U.S. Department of Agriculture
Improved Management Controls Can Enhance Effectiveness of Key Conservation Programs Gao ID: GAO-09-528T March 25, 2009The U.S. Department of Agriculture (USDA) administers conservation programs, such as the Conservation Stewardship Program (CSP, formerly the Conservation Security Program) and the Environmental Quality Incentives Program (EQIP), to help farmers reduce soil erosion, enhance water supply and quality, and increase wildlife habitat, among other things. This testimony is based on GAO reports on CSP and EQIP, each issued in 2006, and a 2008 report on farm program payments. It discusses (1) the potential for duplicate payments between CSP and other conservation programs, (2) USDA's process for allocating EQIP funds to the states to optimize environmental benefits, and (3) USDA's management controls over farm program payments.
While legislative and regulatory measures are in place to reduce the possibility of duplicate payments, the potential still exists because CSP and other USDA conservation programs may be used to finance similar conservation activities. GAO previously reported that USDA did not have a comprehensive process to preclude or identify such duplicate payments, and GAO found a number of instances of duplicate payments. USDA was unaware of this duplication. However, USDA has since updated its contracting software to identify potential duplication and issued written guidance to its field offices outlining measures to preclude duplicate payments. As a result, USDA said that it has identified about 760 examples of potential or actual duplicate payments since fiscal year 2004 totaling about $1 million, and has taken action to preclude or recover these payments, as appropriate. GAO previously reported that USDA's process for allocating EQIP funds was not clearly linked to the program's purpose of optimizing environmental benefits. Therefore, USDA may not have directed funds to states with the most significant environmental concerns arising from agricultural production. To allocate most EQIP funds, USDA uses a general financial assistance formula that consists of 31 factors and weights. However, USDA did not have a documented rationale for how each factor contributes to accomplishing the program's purpose; some of the formula's data was questionable or outdated; and the funding allocation process was not linked to USDA's long-term performance measures. For fiscal year 2009, USDA has issued updated guidance for this formula that appears to address a number of these elements. GAO reported that USDA does not have adequate management controls in place to verify that farm program payments, including those for conservation programs, are made only to individuals who do not exceed income eligibility caps. As a result, USDA cannot be assured that millions of dollars in farm payments are proper. GAO found that $49.4 million in farm payments were made to about 2,700 potentially ineligible individuals between fiscal years 2003 and 2006. About 6 percent of this amount was for EQIP payments; 29 percent was for the Conservation Reserve Program, a program that pays farmers to retire environmentally-sensitive cropland. The need for management controls will remain critical, since recent legislation lowered the income eligibility caps and makes the number of individuals whose income exceeds these caps likely to rise. In March 2009, USDA announced that it has begun working with IRS to ensure that high-income individuals and entities who request farm payments meet income limits as set forth in law, and that once this verification system is fully operational, it should identify inappropriate payments before they are disbursed. As GAO has previously reported, ensuring the integrity and equity of farm programs is a key area needing enhanced congressional oversight. Such oversight can help ensure that conservation programs benefit the agricultural sector as intended and protect rural areas from land degradation, diminished water and air quality, and loss of wildlife habitat.
GAO-09-528T, U.S. Department of Agriculture: Improved Management Controls Can Enhance Effectiveness of Key Conservation Programs
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Testimony:
Before the Subcommittee on Conservation, Credit, Energy, and Research,
House Committee on Agriculture:
United States Government Accountability Office:
GAO:
For Release on Delivery:
Expected at 10:00 a.m. EDT:
Wednesday, March 25, 2009:
U.S. Department Of Agriculture:
Improved Management Controls Can Enhance Effectiveness of Key
Conservation Programs:
Statement of Lisa Shames, Director:
Natural Resources and Environment:
GAO-09-528T:
GAO Highlights:
Highlights of GAO-09-528T, testimony before the Subcommittee on
Conservation, Credit, Energy and Research, House Committee on
Agriculture.
Why GAO Did This Study:
The U.S. Department of Agriculture (USDA) administers conservation
programs, such as the Conservation Stewardship Program (CSP, formerly
the Conservation Security Program) and the Environmental Quality
Incentives Program (EQIP), to help farmers reduce soil erosion, enhance
water supply and quality, and increase wildlife habitat, among other
things.
This testimony is based on GAO reports on CSP and EQIP, each issued in
2006, and a 2008 report on farm program payments. It discusses (1) the
potential for duplicate payments between CSP and other conservation
programs, (2) USDA‘s process for allocating EQIP funds to the states to
optimize environmental benefits, and (3) USDA‘s management controls
over farm program payments.
What GAO Found:
While legislative and regulatory measures are in place to reduce the
possibility of duplicate payments, the potential still exists because
CSP and other USDA conservation programs may be used to finance similar
conservation activities. GAO previously reported that USDA did not have
a comprehensive process to preclude or identify such duplicate
payments, and GAO found a number of instances of duplicate payments.
USDA was unaware of this duplication. However, USDA has since updated
its contracting software to identify potential duplication and issued
written guidance to its field offices outlining measures to preclude
duplicate payments. As a result, USDA said that it has identified about
760 examples of potential or actual duplicate payments since fiscal
year 2004 totaling about $1 million, and has taken action to preclude
or recover these payments, as appropriate.
GAO previously reported that USDA‘s process for allocating EQIP funds
was not clearly linked to the program‘s purpose of optimizing
environmental benefits. Therefore, USDA may not have directed funds to
states with the most significant environmental concerns arising from
agricultural production. To allocate most EQIP funds, USDA uses a
general financial assistance formula that consists of 31 factors and
weights. However, USDA did not have a documented rationale for how each
factor contributes to accomplishing the program‘s purpose; some of the
formula‘s data was questionable or outdated; and the funding allocation
process was not linked to USDA‘s long-term performance measures. For
fiscal year 2009, USDA has issued updated guidance for this formula
that appears to address a number of these elements.
GAO reported that USDA does not have adequate management controls in
place to verify that farm program payments, including those for
conservation programs, are made only to individuals who do not exceed
income eligibility caps. As a result, USDA cannot be assured that
millions of dollars in farm payments are proper. GAO found that $49.4
million in farm payments were made to about 2,700 potentially
ineligible individuals between fiscal years 2003 and 2006. About 6
percent of this amount was for EQIP payments; 29 percent was for the
Conservation Reserve Program, a program that pays farmers to retire
environmentally-sensitive cropland. The need for management controls
will remain critical, since recent legislation lowered the income
eligibility caps and makes the number of individuals whose income
exceeds these caps likely to rise. In March 2009, USDA announced that
it has begun working with IRS to ensure that high-income individuals
and entities who request farm payments meet income limits as set forth
in law, and that once this verification system is fully operational, it
should identify inappropriate payments before they are disbursed. As
GAO has previously reported, ensuring the integrity and equity of farm
programs is a key area needing enhanced congressional oversight. Such
oversight can help ensure that conservation programs benefit the
agricultural sector as intended and protect rural areas from land
degradation, diminished water and air quality, and loss of wildlife
habitat.
What GAO Recommends:
Among other things, GAO recommended that USDA (1) develop a
comprehensive process to preclude and identify duplicate payments
between CSP and other conservation programs, (2) take steps to improve
the EQIP general financial assistance formula, and (3) work with the
Internal Revenue Service (IRS) to develop a method for determining
whether all recipients of farm program payments meet income eligibility
requirements. USDA agreed with these recommendations and has taken
actions to implement them, but GAO has not assessed the effectiveness
of these actions.
View [hyperlink, http://www.gao.gov/products/GAO-09-528T] or key
components. For more information, contact Lisa Shames at 202-512-3841,
shamesl@gao.gov.
[End of section]
Mr. Chairman and Members of the Subcommittee:
I am pleased to be here today to discuss our work on the U.S.
Department of Agriculture's (USDA) management of its conservation
programs designed to help farmers be better stewards of our natural
resources. Under these programs, primarily the Conservation Stewardship
Program (CSP, formerly the Conservation Security Program) and the
Environmental Quality Incentives Program (EQIP), USDA and producers
(farmers and ranchers) enter into contracts to implement practices to
reduce soil erosion, enhance water supply and quality, and increase
wildlife habitat, among other things. These conservation programs are
administered by USDA's Natural Resources Conservation Service (NRCS).
Another USDA agency, the Farm Service Agency (FSA), is responsible for
ensuring that only individuals who meet certain eligibility criteria
receive federal farm program payments, including payments for many
conservation programs.
As you know, farmers and ranchers own or manage about 940 million
acres, or about half of the continental United States' land area, and
thus they are among the most important stewards of our soil, water, and
wildlife habitat. USDA's conservation programs, which provide billions
of dollars in assistance each year, are a key resource in promoting
this environmental stewardship. Therefore, it is essential that they be
managed effectively and efficiently and that they be adequately
overseen to assure that payments are provided only to eligible
individuals. We are eager to assist the 111th Congress in meeting its
oversight agenda. To that end, we have recommended that ensuring the
integrity and equity of the farm programs is a key area needing
congressional oversight.[Footnote 1]
My testimony today is based on our reports on CSP, EQIP, and federal
farm program payments.[Footnote 2] I will focus on three primary issues
discussed in these reports: (1) the potential for duplicate payments
under CSP and other USDA conservation programs for similar conservation
activities, (2) NRCS's process for allocating EQIP funds to the states
to optimize environmental benefits, and (3) FSA's efforts to ensure the
integrity of farm program payments, including payments for
conservation. To perform this work, we reviewed relevant statutory
provisions, NRCS, FSA, and other USDA regulations, program
documentation, guidelines for implementing EQIP and CSP, and guidance
for making farm program payments. We also analyzed data on farm program
payments, producer income, and funding allocated to the states under
EQIP and to priority watersheds under the Conservation Security
Program. In addition, we spoke with officials at NRCS, FSA, other USDA
offices, and the Internal Revenue Service (IRS). We conducted our work
in accordance with generally accepted government auditing standards.
In summary, USDA has taken a number of actions to address our
recommendations to improve its management of these conservation
programs and the integrity of farm program payments. Specifically:
* Regarding CSP, we reported that duplicate payments had occurred
despite legislative and regulatory measures that were to reduce the
potential for duplication between CSP and other programs. We
recommended that NRCS develop a process to preclude further duplicate
payments as well as to identify and recover past duplicate payments. In
response, NRCS updated its contracting software to identify potential
duplication and issued written guidance to its field offices in October
2006 outlining measures to preclude duplicate payments. As a result,
NRCS reportedly has identified 760 examples of potential or actual
duplicate payments since fiscal year 2004 totaling nearly $1 million,
and has taken action to preclude or recover these payments, as
appropriate.
* Regarding EQIP, we reported that NRCS's formula for allocating
financial assistance, which accounts for most of the funding provided
to the states, does not link to the program's purpose of optimizing
environmental benefits. We recommended that NRCS ensure that the
rationale for the formula's factors and weights used to determine the
state allocations is documented and linked to program priorities, and
that data sources used in the formula are accurate and current. We also
recommended that NRCS use information from long-term performance
measures to further revise the formula to ensure funds are directed to
areas of highest priority. In response, in January 2009, NRCS issued
updated guidance for its EQIP funding allocation formula that appears
to address a number of the elements raised in our recommendation.
* Regarding the integrity of farm program payments, we reported that
USDA cannot be certain that millions of dollars in farm program
payments, including conservation payments, it made are proper because
it does not have management controls to verify that payments are made
only to individuals who did not exceed income eligibility caps. We
recommended that FSA work with IRS to develop a method for determining
whether all recipients of farm payments meet income eligibility
criteria. In response, USDA announced last week that it has begun
working with IRS to ensure that high-income individuals and entities
who request farm program payments meet income limits as set forth in
law. According to USDA, once this verification system is fully
operational, it should identify inappropriate payments before they are
disbursed.
While these are positive steps, we have not evaluated their
effectiveness. In the latter two cases, the agency actions to implement
our recommendations are so recent that there is little or no basis yet
to do this evaluation.
Legislative and Regulatory Measures Reduce the Potential for
Duplication between CSP and Other Programs, but Duplicate Payments Have
Occurred:
EQIP provides assistance to farmers and ranchers to take new actions
aimed at addressing identified conservation problems. CSP rewards
farmers and ranchers who already meet very high standards of
conservation and environmental management in their operations. Farm
bill provisions and NRCS regulations are designed to reduce the
potential for duplication between CSP and other USDA conservation
programs, such as EQIP. For example, the Farm Security and Rural
Investment Act of 2002 (2002 farm bill) and the Food, Conservation, and
Energy Act of 2008 (2008 farm bill)[Footnote 3]
* provide that CSP may reward producers for maintaining conservation
practices that they have already undertaken, whereas other programs
generally provide assistance to encourage producers to take new actions
to address conservation problems on working lands or to idle or retire
environmentally sensitive land from agricultural production; and:
* explicitly prohibit (1) duplicate payments under CSP and other
conservation programs for the same practice on the same land and (2)
CSP payments for certain activities that can be funded under other
conservation programs, such as the construction or maintenance of
animal waste storage or treatment facilities.
USDA has also issued CSP regulations that can prevent duplicate
payments between CSP and other conservation programs. For example, the
regulations:
* establish higher minimum eligibility standards for CSP than for other
programs, which help to differentiate the applicant pool for CSP from
the potential applicants for these other programs; and:
* encourage CSP participants to implement conservation actions, known
as enhancements, to achieve a level of treatment that generally exceeds
the level required by other USDA conservation programs.
Despite these legislative and regulatory measures, we reported in 2006
that the potential for duplicate payments still existed because of
similarities in conservation actions financed through CSP and other
programs. At that time, we found that duplicate payments had occurred.
Our analysis of fiscal year 2004 payments data showed 72 producers who
received payments under CSP and EQIP that appeared to be for similar
conservation actions. Of these, we examined 11 cases in detail and
found duplicate payments had occurred 8 times. For example, four of
these duplicate payments were made to producers who received a CSP
enhancement payment and an EQIP payment for conservation actions that
appeared to be similar. In one of these cases, a producer received a
CSP pest management enhancement payment of $9,160 and an EQIP payment
of $795 on the same parcel of land for the same conservation action--
conservation crop rotation.
NRCS state officials agreed that the payments made in these four cases
were duplicates. They stated that they were unaware that such
duplication was occurring and that they would inform their district
offices of it. At the time of our report, NRCS headquarters officials
stated that the agency lacked a comprehensive process to either
preclude duplicate payments or identify them after a contract has been
awarded. Instead, these officials said, as a guard against potential
duplication, NRCS relied on the institutional knowledge of its field
staff and the records they keep.
NRCS has the authority to recover duplicate payments. Under a CSP
contract, as required in the 2002 and 2008 farm bills, a producer
agrees that if the producer violates any term or condition of the
contract, the producer is to refund payments and forfeit all rights to
receive payments or is to refund or accept adjustments to payments,
depending on whether the Secretary of Agriculture determines that
termination of the contract and return of payments is or is not
warranted, respectively.
Duplicate payments reduce program effectiveness and, because of limited
funding, may result in some producers not receiving program benefits
for which they are otherwise eligible. For these reasons, we
recommended that the Secretary of Agriculture direct the Chief of NRCS
to develop processes to review (1) CSP contract applications to ensure
that CSP payments, if awarded, would not duplicate payments made by
other USDA conservation programs and (2) existing CSP contracts to
identify cases where CSP payments duplicate payments made under other
programs and take action to recover appropriate amounts and to ensure
that these duplicate payments are not repeated in fiscal year 2006 and
beyond.
Regarding the first recommendation, in July 2006, NRCS said it had
created an automated system within its contracting software to conduct
a comparison between new CSP applications and existing contracts for
other conservation programs to reveal potential duplication. In
addition, in October 2006, NRCS issued a national bulletin to its field
staff describing measures needed to preclude duplicate payments.
According to the bulletin, NRCS conducted a comparison between existing
contracts for several conservation programs, including EQIP, and fiscal
year 2006 CSP applications to identify potential duplication. This
comparison found 81 potential duplicate payments for conservation
practices. NRCS said it adjusted the CSP applications to prevent these
duplicate payments. Furthermore, NRCS indicated that starting with the
fiscal year 2006 CSP sign-up, it would require applicants to complete a
form that asks an applicant to identify any payments the applicant
receives under another conservation program on any of the land being
offered for enrollment in CSP. While these actions are positive steps,
we have not assessed their effectiveness.
Regarding the second recommendation, NRCS indicated it would use its
contracting software to compare existing CSP contracts with existing
contracts for EQIP and other conservation programs. Specifically,
according to NRCS's national bulletin, its field offices are to compare
CSP contract enhancement activities with the practices financed under
other conservation program contracts to determine whether duplicate
payments are planned in fiscal year 2007 and beyond, or if duplicate
payments occurred during fiscal years 2004 through 2006. NRCS said that
all identified duplicate payments would be dealt with according to the
NRCS contracting manual. According to NRCS officials, the agency did
not have a CSP sign-up in 2007, so there were no new applications that
year. In 2008, NRCS received about 2,300 CSP applications, but agency
officials said they did not have information on potential duplicate
payments. For 2004 to 2006, NRCS officials said the agency found 371
duplicate payments between CSP and EQIP totaling about $420,000. These
officials did not have information on the amount of these payments
recovered, but noted that they represented less than 1 percent of total
CSP payments made during these years. Furthermore, NRCS officials
stated the agency found 389 scheduled payments totaling about $520,000
under these programs that would have been duplicates. NRCS was able to
preclude these payments from being made.
NRCS's Process for Allocating EQIP Funds to the States Does Not Link to
the Program's Purpose of Optimizing Environmental Benefits:
In 2006, we reported that NRCS's process for providing EQIP funds to
the states is not clearly linked to the program's purpose of optimizing
environmental benefits. Specifically, we found that NRCS's general
financial assistance formula, which accounts for approximately two-
thirds of funding provided to the states, did not have a documented
rationale for each of the formula's factors and weights, which are used
to determine the allocation of funds to the states to address
environmental issues. In addition, the formula sometimes relied on
questionable and outdated data. As a result, NRCS may not have been
directing EQIP funds to states with the most significant environmental
concerns arising from agricultural production.
More specifically, in fiscal year 2006, approximately 65 percent of
EQIP funds were allocated using a general financial assistance formula.
This formula contained 31 factors related to the availability of
natural resources and the presence of environmental concerns, such as
acres of wetlands and at-risk species habitat, pesticide and nitrogen
runoff, and the ratio of commercial fertilizers to cropland. NRCS
assigns each of the formula's factors a weight. Factors with the
highest weights included acres of highly erodible cropland, acres of
fair and poor rangeland, the quantity of livestock, and the quantity of
animal waste generated.
At the time of our report, NRCS had periodically modified factors and
weights to emphasize different national priorities, such as in fiscal
year 2004, following the passage of the 2002 farm bill. However, NRCS
had not documented the basis for its decisions on the formula factors
and weights or explained how they achieve the program's purpose of
optimizing environmental benefits. Thus, it was not always clear
whether the formula's factors and weights directed funds to the states
as effectively as possible.
Small differences in the weights can shift the amount of financial
assistance directed at a particular concern. For example, in 2006, if
the weight of any of the 31 factors had increased by 1 percent, $6.5
million would have been shifted at the expense of one or more other
factors. The potential for the weights to significantly affect the
amount of funding a state receives underscores the importance of having
a well-founded rationale for assigning them.
We also reported that weaknesses in the financial assistance formula
were compounded by NRCS's use of questionable and outdated data. First,
5 of the 29 data sources in the financial assistance formula were used
more than once for separate factors. Using the same data for multiple
factors may result in more emphasis being placed on certain
environmental concerns than intended. Second, NRCS could not confirm
the source of data used in 10 factors in the formula; as such, we could
not determine the accuracy of the data, verify how NRCS generated the
data, or fully understand the basis on which the agency allocates
funding. Third, NRCS did not use the most current data for six factors
in the formula.
Finally, we reported that NRCS had begun to develop more long-term,
outcome-oriented performance measures to assess changes to the
environment resulting from EQIP practices as part of its 2005 strategic
planning effort. These measures included such things as reducing
sediment runoff from farms, improving soil conditions on working
cropland, and increasing water conservation. NRCS also included
proposed targets for each measure to be achieved by 2010, such as
reducing sediment runoff by 18.5 million tons annually. At the time of
our report, NRCS told us it had developed baselines for these
performance measures, and planned to assess and report on them once
computer models and other data collection methods that estimate
environmental change were completed.
Although we did not assess the comprehensiveness of the EQIP
performance measures, the additional information they provide about the
results of EQIP outcomes should allow NRCS to better gauge program
performance. As a next step, such information could also help the
agency refine its process for allocating funds to the states through
its general financial assistance formula by directing funds toward
practices that address unrealized performance targets and areas of the
country that need the most improvement. The Chief of NRCS's
Environmental Improvement Programs Branch agreed that information about
program performance might eventually be linked to the EQIP funding
allocation process. However, at the time of our report, the agency did
not have plans to make this linkage.
Because of our concerns about the general financial assistance formula,
we recommended that NRCS ensure its rationale for the factors and
weights was documented and addressed program priorities, and the data
sources used in the formula were accurate and current. We also
recommended that the Secretary of Agriculture direct NRCS to continue
to analyze current and newly developed long-term performance measures
for EQIP and use this information to make further revisions to the
financial assistance formula to ensure funds are directed to areas of
highest priority.
Since our report, NRCS has made progress in implementing our
recommendations by modifying its financial assistance formula for the
fiscal year 2009 EQIP state allocation. In 2007, an outside consultant
hired by NRCS concluded that NRCS should take a number of steps to
improve its conservation program formulas, including improving their
analytical soundness, making the process more transparent, and
integrating performance information into the formulas. NRCS reviewed
the EQIP formula and made changes prior to its 2009 allocation,
including modifying the factors and weights, and updating some data
sources. NRCS also described how factors in the formula relate to a
number of EQIP and NRCS performance measures. While NRCS's actions are
positive steps, we have not assessed whether they fully address our
recommendations.
Additional USDA Management Controls Could Provide More Assurance of
Conservation Program Integrity:
Additional management controls by USDA's FSA could provide more
assurance of the conservation programs' integrity by ensuring
conservation payments are awarded only to individuals who meet income
eligibility requirements.[Footnote 4] In October 2008 we reported that
USDA cannot be certain that millions of dollars in farm program
payments it made are proper, because it does not have management
controls, such as reviewing an appropriate sample of recipients' tax
returns, to verify that payments were made only to individuals who did
not exceed the income eligibility caps. We determined that $49.4
million in farm payments were made to about 2,700 potentially
ineligible individuals between fiscal year 2003 and fiscal year 2006.
These recipients included a founder and former executive of an
insurance company, an individual with ownership interest in a
professional sports franchise, a top executive of a major financial
services company, a former executive of a technology company, and
individuals residing outside the United States.
As shown in figure 1, about 6 percent of the $49.4 million was for EQIP
payments and 29 percent was for the Conservation Reserve Program.
Payments made under the "other programs" category included payments
made for other NRCS conservation programs, such as CSP, the Grassland
Reserve Program, Wetlands Reserve Program, and Wildlife Habitat
Incentives Program.
Figure 1: Percentage of $49.4 Million Paid to Potentially Ineligible
Individuals, by Program, Fiscal Years 2003 through 2006:
[Refer to PDF for image: pie-chart]
Direct and Counter-Cyclical Payments Program: 50%;
Conservation Reserve Program: 29%;
Marketing Assistance Loan Program: 11%;
Environmental Quality Incentives Program: 6%;
Other programs: 4%.
Source: GAO analysis of USDA data.
[End of figure]
According to FSA officials, a number of factors--such as resource
constraints that hamper its ability to examine complex tax and
financial information and lack of authority to access and use IRS tax
filer data for such purposes--contribute to its inability to verify
that each individual who received farm program payments was eligible.
We also found, however, that the sample FSA draws to check recipient
eligibility does not test for income eligibility; instead, FSA reviews
compliance with eligibility requirements other than income, such as how
much a farming operation received in farm program payments in the
previous year and whether it experienced a change in ownership. FSA
therefore cannot ensure that only individuals who meet the income
eligibility caps are receiving farm payments.
Without better management controls, USDA cannot be assured that
millions of dollars in farm program payments, including conservation
payments, are proper. This need for management controls will remain
critical, since the 2008 farm bill lowered the income eligibility caps.
This change makes the number of individuals whose adjusted gross income
exceeds the caps likely to rise, which increases the risk that USDA
could make improper payments to more individuals.
To ensure greater program integrity, we recommended that the Secretary
of Agriculture direct FSA to work with IRS to develop a method for
determining whether all recipients of farm program payments meet income
eligibility requirements, and, if the Secretary finds that USDA does
not have authority to obtain information from IRS, request the
authority it would need from Congress. USDA agreed with our
recommendations and, in a March 19, 2009, news release, the agency
announced that it would work with IRS to ensure that high-income
individuals and entities who request USDA payments meet income limits
set forth in the 2008 farm bill. Specifically, in order to be eligible
for USDA payments all recipients will be required to sign a separate
form that grants IRS authority to provide income information to USDA
for verification purposes. According to USDA, once this verification
system is fully operational, it should identify inappropriate payments
before they are disbursed.
Conclusions:
In conclusion, USDA conservation programs can play an invaluable role
in encouraging farmers and ranchers to act as stewards of the nation's
natural resources. However, the weaknesses we previously identified in
the management of CSP and EQIP funds, as well as our concerns with
controls related to farm program payments more generally, could
undermine the effectiveness of USDA conservation programs. On a
positive note, in response to our recommendations, USDA has taken a
number of promising actions to eliminate duplicate payments between CSP
and other programs, refine the EQIP allocation formula by updating its
factors, weights, and data sources and, in some cases, identifying how
the factors relate to long-term performance measures, and strengthen
management controls over farm program payments. While these actions are
positive, continued oversight of these programs, such as today's
hearing, helps ensure funds are spent as economically, efficiently, and
effectively as possible and benefit the agricultural sector as
intended. Such oversight is especially critical in light of the
nation's current deficit and growing long-term fiscal challenges.
Mr. Chairman, this concludes my prepared statement. I would be pleased
to respond to any questions that you or other Members of the
Subcommittee may have.
Contacts and Staff Acknowledgements:
Contact points for our Offices of Congressional Relations and Public
Affairs may be found on the last page of this statement. For further
information about this testimony, please contact Lisa Shames, Director,
Natural Resources and Environment, (202) 512-3841 or ShamesL@gao.gov.
Key contributors to this statement were James R. Jones, Jr., Assistant
Director; Thomas M. Cook, Assistant Director; Kevin S. Bray; Gary T.
Brown; Paige M. Gilbreath; Leslie V. Mahagan; and Carol Herrnstadt
Shulman.
[End of section]
Appendix: Highlights of Previous GAO Products:
April 2006:
Conservation Security Program:
Despite Cost Controls, Improved USDA Management Is Needed to Ensure
Proper Payments and Reduce Duplication with Other Programs:
GAO Highlights:
Highlights of GAO-06-312, a report to the Chairman, Committee on
Appropriations, U.S. Senate.
Why GAO Did This Study:
The Conservation Security Program (CSP)”called for in the 2002 farm
bill and administered by the U.S. Department of Agriculture‘s (USDA)
Natural Resources Conservation Service (NRCS)”provides financial
assistance to producers to reward past conservation actions and to
encourage further conservation stewardship. CSP payments may be made
for structural or land management practices, such as strip cropping to
reduce erosion. CSP has raised concerns among some stakeholders because
CSP cost estimates generally have increased since the 2002 farm bill‘s
enactment. For example, the Congressional Budget Office‘s estimate
increased from $2 billion in 2002 to $8.9 billion in 2004.
GAO determined (1) why CSP cost estimates generally increased; (2) what
authority USDA has to control costs and what cost control measures
exist; and (3) what measures exist to prevent duplication between CSP
and other USDA conservation programs and what duplication, if any, has
occurred.
What GAO Found:
Various factors explain why estimates of CSP costs generally increased
since the 2002 farm bill‘s enactment. Of most importance, little
information was available regarding how this program would be
implemented at the time of its inception in 2002. As more information
became available, cost estimates rose. In addition, the time frames on
which the estimates were based changed. While the initial estimates
covered years in which the program was expected to be nonoperational or
minimally operational, subsequent estimates did not include these
years.
The farm bill provides USDA general authority to control CSP costs,
including authority to establish criteria that enable it to control
program participation and payments and, therefore, CSP costs. For
example, NRCS restricts participation by limiting program enrollment
each year to producers in specified, priority watersheds. NRCS also has
established certain CSP payment limits at levels below the maximum
allowed by the statute. However, efforts to control CSP spending could
be improved by addressing weaknesses in internal controls and
inconsistencies in the wildlife habitat assessment criteria that NRCS
state offices use, in part, to determine producer eligibility for the
highest CSP payment level. Inconsistencies in these criteria also may
reduce CSP‘s conservation benefits.
The farm bill prohibits duplicate payments for the same practice on the
same land made through CSP and another USDA conservation program.
Various other farm bill provisions also reduce the potential for
duplication. For example, as called for under the farm bill, CSP may
reward producers for conservation actions they have already taken,
whereas other programs generally provide assistance to encourage new
actions or to idle or retire environmentally sensitive land from
production. In addition, CSP regulations establish higher minimum
eligibility requirements for CSP than for other programs. However,
despite these legislative and regulatory provisions, the possibility
that producers can receive duplicate payments remains because of
similarities in the conservation actions financed through these
programs. In addition, NRCS does not have a comprehensive process to
preclude or identify such duplicate payments. In reviewing NRCS‘s
payments data, GAO found a number of examples of duplicate payments.
Figure: Strip Cropping to Reduce Soil Erosion:
[Refer to PDF for image: photograph]
Source: Photo courtesy of USDA NRCS.
Note: Strip cropping means growing row crops, forages, or small grains
in equal width strips.
What GAO Recommends:
GAO recommends, in part, that NRCS review its state offices‘ wildlife
habitat assessment criteria and develop a process to preclude and
identify duplicate payments. NRCS generally agreed with GAO‘s findings
and recommendations.
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-312].
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Robert A. Robinson at
(202) 512-3841 or robinsonr@gao.gov.
[End of highlights]
September 2006:
Agricultural Conservation:
USDA Should Improve Its Process for Allocating Funds to States for the
Environmental Quality Incentives Program:
GAO Highlights:
Highlights of GAO-06-969, a report to the Ranking Democratic Member,
Committee on Agriculture, Nutrition, and Forestry, U.S. Senate.
Why GAO Did This Study:
The Environmental Quality Incentives Program (EQIP) assists
agricultural producers who install conservation practices, such as
planting vegetation along streams and installing waste storage
facilities, to address impairments to water, air, and soil caused by
agriculture or to conserve water. EQIP is a voluntary program managed
by the U.S. Department of Agriculture‘s (USDA) Natural Resources
Conservation Service (NRCS). NRCS allocates about $1 billion in
financial and technical assistance funds to states annually. About $650
million of the funds are allocated through a general financial
assistance formula.
As requested, GAO reviewed whether USDA‘s process for allocating EQIP
funds to states is consistent with the program‘s purposes and whether
USDA has developed outcome-based measures to monitor program
performance. To address these issues, GAO, in part, examined the
factors and weights in the general financial assistance formula.
What GAO Found:
NRCS‘s process for providing EQIP funds to states is not clearly linked
to the program‘s purpose of optimizing environmental benefits; as such,
NRCS may not be directing funds to states with the most significant
environmental concerns arising from agricultural production. To
allocate most EQIP funds, NRCS uses a general financial assistance
formula that consists of 31 factors, including such measures as acres
of cropland, miles of impaired rivers and streams, and acres of
specialty cropland. However, this formula has several weaknesses. In
particular, while the 31 factors in the financial assistance formula
and the weights associated with each factor give the formula an
appearance of precision, NRCS does not have a specific, documented
rationale for (1) why it included each factor in the formula, (2) how
it assigns and adjusts the weight for each factor, and (3) how each
factor contributes to accomplishing the program‘s purpose of optimizing
environmental benefits. Factors and weights are important because a
small adjustment can shift the amount of funding allocated to each
state on the basis of that factor and, ultimately, the amount of money
each state receives. For example, in 2006, a 1 percent increase in the
weight of any factor would have resulted in $6.5 million more allocated
on the basis of that factor and a reduction of 1 percent in money
allocated for other factors. In addition to weaknesses in documenting
the design of the formula, some data NRCS uses in the formula to make
financial decisions are questionable or outdated. For example, the
formula does not use the most recent data available for 6 of the 31
factors, including commercial fertilizers applied to cropland. As a
result, any recent changes in a state‘s agricultural or environmental
status are not reflected in the funding for these factors. During the
course of GAO‘s review, NRCS announced plans to reassess its EQIP
financial assistance formula. NRCS recently developed a set of long-
term, outcome-based performance measures to assess changes to the
environment resulting from EQIP practices. The agency is also in the
process of developing computer models and other data collection methods
that will allow it to assess these measures. Thus, over time, NRCS
should ultimately have more complete information on which to gauge
program performance and better direct EQIP funds to areas of the
country that need the most improvement.
What GAO Recommends:
GAO recommends, among other things, that NRCS document its rationale
for the factors and weights in its general financial assistance formula
and use current and accurate data. USDA agreed with GAO that the
formula needed review. USDA did not agree with GAO‘s view that NRCS‘s
funding process does not clearly link to EQIP‘s purpose of optimizing
environmental benefits. It believes that the funding process clearly
links to EQIP‘s purpose, but it has not documented the link.
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-969].
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Daniel Bertoni at (202)
512-3841 or bertonid@gao.gov.
[End of highlights]
October 2008:
Federal Farm Programs:
USDA Needs to Strengthen Controls to Prevent Payments to Individuals
Who Exceed Income Eligibility Limits:
GAO-09-67:
GAO Highlights:
Highlights of GAO-09-67, a report to the Ranking Member, Committee on
Finance, U.S. Senate.
Why GAO Did This Study:
Farmers receive about $16 billion annually in federal farm program
payments. These payments go to about 2 million recipients, both
individuals and entities. GAO previously has reported that the U.S.
Department of Agriculture (USDA) did not consistently ensure that these
payments went only to those who meet eligibility requirements.
GAO was asked to evaluate (1) how effectively USDA implemented 2002
Farm Bill provisions prohibiting payments to individuals or entities
whose income exceeded $2.5 million and who derived less than 75 percent
of that income from farming, ranching, or forestry operations, (2) the
potential impact of the 2008 Farm Bill‘s income eligibility provisions
on individuals who receive farm payments, and (3) the distribution of
income of these individuals compared with all 2006 tax filers. GAO
compared USDA data on individuals receiving payments with the latest
available Internal Revenue Service (IRS) data on these individuals.
What GAO Found:
USDA does not have management controls, such as reviewing an
appropriate sample of recipients‘ tax returns, to verify that payments
are made only to individuals who do not exceed income eligibility caps
and therefore cannot be assured that millions of dollars in farm
program payments it made are proper. GAO found that of the 1.8 million
individuals receiving farm payments from 2003 through 2006, 2,702 had
an average adjusted gross income (AGI) that exceeded $2.5 million and
derived less than 75 percent of their income from farming, ranching, or
forestry operations, thereby making them potentially ineligible for
farm payments. Nevertheless, USDA paid over $49 million to these
individuals. According to USDA officials, a number of factors”such as
resource constraints that hamper its ability to examine complex tax and
financial information as well as a lack of authority to obtain and use
IRS tax filer data for such purposes”contribute to the department‘s
inability to verify that each individual who receives farm program
payments complies with income eligibility provisions. However, USDA
does not routinely sample individuals receiving farm payments to test
for income eligibility; instead, its annual sample selected for review
is based primarily on compliance with eligibility requirements other
than income. The 2008 Farm Bill directs USDA to use statistical methods
to target those individuals most likely to exceed income eligibility
caps.
The 2008 Farm Bill will increase the number of individuals likely to
exceed the income eligibility caps. That is, with lower income
eligibility caps under the 2008 Farm Bill, the number of individuals
whose AGI exceeds the caps will rise, increasing the risk that USDA
will make improper payments to more individuals. For example, had the
new Farm Bill been in effect in 2006, as many as 23,506 individuals who
received farm program payments would likely have been ineligible for
crop subsidy and disaster assistance payments totaling as much as $90
million.
Compared with all tax filers, individuals who participated in farm
programs in 2006 are more likely to have higher incomes. For example,
as shown in the figure below, 12 of every 1,000 individuals receiving
farm program payments reported AGI between $500,000 and $1 million
compared with about 4 of all tax filers who reported income at this
level.
Figure: Distribution of Income of Individuals Receiving Farm Program
Payments and All Tax Filers, 2006 (individuals per 1,000 tax returns):
[Refer to PDF for image: multiple vertical bar graph]
Adjusted gross income: $500,000 to under $1,000,000;
Individuals receiving farm program payments: 12;
All tax filers: 4.
Adjusted gross income: $1,000,000 to under $1,500,000;
Individuals receiving farm program payments: 3;
All tax filers: 1.
Adjusted gross income: $1,500,000 to under $2,000,000;
Individuals receiving farm program payments: 2;
All tax filers: 0.
Adjusted gross income: $2,000,000 to under $5,000,000;
Individuals receiving farm program payments: 3;
All tax filers: 1.
Adjusted gross income: $5,000,000 to under $10,000,000;
Individuals receiving farm program payments: 1;
All tax filers: 0.
Adjusted gross income: $10,000 or more;
Individuals receiving farm program payments: 0;
All tax filers: 0.
Source: GAO analysis of USDA and IRS data.
[End of figure]
What GAO Recommends:
GAO recommends that USDA work with IRS to develop a system for
verifying the income eligibility for all recipients of farm program
payments. If USDA determines that it needs authority to work with IRS,
it should seek this authority from Congress, as appropriate. In
commenting on a draft of this report, USDA agreed with these
recommendations but disputed some of the findings. GAO believes that
the report is fair and accurate.
To view the full product, including the scope and methodology, click on
[hyperlink, http://www.gao.gov/products/GAO-09-67]. For more
information, contact Lisa Shames at (202) 512-3841 or shamesl@gao.gov.
[End of highlights]
[End of appendix]
Footnotes:
[1] GAO, Suggested Areas for Oversight for the 110th Congress,
[hyperlink, http://www.gao.gov/products/GAO-07-235R] (Washington, D.C.:
Nov. 17, 2006).
[2] GAO, Conservation Security Program: Despite Cost Controls, Improved
USDA Management Is Needed to Ensure Proper Payments and Reduce
Duplication with Other Programs, [hyperlink,
http://www.gao.gov/products/GAO-06-312] (Washington, D.C.: Apr. 28,
2006). GAO, Agricultural Conservation: USDA Should Improve Its Process
for Allocating Funds to States for the Environmental Quality Incentives
Program, [hyperlink, http://www.gao.gov/products/GAO-06-969]
(Washington, D.C.: Sept. 22, 2006). GAO, Federal Farm Programs: USDA
Needs to Strengthen Controls to Prevent Payments to Individuals Who
Exceed Income Eligibility Limits, [hyperlink,
http://www.gao.gov/products/GAO-09-67] (Washington, D.C.: Oct. 24,
2008). Copies of the Highlights pages for these reports are attached to
this statement.
[3] The Conservation Security Program was originally authorized in the
2002 farm bill and included measures to reduce the potential for
duplication with other USDA conservation programs. Similar measures are
also included in the Conservation Stewardship Program authorized in the
2008 farm bill.
[4] Although these limits changed in the 2008 Farm Bill, under the 2002
Farm Bill, an individual or entity with an average adjusted gross
income (AGI) of over $2.5 million, over the previous 3 tax years
immediately preceding the applicable crop year, was ineligible for farm
program payments unless at least 75 percent or more of the average AGI
was farm income, defined as income from farming, ranching, or forestry
operations. The AGI provision of the 2002 Farm Bill covered crop years
2003 through 2008 and applied to most farm program payments, including
those for crop subsidy payments (e.g., fixed payments based on
historical production, known as direct payments, and price support
payments), conservation practices, and disasters.
[End of section]
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