2001 to 2005, except for 2004 (67), which was
an exception. While not all questionable claims payments are
necessarily sanctionable, RMA has identified about 3,000 questionable
payments annually since beginning data mining in 2001. We continue to
believe RMA has not fully exercised its new authority.
Under ARPA, RMA has new authority to impose sanctions on agents, loss
adjusters, approved insurance providers, and others who willfully and
intentionally fail to comply with an FCIC program requirement. In April
2005, RMA officials told us that the number of sanctions has not
substantially increased in part because regulations have not been
promulgated under ARPA. Subsequently, an official from USDA's Office of
General Counsel told us that RMA had not imposed any sanctions under
its new authority to do so on the basis of a failure to comply with an
FCIC program requirement. This official indicated that regulations were
needed to establish what constitutes an FCIC program requirement, how
USDA will determine that a material violation has occurred, and what
process will be followed before imposing sanctions under this
provision. USDA does not dispute the report's findings that no
sanctions have been imposed under this sanction provision of ARPA.
USDA disagreed with our recommendation to ensure that FSA field offices
conduct all inspections called for under agency guidance because FSA
did not have sufficient resources to complete all of these inspections.
Given the potentially high payoff from providing greater assistance to
RMA, we believe that FSA may want to conduct a study to determine the
costs and benefits of making staff available for crop insurance
inspections.
USDA also disagreed with our recommendation to reduce the insurance
guarantee or eliminate optional unit coverage for producers who
consistently file claims that are irregular in comparison with other
producers growing the same crop in the same location. USDA stated that
this recommendation represented a disproportionate response,
considering the small number of producers identified as yield switching
each year and that adoption of our recommendation would not be cost-
effective. We agree that the number of policies identified annually as
having patterns consistent with yield switching is small in comparison
with the number of policies in the crop insurance program. However, we
believe it is possible to narrowly tailor an underwriting rule so that
it would target only a few producers each year and would entail few
resources. Such a tool would provide RMA with another means to
discourage producers from abusing the program. Thus, we continue to
believe it is reasonable for RMA to reduce the insurance guarantee or
eliminate optional unit coverage for producers who consistently file
and receive questionable claims payments.
USDA also provided technical corrections, which we have incorporated
into this report as appropriate. USDA's written comments are presented
in appendix VII.
As agreed with your office, unless you publicly announce the contents
of this report earlier, we plan no further distribution until 30 days
from the report date. At that time, we will send copies of this report
to appropriate Congressional Committees; the Secretary of Agriculture;
the Director, Office of Management and Budget; and other interested
parties. In addition, this report will be available at no charge on the
GAO Web site at [Hyperlink, http://www.gao.gov].
If you have any questions about this report, please contact me at (202)
512-3841 or [Hyperlink, robinsonr@gao.gov]. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page of this report. GAO staff who made major contributions to
this report are listed in appendix VIII.
Sincerely yours,
Signed by:
Robert A. Robinson:
Managing Director, Natural Resources and Environment:
[End of section]
Appendixes:
Appendix I: Objectives, Scope, and Methodology:
At the request of the Chairman of the Senate Committee on Homeland
Security and Governmental Affairs, we examined the U.S. Department of
Agriculture (USDA) Risk Management Agency's (RMA) procedures for
assuring integrity in the crop insurance program. Specifically, we
agreed to (1) assess the effectiveness of USDA's procedures and
processes to prevent and detect fraud, waste, and abuse in selling and
servicing crop insurance policies; (2) determine the extent to which
program design issues may make the program more vulnerable to fraud,
waste, and abuse; and (3) determine the effectiveness of USDA's
procedures to assure program integrity in developing new crop insurance
products.
To assess the effectiveness of USDA's procedures and processes to
prevent and detect fraud, waste, and abuse in the selling and servicing
of crop insurance policies, we examined a nonrandom sample of 120
insurance claims from the 2,794 claims that RMA identified as
warranting a field inspection in 2004. Of these 120 claims, 100 were
the largest claims paid, and 20 were selected to ensure representation
of all data analysis selection criteria. To review the claims, we
visited seven insurance companies and contacted three others to request
the claim files. We also examined the guidance that RMA and USDA's Farm
Service Agency (FSA) field offices use to implement the requirements of
the Agricultural Risk Protection Act of 2000 (ARPA), including the
FSA/RMA Handbook FCIC Program Integrity, 4-RM. In addition, we examined
guidance that RMA uses to ensure compliance with the Federal Crop
Insurance Act, including relevant laws; regulations and agency policy,
including the 2003 Crop Insurance Handbook; Manual 14, Guidelines and
Expectations for Delivery of the Federal Crop Insurance Program; loss
adjustment manuals; crop insurance handbooks; and related managers'
bulletins and notices.
In addition, we conducted two surveys. To assess the effectiveness of
RMA and FSA's coordinated monitoring efforts at the local level, we
conducted a Web-based survey of all 829 FSA county officials who were
responsible for conducting field inspections in 2003. The survey
contained 17 questions that asked for opinions and assessments of (1)
preharvest and growing season inspections; (2) training and education
on crop insurance; (3) the findings and actions taken by RMA; and (4)
FSA's role in reducing fraud, waste, and abuse in crop insurance. In
developing the questionnaire, we met with officials in FSA headquarters
to gain a thorough understanding of the coordinated plan FSA uses to
assist RMA in monitoring the crop insurance program. We also shared a
draft copy of the questionnaire with these officials, who provided us
with comments, including technical corrections. We then pretested the
questionnaire with FSA officials in two county offices each in Texas
and Georgia, as well as with officials in one office each in Maryland,
Minnesota, and North Dakota. During these pretests, we asked the
officials to complete the Web-based survey as we observed the process.
After completing the survey, we interviewed the respondents to ensure
that (1) questions were clear and unambiguous, (2) terms we used were
precise, (3) the questionnaire did not place an undue burden on the FSA
county officials completing it, and (4) the questionnaire was
independent and unbiased. On the basis of the feedback from the
pretests, we modified the questions, as appropriate.
The questionnaire was posted on GAO's survey Web site. When the survey
was activated, the officials who had been selected to participate were
informed of its availability with an e-mail message that contained a
unique user name and password. This allowed respondents to log on and
fill out a questionnaire but did not allow respondents access to the
questionnaires of others. The survey was available from December 9,
2004, until March 11, 2005. We received responses for 92 percent of the
829 FSA officials. Results of the survey to FSA county officials are
summarized in appendix III.[Footnote 27]
To solicit crop insurance agents' views on control weaknesses and
suggestions for improving oversight of the crop insurance program, we
developed a questionnaire that was mailed to crop insurance agents. In
developing the questionnaire, we met with officials in RMA headquarters
to gain a thorough understanding of internal controls in the crop
insurance program. We also shared a draft copy of the questionnaire
with these officials who provided us comments, including technical
corrections. We then pretested the questionnaire with five crop
insurance agents in Texas, five agents in Georgia, and five agents in
North Dakota. During each pretest we interviewed the respondent to make
sure that the (1) questions were clear and unambiguous, (2)
questionnaire terms were precise, (3) questionnaire did not place an
undue burden on the agents completing it, and (4) questionnaire was
independent and unbiased. The survey was mailed to the crop insurance
agents on December 21, 2004.
Because of the large number of agents (more than 13,000) that
participate in the crop insurance program, we used a probability
sample. Before sampling, agents were grouped by the dollar amount of
policies sold in 2003. The number of agents sampled from each group was
proportionate to the number of agents in the group. The final number of
agents selected was 951. However, because of incorrect addresses or
other information, the final sample was 935. We received responses from
76 percent of these 935 insurance agents.
The results from the survey are presented as estimates, each with a
measurable precision, or sampling error, that may be expressed as a
plus/minus figure. By adding the sampling error to and subtracting it
from the estimate, we developed upper and lower bounds for each
estimate. The range between these two estimates is called the
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 out of 100 cases, the sampling procedure would produce a
confidence interval that would include the estimated value. Results of
the survey are summarized in appendix IV.[Footnote 28]
At our request, the Center for Agribusiness Excellence in Stephenville,
Texas, conducted data mining on RMA's crop insurance databases and
FSA's computer databases for farming operations receiving commodity
program payments. For these operations, the databases contain detailed
information on the individuals that are members or beneficiaries, their
share of payments, and additional organizational details. We asked the
Center for Agribusiness Excellence to determine whether (1)
policyholders report all farming operations in which they have a
substantial beneficial interest, (2) certain farming operations
manipulate production among affiliated farming entities to file
questionable crop insurance claims, and (3) conflicts of interest exist
for members of farming operations who are also agents or claims
adjusters. In addition, for policyholders identified as not having
reported all farming operations in which they have a substantial
beneficial interest, we asked the Center for Agribusiness Excellence to
determine whether any of these policyholders had been identified by RMA
as ineligible to participate in the crop insurance program.
To determine the extent to which program design issues may make the
program more vulnerable to fraud, waste, and abuse, we conducted a
qualitative assessment of economic studies. We also discussed these
issues with USDA program officials in headquarters and with field
office officials who conduct inspections during the growing season.
To examine practices recently employed by producers, agents, and
adjusters to defraud the federal crop insurance program, GAO's Office
of Forensic Audits and Special Investigations (FSI) asked USDA's Office
of Inspector General (OIG) to provide the names of all crop insurance
fraud cases they had investigated in the preceding 2 years that
resulted in criminal prosecution. OIG identified eight cases of crop
insurance fraud prosecuted between June 2003 and April 2005. FSI
reviewed OIG's case files for these cases, spoke with representatives
from the U.S. Department of Justice, and reviewed relevant reports,
court papers, and other documentation on these cases. FSI conducted its
investigation from February through June 2005 in accordance with
quality standards for investigations as set forth by the President's
Council on Integrity and Efficiency.
Finally, to determine the effectiveness of USDA's procedures in
assuring program integrity in developing new crop insurance programs,
we evaluated the agency's policies, procedures, and other pertinent
documents to determine what controls were in place to assure program
integrity. Specifically, for developmental products, we reviewed RMA's
New Program Development Handbook and, for expansion of existing
products, we reviewed RMA's General Guidelines and Criteria for
Submitting County Crop Program Expansion Requests. We reviewed these
RMA guidelines to determine the types of analyses expected and the
process that was to be followed in order to establish a new or
expansion product. We also spoke with RMA's product development and
expansion officials. We selected a nonrandom sample of 16 products that
were developed (11 products) or expanded (5 products) during 1998 and
2002 and compared the work performed and documented with the
appropriate RMA guidance. The 11 products included 5 products with the
highest loss ratios (over $3 claims paid for every $1 of premiums) and
6 products with low loss ratios (less than $3 in claims paid for every
$1 of premiums).
We conducted our review from July 2004 through August 2005 according to
generally accepted government auditing standards, which included an
assessment of data reliability and internal controls.
[End of section]
Appendix II: Selected Information on the Federal Crop Insurance
Program, 1981-2004:
Acres and dollars in millions.
Year: 1981;
Policies: (in thousands): 416.8;
Acres: 45.0;
Liability: $5,981.2;
Total premium: $376.8;
Subsidy: $47.0;
Producer premium: $329.8;
Claims paid: $407.3;
Total loss ratio[A]: 1.08;
Producer loss ratio[B]: 1.23.
Year: 1982;
Policies: (in thousands): 386.0;
Acres: 42.7;
Liability: $6,124.9;
Total premium: $396.1;
Subsidy: $91.3;
Producer premium: $304.8;
Claims paid: $529.1;
Total loss ratio[A]: 1.34;
Producer loss ratio[B]: 1.74.
Year: 1983;
Policies: (in thousands): 310.0;
Acres: 27.9;
Liability: $4,369.9;
Total premium: $285.8;
Subsidy: $63.7;
Producer premium: $222.1;
Claims paid: $583.7;
Total loss ratio[A]: 2.04;
Producer loss ratio[B]: 2.63.
Year: 1984;
Policies: (in thousands): 389.8;
Acres: 42.7;
Liability: $6,619.6;
Total premium: $433.9;
Subsidy: $98.3;
Producer premium: $335.6;
Claims paid: $638.4;
Total loss ratio[A]: 1.47;
Producer loss ratio[B]: 1.90.
Year: 1985;
Policies: (in thousands): 414.6;
Acres: 48.6;
Liability: $7,159.9;
Total premium: $439.8;
Subsidy: $100.1;
Producer premium: $339.7;
Claims paid: $683.1;
Total loss ratio[A]: 1.55;
Producer loss ratio[B]: 2.01.
Year: 1986;
Policies: (in thousands): 406.9;
Acres: 48.7;
Liability: $6,230.0;
Total premium: $379.7;
Subsidy: $88.1;
Producer premium: $291.6;
Claims paid: $615.7;
Total loss ratio[A]: 1.62;
Producer loss ratio[B]: 2.11.
Year: 1987;
Policies: (in thousands): 433.9;
Acres: 49.1;
Liability: $6,094.9;
Total premium: $365.1;
Subsidy: $87.6;
Producer premium: $277.5;
Claims paid: $369.8;
Total loss ratio[A]: 1.01;
Producer loss ratio[B]: 1.33.
Year: 1988;
Policies: (in thousands): 461.0;
Acres: 55.6;
Liability: $6,964.7;
Total premium: $436.4;
Subsidy: $108.0;
Producer premium: $328.4;
Claims paid: $1,067.6;
Total loss ratio[A]: 2.45;
Producer loss ratio[B]: 3.25.
Year: 1989;
Policies: (in thousands): 948.6;
Acres: 101.6;
Liability: $13,535.8;
Total premium: $814.3;
Subsidy: $205.0;
Producer premium: $609.3;
Claims paid: $1,212.2;
Total loss ratio[A]: 1.49;
Producer loss ratio[B]: 1.99.
Year: 1990;
Policies: (in thousands): 894.8;
Acres: 101.4;
Liability: $12,828.4;
Total premium: $836.5;
Subsidy: $215.3;
Producer premium: $621.2;
Claims paid: $973.0;
Total loss ratio[A]: 1.16;
Producer loss ratio[B]: 1.57.
Year: 1991;
Policies: (in thousands): 706.8;
Acres: 82.4;
Liability: $11,216.0;
Total premium: $737.0;
Subsidy: $190.1;
Producer premium: $546.9;
Claims paid: $955.3;
Total loss ratio[A]: 1.30;
Producer loss ratio[B]: 1.75.
Year: 1992;
Policies: (in thousands): 663.4;
Acres: 83.1;
Liability: $11,334.1;
Total premium: $758.8;
Subsidy: $196.7;
Producer premium: $562.1;
Claims paid: $918.2;
Total loss ratio[A]: 1.21;
Producer loss ratio[B]: 1.63.
Year: 1993;
Policies: (in thousands): 679.2;
Acres: 83.7;
Liability: $11,353.4;
Total premium: $755.7;
Subsidy: $200.0;
Producer premium: $555.7;
Claims paid: $1,655.5;
Total loss ratio[A]: 2.19;
Producer loss ratio[B]: 2.98.
Year: 1994;
Policies: (in thousands): 800.9;
Acres: 99.6;
Liability: $13,608.4;
Total premium: $949.4;
Subsidy: $254.9;
Producer premium: $694.5;
Claims paid: $601.1;
Total loss ratio[A]: 0.63;
Producer loss ratio[B]: 0.87.
Year: 1995;
Policies: (in thousands): 2,034.3;
Acres: 220.5;
Liability: $23,728.5;
Total premium: $1,543.3;
Subsidy: $889.4;
Producer premium: $653.9;
Claims paid: $1,567.7;
Total loss ratio[A]: 1.02;
Producer loss ratio[B]: 2.40.
Year: 1996;
Policies: (in thousands): 1,615.2;
Acres: 204.9;
Liability: $26,876.8;
Total premium: $1,838.6;
Subsidy: $982.1;
Producer premium: $856.5;
Claims paid: $1,492.7;
Total loss ratio[A]: 0.81;
Producer loss ratio[B]: 1.74.
Year: 1997;
Policies: (in thousands): 1,319.8;
Acres: 182.2;
Liability: $25,459.0;
Total premium: $1,775.4;
Subsidy: $902.8;
Producer premium: $872.6;
Claims paid: $993.6;
Total loss ratio[A]: 0.56;
Producer loss ratio[B]: 1.14.
Year: 1998;
Policies: (in thousands): 1,242.7;
Acres: 181.8;
Liability: $27,921.4;
Total premium: $1,875.9;
Subsidy: $946.3;
Producer premium: $929.6;
Claims paid: $1,677.5;
Total loss ratio[A]: 0.89;
Producer loss ratio[B]: 1.80.
Year: 1999;
Policies: (in thousands): 1,288.8;
Acres: 196.9;
Liability: $30,939.5;
Total premium: $2,310.1;
Subsidy: $1,394.0;
Producer premium: $916.1;
Claims paid: $2,434.7;
Total loss ratio[A]: 1.05;
Producer loss ratio[B]: 2.66.
Year: 2000;
Policies: (in thousands): 1,323.2;
Acres: 206.5;
Liability: $34,443.8;
Total premium: $2,540.2;
Subsidy: $1,365.8;
Producer premium: $1,174.4;
Claims paid: $2,594.8;
Total loss ratio[A]: 1.02;
Producer loss ratio[B]: 2.21.
Year: 2001;
Policies: (in thousands): 1,297.9;
Acres: 211.3;
Liability: $36,730.3;
Total premium: $2,961.8;
Subsidy: $1,771.7;
Producer premium: $1,190.1;
Claims paid: $2,960.2;
Total loss ratio[A]: 1.00;
Producer loss ratio[B]: 2.49.
Year: 2002;
Policies: (in thousands): 1,259.5;
Acres: 214.9;
Liability: $37,335.0;
Total premium: $2,916.3;
Subsidy: $1,741.8;
Producer premium: $1,174.5;
Claims paid: $4,066.9;
Total loss ratio[A]: 1.39;
Producer loss ratio[B]: 3.46.
Year: 2003;
Policies: (in thousands): 1,241.5;
Acres: 217.4;
Liability: $40,619.0;
Total premium: $3,431.2;
Subsidy: $2,041.9;
Producer premium: $1,389.3;
Claims paid: $3,254.6;
Total loss ratio[A]: 0.95;
Producer loss ratio[B]: 2.34.
Year: 2004;
Policies: (in thousands): 1,228.8;
Acres: 221.1;
Liability: $46,615.5;
Total premium: $4,186.2;
Subsidy: $2,477.4;
Producer premium: $1,708.8;
Claims paid: $3,110.9;
Total loss ratio[A]: 0.74;
Producer loss ratio[B]: 1.82.
1981-94 average;
Policies: (in thousands): 565.2;
Acres: 65.2;
Liability: $8,815.8;
Total premium: $569.0;
Subsidy: $139.0;
Producer premium: $429.9;
Claims paid: $800.7;
Total loss ratio[A]: 1.41;
Producer loss ratio[B]: 1.86.
1995-04 average;
Policies: (in thousands): 1,385.2;
Acres: 205.8;
Liability: $33,066.9;
Total premium: $2,537.9;
Subsidy: $1,451.3;
Producer premium: $1,086.6;
Claims paid: $2,415.4;
Total loss ratio[A]: 0.95;
Producer loss ratio[B]: 2.30.
Source: RMA.
Note: GAO analysis of RMA's data.
[A] Claims paid (indemnity) divided by total premium.
[B] Claims paid (indemnity) divided by producer premium.
[End of table]
[End of section]
Appendix III: Results of Implementation of the Agricultural Risk
Protection Act of 2000: Survey of FSA County Directors of USDA:
Q1. Do you feel that you clearly understand RMA's expectations
regarding conducting growing season inspections (spot checks)?
Definitely yes (percent): 49.7%;
Probably yes (percent): 43.1%;
Uncertain (percent): 4.7%;
Probably not (percent): 1.7%;
Definitely not (percent): 0.8%;
No response (percent): 0.0%;
Number of respondents: 743.
[End of table]
Q2. In your opinion, are most producers in your county aware of growing
season inspections that are conducted on the fields of other producers?
Definitely yes (percent): 6.5%;
Probably yes (percent): 25.6%;
Uncertain (percent): 15.3%;
Probably not (percent): 43.6%;
Definitely not (percent): 8.7%;
No opinion (percent): 0.1%;
No response (percent): 0.1%;
Number of respondents: 743.
[End of table]
Q3. In your opinion, have growing season inspections in your county
increased compliance of most producers with crop insurance provisions?
Definitely yes (percent): 3.4%;
Probably yes (percent): 25.2%;
Uncertain (percent): 32.2%;
Probably not (percent): 32.0%;
Definitely not (percent): 5.5%;
No opinion (percent): 1.5%;
No response (percent): 0.3%;
Number of respondents: 743.
[End of table]
Q4. During the past two years have you observed a potential non-
compliance situation during the normal course of your official duties?
Yes (percent): 28.1%;
No (percent): 68.4%;
No response (percent): 3.5%;
Number of respondents: 743.
[End of table]
Q5. During the past two years, when you observed a potential non-
compliance situation during the normal course of your official duties,
how often did you initiate CCC Form 2007 (Report of Crop Insurance Non-
compliance)?
Always or almost always (percent): 52.8%;
Most of the time (percent): 11.5%;
About half of the time (percent): 2.0%;
Some of the time (percent): 5.6%;
Never or almost never (percent): 13.9%;
No response (percent): 14.3%;
Number of respondents: 252.
[End of table]
Q6. When did you receive RMA's request(s) for 2003 growing season
inspection(s) (spot checks)?
Before planting season;
Percent: 40.5%;
Number of respondents: 743.
During planting season;
Percent: 25.2%;
Number of respondents: 743.
Less than 30 days after final planting date;
Percent: 6.5%;
Number of respondents: 743.
More than 30 days after final planting date but before harvest;
Percent: 14.9%;
Number of respondents: 743.
During or after harvest;
Percent: 2.0%;
Number of respondents: 743.
Don't remember and there is no record of time request was received;
Percent: 2.7%;
Number of respondents: 743.
Other ( Please specify below);
Percent: 7.0%;
Number of respondents: 743.
No response;
Percent: 1.1%;
Number of respondents: 743.
[End of table]
Q6 other. If you checked "Other" in Question 6 above, please explain in
the textbox below.
Writing comment (percent): 8.1%;
Number of respondents: 743.
[End of table]
Q7. During the past 4 years, have you received any training/education
on federal crop insurance?
Yes (percent): 82.9%;
No (percent): 15.5%;
No response (percent): 1.6%;
Number of respondents: 742.
[End of table]
Q8. How adequate was the training/education you received on federal
crop insurance?
Very adequate (percent): 28.6%;
Somewhat adequate (percent): 52.8%;
Neither adequate nor inadequate (percent): 9.9%;
Somewhat inadequate (percent): 5.9%;
Very inadequate (percent): 0.8%;
No response (percent): 1.9%;
Number of respondents: 625.
[End of table]
Q9. Do you think that you need more training/education on federal crop
insurance?
Definitely yes (percent): 16.0%;
Probably yes (percent): 49.1%;
Uncertain (percent): 13.6%;
Probably not (percent): 17.9%;
Definitely not (percent): 2.7%;
No opinion (percent): 0.5%;
No response (percent): 0.1%;
Number of respondents: 742.
[End of table]
Q10. During the past 4 years, have you received any training/education
(either in-class or on-line) on conducting growing season inspections
(spot checks)?
Yes (percent): 56.0%;
No (percent): 41.2%;
No response (percent): 2.8%;
Number of respondents: 741.
[End of table]
Q11. How adequate was the training/education you have received on
conducting growing season inspections (spot checks)?
Very adequate (percent): 19.6%;
Somewhat adequate (percent): 55.2%;
Neither adequate nor inadequate (percent): 11.4%;
Somewhat inadequate (percent): 6.0%;
Very inadequate (percent): 1.1%;
No response (percent): 6.7%;
Number of respondents: 464.
[End of table]
Q12. Do you think that you need more training/education on conducting
growing season inspections (spot checks)?
Definitely yes (percent): 17.3%;
Probably yes (percent): 44.3%;
Uncertain (percent): 10.0%;
Probably not (percent): 23.3%;
Definitely not (percent): 4.0%;
No opinion (percent): 0.7%;
No response (percent): 0.4%;
Number of respondents: 741.
[End of table]
Q13. Do any of the following make it difficult for you to conduct
growing season and preharvest inspections?
a. Quality of the guidance from FSA%;
Yes (percent): 12.5%;
No (percent): 78.9%;
Uncertain (percent): 6.5%;
No response (percent): 2.2%;
Number of respondents: 738.
b. Quality of the guidance from RMA%;
Yes (percent): 25.4%;
No (percent): 63.2%;
Uncertain (percent): 8.6%;
No response (percent): 2.9%;
Number of respondents: 736.
c. Inspection requests received late%;
Yes (percent): 30.7%;
No (percent): 62.3%;
Uncertain (percent): 3.9%;
No response (percent): 3.2%;
Number of respondents: 727.
d. Not a priority with your supervisor%;
Yes (percent): 3.4%;
No (percent): 86.3%;
Uncertain (percent): 4.8%;
No response (percent): 5.6%;
Number of respondents: 735.
e. Not a priority with state office%;
Yes (percent): 3.3%;
No (percent): 86.5%;
Uncertain (percent): 5.9%;
No response (percent): 4.4%;
Number of respondents: 735.
f. Findings not acted on%;
Yes (percent): 17.1%;
No (percent): 60.9%;
Uncertain (percent): 16.6%;
No response (percent): 5.5%;
Number of respondents: 731.
g. No explanation or follow-up from RMA on findings%;
Yes (percent): 33.7%;
No (percent): 50.0%;
Uncertain (percent): 11.4%;
No response (percent): 4.9%;
Number of respondents: 736.
h. You are uncomfortable in assisting RMA with enforcement%;
Yes (percent): 17.9%;
No (percent): 75.3%;
Uncertain (percent): 5.3%;
No response (percent): 1.5%;
Number of respondents: 738.
i. Not enough time%;
Yes (percent): 49.1%;
No (percent): 45.7%;
Uncertain (percent): 2.8%;
No response (percent): 2.4%;
Number of respondents: 740.
j. Other (Please specify below.)%;
Yes (percent): 28.8%;
No (percent): 33.5%;
Uncertain (percent): 2.1%;
No response (percent): 35.6%;
Number of respondents: 340.
[End of table]
Q13 other. If you checked "Other" in Question 13 above, please explain
in the textbox below.
Writing comment (percent): 13.9%;
Number of respondents: 743.
[End of table]
Q14. Would feedback from RMA following growing season inspections help
you be more effective in reducing fraud, waste, and abuse in the crop
insurance program in your county?
Definitely yes (percent): 34.5%;
Probably yes (percent): 44.6%;
Uncertain (percent): 11.1%;
Probably not (percent): 8.8%;
Definitely not (percent): 0.7%;
No response (percent): 0.4%;
Number of respondents: 740.
[End of table]
Q15. In your opinion, do any of the following areas of the FSA/RMA
Handbook FCIC Program Integrity 4-RM need to be improved?
a. Part 1: Basic provisions (pp. 1.1 - 1.7);
Yes (percent): 5.6%;
No (percent): 70.8%;
Uncertain (percent): 17.8%;
No response (percent): 5.7%;
Number of respondents: 734.
b. Part 2: Referrals and Investigations (pp. 2.1 - 2.59);
Yes (percent): 17.1%;
No (percent): 58.5%;
Uncertain (percent): 18.8%;
No response (percent): 5.6%;
Number of respondents: 733.
c. Part 3: Claims Audit (pp. 3.1 - 3.9);
Yes (percent): 12.2%;
No (percent): 57.1%;
Uncertain (percent): 24.0%;
No response (percent): 6.8%;
Number of respondents: 722.
d. Part 5: State Technical Committee (STC) Consultation (pp. 5.1 -
5.59);
Yes (percent): 6.6%;
No (percent): 57.6%;
Uncertain (percent): 26.9%;
No response (percent): 8.9%;
Number of respondents: 728.
e. Part 6: Data Reconciliation (pp. 6.1 - 6.185);
Yes (percent): 19.0%;
No (percent): 52.9%;
Uncertain (percent): 21.4%;
No response (percent): 6.7%;
Number of respondents: 733.
f. Other (Please specify below.);
Yes (percent): 8.2%;
No (percent): 36.3%;
Uncertain (percent): 13.0%;
No response (percent): 42.6%;
Number of respondents: 331.
[End of table]
Q15 other. If you checked "Other" in Question 15 above, please explain
in the textbox below.
Writing comment (percent): 4.4%;
Number of respondents: 743.
[End of table]
Q16. In your opinion, how effective are RMA and FSA in coordinating
their efforts to reduce fraud, waste, and abuse in the crop insurance
program?
Extremely effective (percent): 1.6%;
Very effective (percent): 16.2%;
Moderately effective (percent): 31.4%;
Somewhat effective (percent): 27.6%;
Slightly effective or not effective (percent): 17.6%;
No opinion (percent): 5.1%;
No response (percent): 0.5%;
Number of respondents: 740.
[End of table]
Q17. In your opinion, with respect to reducing fraud, waste, and abuse
in the crop insurance program, how effective is the coordination of
your State FSA Office with your County Office?
Extremely effective (percent): 9.4%;
Very effective (percent): 43.3%;
Moderately effective (percent): 25.3%;
Somewhat effective (percent): 11.3%;
Slightly effective or not effective (percent): 6.1%;
No opinion (percent): 4.2%;
No response (percent): 0.4%;
Number of respondents: 742.
[End of table]
Q18. If you would like to make any additional comments concerning the
crop insurance program or RMA's and FSA's efforts to combat fraud,
waste, and abuse and ensure integrity and compliance, please enter your
comments in the textbox below.
Writing comment (percent): 40.8%;
Number of respondents: 743.
[End of table]
[End of section]
Appendix IV: Results of Improving Compliance and Integrity in the
Federal Crop Insurance Program: Survey of Crop Insurance Agents:
This appendix presents the questionnaire that was sent to crop
insurance agents and the results of our survey. The results are
presented in terms of the estimates of the responses we would have
received to the questions in our survey if we had surveyed all agents
selling crop insurance. Because of the large number of crop insurance
agents, we used a sample (probability sample). Before sampling, agents
were grouped by the dollar amount of policies sold in 2003. The number
of agents sampled from each group was proportionate to the number of
agents in the group. The final sample consisted of 935 agents.
The survey results that we present are estimates, each with a
measurable precision, or sampling error, that may be expressed as a
plus/minus figure. By adding the sampling error to and subtracting it
from the estimate, we develop upper and lower bounds for each estimate.
The range between these two estimates is called the 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
out of 100 cases, the sampling procedure would produce a confidence
interval that would include the estimated value.
[See PDF for image]
[End of figure]
[End of section]
Appendix V: Crop Insurance Fraud Cases Criminally Prosecuted, June 2003
to April 2005:
This appendix presents GAO's Office of Forensic Audits and Special
Investigations description of eight cases of crop insurance fraud
investigated by U.S. Department of Agriculture's (USDA) Office of
Inspector General (OIG) and criminally prosecuted between June 2003 and
April 2005.
Case 1:
Based on results from data mining, OIG, and USDA's Farm Service Agency
(FSA) and Risk Management Agency (RMA) conducted field inspections on a
producer in Tennessee. Problems identified during the inspection of the
producer's farm were reported to the insurance company that provided
the policy.
In 1999, the producer improperly obtained crop insurance coverage for
his tomato crop and received a claims payment for losses that had not
occurred. The producer was ineligible to participate in the crop
insurance program because he had not paid a past premium. In order to
hide the fact that he was the true grower of 1999 tomato production in
two Tennessee counties, he used his wife's name on crop insurance
documents. In addition, his wife filed a report with the insurance
company claiming a higher level of acreage planted to inflate the value
of any subsequent insurance claim. An insurance adjuster assisted the
producer by fraudulently signing forms showing he inspected and
measured the crops and that his observations supported the wife's
claimed loss.
The producer's wife received $57,155 in crop insurance payments for
losses claimed on the 1999 tomato crop. In September 2003, the producer
pled guilty to six counts of making false statements on loan or credit
applications and one count each of conspiracy to defraud the
government, making false statements, and making false claims. He was
sentenced to 3 years probation and ordered to pay $57,155 in
restitution to RMA.
Case 2:
Following up on OIG hotline complaints, USDA initiated an investigation
of a wheat producer in Georgia. In February 2000, the Georgia producer
claimed a loss of 400 acres of wheat because of heavy hail damage and a
hot and dry growing season. He had previously reported that the wheat
had been planted by the planting deadline--December 15, 1999. The lease
for the land, however, was not effective until January 2000, and the
owner of the land confirmed that he did not allow any crops to be
planted before the lease began. Other witnesses corroborated that the
wheat on this land was not planted until sometime in early 2000--after
the planting deadline. The producer received a $39,826 claims payment
for the reported loss.
The USDA investigation revealed that the producer's brother worked for
the insurance company that insured the wheat crop, and the policy was
actually sold through a crop insurance agency owned by the brother's
wife. Records subpoenaed from the wife's insurance agency disclosed
additional policies issued to the subject. Crop insurance claims
payments on those policies for the 2000 crop year exceeded $400,000.
The investigation also determined that the insurance adjusters for
these claims were contract adjusters for the brother's employer.
On June 30, 2003, the producer pled guilty in federal district court to
making false statements on loan or credit applications. He was
sentenced to 1 day in prison and ordered to pay $39,826 in restitution
to RMA.
Case 3:
An OIG-initiated fraud detection survey of grain elevators disclosed
irregularities at a Minnesota grain elevator and led to the
investigation of two Minnesota producers. In 1997 and 1998, these
producers grew pinto bean and black turtle bean crops that were covered
by federal crop insurance. The producers falsely claimed that their
crops had been damaged by excessive moisture and underreported the
amount of beans that were harvested and sold for processing. They also
arranged for the harvested beans to be sold using false names so that
the insurance adjuster would not be able to link them to this
production. Production information was also omitted from production
worksheets. The producers received claims payments of $435,087 for
losses.
In June 2003, each of the producers pled guilty to felony theft and
entered into civil agreements under the False Claims Act. The producers
were disqualified from the crop insurance program for 1 year and paid
restitution of $435,087 and civil penalties of $10,000.
Case 4:
This case originated when FSA filed a complaint with RMA about a crop
insurance agent who was also a producer in Wilbarger County, Texas. The
producer and other family members were in a farming partnership and
obtained six crop insurance policies for crop year 1999 that covered
about 6,500 acres of wheat, cotton, and grain sorghum. All of the
policies were issued through the producer's own insurance agency.
The producer gave an adjuster a schedule of insurance forms with
predetermined figures to be used on appraisal and production worksheets
for the wheat, cotton, and grain crops. The adjuster later admitted
that he did not visit any of the fields to conduct appraisals or to
verify crop production. In addition, the producer had a seed dealer
prepare false receipts to support his claim that he had purchased seed
to plant the crops. The producer and adjuster falsified crop insurance
loss documents and collected $630,000 in fraudulent claims payments for
crops that the producer had not planted.
In February 2004, the producer was convicted of multiple counts of
making false claims to the government and a related conspiracy charge.
He was sentenced to 41 months in prison, to be followed by 3 years of
supervised release and ordered to pay $448,000 in restitution to RMA.
In November 2004, the insurance adjuster pled guilty to one count of
conspiracy and received a sentence of 2 years probation, including in-
home confinement and was ordered to pay $447,230 in restitution to RMA.
Case 5:
RMA investigated the manager of a northwestern Minnesota grain elevator
when it noticed suspicious adjustments in grain quality. The manager of
the grain elevator was charged with providing North Dakota farmers with
false documents that were used to obtain over $1 million in fraudulent
crop insurance payments from RMA and over $350,000 in improper crop
disaster payments from FSA.
The manager persuaded producers to sell their wheat at discounted
prices to his grain elevator company and then provided the producers
with false documents that purposefully undervalued the wheat's weight
and quality. The manager also directed company employees to create
samples of severely damaged wheat to mislead insurance adjusters and to
create records that misled USDA about the amount of wheat at the
elevator. This falsification enabled the producers to fraudulently
collect crop insurance and crop disaster payments.
The manager was convicted of conspiracy to defraud USDA and two counts
of false statements in February 2003 and was subsequently sentenced to
46 months in prison and ordered to make restitution in the amount of
$751,758. He also was to remain on supervised release for 3 years after
serving his prison term.
Case 6:
Following an OIG hotline complaint, investigators found that two crop
insurance agents had falsified crop insurance documents for a producer,
thereby enabling the producer to file false crop insurance claims. For
example, the agents backdated the producer's crop insurance
application, created a false insurance policy based on a fictitious
yield rate, and allowed the producer to report fictitious actual yield
rates on their insurance application.
On August 30, 2004, the agents pled guilty to one count of conspiracy
to submit false statements to RMA. Both agents were sentenced to a
year's probation and ordered to pay fines of $5,000 and $2,000,
respectively.
Case 7:
OIG followed up on an FSA referral that an Ohio producer reported
different crop yields to FSA and RMA. The producer filed four false
crop insurance claims and received payments totaling approximately
$19,000 between May and December 1999. The producer claimed losses for
crops that he did not own. The producer also inflated an insurance
claim for a loss on his corn crop.
In September 2004, the producer pled guilty to one count of making a
false insurance claim. He was sentenced to 24 months probation, 40
hours of community service, and ordered to pay $2,899 in restitution.
Case 8:
This case involves fraudulent crop insurance and farm program payments
and was triggered by a fraud investigation following a bankruptcy
filing in July 2000. Between 1997 and 2003, an Iowa couple, aided by
other family members, friends, and employees, executed fraud schemes
that resulted in crop insurance payments of $912,364.[Footnote 29] The
co-conspirators made false representations. Specifically, they falsely
certified to:
* a prevented planting loss of 1,478 acres in corn and soybeans in
several counties because of excessive moisture; they received about
$100,000 in claims payments; and satellite imagery and testimonial
evidence later confirmed that this claim was false; and:
* a loss of approximately 332 acres of soybeans in one county in Iowa
when, in fact, satellite imagery evidence indicated only approximately
71 acres of soybeans was planted; $17,000 was paid on this claim; and
RMA also paid $88,000 for false crop losses in three other counties in
2001.
During this period, the family was also submitting false claims for
crop disaster assistance and received $86,000 in payments.
The investigation is continuing, although the co-conspirators have pled
guilty to some charges, agreed to pay restitution in some instances,
and are barred from participating in USDA's farm programs. Officials
involved in the investigation and prosecution of this case note that
these fraudulent activities were facilitated by the direct
participation of the crop insurance agent who provided the policy to
the couple.
[End of section]
Appendix VI: Comparison of Loss Ratios for Crop Development and
Expansion Products:
Dollars in millions.
Newly developed products:
Apple quality option;
Years with data: 2001-2003;
Total premium: $ 1.7;
Liability: $ 19.9;
Claims paid: $ 4.4;
Loss ratio: 2.6.
Avocados;
Years with data: 1998-2003;
Total premium: $23.1;
Liability: $148.3;
Claims paid: $1.9;
Loss ratio: 0.1.
Blueberries;
Years with data: 2000-2003;
Total premium: $6.7;
Liability: $81.4;
Claims paid: $3.2;
Loss ratio: 0.5.
Cherries;
Years with data: 1999-2003;
Total premium: $22.7;
Liability: $247.7;
Claims paid: $22.2;
Loss ratio: 1.0.
Livestock;
Years with data: 2002-2003;
Total premium: $4.2;
Liability: $89.7;
Claims paid: $6.2;
Loss ratio: 1.5.
Malting barley option B[A];
Years with data: 1998-2003;
Total premium: $14.0;
Liability: $132.9;
Claims paid: $38.7;
Loss ratio: 2.8.
Pecan-revenue;
Years with data: 1998-2003;
Total premium: $16.9;
Liability: $207.0;
Claims paid: $7.1;
Loss ratio: 0.4.
Rangeland-group risk plan;
Years with data: 1999-2003;
Total premium: $6.9;
Liability: $154.9;
Claims paid: $29.5;
Loss ratio: 4.3.
Sweet potatoes;
Years with data: 1998-2003;
Total premium: $11.6;
Liability: $126.3;
Claims paid: $47.0;
Loss ratio: 4.1.
Watermelons;
Years with data: 1999;
Total premium: $8.8;
Liability: $67.1;
Claims paid: $51.1;
Loss ratio: 5.8.
Wheat-income protection;
Years with data: 1998-2003;
Total premium: $7.9;
Liability: $68.8;
Claims paid: $31.4;
Loss ratio: 4.0.
Expansion products:
Onions in Georgia;
Years with data: 1998-2003;
Total premium: $15.2;
Liability: $151.5;
Claims paid: $21.8;
Loss ratio: 1.4.
Forage in Minnesota;
Years with data: 1998-2003;
Total premium: $4.5;
Liability: $68.3;
Claims paid: $10.3;
Loss ratio: 2.3.
Soybeans in Oklahoma;
Years with data: 1999-2003;
Total premium: $1.2;
Liability: $6.0;
Claims paid: $5.0;
Loss ratio: 4.2.
Onions in Texas;
Years with data: 1998-2003;
Total premium: $16.4;
Liability: $119.1;
Claims paid: $31.5;
Loss ratio: 1.9.
Peanuts in Texas;
Years with data: 1998-2002;
Total premium: $1.8;
Liability: $11.9;
Claims paid: $8.4;
Loss ratio: 4.6.
Source: RMA.
[A] Malting barley option B provides producers who grow malting barley
under contract with a brewer additional price and quality insurance
beyond feed barley coverage.
[End of table]
[End of section]
Appendix VII: Comments from the U.S. Department of Agriculture:
USDA:
United States Department of Agriculture:
Office of the Secretary:
Washington, D.C. 20250:
Mr. Robert A. Robinson:
Managing Director, Natural Resources and Environment:
Government Accountability Office:
Washington, DC:
Dear Mr. Robinson:
Attached is the Farm and Foreign Agricultural Service's (FFAS) response
to the draft report titled, "CROP INSURANCE: Actions Needed to Reduce
Program's Vulnerability to Fraud, Waste, and Abuse." Thank you for the
opportunity to provide comments. If you have any questions regarding
our response, please contact Alan Sneeringer at 202-720-8813.
Sincerely,
Signed by:
J.B. Penn:
Under Secretary:
Farm and Foreign Agricultural Service:
Attachment:
U.S. Department of Agriculture Statement of Action on the U.S.
Government Accountability Office Draft Report GAO-05-528, "Crop
Insurance: Actions Needed to Reduce Program's Vulnerability to Fraud,
Waste, and Abuse:
September 13, 2005:
Federal crop insurance protects producers against financial losses
caused by natural disasters. The United States Department of
Agriculture's (USDA) Risk Management Agency (RMA) administers this
program with private insurers. During this study, GAO assessed the
effectiveness of USDA's processes to address fraud, waste, and abuse in
the program and the extent to which program design may make the program
vulnerable to abuse. As a result of the study, GAO recommends that
Congress consider the reduction of premium subsidies to producers who
repeatedly file questionable claims. GAO also developed eight
recommendations for USDA. The following addresses those
recommendations.
General Comments:
The USDA and RMA would like to thank the GAO for the opportunity to
review this draft and for the work done by the auditors to assess the
Federal crop insurance program and recommend changes for improving the
controls on waste, fraud, and abuse. Following are some general
comments as well as specific comments to each of your recommendations.
The current draft letter to Chairman Collins, as well as the
"Highlights" section of the report, contains certain information,
references, and conclusions that should be corrected prior to issuing
the report to avoid possible confusion by the reader. In listing the
four major findings, RMA takes exception in part to the second and
fourth items.
Regarding "RMA's data analysis excludes the largest farming
operations", the text would lead readers to believe that data mining
excludes these policies altogether as opposed to the fact that GAO is
recommending that we improve our ability to detect errors in reporting
interests in farming operations. Furthermore, the highlight statement
unequivocally states that these entities "received $74 million in
fraudulent claim payments". RMA agrees that the data mining protocol
needs to be improved to assess interest discrepancies between RMA and
FSA, but we were not provided information that would indicate GAO
actually validated "fraudulent" activity on the 21,000 policies. RMA
had several discussions with GAO regarding the general misconception
that because a policy is identified as being anomalous it does not mean
that the policyholder did anything wrong. The statement incorrectly
maligns these producers without the benefit of a review. GAO's own
analysis in this case shows that several thousand policies had
identification numbers that did not match because the number was off by
a single digit. RMA experience would indicate that the vast majority of
these cases can be attributed to data entry error and are not
"fraudulent" in any sense of the word. RMA will conduct some
preliminary validation tests on the data obtained from GAO prior to
sending these policies to the companies for review.
The fourth bullet in the "Highlights" section of the report could also
mislead the reader as it indicates that RMA imposed sanctions on 114
cases over four years out of some 3,000 questionable claims identified
annually through data mining. The 3000 "suspicious" policyholders were
identified based on their historical claim activity. The claims used to
identify the producers are not necessarily fraudulent nor is there any
information to indicate that they are suitable for sanctions. As stated
above, there is a general misconception that policies identified as
anomalous are in error. In fact, identified anomalies must be validated
and are subject to further review and scrutiny at several levels before
they would be considered for sanctions. By law, RMA must have specific
evidence to prove every allegation of fraud and for every sanction. The
spot-check list that is produced annually by our data mining contractor
is used to pre-empt payments by monitoring anomalous producers
throughout the growing season for the year they are identified.
Presumably, when these producers are notified that they are being
watched by FSA and RMA they change whatever behavior caused them to be
anomalous, and their indemnities decrease. That has been our experience
as noted by GAO, but since not paying a claim to a producer does not
constitute an offense, the comparison of these numbers is
inappropriate. Furthermore, the GAO draft report recognizes the delays
that occur in the sanction process, so to compare policies identified
during a specific timeframe to sanctions imposed on policies from prior
crop years further compounds the misconception. This is discussed
further the response to Recommendation 4 below.
GAO Recommendation 1:
Ensure that FSA field offices conduct all inspections called for under
agency guidance.
USDA Response:
Resources are not available in FSA to complete 100% of the inspections
referred by RMA. Because of FSA's budget cuts and the current staff
reductions, it is reasonable to expect that it will not be possible to
complete as much work for RMA as it has done in the past without
additional funding for FSA. Unless funding is increased, RMA will
continue to rely on FSA's local knowledge of producers and conditions
in determining which inspections to conduct during the year.
GAO Recommendation 2:
Ensure that RMA informs FSA field inspectors of the suspect claim
patterns that they are to investigate.
USDA Response:
Meetings were held between RMA and several State FSA Committees and FSA
employee associations to present the results of the referral and spot
check process, including the program cost savings associated with the
results. The 2005 spot check list, submitted to the FSA State Offices
and Insurance Providers, included the nature of suspected abuse.
RMA and FSA will continue to work together on the spot check process to
derive the maximum benefits from the resources expended in this effort.
The partnership to improve program integrity between the two agencies
and the insurance companies is recognized by all three parties as an
effective tool in strengthening the crop insurance program.
GAO Recommendation 3:
Ensure that inspections are conducted in a timely manner, and that
inspection results are reported expeditiously to insurance companies.
USDA Response:
Currently, RMA only provides the spot check list annually on April 1 of
each year for both fall seeded and spring seeded crops. A meeting of
the joint RMA/FSA Investigation/Referral Team held February 15, 2005,
addressed this issue. Beginning with the 2006 insurance year, two
separate lists will be generated to accommodate fall and spring planted
crops. This will provide FSA with a timelier list for fall-seeded
crops.
Other areas of improvement discussed during the joint meeting included
the development of a FTP or URL on the web that will allow both
agencies to post findings of inspections electronically. Currently,
referrals are sent by mail or faxed between agencies that can delay
response time. The enhancement of a shared site will also allow the
National FSA Office to monitor the status of completed inspections, as
identified in this report. Inspection forms are also being modified to
allow the use of GPS in documenting the location of where an inspection
was completed so digital pictures can be documented by location.
Insurance companies will also benefit from the above actions in terms
of more complete and timely reports.
GAO Recommendation 4:
Promulgate regulations to implement its expanded authority under ARPA
to impose sanctions.
USDA Response:
It has been suggested that RMA's lack of regulations to implement its
expanded authority under ARPA is a critical impediment to imposing
sanctions. This is incorrect. In fact, prior to ARPA, RMA had authority
to disqualify producers for up to ten years, and used its suspension
and debarment authority under 7 C.F.R. 3017 et seq. to deter fraud
committed by producers and agents. In fact, the agency has been
imposing sanctions under its ARPA authority each year since 2002. RMA
has imposed a total of 67 Sanctions in 2004, an increase of over 300%
over 2002 and 2003. In 2005, to date 15 sanctions have been imposed,
with an additional 64 pending final disposition. Over two thirds of the
pending cases are being considered under ARPA authority. In addition,
there has been a learning curve, not only by RMA staff, but also by
OGC. Since ARPA was enacted, adjustments to internal procedures have
been necessary, but clearly, RMA has made significant and steady
progress in both the numbers and types of sanctions imposed. Although
promulgation of sanctions regulations will surely enhance RMA sanctions
efforts, it is inaccurate to indicate that the lack of these
regulations has prohibited RMA from currently using the ARPA-based
authority to impose sanctions.
As to the decline in the number of sanctions referrals, a learning
curve was involved in preparing and referring ARPA-related sanctions.
Following the enactment of ARPA, RMA Headquarters was inundated with
referrals for potential sanctions cases from all of its Compliance
offices, which were eager to test RMA's new authority. However, many
cases simply did not meet the standards for a Sanctions case; and/or
involved violations that had passed the statute of limitations. As
Compliance field staff became more proficient at making referrals, the
overall number of referrals declined. While fewer cases were referred
in recent years, those cases which were referred were timely (within
the statute of limitations) and legally sufficient to impose and defend
any proposed sanctions.
GAO Recommendation 5:
Direct FSA to share producer-derived information with RMA for data
mining purposes to administer and enforce the requirements of the crop
insurance program.
USDA Response:
Even though the current RMA analysis during data mining might not
contain data as a result of producers not following reporting
requirements, the RMA and FSA data for producers and the reported
shares were compared in the initial RMA/FSA attempts at data
reconciliation. Numerous mismatches were determined. FSA researched and
made applicable changes to their records and referred the remaining
mismatches to RMA.
It is a fact that data mining has been successful for RMA to perform
analysis after the fact and to make projections. However, a process is
being developed jointly by RMA and FSA to compare the data more
immediately after being reported by producers. This eliminates the need
to review the data after the fact. This process is being developed
within the scope of the Common Component of the Common Information
Management System (CIMS). Doing the comparison on a near "real time"
basis versus months or years after the data is reported to the agencies
will be more effective and efficient.
The FSA database containing this information is currently accessible by
both RMA and NRCS. Therefore, the GAO recommendation that the
Administrators be directed to share the data is a moot point. It is
being shared with NRCS. Under CIMS, it is anticipated that as data is
reported to one agency, it will be compared to the data reported to the
other agency, and a discrepancy report will be created for use by both
agencies. This process will be validated in the near future in selected
counties.
As a result of the GAO work in this area, RMA intends to request the
information from FSA in order to compare 2005 producer certifications
and identify discrepancies for review.
GAO Recommendation 6:
Direct RMA to determine if payments have been made to ineligible
producers or to entities that failed to disclose ownership interests
and, if so, to recover the appropriate amounts.
USDA Response:
RMA agrees with the recommendation to determine if payments have been
made to the 14 ineligible producers and will notify companies to
recover any amounts due. RMA will also create a new application that
will generate a weekly report to determine and identify policies that
were previously accepted in RMA's system, but which were later
determined by the company to be ineligible for the crop year for which
the policies were accepted. Companies will be notified if any policies
are identified.
Due to the excessive numbers of policies with incorrect or missing
entity interest information, RMA intends to conduct a preliminary
review of a small number of policies to validate the information.
Provided our review does not reveal any overt data-mining errors or
issues, RMA will use the authority under the 2005 Standard Reinsurance
Agreement to require the companies review their respective policies and
correct any premium or indemnity payments as appropriate.
GAO Recommendation 7:
Direct RMA to strengthen its oversight of the insurance companies'
implementation of the quality control review system.
USDA Response:
As an integral part of its review of a company's Plan of Operations,
the Reinsurance Services Division (RSD) assesses the completeness and
adequacy of Exhibit 22, which is a company's quality control plan. For
2006, RSD stepped up the rigor with which it evaluates these plans by
developing and using written evaluation procedures. As a result,
several companies were required to revise their quality control plans
before approval for the 2006 reinsurance year was granted.
After RSD evaluates and approves a company's quality control plan,
RMA's Compliance Office has the responsibility of detecting failures of
a company to implement required quality control measures through
National Operational Reviews. Any failures detected are brought to the
attention of RSD. RSD then imposes sanctions or penalties on an
insurance provider that are appropriate to the quality control
failures.
RSD is also strengthening its quality control oversight through the
development and implementation of a quality performance indicator
system. The development of such a system of performance indicators is
nearing completion through a RMA-sponsored contract with Trivalent
Solutions, Inc. of Arlington Heights, IL. Once this system is
operational, RMA will have information that will allow it to detect
potential quality problems with individual companies. RSD will be able
to identify potential problems to investigate and address in some cases
well before discovery through a national operational review.
GAO Recommendation 8:
Direct RMA to reduce the insurance guarantee or eliminate optional unit
coverage for producers who consistently have claims that are irregular
in comparison with other producers growing the same crop in the same
location.
USDA Response:
RMA respectfully disagrees with the above-noted GAO recommendation, as
it represents a disproportionate response considering the prevalence
and importance of yield switching. Consider that in crop year 2003, RMA
reinsured 1,241,491 Federal crop insurance policies. [NOTE 1] Of that
number, a total of 395,889 policies (31.9%) were indemnified, a
relatively typical percentage for the Federal Crop Insurance program.
Of the almost 396,000 indemnified policies, RMA identified a total of
2,371 suspicious claims, or 0.60% of the total number of indemnified
policies and only 0.19% of the total number of policies in force. Of
the 2,371 suspicious claims, 273 had patterns consistent with yield
switching activity, i.e., 0.07% of total number of indemnified policies
and 0.02% of the total number of policies in force. GAO's
recommendation is targeted at a group of policyholders that constitute
only 0.02% of BMA's business. RMA also notes that the unit division
study [NOTE 2] by Drs. Knight and Coble clearly supports the low
incidence of yield switching activity among policyholders. The study
also indicates that the current 10% premium surcharge is actuarially
appropriate for the additional indemnities that are attributable to
optional units. This relatively modest surcharge provides further
evidence that the RMA has effective underwriting rules and monitoring
programs for use of optional units.
Secondly, RMA does not believe that adoption of the GAO recommendation
represents a prudent and cost-effective use of Agency resources or
taxpayer funds. In order for RMA to reduce the guarantee or eliminate
optional unit coverage for producers whose yield history evidences
possible yield switching activity, as per the GAO recommendation, RMA
would have to either:
1. Promulgate criteria that will invariably have a negative impact on a
much larger number of growers whose losses are likely legitimate; or:
2. Gather sufficient evidence that an individual insured has engaged in
yield switching activities to support the penalty upon appeal by the
insured.
The second option, however, is not particularly realistic because once
the needed evidence was obtained, RMA would more likely use it to
pursue a criminal case for fraud against the insured or alternately,
administrative sanctions, rather than simply impose the penalties
recommended by GAO. To gather such evidence requires RMA to devote
substantial resources to each suspect claimant, including the necessity
of conducting a pre-harvest appraisal - potentially applying to about
0.02% of RMA's business. Because of the impact on RMA resources, the
Agency generally requires strong indications of egregious violations
before an in-depth investigation is launched. Once it does so, the more
meaningful approach is that of pursuing criminal or civil penalties for
fraud rather than "black listing" for a potential forfeiture of
optional units or a reduced guarantee, both of which can be averted by
a change in entity.
NOTES:
[1] RMA Summary of Business, data as of August 29, 2005.
[2] "Unit Division Structure Review", Tom Knight, Barry Goodwin, Keith
Coble, Roderick Rejesus, Contract Number GS-23F-0167K, completed
January 23, 2004.
These comments reflect RMA's prior experience gained from the attempt
to implement a similar procedure in the early 1990s. Revisiting this
intrinsically flawed endeavor, as recommended by GAO, would not appear
to be prudent or cost-effective.
Other Comments:
As discussed, RMA will provide you with technical comments to the draft
separately.
The following are GAO's comments on the letter from the U.S. Department
of Agriculture dated September 15, 2005.
GAO Comments:
1. We have clarified the language in the Highlights section of this
report to note the distinctions in the analyses. As we state in this
report, the U.S. Department of Agriculture's (USDA) Risk Management
Agency (RMA) is using data mining to administer and enforce the crop
insurance program and to analyze patterns that suggest fraudulent
activity, such as unusually high or frequent claims payments. However,
RMA's analysis is incomplete with regard to the largest farming
operations--those that include multiple partnerships and joint
ventures. RMA's analysis excludes comparisons of farming operations'
reported ownership interest with data that has been validated by USDA's
Farm Service Agency (FSA). Because it does not know the ownership
interests in these farming operations, RMA cannot readily identify
potential fraud. For example, producers who are members of more than
one farming operation may have the opportunity to move production from
one operation to another to file unwarranted claims, without RMA's
knowledge that these producers participate in more than one farming
operation.
2. We have changed the text in the Highlights section to more
accurately reflect our findings, deleting the term "fraudulent." As
detailed in this report, RMA regulations require policyholders to
report individuals and entities with a beneficial interest in their
farming operation. If a policyholder fails to disclose an ownership
interest, then the policyholder must repay the amount of the claims
payment that is proportionate to the interest of the person that was
not disclosed. Our findings indicate that USDA should be able to
recover up to $74 million in such claims payments for 2003.
3. We have clarified the language in the Highlights section. We
recognize in this report that the annual spot-check list of 3,000
questionable claims is used to prevent unwarranted claims payments by
monitoring anomalous producers during the growing season for the year
they are identified. The 3,000 questionable claims represent producers
who consistently file claims and receive payments that are irregular in
comparison with other producers growing the same crop in the same
location. While not all of these policy irregularities are necessarily
sanctionable, the 3,000 questionable claims provide a general reference
in comparison with the 114 sanctions RMA imposed from 2001 through
2004.
4. The Agricultural Risk Protection Act of 2000 (ARPA) requires the
Secretary of Agriculture to develop and implement a coordinated plan
for FSA to assist RMA in the ongoing monitoring of the crop insurance
program, including conducting fact-finding into allegations of program
fraud, waste, or abuse and reporting the results of any such fact-
finding to RMA. USDA guidance states that FSA county offices are to
conduct growing season inspections on the larger of the first 10
producers or the top 5 percent of the producers identified by RMA.
However, as we report, FSA conducted only 64 percent of the monitoring
inspections RMA requested between 2001 and 2004, and FSA offices in
nine states did not conduct any of the inspections RMA requested in one
or more of these years. Given the potentially high payoff from
assisting RMA in monitoring the crop insurance program and conducting
inspections, FSA may want to conduct a study to determine the costs and
benefits of making staff available for crop insurance inspections.
5. We agree that RMA has imposed sanctions since the enactment of ARPA.
However, we continue to believe RMA has not fully exercised its new
authority. Under ARPA, RMA has the authority to impose sanctions on
agents, loss adjusters, approved insurance providers, and others who
willfully and intentionally (1) provide false or inaccurate information
or (2) fail to comply with other Federal Crop Insurance Corporation
(FCIC) requirements. The number of sanctions imposed by RMA has not
increased appreciably since enactment of ARPA. For example, RMA imposed
an average of less than 20 sanctions annually from 1996 to 2000, and an
average of less than 20 sanctions annually from 2001 to 2005, except
for 2004 (67), which was an aberration. While not all questionable
claims are necessarily sanctionable, RMA has identified about 3,000
questionable payments annually since beginning data mining in 2001.
In discussing this report's findings with RMA in April 2005, officials
told us that the number of sanctions has not substantially increased,
in part because regulations have not been promulgated under ARPA.
According to an official in USDA's Office of General Counsel, RMA had
imposed sanctions under the provisions of ARPA that were similar to
RMA's previous authority to impose sanctions. RMA had authority, prior
to ARPA, to impose sanctions on individuals who willfully and
intentionally provide false information and had promulgated regulations
for imposing sanctions on this basis. (See 7 C.F.R. §§ 400.454, 718.11,
and 1405.8.) However, according to this official, it had not imposed
any sanctions under its new authority to do so for failure to comply
with an FCIC program requirement. This official indicated that
regulations were needed to establish what constituted an FCIC
requirement, how USDA will determine that a material violation has
occurred, and what process would be followed before imposing sanctions.
USDA does not dispute the report's findings that no sanctions have been
imposed under this provision of ARPA.
6. Our recommendation that FSA share producer-derived information with
RMA for data mining to administer and enforce the requirements of the
crop insurance program is based on a current lack of information
sharing between FSA and RMA. As we report, many farming operations do
not always certify individuals or entities who hold or acquire a
beneficial interest of 10 percent or more in the insured operation, as
required by RMA regulations. RMA was unaware that these entities had
failed to fully disclose ownership interest because it had not been
given access by FSA to the data file identifying a producer's ownership
interest in other farming operations. Furthermore, although USDA is
developing a system--called the Common Information Management System--
-to allow FSA and RMA to share producer information, as of September
2005, USDA had not decided whether the data elements necessary to
identify a producer's ownership interest in a farming operation would
be included in the new system. Therefore, we continue to believe that
FSA needs to make this information available to RMA and that RMA should
conduct data mining on this information to identify producers having a
pattern of anomalous claims payments.
7. Our recommendation is directed at providing RMA with an additional
tool to address producers who seem to experience losses year after year
when other similarly situated producers do not. Such a tool would
complement RMA's current focus on preventing producers from committing
future abuses by providing an incentive to not commit the abuse in the
first place. For example, eliminating optional unit coverage for a year
for a producer who exhibits a clear pattern of yield switching, as we
present in this report, would discourage the abuse. Removing the means
that enables a producer to commit abuse may act as a deterrent.
Furthermore, the costs of fraud, waste, and abuse to the crop insurance
program from farms with optional units can be significant, according to
a 2002 RMA study.[Footnote 30] The study estimated the additional
indemnities associated with fraud, waste, and abuse were $131 million
for 1996 to 2000 for farms insuring with optional units on wheat and
barley in North Dakota and cotton in west Texas. We agree with USDA
that the number of policies identified annually as having patterns
consistent with yield switching is small in comparison with the number
of policies in the crop insurance program. However, we believe it is
possible to narrowly tailor an underwriting rule so that it would
target only a few producers each year and would entail few resources.
Such a rule would also reduce reliance on RMA's broad-brush approach of
assessing a 10 percent premium surcharge on all producers with optional
units to cover the additional indemnities that are attributable to
optional units. Thus, we continue to consider it reasonable for RMA to
reduce the insurance guarantee or eliminate optional unit coverage for
producers who consistently have claims that are irregular in comparison
with other producers growing the same crop in the same location.
[End of section]
Appendix VIII: GAO Contact and Staff Acknowledgments:
GAO Contact:
Robert A. Robinson (202) 512-3841:
Staff Acknowledgments:
In addition to the individual named above, Jeanne Barger, Thomas Cook,
Ronald E. Maxon Jr., Lynn Musser, Carol Herrnstadt Shulman, and Amy
Webbink made key contributions to this report. Important contributions
were also made by Stephen Brown and Paul Desaulniers.
We also wish to give special tribute to our dear friend and colleague,
Cleofas Zapata Jr., who died tragically near the conclusion of our
work. Cleo dedicated his life to public service, first as a member of
the U.S. Air Force, and then as an analyst for 24 years with GAO.
Cleo's career with GAO was characterized by his strong desire to make
government programs more effective and efficient and to weed out fraud,
waste, and abuse. But it was his humor, kindness, and respect for all
human beings that inspired his co-workers, who held him in the highest
esteem and miss him greatly.
[End of section]
Related GAO Products:
Crop Insurance: USDA Needs to Improve Oversight of Insurance Companies
and Develop a Policy to Address Any Future Insolvencies.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-517]
Washington, D.C.: June 1, 2004.
Crop Insurance: USDA Needs a Better Estimate of Improper Payments to
Strengthen Controls of Claims.
[Hyperlink, http://www.gao.gov/cgi- bin/getrpt?GAO/RCED-99-266]
Washington, D.C.: September 22, 1999.
Crop Insurance: USDA's Progress in Expanding Insurance for Specialty
Crops.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-99-67]
Washington, D.C.: April 16, 1999.
Crop Insurance: Federal Program Faces Insurability and Design Problems.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-93-98]
Washington, D.C.: May 24, 1993.
Crop Insurance: Program Has Not Fostered Significant Risk-Sharing by
Insurance Companies.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-92-25]
Washington, D.C.: January 13, 1992.
(360445):
FOOTNOTES
[1] According to the USDA Inspector General, fraud is commonly
perpetrated through false certification of one or more of the basic
data elements essential for determining program eligibility and amounts
of benefits. In RMA cases, the scheme typically involves a conspiracy
between an insurance company representative and a producer. Abuse is
more subjective and occurs when a participant's actions defeat the
intent of the program, although no law, regulation, or contract
provision is actually violated. Waste, on the other hand, occurs when
there are flaws in the program design that inevitably invite abuse by
the program participants. GAO has previously reported on the potential
for fraud, waste, and abuse in the federal crop insurance program. See
Related GAO Products.
[2] Pub. L. No. 107-300, 116 Stat. 2350 (2002).
[3] In general, RMA permits producers to establish optional units by
land section or FSA farm serial number and by irrigated and
nonirrigated practices. Optional units may be established only if each
optional unit is located on noncontiguous land, unless otherwise
allowed by written agreement. In addition, producers who insure all
their fields together in a basic unit receive a 10 percent discount on
the premium they pay.
[4] Additionally, ARPA requires USDA to subsidize revenue insurance
products at the same rate as the level of subsidy provided for a basic
crop insurance policy. Revenue insurance products provide coverage to
producers against lost revenues (or incomes) caused by low prices, low
yields, or a combination of low prices and low yields. An indemnity is
paid to a producer when any combination of yield and price results in
revenue that is less than a pre-specified revenue guarantee.
[5] FSA/RMA Handbook, FCIC Program Integrity, 4-RM.
[6] FSA/RMA Handbook, FCIC Program Integrity, 4-RM. The final planting
date is the date contained in the special provisions for the insured
crop by which the crop must initially be planted in order to be insured
for the full production guarantee or the amount of insurance per acre.
[7] A company official stated that because this producer was on the
spot-check list, the company had contacted the local FSA office at the
beginning of the growing season requesting copies of growing season
inspection reports when they were completed. However, the company did
not follow up with FSA at the end of the growing season. In addition,
although the company received RMA's referral too late to conduct
preharvest appraisals, the company received the information before the
producer filed the claim (December 2, 2003) and company paid it
(January 16, 2004). However, it does not appear that the company used
the referral information to question the producer's claim.
[8] The Center for Agribusiness Excellence conducted this analysis at
the request of GAO. The Center, located at Tarleton State University in
Stephenville, Texas, provides research, training, and resources for
data warehousing and data mining of agribusiness and agriculture data.
The Center provides data mining of crop insurance data for RMA.
[9] 7 C.F.R. § 457.8.
[10] In addition, RMA guidance Manual 14, Guidelines and Expectations
for Delivery of the Federal Crop Insurance Program states that
insurance companies must conduct conflict-of-interest reviews for all
crop insurance claims of individuals directly associated with the
federal crop insurance program. However, without knowledge that these
insurance agents held a substantial beneficial interest of 10 percent
or more in entities that received claims payments, insurance companies
may not have conducted the reviews in 2003 and 2004. As of August 2005,
RMA could not confirm that these reviews had been conducted.
[11] We also identified an additional 12 claims adjusters who adjusted
13 policies in 2003 and 2004 with claims payments of $173,292 for
farming operations in which they held a beneficial interest of 10
percent or more and who disclosed this information to RMA. In May 2005,
we referred the names of these 12 adjusters to RMA for further
investigation. RMA found that 11 of the adjusters did not adjust
policies for farming operations in which they held a beneficial
interest, but that erroneous information in RMA's databases made it
appear that the adjusters had engaged in conflict-of-interest
activities. As of August 2005, RMA had not completed its investigation
for the remaining claims adjuster.
[12] RMA Loss Adjustment Manual (LAM) Standards Handbook, 2003 and
Succeeding Years.
[13] Final Research Report For Multiple Year Coverage, Task Order # RMA-
RED-01-06, Watts and Associates, Inc., June 27, 2002.
[14] See U.S. Department of Agriculture, Office of Inspector General,
Monitoring of RMA's Implementation of Manual 14 Reviews/Quality Control
Review System, Audit Report No. 05099-14-KC (Washington, D.C.: Mar. 15,
2002).
[15] GAO, Crop Insurance: USDA Needs a Better Estimate of Improper
Payments to Strengthen Controls of Claims, GAO/RCED-99-266 (Washington,
D.C.: Sept. 22, 1999).
[16] The federal government has sought indictments based on a
conspiracy to defraud the government or making false statements to the
federal government under 18 U.S.C. § 371 and 18 U.S.C. § 1014,
respectively.
[17] See Office of Management and Budget, Financial Management Systems,
Circular No. A-127 Revised, (Washington, D.C.: July 23, 1993).
[18] New participants, who have no history of production in the crop
insurance programs, get assigned the county average yield for
determining their insurance guarantee, which also affects their premium
costs.
[19] NASS collects and reports production data for major crops in most
counties nationwide. RMA uses these data to establish a normal crop
yield.
[20] RMA regulations state that optional units are not available to a
producer who does not provide acceptable production reports for at
least the most recent crop year.
[21] Final Research Report For Multiple Year Coverage, Task Order # RMA-
RED-01-06, Watts and Associates, Inc., June 27, 2002.
[22] 7 C.F.R. § 457.8.
[23] USDA Risk Management Agency, New Program Development Handbook,
FCIC-23010, October 1997.
[24] For example, in 1999, RMA introduced a program for sweet cherries,
which had not previously been eligible for crop insurance. RMA had
experience with the other five products we reviewed but expanded these
products to new counties in selected states. For example, in 1998, RMA
expanded crop insurance on onions in Texas to producers in 11 new
counties that previously did not have the option of insurance for this
crop.
[25] See U.S. Department of Agriculture, Office of Inspector General,
Risk Management Agency Viability of Fall Watermelons in Texas and Their
Inclusion in the 1999 Watermelon Insurance Pilot Program, Audit Report
No. 05601-8-Te (Washington, D.C.: Sept. 30, 2002).
[26] See U.S. Department of Agriculture, Office of Inspector General,
Risk Management Agency Survey of Pilot Programs, Audit Report No. 05601-
12-Te (Washington, D.C.: May 24, 2005).
[27] In addition to responding to our survey questions, many of these
field officials also provided us with written comments. Because these
written comments were voluminous, they have not been included in
appendix III.
[28] In addition to responding to our survey questions, many of these
insurance agents provided us with written comments. Because these
written comments were voluminous, they have not been included in
appendix IV.
[29] These producers and others also received $746,700 in federal farm
program benefits through fraudulent schemes.
[30] Final Research Report For Multiple Year Coverage, Task Order # RMA-
RED-01-06, Watts and Associates, Inc., June 27, 2002.
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