Federal Farm Programs
USDA Needs to Strengthen Controls to Prevent Improper Payments to Estates and Deceased Individuals Gao ID: GAO-07-818 July 9, 2007Farmers receive about $20 billion annually in federal farm program payments, which go to individuals and "entities," including corporations, partnerships, and estates. Under certain conditions, estates may receive payments for the first 2 years after an individual's death. For later years, the U.S. Department of Agriculture (USDA) must determine that the estate is not being kept open for payments. As requested, GAO evaluated the extent to which USDA (1) follows its regulations that are intended to provide reasonable assurance that farm program payments go only to eligible estates and (2) makes improper payments to deceased individuals. GAO reviewed a nonrandom sample of estates based, in part, on the amount of payments an estate received and compared USDA's databases that identify payment recipients with individuals the Social Security Administration listed as deceased.
USDA has made farm payments to estates more than 2 years after recipients died, without determining, as its regulations require, whether the estates were kept open to receive these payments. As a result, USDA cannot be assured that farm payments are not going to estates kept open primarily to obtain these payments. From 1999 through 2005, USDA did not conduct any eligibility determinations for 73, or 40 percent, of the 181 estates GAO reviewed. Sixteen of these 73 estates had each received more than $200,000 in farm payments, and 4 had each received more than $500,000. Also, for the 108 reviews USDA did conduct, GAO identified shortcomings. For example, from 1999 through 2005, 69 of the 108 estates did not receive annual reviews for every year of payments received, and some USDA field offices approved groups of estates for payments without reviewing each estate. Furthermore, 20 estates that USDA approved for payment eligibility had no documented explanation for keeping the estate open. USDA cannot be assured that millions of dollars in farm payments are proper. It does not have management controls to verify that it is not making payments to deceased individuals. For 1999 through 2005, USDA paid $1.1 billion in farm payments in the names of 172,801 deceased individuals (either as an individual recipient or as a member of an entity). Of this total, 40 percent went to those who had been dead for 3 or more years, and 19 percent to those dead for 7 or more years. Most of these payments were made to deceased individuals indirectly (i.e., as members of farming entities). For example, over one-half of the $1.1 billion payments went through entities from 1999 through 2005. In one case, USDA paid a member of an entity--deceased since 1995--over $400,000 in payments for 1999 through 2005. USDA relies on the farming operation's self-certification that the information provided is accurate and that the operation will inform USDA of any changes, such as the death of a member. Such notification would provide USDA with current information to determine the eligibility of the entity to receive the payments. The complex nature of some farming operations--such as entities embedded within other entities--can make it difficult for USDA to avoid making payments to deceased individuals.
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Director: Team: Phone:GAO-07-818, Federal Farm Programs: USDA Needs to Strengthen Controls to Prevent Improper Payments to Estates and Deceased Individuals
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Report to the Ranking Member, Committee on Finance, U.S. Senate:
United States Government Accountability Office:
GAO:
July 2007:
Federal Farm Programs:
USDA Needs to Strengthen Controls to Prevent Improper Payments to
Estates and Deceased Individuals:
GAO-07-818:
GAO Highlights:
Highlights of GAO-07-818, a report to the Ranking Member, Committee on
Finance, U.S. Senate
Why GAO Did This Study:
Farmers receive about $20 billion annually in federal farm program
payments, which go to individuals and ’entities,“ including
corporations, partnerships, and estates. Under certain conditions,
estates may receive payments for the first 2 years after an
individual‘s death. For later years, the U.S. Department of Agriculture
(USDA) must determine that the estate is not being kept open for
payments.
As requested, GAO evaluated the extent to which USDA (1) follows its
regulations that are intended to provide reasonable assurance that farm
program payments go only to eligible estates and (2) makes improper
payments to deceased individuals. GAO reviewed a nonrandom sample of
estates based, in part, on the amount of payments an estate received
and compared USDA‘s databases that identify payment recipients with
individuals the Social Security Administration listed as deceased.
What GAO Found:
USDA has made farm payments to estates more than 2 years after
recipients died, without determining, as its regulations require,
whether the estates were kept open to receive these payments. As a
result, USDA cannot be assured that farm payments are not going to
estates kept open primarily to obtain these payments. From 1999 through
2005, USDA did not conduct any eligibility determinations for 73, or 40
percent, of the 181 estates GAO reviewed. Sixteen of these 73 estates
had each received more than $200,000 in farm payments, and 4 had each
received more than $500,000. Also, for the 108 reviews USDA did
conduct, GAO identified shortcomings. For example, from 1999 through
2005, 69 of the 108 estates did not receive annual reviews for every
year of payments received, and some USDA field offices approved groups
of estates for payments without reviewing each estate. Furthermore, 20
estates that USDA approved for payment eligibility had no documented
explanation for keeping the estate open.
USDA cannot be assured that millions of dollars in farm payments are
proper. It does not have management controls to verify that it is not
making payments to deceased individuals. For 1999 through 2005, USDA
paid $1.1 billion in farm payments in the names of 172,801 deceased
individuals (either as an individual recipient or as a member of an
entity). Of this total, 40 percent went to those who had been dead for
3 or more years, and 19 percent to those dead for 7 or more years. Most
of these payments were made to deceased individuals indirectly (i.e.,
as members of farming entities). For example, over one-half of the $1.1
billion payments went through entities from 1999 through 2005. In one
case, USDA paid a member of an entity”deceased since 1995”over $400,000
in payments for 1999 through 2005. USDA relies on the farming
operation‘s self-certification that the information provided is
accurate and that the operation will inform USDA of any changes, such
as the death of a member. Such notification would provide USDA with
current information to determine the eligibility of the entity to
receive the payments. The complex nature of some farming
operations”such as entities embedded within other entities”can make it
difficult for USDA to avoid making payments to deceased individuals.
Figure: Number of Deceased Individuals Receiving Farm Payments through
Entities, 1999-2005:
[See PDF for Image]
Source: GAO's analysis of USDA's data.
[End of figure]
What GAO Recommends:
GAO recommends that USDA conduct all required annual estate eligibility
determinations, implement management controls to verify that an
individual receiving program payments has not died, and determine if
these payments have been made to deceased individuals or to entities
that failed to disclose the death of a member, and if so, recover the
appropriate amounts. USDA agreed with these recommendations and has
begun actions to implement them.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-818].
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Lisa Shames at (202) 512-
3841 or shamesl@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
Because Many FSA Field Offices Do Not Systematically Determine the
Eligibility of Estates for Farm Program Payments, FSA Cannot Be Assured
That Payments Are Proper:
Because FSA Does Not Have Appropriate Management Controls, It Cannot Be
Assured That It Is Not Making Payments to Deceased Individuals:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Comments from the U.S. Department of Agriculture:
GAO's Comments:
Appendix III: U.S. Department of Agriculture Farm Program Payments,
Fiscal Years 1999 through 2005:
Appendix IV: U.S. Department of Agriculture Estate Eligibility Reviews,
by State, Program Years 1999 through 2005:
Appendix V: GAO Contact and Staff Acknowledgments:
Related GAO Products:
Tables:
Table 1: Estate Eligibility Reviews, Program Years 1999 through 2005:
Table 2: Variation in Determinations FSA Made for Selected States,
Program Years 1999 through 2005:
Table 3: USDA Estimates of Improper Payments, Fiscal Year 2006:
Table 4: Farm Program Payments Made to Deceased Individuals through
Entities, Program Years 1999 through 2005:
Table 5: Variation in Reviews Conducted by FSA, by State, Program Years
1999 through 2005:
Figure:
Figure 1: Number of Years and Value of Farm Program Payments Made after
Individuals' Deaths, Fiscal Years 1999 through 2005:
Abbreviations:
EQIP: Environmental Quality Incentives Program:
FSA: Farm Service Agency:
IPIA: Improper Payments Information Act of 2002:
OMB: Office of Management and Budget:
USDA: U.S. Department of Agriculture:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
July 9, 2007:
The Honorable Charles E. Grassley:
Ranking Member:
Committee on Finance:
United States Senate:
Dear Senator Grassley:
Farmers receive about $20 billion annually in federal farm program
payments for crop subsidies, conservation practices, and disasters.
Such payments go to 1.7 million recipients, both individuals and
"entities," including corporations, partnerships, and estates.
Individuals may receive farm program payments indirectly through as
many as three entities.[Footnote 1] The Agricultural Reconciliation Act
of 1987 (1987 Act) limits payments to individuals and entities that are
"actively engaged in farming." We reported in 2004 that because the
U.S. Department of Agriculture's (USDA) regulations ensuring that
recipients are actively engaged in farming do not specify measurable
standards, they allow individuals with limited involvement in farming
to qualify for farm program payments.[Footnote 2] We recommended that
USDA strengthen its regulations for active engagement in farming.
Subsequently, in November 2006, we identified the need for better
oversight of farm program payments.[Footnote 3] Without better
oversight to ensure that farm program funds are spent as economically,
efficiently, and effectively as possible, we pointed out, USDA has
little assurance that these funds benefit the agricultural sector as
intended.
From 1999 through 2005, USDA, through its Farm Service Agency (FSA),
made 124 million payments totaling about $130 billion. Over $200
million of this amount went to nearly 42,000 estates. Generally, under
the 1987 Act, once a person dies, farm program payments may continue to
that person's estate under certain conditions. However, if no estate is
probated, or once the estate is settled, the deceased person's heirs
must qualify in their own right in order to receive payments.
USDA regulations covering most farm program payments allow an estate to
receive payments for the first 2 years after the death of the
individual if the estate meets certain eligibility requirements for
active engagement in farming. That is, an estate must contribute (1)
capital, land, or equipment and (2) the personal representative or
heirs of the estate must contribute labor or management to the farming
operation.[Footnote 4] Following the initial 2 years, the estate will
continue to be eligible for program payments if it meets the active
engagement in farming requirement and the local field office determines
that the estate is not being kept open primarily to continue receiving
program payments. Estates are commonly kept open for longer than 2
years because of, among other things, asset distribution and probate
complications, and tax and debt obligations. Under USDA regulations,
for an estate to remain eligible for farm program payments, FSA must
annually determine that the estate is still active and that obtaining
farm program payments is not the primary reason it remains open. FSA
guidelines provide that each estate should provide documents showing
why it has not distributed its assets to its beneficiaries and why it
is still active for the current year. When property is completely
distributed from the deceased individual to his or her heirs directly
or through an estate, the payments to the individual who died must end.
However, the deceased individual's heirs may subsequently apply for
program payments in their own right and to receive payments must
satisfy the requirements for active engagement in farming.
FSA guidance directs county committee staff to annually notify
individuals and entities that they must file farm operating plans with
their local field office if they are seeking farm program payments.
These plans document the name of each recipient, the contribution each
recipient makes to the farming operation, and the share of profits and
losses each recipient will receive. The individual filing this plan
certifies that, in a timely manner, he or she will notify the local
field office of any changes in the information that could affect an
eligibility determination, such as the death of an individual in the
farming operation. If timely notification is not given, the farming
operation is subject to forfeiture of payments. Also, payments must be
returned if they were based on erroneous information or if the producer
is otherwise not entitled to them.
You asked us to examine FSA's implementation of regulations to identify
improper payments to estates and deceased individuals. As agreed with
your office, we evaluated the extent to which FSA (1) follows its
regulations that are intended to provide reasonable assurance that farm
program payments go only to eligible estates and (2) makes improper
payments to deceased individuals.
To address these issues, we reviewed USDA's regulations, FSA's
guidelines, and other management controls for implementing the
provisions of the 1987 Act. We also spoke with FSA officials in
headquarters, state offices, and local field offices who are
responsible for ensuring that (1) estates are properly reviewed for
eligibility and (2) payments are not made to deceased individuals. To
evaluate FSA's application of regulations and guidance and to assess
the overall effectiveness of its review process for deciding whether
estates are eligible to receive farm program payments, we reviewed a
nonrandom sample of estate eligibility determinations. To identify
estates for our nonrandom sample, we obtained and analyzed FSA's
computer databases for information on payment recipients from 1999
through 2005. The databases contained detailed information on payment
recipients--including Social Security numbers, payment amounts, the
status of recipients as individuals or members of entities, recipients'
ownership interests in entities, types of entities receiving payments,
and additional organizational details. The data showed 2,841 estates
that had received payments for more than 2 years between 1999 and 2005,
thus requiring FSA to conduct a determination of eligibility. Of these,
we examined 181 estates in 26 states and 142 counties. These estates
included the 162 (i.e., 162 of 2,841) that received over $100,000 in
farm program payments from 1999 through 2005. They also included the 16
estates (i.e., 16 of 2,841) that (1) had received between $50,000 and
$100,000 in farm program payments during this period and (2) had at
least one member receiving payments through three other entities.
Lastly, they included the three estates (i.e., 3 of 2,841) that had at
least one member who appeared to be receiving payments through seven or
more other entities. For each estate selected, we obtained files from
FSA field offices. These files ideally would have included the
following information to facilitate FSA's determinations: letters
testamentary from a probate court, minutes of the FSA county committee
meeting that approved eligibility,[Footnote 5] explanation letters or
documentation for the reason the estate remained active beyond 2 years,
farm operating plans, and payment history. However, because the
documentation required for probated estates varies by jurisdiction, we
could not easily determine whether improper payments had been made to
estates. Furthermore, even in cases in which FSA had not done the
required annual determinations, or when relevant documentation was
missing or incomplete in the estate file, we could not determine
whether improper payments were made without examining each case in
depth.
In examining the extent to which FSA makes improper payments to
deceased individuals after the date of their death, we matched the
payment recipients in FSA's databases with individuals that the Social
Security Administration has identified as deceased in its Death Master
File. The data match showed the number and dollar amount of payments
FSA provided to deceased individuals, either directly or indirectly
through entities, from 1999 through 2005. We attributed payments made
indirectly to individuals based on each individual's ownership share in
the entity.
We conducted our review from June 2006 through May 2007 in accordance
with 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:
FSA made farm program payments to estates more than 2 years after
recipients have died without determining whether the estates were being
kept open primarily for the purpose of receiving these payments, as its
regulations require. As a result, FSA cannot be assured that farm
program payments made to these estates are proper. We identified
weaknesses in FSA's eligibility determinations for 142 of the 181
estates we reviewed. In particular, from 1999 through 2005, FSA did not
conduct eligibility determinations for 73, or 40 percent, of the 181
estates in our sample. Sixteen of these 73 estates had each received
more than $200,000 in farm program payments, and 4 had each received
more than $500,000. For the remaining 108 estates, we identified
several shortcomings with FSA's determinations. Specifically, FSA did
not make an annual eligibility determination for every year in which it
provided payments, as regulations require. From 1999 through 2005, 69
of the 108 estates did not receive determinations for every year in
which they received payments, and some FSA field offices approved
groups of estates for payments without reviewing each estate
individually. Moreover, documentation supporting the determinations was
often either nonexistent or vague. For example, 20 of the
determinations had no documented explanation for why the estate
remained active. In other cases, FSA approved eligibility based on
insufficient explanations for why the estate remained open--such as the
heirs stating that they wanted to keep it open on the advice of a
lawyer or an accountant without specifying the reasons why. We also
found that although the minutes of FSA county committee meetings
indicated approval of payments to estates, the associated files did not
contain critical documents that might validate why the estates were
still active for reasons other than to obtain farm program payments.
According to FSA field officials, many eligibility determinations were
either not done or not done thoroughly, in part because of a lack of
sufficient personnel and time, as well as competing priorities for
carrying out farm programs.
FSA cannot be assured that millions of dollars in farm payments it made
are proper because FSA does not have management controls, such as
computer matching, to verify that it is not making payments to deceased
individuals. Instead, according to the FSA field officials, FSA relies
on self-certifications by farming operations that the information
provided is accurate and that the operations will inform FSA of any
changes, including the death of an operation's member. From 1999
through 2005, FSA paid $1.1 billion in farm program payments in the
names of 172,801 deceased individuals (either as an individual or as a
member of an entity). Of this amount, 40 percent went to individuals
who had been dead for 3 or more years, and 19 percent went to
individuals who had been dead for 7 or more years. Furthermore, complex
farming operations consisting of multiple entities increase the risk of
improper payments to deceased individuals. Farm program payments made
to deceased individuals indirectly--that is, as members of entities--
represent a disproportionately high share of post-death payments. We
found that these payments to deceased individuals through entities
accounted for $648 million--or 58 percent of the $1.1 billion in
payments made to all deceased individuals from 1999 through 2005--
whereas payments to all individuals through entities accounted for only
27 percent of all farm program payments. In one case, FSA paid a member
of an entity who has been deceased since 1995 over $400,000 in farm
program payments from 1999 through 2005.
We are making a number of recommendations to the Secretary of
Agriculture for improving FSA's ability to prevent improper payments to
estates and deceased individuals. Specifically, we are recommending
that FSA ensure that its field offices conduct all annual estate
eligibility determinations as required, implement management controls
to verify that individuals receiving farm program payments have not
died, and determine if program payments have been made to deceased
individuals or to entities that failed to disclose the death of a
member and if so, recover the appropriate amounts. In addition, we have
referred the cases of improper payments we identify in this report to
USDA's Office of Inspector General for further investigation.
We provided FSA with a draft of this report for review and comment. FSA
agreed with our recommendations and already has begun to take actions
to implement them. However, FSA did not agree with our use of the term
"improper payments" in the report. The agency stated that the payments
we describe do not meet the definition of improper payments under the
Improper Payments Information Act of 2002 (IPIA).[Footnote 6] We
disagree. We believe the payments we highlight in three examples in the
report do meet the definition of improper payments under IPIA.
Furthermore, in these cases, officials in FSA's field offices agreed
with our findings and told us they intend to recover the payments. For
the remaining farm program payments identified in the report, we
continue to believe that the potential exists for improper payments
because of the lack of FSA management controls and the complexity of
some of the farming operations involved. Our detailed response to
USDA's comments appears at the end of this letter and following USDA's
written comments in appendix II.
Background:
FSA provides benefits through various programs of the Farm Security and
Rural Investment Act of 2002.[Footnote 7] Appendix III provides a
listing of USDA farm programs and payments made from 1999 through 2005.
The three-entity rule applies to certain USDA payments, including
direct and counter-cyclical payments; loan deficiency payments and
marketing loan gains, under the Marketing Assistance Loan Program; and
Conservation Reserve Program payments.
* Direct and Counter-Cyclical Payments Program provides two types of
payments to producers of covered commodity crops, including corn,
cotton, rice, soybeans, and wheat. Direct payments (formerly known as
production flexibility contract payments) are tied to a fixed payment
rate for each commodity crop and do not depend on current production or
current market prices. Instead, direct payments are based on the farm's
historical acreage and yields. Counter-cyclical payments provide price-
dependent benefits for covered commodities whenever the effective price
for the commodity is less than a pre-determined price (called the
target price). Counter-cyclical payments are based on a farm's
historical acreage and yields, and are not tied to the current
production of the covered commodity.
* Marketing Assistance Loan Program (formerly known as the Commodity
Loan Program) provides benefits to producers of covered commodity crops
when market prices are low. Specifically, the federal government
accepts harvested crops as collateral for interest-bearing loans
(marketing assistance loans) that are due in 9 months. When market
prices drop below the loan rate (the loan price per pound or bushel),
the government allows farmers to repay the loan at a lower rate and
retain ownership of their commodity for eventual sale. The difference
between the loan rate and the lower repayment rate is called the
marketing assistance loan gain. In lieu of repaying the loan, farmers
may forfeit their crops to the government when the loan matures and
keep the loan principal. In addition, farmers who do not have marketing
assistance loans can receive a benefit when prices are low--the loan
deficiency payment--that is equal to the marketing assistance loan gain
that the farmer would have received if the farmer had a loan. Finally,
farmers can purchase commodity certificates that allow them to redeem
their marketing assistance loan at a lower repayment rate and
immediately reclaim their commodities under loan. The difference
between the loan rate and the lower repayment rate is called the
commodity certificate gain.
* Conservation Reserve Program provides annual rental payments and cost-
share assistance to producers to help them safeguard environmentally
sensitive land. Producers must contractually agree to retire their land
from agricultural purposes and keep it in approved conserving uses for
10 to 15 years.
Most farmers receive farm program payments directly from FSA as an
individual operator. However, some farmers use legal entities to
organize their farming operations to reduce their exposure to financial
liabilities or estate taxes or, in some cases, to increase their
potential for farm benefits. Some of the more common ways farmers
organize their operations include the following:
* Corporations have a separate legal existence from their owners; that
is, the corporation, rather than the owners, is ordinarily responsible
for farm business debts and can be sued. As a result, some individuals
may incorporate their farm to protect their personal assets.
* General partnerships are a simple arrangement of two or more
partners--individuals or entities--that do business together. Partners
are personally liable for their own conduct and for the conduct of
those under their direct supervision, as well as for negligence,
wrongful acts, and misconduct of other partners and partnership
employees. Partners are also personally liable for the partnership's
commercial obligations, such as loans or taxes.
* Joint ventures are two or more individuals who pool resources and
share profits or losses. Joint ventures have no legal existence
independent of their owners. Members in a joint venture are personally
liable for the farm's debts.
* Limited partnerships are an arrangement of two or more partners whose
liability for partnership financial obligations is only as great as the
amount of their investment. A limited partnership must have at least
one general partner who manages the farm business and who is fully
liable for partnership financial obligations to be considered eligible
for farm program payments.
* Trusts (irrevocable and revocable) are arrangements generally used in
estate planning that provide for the management and distribution of
property. A revocable trust is amendable by the grantor during his or
her lifetime who may also be the trustee and beneficiary. An
irrevocable trust is an arrangement in which the grantor departs with
ownership and control of property.
* Other types of entities that may qualify for farm program payments
under payment limitation rules include a limited liability company--a
hybrid form of a business entity with the limited liability feature of
a corporation and the income tax treatment of a general partnership; a
charitable organization; and a state or political subdivision.
FSA is responsible for ensuring that recipients meet payment
eligibility criteria and do not receive payments that exceed the
established limitations. It carries out this responsibility through its
headquarters office, 50 state offices, and over 2,300 field offices.
IPIA requires the heads of federal agencies to annually review all
programs and activities that they administer, identify those that may
be susceptible to significant improper payments, and estimate and
report on the annual amount of improper payments in those programs and
activities. IPIA defines an improper payment as any payment that should
not have been made or that was made in an incorrect amount, including
any payment to an ineligible recipient.
OMB defines significant improper payments as payments in any particular
program that exceed both 2.5 percent of total program payments and $10
million annually. If a program's estimated improper payments exceed $10
million in a year, IPIA and related OMB guidance requires agencies to
prepare and implement a plan to reduce improper payments and report
actions taken. Agencies are required to report this information, among
other things, annually in their Performance and Accountability Reports.
Specifically, OMB guidance requires agencies to report on (1) the
causes of improper payments and corrective actions, (2) the steps the
agency has undertaken to ensure that agency managers are held
accountable for reducing and recovering erroneous payments, along with
a realistic timetable, and (3) any statutory or regulatory barriers
that may limit the agency's corrective actions in reducing improper
payments. In November 2006, we reported that federal agencies,
including USDA, need to improve their reporting of improper payments
under IPIA by better identifying programs susceptible to improper
payments and improving statistical sampling methodologies to estimate
improper payments made.[Footnote 8]
Because Many FSA Field Offices Do Not Systematically Determine the
Eligibility of Estates for Farm Program Payments, FSA Cannot Be Assured
That Payments Are Proper:
While there are legitimate reasons for keeping estates open, we found
that FSA field offices do not systematically determine the eligibility
of all estates that have been kept open for more than 2 years, as
regulations require, and when they do conduct eligibility
determinations, the quality of the determinations varies. Without
performing annual determinations, an essential management control, FSA
cannot identify estates being kept open primarily for the purpose of
receiving these payments and be assured that the payments are proper.
We identified weaknesses in FSA's eligibility determinations for 142 of
the 181 estates we reviewed. In particular, FSA did not conduct any
program eligibility determinations for 73, or 40 percent, of estates
that required a determination from 1999 through 2005. Because FSA did
not conduct the required determinations, the extent to which estates
remained open for reasons other than for obtaining program payments is
not known. Sixteen of these 73 estates received more than $200,000 in
farm program payments and 4 received more than $500,000 during this
period. In addition, 22 of the 73 estates had received no eligibility
determinations during the 7-year period we reviewed, and these estates
had been open and receiving payments for more than 10 years. In one
case, we found that the estate has been open since 1973. The following
provides examples of estates that received farm program payments but
were not reviewed for eligibility by FSA:
* A North Dakota estate received farm program payments totaling
$741,000 from 1999 through 2003, but FSA did not conduct the required
determinations.
* An Alabama estate received payments totaling $567,000 from 1999
through 2005, but FSA did not conduct the required determinations. In
this case, the estate has been open since 1981.
* Two estates in Georgia, open since 1989 and 1996, respectively,
received payments totaling more than $330,000 each, from 1999 through
2005. Neither estate received the required determinations for any of
the years we reviewed.
* An estate in New Mexico, open since 1991, received $320,000 from 1999
through 2005, but it did not receive any of the required
determinations.
According to FSA field officials, many determinations were either not
done or not done thoroughly, in part because of a lack of sufficient
personnel and time, as well as competing priorities for carrying out
farm programs. However, FSA's failure to conduct appropriate
eligibility determinations means that it has no assurance that it is
not making farm program payments to estates that have been kept open
primarily to receive these payments.
Even when FSA field offices determined estates' eligibility for
continued farm program payments, they did not always do so
consistently. For the remaining 108 estates, 39 had eligibility
determinations every year that a determination was required, while 69
had determinations at least once between 1999 and 2005, but not with
the frequency required by regulations. Table 1 shows the number of
years for which estates in our sample were required to have annual
eligibility determinations compared with the number of years that FSA
actually conducted determinations. The dark shaded numbers highlight
the number of estates that received all the required annual eligibility
determinations for the years that the estate received farm program
payments--a total of 39 estates.
Table 1: Estate Eligibility Reviews, Program Years 1999 through 2005:
Number of years FSA actually conducted eligibility determinations:
None;
Number of years FSA should have conducted eligibility reviews: 1:
Estates: 19;
Number of years FSA should have conducted eligibility reviews: 2:
Estates: 14;
Number of years FSA should have conducted eligibility reviews: 3:
Estates: 7;
Number of years FSA should have conducted eligibility reviews: 4:
Estates: 6;
Number of years FSA should have conducted eligibility reviews: 5:
Estates: 5;
Number of years FSA should have conducted eligibility reviews: 6:
Estates: 9;
Number of years FSA should have conducted eligibility reviews: 7:
Estates: 13;
Number of years FSA should have conducted eligibility reviews: Total:
Estates: 73.
Number of years FSA actually conducted eligibility determinations: 1;
Number of years FSA should have conducted eligibility reviews: 1:
Estates: 10;
Number of years FSA should have conducted eligibility reviews: 2:
Estates: 7;
Number of years FSA should have conducted eligibility reviews: 3:
Estates: 2;
Number of years FSA should have conducted eligibility reviews: 4:
Estates: 4;
Number of years FSA should have conducted eligibility reviews: 5:
Estates: 6;
Number of years FSA should have conducted eligibility reviews: 6:
Estates: 6;
Number of years FSA should have conducted eligibility reviews: 7:
Estates: 4;
Number of years FSA should have conducted eligibility reviews: Total:
Estates: 39.
Number of years FSA actually conducted eligibility determinations: 2;
Number of years FSA should have conducted eligibility reviews: 1:
Estates: [Empty];
Number of years FSA should have conducted eligibility reviews: 2:
Estates: 10;
Number of years FSA should have conducted eligibility reviews: 3:
Estates: 0;
Number of years FSA should have conducted eligibility reviews: 4:
Estates: 2;
Number of years FSA should have conducted eligibility reviews: 5:
Estates: 1;
Number of years FSA should have conducted eligibility reviews: 6:
Estates: 4;
Number of years FSA should have conducted eligibility reviews: 7:
Estates: 6;
Number of years FSA should have conducted eligibility reviews: Total:
Estates: 23.
Number of years FSA actually conducted eligibility determinations: 3;
Number of years FSA should have conducted eligibility reviews: 1:
Estates: [Empty];
Number of years FSA should have conducted eligibility reviews: 2:
Estates: [Empty];
Number of years FSA should have conducted eligibility reviews: 3:
Estates: 9;
Number of years FSA should have conducted eligibility reviews: 4:
Estates: 1;
Number of years FSA should have conducted eligibility reviews: 5:
Estates: 4;
Number of years FSA should have conducted eligibility reviews: 6:
Estates: 2;
Number of years FSA should have conducted eligibility reviews: 7:
Estates: 1;
Number of years FSA should have conducted eligibility reviews: Total:
Estates: 17.
Number of years FSA actually conducted eligibility determinations: 4;
Number of years FSA should have conducted eligibility reviews: 1:
Estates: [Empty];
Number of years FSA should have conducted eligibility reviews: 2:
Estates: [Empty];
Number of years FSA should have conducted eligibility reviews: 3:
Estates: [Empty];
Number of years FSA should have conducted eligibility reviews: 4:
Estates: 2;
Number of years FSA should have conducted eligibility reviews: 5:
Estates: 3;
Number of years FSA should have conducted eligibility reviews: 6:
Estates: 3;
Number of years FSA should have conducted eligibility reviews: 7:
Estates: 4;
Number of years FSA should have conducted eligibility reviews: Total:
Estates: 12.
Number of years FSA actually conducted eligibility determinations: 5;
Number of years FSA should have conducted eligibility reviews: 1:
Estates: [Empty];
Number of years FSA should have conducted eligibility reviews: 2:
Estates: [Empty];
Number of years FSA should have conducted eligibility reviews: 3:
Estates: [Empty];
Number of years FSA should have conducted eligibility reviews: 4:
Estates: [Empty];
Number of years FSA should have conducted eligibility reviews: 5:
Estates: 5;
Number of years FSA should have conducted eligibility reviews: 6:
Estates: 3;
Number of years FSA should have conducted eligibility reviews: 7:
Estates: 3;
Number of years FSA should have conducted eligibility reviews: Total:
Estates: 11.
Number of years FSA actually conducted eligibility determinations: 6;
Number of years FSA should have conducted eligibility reviews: 1:
Estates: [Empty];
Number of years FSA should have conducted eligibility reviews: 2:
Estates: [Empty];
Number of years FSA should have conducted eligibility reviews: 3:
Estates: [Empty];
Number of years FSA should have conducted eligibility reviews: 4:
Estates: [Empty];
Number of years FSA should have conducted eligibility reviews: 5:
Estates: [Empty];
Number of years FSA should have conducted eligibility reviews: 6:
Estates: 1;
Number of years FSA should have conducted eligibility reviews: 7:
Estates: 3;
Number of years FSA should have conducted eligibility reviews: Total:
Estates: 4.
Number of years FSA actually conducted eligibility determinations: 7;
Number of years FSA should have conducted eligibility reviews: 1:
Estates: [Empty];
Number of years FSA should have conducted eligibility reviews: 2:
Estates: [Empty];
Number of years FSA should have conducted eligibility reviews: 3:
Estates: [Empty];
Number of years FSA should have conducted eligibility reviews: 4:
Estates: [Empty];
Number of years FSA should have conducted eligibility reviews: 5:
Estates: [Empty];
Number of years FSA should have conducted eligibility reviews: 6:
Estates: [Empty];
Number of years FSA should have conducted eligibility reviews: 7:
Estates: 2;
Number of years FSA should have conducted eligibility reviews: Total:
Estates: 2.
Number of years FSA actually conducted eligibility determinations:
Total;
Number of years FSA should have conducted eligibility reviews: 1:
Estates: 29;
Number of years FSA should have conducted eligibility reviews: 2:
Estates: 31;
Number of years FSA should have conducted eligibility reviews: 3:
Estates: 18;
Number of years FSA should have conducted eligibility reviews: 4:
Estates: 15;
Number of years FSA should have conducted eligibility reviews: 5:
Estates: 24;
Number of years FSA should have conducted eligibility reviews: 6:
Estates: 28;
Number of years FSA should have conducted eligibility reviews: 7:
Estates: 36;
Number of years FSA should have conducted eligibility reviews: Total:
Estates: 181.
Additional Information:
Signifies the number of estates that received all required
determinations--a total of 39 estates.
Signifies the number of estates that received at least one, but not all
annual determinations--a total of 69 estates.
Source: GAO's analysis of FSA's data.
Note: Cells are left blank for years an eligibility determination was
not required.
[End of table]
As the table shows, the longer an estate was kept open, the fewer
determinations it received. For example, only 2 of the 36 estates
requiring a determination every year over the 7-year period received
all seven required determinations.
According to FSA guidelines, an estate should provide evidence that it
is still making required reports to the court to be eligible for farm
program payments. However, we found that FSA sometimes approved
eligibility for payments when the estate had provided insufficient
information--that is, information that was either nonexistent or vague.
For example, in 20 of the 108 determinations, the minutes of FSA county
committee meetings indicated approval of eligibility for payments to
estates, but the associated files did not contain any documents that
explained why the estate remained active. FSA also approved eligibility
on the basis of insufficient explanations for keeping the estate open.
In five cases, executors explained that they did not want to close the
estate but did not explain why. In a sixth case, documentation stated
that the estate was remaining active upon the advice of its lawyers and
accountants, but did not explain why.
Furthermore, some FSA field offices approved program payments to groups
of estates that were kept open after 2 years without any apparent
review. In one case in Georgia, minutes of an FSA county committee
meeting listed 107 estates as eligible for payments by stating that the
county committee approved all estates open over 2 years. Two of the
estates on this list of 107 were part of the sample that we reviewed in
detail. In addition, another 10 estates in our sample, from nine
different FSA field offices, were also approved for payments without
any indication that even a cursory review had been conducted.
Additionally, the extent to which FSA field offices make eligibility
determinations varies from state to state, which suggests that FSA is
not consistently implementing its eligibility rules. Overall, FSA field
offices in 16 of the 26 states we reviewed made less than one-half of
the required determinations of their estates. For example, in Alabama
and in Georgia, FSA field offices made only 22 percent and 31 percent
of the required determinations for estates, respectively, compared with
FSA field offices in Kansas and Texas, which made 62 percent and 87
percent of the required determinations, respectively. Table 2 shows,
for the 181 estates in our sample, the variation in FSA's conduct of
eligibility reviews from 1999 through 2005 in states that had five or
more estates to examine. Appendix IV shows the extent to which FSA
conducted estate eligibility determinations in each state in our
review.
Table 2: Variation in Determinations FSA Made for Selected States,
Program Years 1999 through 2005:
State: Alabama;
Number of estates requiring determinations: 9;
Number of estates reviewed: 2;
Percent reviewed: 22.2.
State: Arkansas;
Number of estates requiring determinations: 12;
Number of estates reviewed: 8;
Percent reviewed: 66.7.
State: Georgia;
Number of estates requiring determinations: 16;
Number of estates reviewed: 5;
Percent reviewed: 31.3.
State: Illinois;
Number of estates requiring determinations: 20;
Number of estates reviewed: 13;
Percent reviewed: 65.0.
State: Kansas;
Number of estates requiring determinations: 13;
Number of estates reviewed: 8;
Percent reviewed: 61.5.
State: Texas;
Number of estates requiring determinations: 63;
Number of estates reviewed: 55;
Percent reviewed: 87.3.
State: Washington;
Number of estates requiring determinations: 8;
Number of estates reviewed: 3;
Percent reviewed: 37.5.
State: Total;
Number of estates requiring determinations: 141;
Number of estates reviewed: 94;
Percent reviewed: 66.7.
Source: GAO's analysis of FSA's data.
Note: This table presents the states in our sample that had at least
five estates to review from 1999 through 2005.
[End of table]
Under the three-entity rule, individuals receiving program payments may
not hold a substantial beneficial interest in more than two entities
also receiving payments. However, because a beneficiary of an Arkansas
estate we reviewed received farm program payments through the estate in
2005, as well as through three other entities, the beneficiary was able
to receive payments beyond what the three-entity rule would have
allowed. FSA was unaware of this situation until we brought it to
officials' attention, and FSA has begun taking steps to recover any
improper payments. Had FSA conducted any eligibility determinations for
this estate during the period, it might have determined that the estate
was not eligible for these payments, preventing the beneficiary from
receiving what amounted to a payment through a fourth entity.
We informed FSA of the problems we uncovered during the course of our
review. According to FSA field officials, a lack of sufficient
personnel and time, and competing priorities for carrying out farm
programs explain, in part, why many determinations were either not
conducted or not conducted thoroughly. Nevertheless, officials told us
that they would investigate these cases for potential receipt of
improper payments and would start collection proceedings if they found
improper payments.
Because FSA Does Not Have Appropriate Management Controls, It Cannot Be
Assured That It Is Not Making Payments to Deceased Individuals:
FSA cannot be assured that millions of dollars in farm program payments
it made to thousands of deceased individuals from fiscal years 1999
through 2005 were proper because FSA does not have appropriate
management controls, such as computer matching, to verify that it is
not making payments to deceased individuals. For example, FSA is not
matching recipients listed in its payment database with individuals
listed as deceased in the Social Security Administration's Death Master
File. In addition, complex farming operations, such as corporations or
general partnerships with embedded entities, make it difficult for FSA
to prevent improper payments to deceased individuals. At present, FSA
relies on farming operations to advise the agency of any change in the
operation, including the death of a member that would affect payments
made to the operation.
FSA Made Millions of Dollars of Farm Program Payments to Deceased
Individuals from Fiscal Years 1999 through 2005:
From fiscal years 1999 through 2005, FSA paid $1.1 billion in farm
program payments to 172,801 deceased individuals--either as individuals
or as members of entities, according to our matching of FSA's payment
databases with the Social Security Administration's Death Master File.
Of the $1.1 billion in farm payments, 40 percent went to individuals
who had been dead for 3 or more years, and 19 percent went to
individuals who had been dead for 7 or more years. Figure 1 shows the
number of years in which FSA made farm program payments after an
individual had died and the value of those payments. As the figure
shows, for example, FSA provided $210 million in farm program payments
to deceased individuals 7 or more years after their date of death.
Figure 1: Number of Years and Value of Farm Program Payments Made after
Individuals' Deaths, Fiscal Years 1999 through 2005:
[See PDF for image]
Source: GAO's analysis of FSA's and Social Security Administration's
data.
Note: Farm program payments made through entities are based on program
year data.
[A] Includes payments made 1 day after death to 1 year after death.
[End of figure]
Three cases illustrate how FSA's lack of management controls can result
in improper payments to deceased individuals. In the first case, FSA
provided more than $400,000 in farm program payments from 1999 through
2005 to an Illinois farming operation on the basis of the ownership
interest of an individual who had died in 1995.[Footnote 9] According
to FSA's records, the farming operation consisted of about 1,900
cropland acres producing mostly corn and soybeans. It was organized as
a corporation with four shareholders, with the deceased individual
owning a 40.3-percent interest in the entity. Nonetheless, we found
that the deceased individual had resided in Florida. Another member of
this farming operation, who resided in Illinois and had signature
authority for the operation, updated the operating plan most recently
in 2004 but failed to notify FSA of the individual's death. The farming
operation therefore continued to qualify for farm program payments on
behalf of the deceased individual. As noted earlier, FSA requires
farming operations to certify that they will notify FSA of any change
in their operation and to provide true and correct information.
According to USDA regulations, failure to do so may result in
forfeiture of payments and an assessment of a penalty. FSA recognized
this problem in December 2006 when the children of the deceased
individual contacted the FSA field office to obtain signature authority
for the operation. FSA has begun proceedings to collect the improper
payments.
In the second case, FSA provided more than $200,000 in farm program
payments from 1999 through 2002 to an Indiana farming operation on the
basis of the ownership interest of an individual who had died in 1993.
According to FSA's records, the farming operation was a corporation,
and the deceased individual held 100-percent ownership interest in the
entity. The corporation operated farms in two counties, but upon the
death of the individual, the corporation failed to notify the FSA field
office in either county of the death. The corporation therefore
continued to receive farm program payments on behalf of the deceased
individual until 2002, when it filed a new farm operating plan with FSA
that no longer included the deceased individual as a member. When we
brought this case to the attention of FSA officials, they were unaware
that the individual had died in 1993 and acknowledged that FSA provided
improper payments to the farming operation from 1993 through 2002.
According to agency officials, they intend to take action against the
farming operation to recover the improper payments.
In the third case, FSA provided about $260,000 in farm program payments
from 1999 through 2006 to a corporation on the basis of the ownership
interest of an individual who had died in 1993. According to FSA
records, the farming operation had 14 shareholders, with the deceased
individual holding a 14-percent interest. We found that another member
of this farming operation, who had signature authority for the
operation, updated the farm's operating plan in 2004 but failed to
notify FSA of the death of this member who we found had resided in a
metropolitan area several hundred miles from the farm. The farming
operation therefore continued to receive farm program payments on
behalf of the deceased individual. FSA was unaware that the individual
had died in 1993, but said it would investigate and if improper
payments were made it would take action against the farming operation
to recover the payments.
USDA recognizes that its farm programs have management control
weaknesses, making them vulnerable to significant improper payments. In
its FY 2006 Performance and Accountability Report to OMB, USDA reported
that poor management controls led to improper payments to some farmers,
in part because of incorrect or missing paperwork.[Footnote 10] In
addition, as part of its reporting of improper payments information,
USDA identified six FSA programs susceptible to significant risk of
improper payments with estimated improper payments totaling over $2.8
billion in fiscal year 2006, as shown in table 3.
Table 3: USDA Estimates of Improper Payments, Fiscal Year 2006:
Dollars in millions.
Program: Direct and Counter-Cyclical Payments Program;
Estimated improper payments: $424;
Average percent error rate: 4.96.
Program: Conservation Reserve Program;
Estimated improper payments: 64;
Average percent error rate: 3.53.
Program: Disaster assistance programs[A];
Estimated improper payments: 291;
Average percent error rate: 12.30.
Program: Noninsured Assistance Program[B];
Estimated improper payments: 25;
Average percent error rate: 22.94.
Program: Loan deficiency payments provided under the Marketing
Assistance Loan Program;
Estimated improper payments: 443;
Average percent error rate: 9.25.
Program: Other benefits provided under the Marketing Assistance Loan
Program;
Estimated improper payments: 1,611;
Average percent error rate: 20.26.
Program: Total/average;
Estimated improper payments: $2,858;
Average percent error rate: 11.17.
Source: USDA's FY 2006 Performance and Accountability Report.
Note: USDA's estimates include improper payments made to deceased
individuals but USDA does not separate these payments from other
improper payments.
[A] Disaster assistance payments are direct federal payments to crop
producers when either planting is prevented or crop yields are
abnormally low because of adverse weather and related conditions.
[B] The Noninsured Assistance Program provides financial assistance to
producers of non-insured crops when low yields, loss of inventory, or
prevented planting occur due to natural disasters. Assistance is
limited to crops not eligible for coverage under the federal crop
insurance program.
[End of table]
Complex Farming Operations and a Lack of Management Controls Raise the
Potential for Improper Payments to Deceased Individuals:
Farm program payments made to deceased individuals indirectly--that is,
as members of farming entities--represent a disproportionately high
share of post-death payments. Specifically, payments to deceased
individuals through entities accounted for $648 million--or 58 percent
of the $1.1 billion in payments made to all deceased individuals from
1999 through 2005. However, payments to individuals through entities
accounted for $35.6 billion--or 27 percent of the $130 billion in farm
program payments FSA provided from 1999 through 2005. Similarly, we
identified 39,834 of the 172,801 deceased individuals as receiving farm
program payments through entities when we compared FSA's databases with
the Social Security Administration's Death Master File.
The complex nature of some types of farming entities, in particular,
corporations and general partnerships, increases the potential for
improper payments. For example, a significant portion of farm program
payments went to deceased individuals who were members of corporations
and general partnerships. Deceased individuals identified as members of
corporations and general partnerships received nearly three-quarters of
the $648 million that went to deceased individuals in all entities. The
remaining one-quarter of payments went to deceased individuals of other
types of entities, including estates, joint ventures, limited
partnerships, and trusts. With regard to the number of deceased
individuals who received farm program payments through entities, they
were most often members of corporations and general partnerships.
Specifically, of the 39,834 deceased individuals who received farm
program payments through entities, about 57 percent were listed in
FSA's databases as members of corporations or general partnerships.
Table 4 shows the number and percent of farm program payments FSA made
to deceased individuals through entities from 1999 through 2005.
Table 4: Farm Program Payments Made to Deceased Individuals through
Entities, Program Years 1999 through 2005:
Dollars in millions.
Entity type: Corporations[A];
Deceased individuals: Number: 14,197;
Deceased individuals: Percent: 35.6;
Payments to deceased individuals: Total: $321.5;
Payments to deceased individuals: Percent: 49.6.
Entity type: Estates;
Deceased individuals: Number: 2,262;
Deceased individuals: Percent: 5.7;
Payments to deceased individuals: Total: 8.2;
Payments to deceased individuals: Percent: 1.3.
Entity type: General partnerships;
Deceased individuals: Number: 8,575;
Deceased individuals: Percent: 21.5;
Payments to deceased individuals: Total: 136.7;
Payments to deceased individuals: Percent: 21.1.
Entity type: Irrevocable trusts;
Deceased individuals: Number: 4,377;
Deceased individuals: Percent: 11.0;
Payments to deceased individuals: Total: 35.7;
Payments to deceased individuals: Percent: 5.5.
Entity type: Joint ventures;
Deceased individuals: Number: 2,073;
Deceased individuals: Percent: 5.2;
Payments to deceased individuals: Total: 19.4;
Payments to deceased individuals: Percent: 3.0.
Entity type: Limited partnerships;
Deceased individuals: Number: 2,391;
Deceased individuals: Percent: 6.0;
Payments to deceased individuals: Total: 30.7;
Payments to deceased individuals: Percent: 4.7.
Entity type: Revocable trusts;
Deceased individuals: Number: 3,866;
Deceased individuals: Percent: 9.7;
Payments to deceased individuals: Total: 28.8;
Payments to deceased individuals: Percent: 4.4.
Entity type: Other[B];
Deceased individuals: Number: 2,093;
Deceased individuals: Percent: 5.3;
Payments to deceased individuals: Total: 67.1;
Payments to deceased individuals: Percent: 10.4.
Total;
Deceased individuals: Number: 39,834;
Deceased individuals: Percent: 100.0;
Payments to deceased individuals: Total: $648.1;
Payments to deceased individuals: Percent: 100.0.
Source: GAO's analysis of FSA's data.
[A] Includes limited liability companies.
[B] Includes charitable organizations, individuals operating as a small
business, and individuals receiving payments through more than one
entity.
[End of table]
As we reported in 2004, some farming operations may reorganize to
overcome payment limits to maximize their program benefits.[Footnote
11] Large farming operations are often structured as corporations or
general partnerships with other entities embedded within these
entities. Deceased individuals are sometimes members of these embedded
entities. For example, as shown in table 4, 8,575 deceased individuals
received payments through general partnerships from 1999 through 2005.
Of these, 687 received farm program payments because they were members
of one or more entities that were embedded in the general partnership.
Generally, these partnerships are consistent with the 1987 Act, as
amended, whereby an individual can qualify for up to three payments by
being a member of three entities within one general partnership.
Furthermore, of the 172,801 deceased individuals identified as
receiving farm program payments, 5,081 received more than one payment
because (1) they were a member of more than one entity, or (2) they
received payments as an individual and were a member of an entity.
According to FSA field officials, complex farming operations, such as
corporations and general partnerships with embedded entities, make it
difficult for FSA to prevent making improper payments to deceased
individuals. In particular, in many large farming operations, one
individual often holds signature authority for the entire farming
operation, which may include multiple members or entities. This
individual may be the only contact FSA has with the operation;
therefore, FSA cannot always know that each member of the operation is
represented accurately to FSA by the signing individual for several
reasons. First, it relies on the farming operation to self-certify that
the information provided is accurate and that the operation will inform
FSA of any operating plan changes, which would include the death of an
operation's member. Such notification would provide USDA with current
information to determine the eligibility of the entity to receive the
payments. Second, FSA has no management controls, such as computer
matching of its payment files with the Social Security Administration's
Death Master File, to verify that an ongoing farming operation has
failed to report the death of a member.
Conclusions:
FSA has a formidable task--ensuring that billions of dollars in program
payments are made only to estates and individuals that are eligible to
receive them. Our review, however, demonstrates that FSA field offices
do not always conduct the necessary annual determinations to ensure
that estates are eligible to receive farm program payments. FSA's
performance of these determinations for estates that have been kept
open for more than 2 years could serve as an effective deterrent to
making improper program payments. However, these determinations can
only be a deterrent if they are consistently and thoroughly conducted.
As we have found, some FSA field offices have failed to conduct
eligibility determinations or have not conducted them consistently and
documented the results of their determinations.
FSA has relied on farming operations to report the death of a member
whose ownership interest makes the operation eligible for program
payments. However, it appears that some individuals who certify program
eligibility forms for farming operations are either not taking
seriously their obligation to notify FSA of the death of a member of
the operation or are deliberately withholding this information to
maximize their receipt of farm program payments. Our matching of FSA's
farm payment database with the Social Security Administration's Death
Master File indicates that FSA's reliance is misplaced, in at least
some instances. We previously reported that we found examples of
farming operations where recipients may circumvent the payment limits
by organizing large farming operations to maximize program payments.
The complex nature of these entities--such as entities embedded within
other entities--increases the potential that deceased individuals will
receive farm program payments because the status of these individuals
is not easy for FSA to ascertain. Currently, FSA does not have
effective management controls to verify that an individual receiving
farm program payments, either directly or indirectly through an entity,
is still alive. The lack of these controls increases the risk of
improper payments being made over time.
The shortcomings we have identified underscore the need for improved
oversight of federal farm programs. Such oversight can help to ensure
that program funds are spent as economically, efficiently, and
effectively as possible, and that they benefit those engaged in farming
as intended.
Recommendations for Executive Action:
To provide reasonable assurance that FSA does not make improper
payments to estates and deceased individuals, we recommend that the
Secretary of Agriculture direct the Administrator of the Farm Service
Agency to:
* instruct FSA field offices to conduct all annual estate eligibility
determinations as required;
* implement management controls, such as matching payment files with
the Social Security Administration's Death Master File, to verify that
an individual receiving farm program payments has not died; and:
* determine if improper program payments have been made to deceased
individuals or to entities that failed to disclose the death of a
member, and if so, recover the appropriate amounts.
In addition, we have referred the cases we identify in this report to
USDA's Office of Inspector General for further investigation.
Agency Comments and Our Evaluation:
We provided FSA with a draft of this report for review and comment. FSA
agreed with our recommendations and already has begun to take action to
implement them. For example, FSA has issued a notice (Notice PL-158,
May 31, 2007) to its field offices emphasizing the current payment
eligibility rules, procedures, and review requirements for payments
with respect to deceased individuals and estates. This directive
instructs these offices to review the eligibility of all estates that
have been open for more than 2 years and requested 2007 farm program
benefits. Furthermore, according to FSA, it is currently working with
the Social Security Administration to obtain access to the Death Master
File of deceased individuals. FSA intends to develop a process for
matching its payment data against the Death Master File on at least an
annual basis. According to FSA, it will then have a reliable means for
identifying deceased individuals who may also be payment recipients. In
addition, once implemented, FSA will no longer have to depend on the
farming operation to notify the agency of an individual's death.
Despite its concurrence with our recommendations, FSA did not agree
with our use of the term "improper payments" in this report. FSA
suggested that we revise the report to refer to the payments as at most
"questionable" in view of current eligibility regulations, rather than
improper. Specifically, the agency stated that the payments we describe
do not meet the definition of improper payments under IPIA. We
disagree. We believe three cases we highlight in examples in the report
do meet the definition of improper payments under IPIA. IPIA defines
improper payments as any payment that should not have been made or that
was made in an incorrect amount (including overpayments and
underpayments) under statutory, contractual, administrative, or other
legally applicable requirements. This definition would include any
payment made to an ineligible recipient either directly or through an
entity. Our examples are consistent with this definition. Furthermore,
officials in FSA's field offices agreed with our findings and told us
they intend to recover the payments. For the remaining farm program
payments identified in the report, we continue to believe that the
potential exists for improper payments because of the lack of FSA
management controls and the complexity of some of the farming
operations involved. Under current circumstances, FSA cannot be assured
that millions of dollars in farm program payments are going to those
who met eligibility requirements and thus should have received these
payments.
FSA's written comments are presented in appendix II. FSA also provided
us with suggested technical corrections, which we have incorporated
into this report, as appropriate.
As arranged with your office, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days
from its issue date. At that time, we will send copies of this report
to appropriate congressional committees; the Secretary of Agriculture;
the Director, OMB; and other interested parties. In addition, this
report will be available at no charge on GAO's Web site at
http://www.gao.gov.
If you or your staff have any questions about this report, please
contact me at (202) 512-3841 or shamesl@gao.gov. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page of this report. Key contributors to this report are
listed in appendix V.
Sincerely yours,
Signed by:
Lisa Shames:
Director, Natural Resources and Environment:
[End of section]
Appendix I: Objectives, Scope, and Methodology:
At the request of the Ranking Member of the Senate Committee on
Finance, we reviewed the Farm Service Agency's (FSA) implementation of
payment eligibility provisions to identify improper payments to estates
and deceased individuals. Specifically, we evaluated the extent to
which FSA (1) follows its regulations that are intended to provide
reasonable assurance that farm program payments go only to eligible
estates and (2) makes improper payments to deceased individuals.
To determine how well FSA field offices carry out rules that prohibit
payments to ineligible recipients, we reviewed guidance that FSA field
offices use to determine farm program payment eligibility, including
relevant statutes and regulations and agency policy, including the FSA
Handbook on Payment Limitations, 1-PL (Revision 1). We reviewed
relevant studies prepared by the U.S. Department of Agriculture's
(USDA) Office of Inspector General and the Congressional Research
Service, as well as our own past reports. We also reviewed USDA's FY
2006 Performance and Accountability Report to understand its assessment
of internal controls for its farm programs. In addition, we spoke with
FSA officials in headquarters, state offices, and local field offices
who are responsible for ensuring that (1) estates are properly reviewed
for eligibility and (2) payments are not made to deceased individuals.
We obtained and analyzed FSA's computer databases for information on
payment recipients from 1999 through 2005. These databases included
FSA's Producer Payment Reporting System, Commodity Certificate file,
and Permitted Entity file. The databases contain detailed information
on payment recipients: Social Security numbers, payment amounts, the
status of recipients as individuals or members of entities, their
ownership interest in entities, types of entity, and additional
organizational details. The databases also contain information on
payments made under USDA's farm programs, including the Direct and
Counter-Cyclical Payments Program, Marketing Assistance Loan Program,
Conservation Reserve Program, and Environmental Quality Incentives
Program. We also compiled data on farm program benefits provided
through cooperative marketing associations.[Footnote 12] Because our
analysis covered the years 1999 through 2005, it also included farm
payments from programs authorized before the Farm Security and Rural
Investment Act of 2002, such as production flexibility contract
payments authorized under the Agriculture Market Transition Act and
market loss assistance payments and crop disaster assistance payments
authorized under various ad hoc legislation. Appendix III provides a
list of USDA farm programs we reviewed.
To evaluate FSA's application of regulations and guidance to assess the
overall effectiveness of its review process for deciding whether
estates are eligible to receive farm program payments, we reviewed a
nonrandom sample of estate eligibility determinations. To identify
estates for our review, we analyzed FSA's databases. The data showed
that 2,841 estates had received payments for more than 2 years between
1999 and 2005, thus requiring FSA to conduct a determination of
eligibility. Of these, we examined 181 estates in 26 states and 142
counties. These estates included the 162 (i.e., 162 of 2,841) that
received over $100,000 in farm program payments during this period. We
also selected the 16 estates (i.e., 16 of 2,841) that (1) had received
between $50,000 and $100,000 in farm program payments during this
period and (2) had at least one member receiving payments through three
other entities, which could indicate circumvention of the three-entity
rule. Lastly, we selected the three estates (i.e., 3 of 2,841) that had
at least one member receiving payments through seven or more other
entities.
For each estate selected, we reviewed case file documents to verify the
basis for FSA field offices' decisions to grant eligibility.
Specifically, we obtained and reviewed files from FSA field offices
that ideally would have included the following information to
facilitate FSA's determinations: letters testamentary from a probate
court, minutes of the FSA county committee meeting that approved
eligibility, explanation letters or documentation for the reason the
estate remained active beyond 2 years, farm operating plans, and
payment history. States and counties vary widely in the amount and type
of documentation they require for probated estates. Consequently, we
could not easily determine whether improper payments were made to
estates. Furthermore, even in cases in which FSA had not done the
required annual determinations, or when relevant documentation was
missing or incomplete in the estate file, we could not determine
whether improper payments were made without examining each case in
depth.
To evaluate the extent to which FSA makes improper payments to deceased
individuals, we compared recipients of farm program payments in FSA's
computer databases with individuals whose Social Security numbers were
listed in the Social Security Administration's Death Master File, to
identify post-death program payments for individuals who were deceased.
The Death Master File contains information such as the name and Social
Security numbers of deceased individuals in the United States. We
assessed the reliability of FSA's data by (1) performing electronic
testing of required data elements, (2) reviewing existing information
about the data and the system that produced them, and (3) interviewing
agency officials knowledgeable about the data. We determined that the
data were sufficiently reliable for the purposes of our review.
Although we did not assess the reliability of the Social Security
Administration's Death Master File, it is the most comprehensive list
of death information available in the federal government and is
generally used by other government agencies and researchers.
Using FSA's databases, we identified the 2.9 million individuals who
received payments, either directly or indirectly through an entity,
from 1999 through 2005. Payments were attributed to members of an
entity by apportioning the payments according to each member's
percentage share of that entity.[Footnote 13] Using these Social
Security numbers, we then compared these individuals with individuals
listed in the Social Security Administration's Death Master File to
determine the extent to which deceased individuals may have received
improper payments. The data match showed the number and dollar amount
of payments FSA provided to deceased individuals from 1999 through
2005. To gain an understanding of circumstances behind seemingly
improper payments, we obtained relevant documents from FSA, including
farm operating plans and acreage reports, for selected cases.
We conducted our review between June 2006 and May 2007 in accordance
with generally accepted government auditing standards.
[End of section]
Appendix II: Comments from the U.S. Department of Agriculture:
Note: GAO comments supplementing those in the report text appear at the
end of this appendix.
USDA:
United States Department of Agriculture:
Farm and Foreign Agricultural Services:
Farm Service Agency:
Operations Review and Analysis Staff:
Audits, Investigations and State and county:
Review Branch:
1400 Independence Ave, SW:
STOP 0540:
Washington, DC 20250-0501:
To: Lisa Shames:
Director:
Natural Resources and Environment:
General Accountability Office:
From: Teresa C. Lasseter:
Administrator:
June 14, 2007:
Subject: Responding to U.S. Government Accountability Office (GAO)
Draft Report: GAO-07-818, Job Code 360718, "Federal Farm Programs: USDA
Needs to Strengthen Controls to Prevent Improper Payments to Estates
and Deceased Individuals"
The following are general comments in response to the draft report.
We would note that the written notification of assignment to the Farm
Service Agency (FSA), dated May 25, 2006, did not include any reference
or discussion in regard to the Improper Payments Information Act of
2006 (IPIA). The notification listed the main objective of GAO is to
provide information on the Department of Agriculture's (USDA)
implementation of the Farm Program Payment Integrity Act of 1987. More
specifically, the focus was to be on the eligibility of individual
decedents' estates and as members of permitted entities to receive
program payments. However, the title of the subject report now refers
directly to improper payment to estates and deceased individuals.
During the exit conference, FSA requested that GAO at least include an
explanation that the term `improper payment' as used in this report
does not carry the same meaning as under IPIA. The basis for this
request was that GAO made no findings during this review that any
payments disbursed to program participants included in the audit
samplings met the Office of Management and Budget (OMB) definition of
"improper payment." Furthermore, no findings were made that FSA issued
significant improper payments as defined by OMB. The draft report
contains no such explanation or distinction as previously assured by
GAO. Therefore, we maintain that it should be made clear to the reader
that certain payments found to be made to deceased individuals and
estates during the years 1999 through 2005 be considered at most
`questionable' in view of current payment eligibility regulations,
rather than under the terms of IPIA.
The Food Security Act of 1985, as amended, implemented requirements for
payment eligibility; imposed limitations on the amount of program
payments that an individual or entity could receive; and placed a
restriction on the number of entities through which an individual may
receive program payments and benefits under specific programs. Program
payments were to be limited by "person" defined as an individual, an
entity, or in some situations, the combination of an individual and
entity. Also for payment eligibility, the individual or entity was
required to be determined "actively engaged in farming" to receive
program payments and benefits. Rules were promulgated and applied in
response to these statutory requirements.
It was recognized that in the administration of programs, participants
die and estates are formed. Considerations were made for the
eligibility of such deceased individuals and for the estate that may be
established for the deceased individual. Likewise for an estate that
was established, the payment eligibility standards and limitations for
entities were then applicable.
An individual as a "person" can in his or her own name receive program
payments of an amount less than or equal to the limitation afforded one
"person." Furthermore, that same individual can also receive benefits
through an interest held in an entity. This entity, as determined a
separate "person," can also receive program payments of an amount less
than or equal to the limitation afforded one "person." There are
instances when two individuals or an individual and an entity, are
considered combined as one "person" for payment limitation purposes.
However, under the rules for estates, an heir to an estate will not be
combined with the estate unless that individual and the deceased would
have been combined as one "person." Accordingly, even though an
individual may be the sole heir of an estate, the individual is not
combined as one "person" with the estate unless the individual would
have been combined as one "person" with the individual who is now
deceased. Therefore, it may be considered advantageous for an estate to
be kept open if an heir has already reached the payment limitation.
This allows heirs to receive program payments that they otherwise would
not be eligible for if the estate was settled because the payment
limitation was reached.
Regulations at 7 CFR Part 1400 provide that if a deceased individual's
estate remains open after two program years from the date of the
program year in which the individual died, FSA should determine, on a
case-by-case basis, whether the estate is being kept open for the
primary purpose of obtaining program payments. Otherwise, after 2 years
the estate is not considered eligible for program payments and benefits
under programs subject to the payment limitation provisions (7 CFR §
1400.206(b)).
The regulation also provides that if an individual dies before a
determination of eligibility is made, information must be provided on
behalf of the estate that verifies the individual did make a conscious
effort and would have been determined actively engaged in farming if
not for the individual's death. If the individual dies after all
eligibility determinations were made, the determining authority shall
allow that determination to be in effect for the individual's estate
for that program year. The following year, however, the individual's
estate must meet all necessary requirements to be determined actively
engaged in farming (7 CFR § 1400.2 10).
To implement these requirements, county FSA committees (COCs) are
instructed to annually review all estates that requested program
benefits and that were in existence more than two program years after
the program year in which the individual died. COCs are to determine
that the estate has proven to be active and that the estate is being
kept open for reasons other than for obtaining program benefits. For
deceased individuals and estates, all requirements must be met to be
determined actively engaged in farming and eligible for program
benefits for the year requested. The district directors are also
required to review and concur with these findings and determinations
(Handbook 1-PL (Rev. 1), paragraph 333; effective since May 8, 1992).
As outlined in the notification of assignment, GAO's objectives were to
determine the extent to which individual decedents' estates receive
farm program benefits beyond the 2 years allowed by the payment
eligibility rules and the extent that estates, as members of entities,
receive farm program benefits beyond the 2 years allowed. GAO
additionally reviewed the extent to which program payments were issued
to deceased individuals.
GAO selected a non-random sample of estates that had been in existence
for more than two program years and that received program payments for
the years 1999 through 2005. This sampling process relied on relatively
high dollar amounts of program payments ($50,000 to $100,000) as the
basis for selection. The estates in this judgmental sample were
reviewed for compliance with applicable payment eligibility and payment
limitation requirements. GAO found that 21 percent had eligibility
reviews completed every year as required; 38 percent had been reviewed
at least once between the years 1999 through 2005; and over 40 percent
were not reviewed for the years 1999 through 2005.
Other findings included that over 12 percent of the estates had been
receiving payments for more than 10 years. GAO found that one estate
had received over $700,000 in program benefits from 1999 through 2005
without any FSA review. No mention was made whether this entity was
still an open estate or if the entity was misnamed or improperly coded
in the payment system. The information available in the report was
insufficient for FSA to conduct further research on this specific case.
Nonetheless, estates are considered legitimate entities and if all
requirements are met, considered eligible for program benefits beyond
the two-year time period from the date of establishment. Since there
are many legitimate reasons for estates to remain open for extended
periods of time, the fact that payments are made for multiple years to
an estate does not constitute fraud or program abuse in and of itself.
The level of documentation used to support the determinations made by
COCs that an estate was not kept open for the purpose of obtaining
program payments was also questioned. Some COCs did a more
comprehensive review than others. This report mentions weaknesses in
FSA's implementation of the 1987 amendments in the failure to
systematically review estates as required for payment eligibility.
However, GAO did not find any instance in this judgmental sample of an
estate being kept open for the purpose of obtaining program benefits.
Furthermore, GAO made no findings of improper payments to estates
included in this audit sampling.
FSA issued over $130 billion in farm program payments and benefits for
the years 1999 through 2005. GAO found that during this period of time,
FSA issued farm program payments to over 172,000 deceased individuals,
either as individuals or as members of an entity. The amount disbursed
to such individuals was $1.1 billion (8/10 of one percent of total
payments made) which included all commodity, price support,
conservation, disaster and livestock assistance, loan deficiency,
tobacco, wool, peanuts, milk, wildlife habitat enhancement cost-share,
and any other disbursements of record in the producer payment history
file. GAO determined that 40 percent of the $1.1 billion went to
individuals deceased for 3 or more years.
Figure 1 of the draft report illustrated the relationship that GAO
found between the amount of farm program payments issued to deceased
individuals (in millions of dollars) to the number of years payments
were provided after the date of death. What is not mentioned is that 60
percent of the $1.1 billion issued in all farm program payments for the
years 1999 through 2005, and not just the payments subject to the rule
at 7 CFR Part 1400, were issued less than 3 years after the date of
death. GAO fails to include that under the Direct and Counter-Cyclical
Payment Program (DCP), counter-cyclical payments may be issued up to 3
years after the applicable program year. The same taxpayer
identification number must be used for the entire program payment
period, which may be up to 3 years.
Crop loss and livestock disaster assistance programs disburse benefits
on an after-the-fact basis. GAO provided information in Table 3 that
showed the highest error rate for "improper payments" was under the
Noninsured Crop Disaster Assistance Program. Under these types of
programs, it is the individual that suffered the crop or livestock loss
necessary for qualification. This individual may not have been deceased
at the time of application or when the disaster losses occurred.
However, at the date of payment disbursement, the individual may have
since died. The disaster assistance must be issued under the taxpayer
identification number of the now deceased individual as the surviving
spouse and heirs are not otherwise eligible for such program benefits
even though the check might be payable to the estate or spouse under
our rules in 7 CFR Part 707.
Aside from estate matters GAO emphasized that 58 percent of $1.1
billion of the reported farm program payments "made" with respect to
the affairs of deceased individuals in the 1999-2005 period were not
made to them at all or to their estates but rather to entities in which
they had an interest in their lifetimes. GAO noted that the complex
nature of some types of farming entities increases the likelihood of
improper payments. This complex nature of many large farming operations
makes it more difficult for FSA to ensure that improper payments are
not made. Another factor noted is the reliance on the farming
operations to self-certify that the information provided is accurate,
and that the operation will timely inform FSA of any operational
changes, including the death of an interest holder.
The current rule provides for the application of payment eligibility
directly to the individual and to the entity which are program
participants. The same rule provides for the application and control of
the limitations on program payments by "person" as defined by the 1985
Act. The current rule does not provide or require the application of
the payment eligibility and limitation standards by attribution, either
directly or indirectly to individuals or entities. GAO made no findings
that FSA made improper payments to any entities that were otherwise
eligible even though a change of stockholders may have occurred within
the entity due to death.
The following are comments on the recommendations for executive
actions.
1) Instruct the FSA field offices to conduct all annual estate
eligibility determinations as required.
FSA issued Notice PL-158 on May 31, 2007, which emphasized the current
payment eligibility rules, procedures, and review requirements for
payments with respect to deceased individuals and estates. This
directive instructs all field offices to review all estates in
existence more than 2 years and have requested 2007 program benefits
subject to the rule at 7 CFR Part 1400. The review is to be completed
and eligibility updated as necessary by August 31, 2007. This is prior
to the issuance of the final 2007 DCP direct payments and the issuance
of annual rental payments under the Conservation Reserve Program.
2) Implement management controls, such as matching payment files with
the Social Security Administration's Death Master File, to verify that
an individual receiving farm program payments is not dead.
Efforts are currently underway with representatives of FSA and the
Social Security Administration for access to the Death Master File of
deceased individuals. The purpose is the development of a process for
matching of the respective Agency's data on at least an annual basis.
FSA will then have the ability and a reliable means by which to
identity deceased individuals that may also be payment recipients. Once
implemented, FSA will no longer have to depend on the farming operation
to notify the Agency of an individual's death.
3) Determine if improper payments have been made to deceased
individuals or to entities that failed to disclose the death of a
member, and if so, recover the appropriate amounts.
The review required by Notice PL-158 will identify any truly improper
payments. FSA has in place regulations and procedures to initiate
collection of any program payments and benefits found to be issued in
error, or to program participants that have been determined ineligible
for such payments and benefits.
GAO's Comments:
1. We believe the payments we highlight in three examples in the report
meet the definition of improper payments under IPIA. IPIA defines
improper payments as any payment that should not have been made or that
was made in an incorrect amount (including overpayments and
underpayments) under statutory, contractual, administrative, or other
legally applicable requirements. This definition would include any
payment made to an ineligible recipient either directly or through an
entity. Our examples are consistent with this definition. Furthermore,
officials in FSA's field offices agreed with our findings and told us
they intend to recover the payments. For the remaining farm program
payments identified in the report, we continue to believe that the
potential exists for improper payments because of the lack of FSA
management controls and the complexity of some of the farming
operations involved. Under current circumstances, FSA cannot be assured
that millions of dollars in farm program payments are going to those
who met eligibility requirements and thus should have received these
payments.
2. For each of the three examples discussed in the report, we verified
the accuracy of information in FSA's payment system and discussed the
estate with the FSA field office where the estate was located. Because
the field offices have this information, we do not understand why FSA
does not believe the report provided sufficient information to
investigate these cases further.
3. We would expect FSA field offices to have appropriate documents to
verify acceptable reasons for keeping the estate open. These files
could have included the following information to facilitate FSA's
determinations: letters testamentary from a probate court, minutes of
the FSA county committee meeting that approved eligibility, explanation
letters or documentation for the reason the estate remained active
beyond 2 years, and farm operating plans. However, when annual
determinations were not done or relevant documentation was missing or
incomplete in the files, we could not determine with certainty whether
improper payments were made to estates. As we discuss on page 4 of this
report, the wide variation in state and county documentation required
for probated estates made it difficult for us to make eligibility
determinations. We continue to believe that the failure of FSA's field
offices to conduct annual determinations of eligibility increases the
risk of improper payments being made over time.
4. FSA implies that because the $1.1 billion in farm program payments
paid to deceased individuals during 1999 through 2005 amounts to only
8/10 of 1 percent of the total payments made during this period, the
amount is negligible. We disagree--a billion dollars is not a
negligible sum. In addition, this amount represents only payments made
to deceased individuals during this specific period; it does not
capture payments made to deceased individuals before and after this
period. FSA is obligated to ensure that program funds are spent as
economically, efficiently, and effectively as possible. The nation's
current deficit and growing long-term fiscal challenges reinforce the
importance of this obligation. Implementing management controls, such
as matching payment files with the Social Security Administration's
Death Master File, to verify that an individual receiving farm program
payments has not died is a simple, cost-effective means to achieve this
end.
5. FSA is correct that counter-cyclical payments may be made for up to
3 years after an individual has died. However, according to our
analysis, only $46.5 million (4.2 percent) of the $1.1 billion in
payments made to deceased individuals from 1999 through 2005 were
counter-cyclical payments made for the same program year as the year in
which the individual died. Furthermore, a farming operation is subject
to forfeiture of payments, including counter-cyclical payments, if it
has not notified FSA of a change in the farming operation, such as the
death of an individual who receives payments as a member of that
operation. Many deceased individuals who received counter-cyclical
payments during this period also received payments under other programs
for which FSA should have been notified of the change in the farming
operation. However, the fact that an individual was identified as
deceased in our computer matching indicates FSA was not informed that a
change in the farm operation had occurred, suggesting that the farming
operation was not eligible to receive any of the payments, including
the counter-cyclical payments.
6. As noted in the report, the source for information in table 3 (p.
17) is USDA's FY 2006 Performance and Accountability Report. The
improper payments and the percent error rate for each program in table
3 are USDA's estimates. We acknowledge that improper payments made
under the Noninsured Assistance Program are not exclusively the result
of payments made to deceased individuals.
[End of section]
Appendix III: U.S. Department of Agriculture Farm Program Payments,
Fiscal Years 1999 through 2005:
[See PDF for Table, corruption in document, table did not compute
properly]
Source: GAO's analysis of FSA's and Natural Resources Conservation
Service's data.
Notes: For commodity certificate exchange gains and payments made under
the Marketing Assistance Loan Program through cooperative marketing
associations, we used program year data. Totals may not add due to
rounding. Negative payments represent receivables due to over-
disbursements and other payment anomalies in a prior year.
[A] Includes the American Indian Livestock Assistance Program.
[B] Includes cotton user marketing certificate gains.
[C] Includes the Apple & Potato Quality Loss Program, Sugar Beet
Disaster Program, Quality Loss Program, Crop Loss Disaster Assistance
Program, Florida Nursery Losses Program, Florida Hurricane Charley
Disaster Program, Disaster Reserve Flood Compensation Program, Florida
Hurricane Nursery Disaster Program, Florida Hurricane Vegetable
Disaster Program, Multi-Year Crop Loss Disaster Assistance Program,
North Carolina Crop Hurricane Damage Program, Nursery Losses In Florida
Program, and Single Year Crop Loss Disaster Assistance Program, as well
as Disaster Supplemental Appropriation payments, Crop Disaster North
Carolina payments, Crop Disaster Virginia payments, and 1999 Citrus
Losses In California.
[D] Includes the Dairy Indemnity Program, Dairy Options Pilot Program,
and Dairy Production Disaster Assistance Program.
[E] Includes the Interim Environmental Quality Incentives Program
(EQIP) For Colorado River Salinity Control Program, Interim EQIP For
Great Plains Conservation Program, as well as Automated Conservation
Program Environmental Long Term payments, and Interim EQIP Annual
Agreement for Agricultural Conservation Program payments.
[F] Includes the Ewe Lamb Replacement and Retention Program.
[G] Includes the Livestock Assistance Program, Livestock Indemnity
Program, Avian Influenza Indemnity Program, Cattle Feed Program,
Pasture Flood Compensation Program, and Pasture Recovery Program.
[H] Includes "loan deficiency payment-like" grazing payments for wheat,
barley, oats, and triticale.
[I] Includes supplemental appropriations for the Noninsured Assistance
Program.
[J] Includes supplemental appropriations for the Oilseed Payment
Program.
[K] Includes the Sugar Payment-In-Kind Diversion Program.
[L] Includes the Tobacco Loss Assistance Program and the Supplement
Tobacco Loss Assistance Program.
[M] Includes the Yakima Basin Water Program, Flood Compensation Program
for Harney County Oregon, Fresh Market Peaches Program, Idaho Oust
Program, Livestock Compensation Program-Grants For Catfish Producers,
Limited California Cooperative Insolvency Program, New Mexico
Tebuthiuron Application Losses Program, New York Onion Producers
Program, Potato Diversion Program, Poultry Enteritis Mortality Syndrome
Program, Seed Corn Purchase Containing CRY9C Protein Program, Specialty
Crops-Base State Grants Program, Specialty Crops-Value Of Production
Program, and State Commodity Assistance Program, as well as Consent
Decree payments and Interest Penalty payments.
[End of table]
[End of section]
Appendix IV: U.S. Department of Agriculture Estate Eligibility Reviews,
by State, Program Years 1999 through 2005:
Table 5 shows the variation by state in FSA's conduct of eligibility
determinations from 1999 through 2005 for the 181 estates in our
sample. Not all states are represented because we chose estates based
on criteria other than location. Our sample of 181 estates included the
162 that received over $100,000 in farm program payments during this
period. We also selected the 16 estates that (1) received between
$50,000 and $100,000 in farm program payments during this period and
(2) had at least one member receiving payments through three other
entities, which could indicate circumvention of the three-entity
rule.[Footnote 14] In addition, we selected the three estates that had
at least one member receiving payments through seven or more other
entities.
Table 5: Variation in Reviews Conducted by FSA, by State, Program Years
1999 through 2005:
State: Alabama;
Number of estates requiring review: 9;
Number of estates reviewed: 2;
Percent of estates reviewed: 22.2.
State: Arizona;
Number of estates requiring review: 1;
Number of estates reviewed: 0;
Percent of estates reviewed: 0.
State: Arkansas;
Number of estates requiring review: 12;
Number of estates reviewed: 8;
Percent of estates reviewed: 66.7.
State: California;
Number of estates requiring review: 1;
Number of estates reviewed: 0;
Percent of estates reviewed: 0.
State: Colorado;
Number of estates requiring review: 2;
Number of estates reviewed: 2;
Percent of estates reviewed: 100.0.
State: Georgia;
Number of estates requiring review: 16;
Number of estates reviewed: 5;
Percent of estates reviewed: 31.3.
State: Illinois;
Number of estates requiring review: 20;
Number of estates reviewed: 13;
Percent of estates reviewed: 65.0.
State: Iowa;
Number of estates requiring review: 1;
Number of estates reviewed: 1;
Percent of estates reviewed: 100.0.
State: Indiana;
Number of estates requiring review: 4;
Number of estates reviewed: 2;
Percent of estates reviewed: 50.0.
State: Kansas;
Number of estates requiring review: 13;
Number of estates reviewed: 8;
Percent of estates reviewed: 61.5.
State: Kentucky;
Number of estates requiring review: 2;
Number of estates reviewed: 0;
Percent of estates reviewed: 0.
State: Louisiana;
Number of estates requiring review: 3;
Number of estates reviewed: 1;
Percent of estates reviewed: 33.3.
State: Minnesota;
Number of estates requiring review: 1;
Number of estates reviewed: 0;
Percent of estates reviewed: 0.
State: Mississippi;
Number of estates requiring review: 3;
Number of estates reviewed: 0;
Percent of estates reviewed: 0.
State: Missouri;
Number of estates requiring review: 1;
Number of estates reviewed: 0;
Percent of estates reviewed: 0.
State: Montana;
Number of estates requiring review: 4;
Number of estates reviewed: 1;
Percent of estates reviewed: 25.0.
State: North Carolina;
Number of estates requiring review: 1;
Number of estates reviewed: 0;
Percent of estates reviewed: 0.
State: North Dakota;
Number of estates requiring review: 4;
Number of estates reviewed: 3;
Percent of estates reviewed: 75.0.
State: Nebraska;
Number of estates requiring review: 4;
Number of estates reviewed: 1;
Percent of estates reviewed: 25.0.
State: New Mexico;
Number of estates requiring review: 1;
Number of estates reviewed: 0;
Percent of estates reviewed: 0.
State: Oklahoma;
Number of estates requiring review: 2;
Number of estates reviewed: 2;
Percent of estates reviewed: 100.0.
State: Oregon;
Number of estates requiring review: 2;
Number of estates reviewed: 0;
Percent of estates reviewed: 0.
State: South Carolina;
Number of estates requiring review: 1;
Number of estates reviewed: 0;
Percent of estates reviewed: 0.
State: South Dakota;
Number of estates requiring review: 2;
Number of estates reviewed: 1;
Percent of estates reviewed: 50.0.
State: Texas;
Number of estates requiring review: 63;
Number of estates reviewed: 55;
Percent of estates reviewed: 87.3.
State: Washington;
Number of estates requiring review: 8;
Number of estates reviewed: 3;
Percent of estates reviewed: 37.5.
State: Total;
Number of estates requiring review: 181;
Number of estates reviewed: 108;
Percent of estates reviewed: 59.7.
Source: GAO's analysis of FSA's data.
[End of table]
[End of section]
Appendix V: GAO Contact and Staff Acknowledgments:
GAO Contact:
Lisa Shames (202) 512-3841 or Shamesl@gao.gov:
Staff Acknowledgments:
In addition to the individual named above, James R. Jones, Jr.,
Assistant Director; Hamid E. Ali; Kevin S. Bray; Thomas M. Cook;
Stephanie K. Fain; Ronald E. Maxon, Jr; Jennifer R. Popovic; and Carol
Herrnstadt Shulman made key contributions to this report.
[End of section]
Related GAO Products:
Improper Payments: Agencies' Efforts to Address Improper Payment and
Recovery Auditing Requirements Continue. GAO-07-635T. Washington, D.C.:
March 29, 2007.
Improper Payments: Incomplete Reporting under the Improper Payments
Information Act Masks the Extent of the Problem. GAO-07-254T.
Washington, D.C.: December 5, 2006.
Improper Payments: Agencies' Fiscal Year 2005 Reporting under the
Improper Payments Information Act Remains Incomplete. GAO-07-92.
Washington, D.C.: November 14, 2006.
Financial Management: Challenges Continue in Meeting Requirements of
the Improper Payments Information Act. GAO-06-581T. Washington, D.C.:
April 5, 2006.
Financial Management: Challenges Remain in Meeting Requirements of the
Improper Payments Information Act. GAO-06-482T. Washington, D.C.: March
9, 2006.
Financial Management: Challenges in Meeting Governmentwide Improper
Payment Requirements. GAO-05-907T. Washington, D.C.: July 20, 2005.
Financial Management: Challenges in Meeting Requirements of the
Improper Payments Information Act. GAO-05-605T. Washington, D.C.: July
12, 2005.
Financial Management: Challenges in Meeting Requirements of the
Improper Payments Information Act. GAO-05-417. Washington, D.C.: March
31, 2005.
Farm Program Payments: USDA Should Correct Weaknesses in Regulations
and Oversight to Better Ensure Recipients Do Not Circumvent Payment
Limitations. GAO-04-861T. Washington, D.C.: June 16, 2004.
Farm Program Payments: USDA Needs to Strengthen Regulations and
Oversight to Better Ensure Recipients Do Not Circumvent Payment
Limitations. GAO-04-407. Washington, D.C.: April 30, 2004.
Strategies to Manage Improper Payments: Learning From Public and
Private Sector Organizations. GAO-02-69G. Washington, D.C.: October 1,
2001.
Farm Programs: Changes to the Marketing Assistance Loan Program Have
Had Little Impact on Payments. GAO-01-964. Washington, D.C.: September
28, 2001.
Farm Programs: Information on Recipients of Federal Payments. GAO-01-
606. Washington, D.C.: June 15, 2001.
Financial Management: Billions in Improper Payments Continue to Require
Attention. GAO-01-44. Washington, D.C.: October 27, 2000.
FOOTNOTES
[1] Under this "three-entity rule," a person--an individual or entity-
-can receive program payments through no more than three entities in
which the person holds a substantial beneficial interest. A person can
receive payments (1) as an individual and as a member of no more than
two entities or (2) through three entities and not as an individual.
FSA defines a substantial beneficial interest as 10 percent or more.
[2] GAO, Farm Program Payments: USDA Needs to Strengthen Regulations
and Oversight to Better Ensure Recipients Do Not Circumvent Payment
Limitations, GAO-04-407 (Washington, D.C.: Apr. 30, 2004).
[3] GAO, Suggested Areas for Oversight for the 110th Congress, GAO-07-
235R (Washington, D.C.: Nov. 17, 2006).
[4] Alternatively, the estate could qualify as actively engaged in
farming as a landowner if the estate receives rent or income for the
use of the land based on the land's production or the farming
operation's operating results.
[5] FSA county committees are made up of three to five farmers, elected
by other farmers, to oversee the local operation of FSA programs,
including eligibility determinations.
[6] Pub. L. No. 107-300, 116 Stat. 2350 (2002).
[7] Pub. L. No. 107-171, 116 Stat. 134.
[8] GAO, Improper Payments: Agencies' Fiscal Year 2005 Reporting under
the Improper Payments Information Act Remains Incomplete, GAO-07-92
(Washington, D.C.: Nov. 14, 2006).
[9] In addition, before the period of our review the operation received
farm program payments on behalf of the deceased individual from 1995
through 1998.
[10] See U.S. Department of Agriculture, FY 2006 Performance and
Accountability Report (Washington, D.C.: Nov. 15, 2006).
[11] GAO-04-407.
[12] USDA provides benefits under the Marketing Assistance Loan Program
through cooperative marketing associations, an alternative delivery
system. Cooperative marketing associations obtain benefits on behalf of
their members who deliver a commodity to the cooperative for marketing
on a "pool" basis. Benefits, as well as marketing proceeds, are then
allocated to members according to their share of the commodity in the
pool. 7 C.F.R. pt. 1425.
[13] Because cooperative marketing associations, loan servicing agents,
and designated marketing associations only began reporting program
benefits provided to their members to USDA in 2007, we were unable to
attribute these benefits to individuals.
[14] Under the "three-entity rule," a person--an individual or entity-
-can receive program payments through no more than three entities in
which the person holds a substantial beneficial interest. A person can
receive payments (1) as an individual and as a member of no more than
two entities or (2) through three entities and not as an individual.
FSA defines a substantial beneficial interest as 10 percent or more.
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